Capitol Federal Financial, Inc.® Reports Third Quarter Fiscal Year 2024 Results

Capitol Federal Financial, Inc.^® (NASDAQ:CFFN) (the "Company," "we" or "our"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended June 30, 2024. For best viewing results, please view this release in Portable Document Format (PDF) on our website, https://ir.capfed.com.

Highlights for the quarter include:

• net income of $9.6 million;
• basic and diluted earnings per share of $0.07;
• net interest margin of 1.77%;
• paid dividends of $0.085 per share; and
• on July 23, 2024, announced a cash dividend of $0.085 per share, payable on August 16, 2024 to stockholders of record as of the close of business on August 2, 2024

The Company's Board of Directors is committed to paying the $0.085 per share cash dividend each quarter for the foreseeable future. As a result of the income tax on the quarterly earnings distribution from the Bank to the Company due to the recapture of the Bank's bad debt reserves, the Company's quarterly earnings may not be sufficient to fully cover the amount of the quarterly dividend payment. Because of that, the Company is retaining cash balances to support future dividend payments. The amount of cash held by the Company at June 30, 2024 was $49.1 million.

Comparison of Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024

For the quarter ended June 30, 2024, the Company recognized net income of $9.6 million, or $0.07 per share, compared to net income of $13.8 million, or $0.11 per share, for the quarter ended March 31, 2024. The lower net income in the current quarter was due primarily to higher income tax expense, mainly from income tax expense on the quarterly earnings distribution from the Bank to the holding company due to the Bank's pre-1988 bad debt recapture, and a higher provision for credit losses due largely to commercial loan growth. The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.03 per share in the current quarter. See additional discussion regarding the Bank's pre-1988 bad debt recapture in the "Income Tax Expense" section below. The net interest margin decreased five basis points, from 1.82% for the prior quarter to 1.77% for the current quarter due mainly to increases in the cost and average balance of retail certificates of deposit outpacing net interest margin improvements from the securities and loan portfolios.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

The increase in interest income on loans receivable was due to an increase in the weighted average yield, partially offset by a lower average portfolio balance compared to the prior quarter due largely to a decrease in the one- to four-family correspondent loan portfolio. See additional discussion in the "Financial Condition as of June 30, 2024" section below. The increase in interest income on MBS was due to an increase in average balance compared to the prior quarter as a result of the full quarter impact of purchases made late in the prior quarter as well as purchases made during the current quarter. The decrease in interest income on cash and cash equivalents was due to a decrease in the average balance as excess operating cash during the current quarter was, in part, reinvested into the MBS portfolio.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

The increase in interest expense on deposits was due primarily to increases in the weighted average rate paid and the average balance of the retail certificate of deposit portfolio.

Provision for Credit Losses

For the quarter ended June 30, 2024, the Bank recorded a provision for credit losses of $1.5 million, compared to a provision for credit losses of $301 thousand for the prior quarter. The provision for credit losses in the current quarter was comprised of a $1.3 million increase in the allowance for credit losses ("ACL") for loans, along with a $195 thousand increase in the reserve for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to commercial loan growth.

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.

The increase in deposit service fees was due primarily to increased debit card usage, which generated additional interchange and service charge income during the current quarter. The increase in insurance commissions was mainly a result of rate increases within the insurance market on both existing and new business. The decrease in other non-interest income was due mainly to a decrease in income on bank-owned life insurance related to the receipt of death benefits in the prior quarter while none were received in 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.

The increase in salaries and employee benefits was due mainly to merit and other salary adjustments during the current quarter and an increase in loan related commissions due to an increase in one- to four-family loan origination volume compared to the prior quarter. The increase in information technology and related expense was due primarily to higher software related expenses mainly related to new agreements and agreement renewals at higher costs. The decrease in the federal insurance premium was due to the actual Federal Deposit Insurance Corporation ("FDIC") assessment being lower than projected for the prior quarter, which was reflected in the current quarter when it was paid. The decrease in advertising and promotional expense was due mainly to the timing of campaigns compared to the prior quarter. The decrease in deposit and loan transaction costs was due primarily to expenses related to calendar year-end processing being paid in the prior quarter. The decrease in other non-interest expense was due mainly to a reduction in customer fraud losses compared to the prior quarter.

The Company's efficiency ratio was 62.07% for the current quarter compared to 61.89% for the prior quarter. The change in the efficiency ratio was due to lower net interest income, partially offset by lower non-interest expense. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value generally indicates that it is costing the financial institution more money to generate revenue, relative to its net interest income and non-interest income.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.

