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30.04.2018 15:05
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Capitol Federal® Financial, Inc. Announces The Acquisition Of Capital City Bancshares And Reports Second Quarter Fiscal Year 2018 Results
Das Kapitol in Washington, D.C.
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PR Newswire
TOPEKA, Kan., April 30, 2018
TOPEKA, Kan., April 30, 2018 /PRNewswire/ -- Capitol Federal® Financial, Inc. (NASDAQ: CFFN) ("Capitol Federal" or the "Company") announced today the acquisition of Capital City Bancshares, Inc. ("CCB") and results for the quarter ended March 31, 2018. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which will be filed with the Securities and Exchange Commission ("SEC") on or about May 10, 2018 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 $23.3 million;
- basic and diluted earnings per share of $0.17;
- net interest margin of 1.86% (2.24% excluding the effects of the leverage strategy); and
- dividends paid of $11.4 million, or $0.085 per share.
Capitol Federal, the parent company of Capitol Federal® Savings Bank ("Capitol Federal Savings" or the "Bank"), and CCB, the parent company of Capital City Bank, a state chartered bank headquartered in Topeka, KS, announced the signing of a definitive agreement and plan of merger pursuant to which CCB will merge with and into Capitol Federal. Immediately upon closing the merger, Capital City Bank will merge with and into Capitol Federal Savings. As of March 31, 2018 and excluding purchase accounting, the combined company would have had pro-forma total assets of $9.5 billion, gross loans of $7.5 billion, deposits of $5.7 billion and an equity position of approximately $1.4 billion.
With the acquisition of Capital City Bank, Capitol Federal Savings will enter the commercial banking business, through the origination of commercial lending products and offering of commercial deposit services, for the first time in its 125 year history. While Capitol Federal Savings has built a small, but meaningful, portfolio of mostly commercial real estate loan participations through its network of correspondent banks over the course of the last five years (which portfolio totaled approximately $462 million in gross loans as of March 31, 2018), this merger with Capital City will enable the Company to offer a full array of commercial lending and deposit products and services. With the talented and experienced commercial banking teams from Capital City Bank joining Capitol Federal Savings, the Company will be able to introduce these lines of banking into its branches in overlapping communities upon closing of the merger, while working to expand to the other communities served by Capitol Federal.
- Strategically and financially attractive acquisition of a $400 million commercial bank
- Enhances deposit franchise and provides entry into commercial banking business lines
- Delivers scalable banking platform, while remaining under $10 billion in assets
John B. Dicus, Chairman and President of Capitol Federal, stated: "We are pleased to be merging with Capital City Bank to introduce a full commercial banking experience to our customer base and communities. Capital City Bank has a long history of building a conservative, customer focused community bank, with an overlapping geographic focus in markets highly familiar to us - Topeka, Lawrence and the Overland Park market of Kansas City. Through the leadership of the Sabatini family, Capital City Bank has built a well-regarded company over the course of many decades, driven by the people and platforms we need to enter the commercial banking business in the right way and in a meaningful way. Through the many years of knowing the team at Capital City Bank, it is obvious to us that we hold a shared cultural approach to banking, focused on risk management and customer service. In addition, we are able to complete this merger and remain under $10 billion in assets, allowing us to continue our current dividend policy of paying 100% of earnings, while providing a positive upside."
Comparison of Operating Results for the Three Months Ended March 31, 2018 and December 31, 2017
For the quarter ended March 31, 2018, the Company recognized net income of $23.3 million, or $0.17 per share, compared to net income of $31.8 million, or $0.24 per share, for the quarter ended December 31, 2017. The decrease in net income was due primarily to higher income tax expense in the current quarter compared to the prior quarter. The effective income tax rate in the current quarter was 26.5% compared to 2.6% in the prior quarter. In the prior quarter, the Tax Cuts and Jobs Act (the "Tax Act") was enacted which reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company revalued its deferred tax assets and liabilities as of December 22, 2017 to account for the lower corporate income tax rate. The revaluation of the Company's deferred income tax assets and liabilities reduced income tax expense by $7.5 million in the prior quarter. The impact of the enactment of the Tax Act was an increase in basic and diluted earnings per share of $0.08 in the prior quarter. Management estimates the effective tax rate for the third and fourth quarter of fiscal year 2018 to be approximately the same as the current quarter effective income tax rate of 26.5%, resulting in an effective income tax rate of 20% to 21% for fiscal year 2018. Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.