The increase in income tax expense and the higher effective tax rate in the current quarter was due primarily to recording $2.9 million of income taxes on the current quarter distribution of earnings from the Bank to the Company, compared to $508 thousand of income taxes on the distribution of earnings from the Bank to the Company during the prior quarter. The distribution of earnings during the current quarter was consistent with distributions in prior periods as 100% of the Bank's quarterly earnings were distributed to the Company.

The income tax on the earnings distribution from the Bank to the Company was due to the recapture of a portion of the Bank's bad debt reserves which were established prior to September 30, 1988, and are included in the Bank's retained earnings ("pre-1988 bad debt reserves"). It is anticipated that a taxable net loss will be reported on the Company's September 30, 2024 federal tax return due to the net losses associated with the strategic securities transaction ("securities strategy") which will result in the Bank and Company having a negative current and accumulated earnings and profit tax position. This requires the Bank to draw upon the pre-1988 bad debt reserves for any distributions from the Bank to the Company during the current fiscal year. The Bank is required to pay taxes on the reductions to the pre-1988 bad debt reserves equal to the current corporate tax rate at the time of the distribution of the amount of Bank earnings paid to the Company ("pre-1988 bad debt recapture"). It is anticipated that the Bank will be required to record income tax expense on earnings distributions from the Bank to the Company for the remainder of fiscal year 2024 due to the amount of remaining pre-1988 bad debt reserves, which was $85.5 million, or $18.0 million tax effected, as of June 30, 2024. Management anticipates the effective tax rate for the fourth quarter of fiscal year 2024 will be approximately 30% which includes the pre-1988 bad debt recapture for the quarterly earnings projected to be paid from the Bank to the Company during the fourth quarter of fiscal year 2024, assuming regulatory approval is received for the distribution.

Management is currently evaluating the income tax issues associated with the pre-1988 bad debt reserves. There is some uncertainty related to how the Bank's current earnings and profits, beginning in fiscal year 2025, should be treated in relation to distributions from the Bank to the Company and the associated impact, if any, to the pre-1988 bad debt reserves. As of this point in time, it is more likely than not that the Bank will be required to record income tax expense on distributions from the Bank to the Company each time a distribution is made during fiscal year 2025. Management anticipates the effective tax rate for fiscal year 2025 may be in the 30% to 33% range if the Bank is required to record income tax expense on distributions from the Bank to the Company.

Comparison of Operating Results for the Nine Months Ended June 30, 2024 and 2023

The Company recognized net income of $26.0 million, or $0.20 per share, for the current year period, compared to net income of $38.7 million, or $0.29 per share, for the prior year period. In the first quarter of fiscal year 2024, the Bank incurred $13.3 million ($10.0 million net of tax) of net losses related to the securities strategy discussed in the "Securities Strategy to Improve Earnings" section below. The lower net income for the current year period was primarily a result of the net loss associated with the securities strategy, a decrease in deposit service fees, a decrease in net interest income, and an increase in income tax expense largely related to the pre-1988 bad debt recapture, partially offset by a lower provision for credit losses and a decrease in non-interest expense. The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.02 per share in the current year period. Excluding the effects of the net loss associated with the securities strategy, earnings per share would have been $0.28 for the current year period.

Periodically, at management's discretion, we have utilized a strategy to increase earnings which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the purchases of FHLB stock made to meet FHLB stock holding requirements, at the Federal Reserve Bank of Kansas City ("FRB") (the "leverage strategy"). See additional information regarding the leverage strategy in the "Financial Condition as of June 30, 2024 - Leverage Strategy" 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.

The net interest margin increased 27 basis points, from 1.50% for the prior year period to 1.77% for the current year period, due primarily to the leverage strategy being in place during the prior year period but not in the current year period. The leverage strategy negatively impacted the net interest margin for the prior year period by 16 basis points. The remaining improvement in the net interest margin absent the leverage strategy was due to higher yields on securities and loans which outpaced the increase in the cost of deposits, largely in retail certificates of deposit.

Securities Strategy to Improve Earnings

In October 2023, the Company initiated a securities strategy by selling $1.30 billion of securities, representing 94% of its securities portfolio. Since the Company did not have the intent to hold the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities, $192.6 million of which was reflected in the Company's financial statements for the quarter ended September 30, 2023. The securities strategy was designed to allow the Company to improve its earnings stream going forward, beginning in the current fiscal year, by redeploying most of the proceeds into current market rate securities and to provide liquidity to deleverage the balance sheet utilizing the remaining proceeds. During the quarter ended December 31, 2023 the Company completed the sale of securities and recognized $13.3 million ($10.0 million net of tax), or $0.08 per share, of additional loss related to the sale of the securities. See additional information regarding the impact of the securities strategy on our financial measurements in "Average Balance Sheets" below. The $1.30 billion of securities sold had a weighted average yield of 1.22% and an average duration of 3.6 years. With the proceeds from the sale of the securities, the Company purchased $632.0 million of securities yielding 5.75%, paid down $500.0 million of borrowings with a cost of 4.70%, and held the remaining cash at the FRB earning interest at the reserve balance rate until such time as it can be used to fund commercial activity or other Bank operations. See additional discussion related to commercial loan activity in the "Financial Condition as of June 30, 2024" and "Supplemental Financial Information - Loan Portfolio" sections below.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