Net interest income increased $515 thousand, or 1.0%, from the prior quarter to $49.9 million for the current quarter. The net interest margin increased three basis points from 1.83% for the prior quarter to 1.86% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have increased four basis points from 2.20% for the prior quarter to 2.24% for the current quarter. The increase in net interest margin was due mainly to a decrease in the cost of borrowings not related to the leverage strategy, along with a reduction in interest expense resulting from fewer days in the current quarter.
Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased eight basis points from the prior quarter, to 3.06%, while the average balance of interest-earning assets decreased $71.5 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased four basis points from the prior quarter, to 3.35%, while the average balance of interest-earning assets would have decreased $69.5 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.
| | For the Three Months Ended | | | | | |||||||||
| | March 31, | | December 31, | | Change Expressed in: | |||||||||
| | 2018 | | 2017 | | Dollars | | Percent | |||||||
| | (Dollars in thousands) | | | |||||||||||
| INTEREST AND DIVIDEND INCOME: | | | | | | | | |||||||
| Loans receivable | $ | 64,194 | | | $ | 64,189 | | | $ | 5 | | | —% | |
| Cash and cash equivalents | 7,895 | | | 7,114 | | | 781 | | | 11.0 | | |||
| Mortgage-backed securities ("MBS") | 5,390 | | | 5,252 | | | 138 | | | 2.6 | | |||
| Federal Home Loan Bank Topeka ("FHLB") stock | 3,201 | | | 3,095 | | | 106 | | | 3.4 | | |||
| Investment securities | 1,094 | | | 994 | | | 100 | | | 10.1 | | |||
| Total interest and dividend income | $ | 81,774 | | | $ | 80,644 | | | $ | 1,130 | | | 1.4 | |
The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy. Interest income on cash and cash equivalents not related to the leverage strategy decreased $165 thousand from the prior quarter due to a $79.9 million decrease in the average balance primarily resulting from cash being used to pay off certain maturing term borrowings during the prior quarter, partially offset by a 25 basis point increase in the weighted average yield. Interest income on cash associated with the leverage strategy increased $945 thousand from the prior quarter due to a 23 basis point increase in the weighted average yield. In both cases, the increase in the weighted average yield was related to balances held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City").
Interest Expense
The weighted average rate paid on total interest-bearing liabilities for the current quarter increased six basis points from the prior quarter, to 1.35%, while the average balance of interest-bearing liabilities decreased $33.3 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased one basis point from the prior quarter, to 1.30%, while the average balance of interest-bearing liabilities would have decreased $31.3 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
| | For the Three Months Ended | | | | | |||||||||
| | March 31, | | December 31, | | Change Expressed in: | |||||||||
| | 2018 | | 2017 | | Dollars | | Percent | |||||||
| | (Dollars in thousands) | | | |||||||||||
| INTEREST EXPENSE: | | | | | | | | |||||||
| FHLB borrowings | $ | 18,772 | | | $ | 17,917 | | | $ | 855 | | | 4.8% | |
| Deposits | 12,480 | | | 11,961 | | | 519 | | | 4.3 | | |||
| Repurchase agreements | 633 | | | 1,392 | | | (759) | | | (54.5) | | |||
| Total interest expense | $ | 31,885 | | | $ | 31,270 | | | $ | 615 | | | 2.0 | |
The table above includes interest expense on FHLB borrowings associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $218 thousand from the prior quarter due to a three basis point decrease in the weighted average rate paid, to 2.05% for the current quarter. Interest expense on FHLB borrowings associated with the leverage strategy increased $1.1 million from the prior quarter due to a 24 basis point increase in the weighted average rate paid as a result of an increase in interest rates between periods.
The increase in interest expense on deposits was due primarily to a five basis point increase in the weighted average rate paid, to 0.96% for the current quarter. The increase in the weighted average rate paid was primarily due to increases in the money market deposit portfolio rate and retail certificate of deposit portfolio rate, which increased 12 basis points and five basis points, respectively.
The decrease in interest expense on repurchase agreements was due to the maturity of a $100.0 million repurchase agreement during the prior quarter.
Provision for Credit Losses
The Bank did not record a provision for credit losses during the current quarter or the prior quarter. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, it was determined that no provision for credit losses was necessary. Net loan recoveries were $20 thousand during the current quarter compared to net charge-offs of $28 thousand in the prior quarter. At March 31, 2018, loans 30 to 89 days delinquent were 0.19% of total loans and loans 90 or more days delinquent or in foreclosure were 0.16% of total loans. At December 31, 2017, loans 30 to 89 days delinquent were 0.25% of total loans and loans 90 or more days delinquent or in foreclosure were 0.15% of total loans.
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.
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