The increase in interest income on loans receivable was due largely to an increase in the weighted average yield and the average balance of the portfolio. The increase in the weighted average yield was due primarily to originations and purchases at higher market rates between periods, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in the average balance was mainly in the commercial loan portfolio which was partially offset by a decrease in the average balance of the one- to four-family loan portfolio. See additional discussion in the "Financial Condition as of June 30, 2024" and "Supplemental Financial Information - Loan Portfolio" sections below. The increase in interest income on MBS and investment securities was due to an increase in the weighted average yield, partially offset by a decrease in the average balance, both a result of the securities strategy. The decrease in interest income on cash and cash equivalents and the decrease in dividend income on FHLB stock were due mainly to the leverage strategy being utilized during the prior year period and not being utilized during the current year period. Interest income on cash and cash equivalents related to the leverage strategy decreased $34.7 million and dividend income on FHLB stock related to the leverage strategy decreased $3.4 million compared to the prior year period. Interest income on cash and cash equivalents not associated with the leverage strategy increased $10.2 million due largely to an increase in the average balance of cash and cash equivalents as a result of the securities strategy.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

The increase in interest expense on deposits was due almost entirely to an increase in the weighted average rate paid on the deposit portfolio, specifically retail certificates of deposit and money market accounts. Interest expense on borrowings associated with the leverage strategy decreased $36.5 million compared to the prior year period due to the leverage strategy being in place during the prior year period and not being in place during the current year period. Interest expense on borrowings not associated with the leverage strategy decreased $3.4 million due mainly to a reduction in the average outstanding balance of the FHLB line of credit compared to the prior year period and a decrease in borrowings under the Federal Reserve's Bank Term Funding Program ("BTFP"), which were repaid during the current year period. The decrease was partially offset by new borrowings added between periods at market interest rates higher than the overall portfolio rate, to replace maturing advances and to fund operational needs.

Provision for Credit Losses

The Bank recorded a provision for credit losses of $1.9 million during the current year period, compared to a provision for credit losses of $5.9 million for the prior year period. The provision for credit losses in the current year period was comprised of a $2.1 million increase in the ACL for loans, partially offset by a $238 thousand release in the reserve for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to commercial loan growth.

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.

The decrease in deposit service fees was due primarily to a change in the fee structure of certain deposit products after the Bank's digital transformation project. The net loss from securities transactions relates to the securities strategy, with no similar transaction in the prior year 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.

The decrease in salaries and employee benefits was a result of a decrease in full-time equivalent employees between the two periods as a result of management's decision to not backfill non-critical employees through natural attrition, along with a reduction in loan commissions, partially offset by lower capitalized payroll costs than the prior year due to the digital transformation project in the prior year. Due to management's decision to not backfill non-critical employees, during fiscal year 2023 the Bank moved to a new branch staffing model comprised of decision makers and well-rounded employees that is intended to add an elevated experience for customers who choose in-person banking activities. The decrease in information technology and related expense was due mainly to lower third-party project management expenses due to the Bank's digital transformation project during the prior year period along with the discontinuation of other costs associated with the previous core system, partially offset by higher software licensing expenses resulting from new agreements associated with the digital transformation project. The increase in the federal insurance premium was due primarily to an increase in the FDIC assessment rate as a result of the way the rate is adjusted for the occurrence of a net loss during the quarter ending September 30, 2023. The decrease in advertising and promotional expense was due primarily to the timing of campaigns between the periods. The increase in deposit and loan transaction costs was due primarily to the outsourcing of statement processing related to the digital transformation, partially offset by a reduction in other costs due to the digital transformation. The decrease in office supplies and related expense was due primarily to the outsourcing of statement processing related to the digital transformation, and the timing of office supply purchases between periods. The increase in other non-interest expense was due mainly to an increase in customer fraud losses.

The Company's efficiency ratio was 69.77% for the current year period compared to 61.78% for the prior year period. Excluding the net losses from the securities strategy, the efficiency ratio would have been 62.87% for the current year period. The change in the efficiency ratio, excluding the securities strategy, was due primarily to lower non-interest income in the current year period compared to the prior year period.

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 and effective tax rate.

The increase in income tax expense and the higher effective tax rate in the current year period was due primarily to recording income taxes on the current year distributions of earnings from the Bank to the Company in association with the pre-1988 bad debt recapture, partially offset by a $3.3 million tax benefit related to the $13.3 million net loss on the securities sale associated with the securities strategy.

Financial Condition as of June 30, 2024

The following table summarizes the Company's financial condition at the dates indicated.

During the current quarter, total assets decreased $118.5 million, to $9.60 billion at June 30, 2024, due primarily to a decrease in cash which was used to pay off certain borrowings that matured and to fund deposit withdrawals and other Bank operations. The loan portfolio mix continued to shift from one- to four-family loans to commercial loans during the current quarter, with $115.4 million, 34% annualized, in commercial loan growth, partially offset by a $59.9 million decrease in one- to four-family loans due primarily to a $52.1 million decrease in one- to four-family correspondent loans.

As a result of rising interest rates and lack of housing inventory, there has been a slowdown in the housing market which has reduced the demand for residential loans and has directly impacted the Bank's one- to four-family loan portfolio. Origination and refinance activity has slowed considerably, and there has been a reduction in one- to four-family loan balances through scheduled repayments and loan payoffs. During the current quarter, the Bank suspended its one- to four-family correspondent lending channels for the foreseeable future. While the Bank's one- to four-family loan activity levels are down compared to the prior year period, partially due to the interest rate environment and seasonality, management also expects the Bank's one- to four-family loan portfolio will continue to decrease as cash flows generated from the one- to four-family portfolio are used to fund commercial loan growth.

Total liabilities decreased $114.3 million during the current quarter due primarily to a $59.4 million decrease in borrowings as not all maturing FHLB borrowings were replaced. Management estimates that the Bank had $3.00 billion in additional liquidity available at June 30, 2024 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

Total assets decreased $574.7 million from September 30, 2023 due primarily to the securities strategy. The loan portfolio decreased $37.9 million from September 30, 2023 due mainly to a $214.4 million decrease in one- to four-family loans, partially offset by a $177.9 million increase in commercial loans.

Total liabilities decreased $551.3 million from September 30, 2023 due primarily to a decrease in borrowings as some of the funds from the securities strategy were used to repay all $500.0 million of outstanding borrowings under the BTFP. Total deposits increased $78.4 million from September 30, 2023 primarily in retail certificates of deposit, all in the 14 months or shorter term category, partially offset by a decrease in retail money market accounts as some customers elected to move funds to the Bank's certificate of deposit offerings or the Bank's higher yielding savings account offering. Management continues to competitively price certain short-term retail certificate of deposit products so that if market rates were to decrease in the near future, the Bank would be able to more quickly reprice those balances to lower market rates at maturity.

The following table summarizes loan originations and purchases, deposit activity, and borrowing activity, along with certain related weighted average rates, during the periods indicated. The borrowings presented in the table have original contractual terms of one year or longer.

Leverage Strategy

Periodically, the Bank has utilized a leverage strategy to increase earnings, which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the purchases of FHLB stock made to meet FHLB stock holding requirements, at the FRB. The leverage strategy is not a core operating business for the Company. It provides the Company the ability to utilize excess capital to generate earnings. Additionally, it is a strategy that can be exited quickly without additional costs. The profitability of the leverage strategy is attributable to net income derived from the dividends received on the increased FHLB stock holdings, plus the net interest rate spread between the yield on the leverage strategy cash at the FRB and the rate paid on the leverage strategy FHLB borrowings, less applicable FDIC premiums and estimated income tax expense. Leverage strategy borrowings are repaid prior to each quarter end so there is no impact to quarter end capital ratios. The leverage strategy was not in place at any time during the current year period due to the strategy being unprofitable, but it was in place at points during the prior year period. During the prior year period, the average balance of cash associated with the leverage strategy was $1.10 billion and interest earned on that cash was $34.7 million, the average balance of FHLB stock associated with the leverage strategy was $52.0 million and dividends earned on that stock were $3.4 million, and the average balance of FHLB borrowings associated with the leverage strategy was $1.16 billion and the related interest expense was $36.5 million. Additionally, the Company recognized $368 thousand of FDIC premiums and $209 thousand of income tax expense during the prior year period related to the leverage strategy. 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. Management continues to monitor the net interest rate spread and overall profitability of the leverage strategy.

Stockholders' Equity

Stockholders' equity totaled $1.02 billion at June 30, 2024, a decrease of $23.4 million from September 30, 2023. During the current year period, the Company repurchased $19.3 million of shares and paid regular quarterly cash dividends totaling $33.5 million, or $0.255 per share. On July 23, 2024, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.0 million, payable on August 16, 2024 to stockholders of record as of the close of business on August 2, 2024.

Based on the Company's accumulated earnings and profits at the beginning of its tax year and the expected current year tax earnings and profits deficit as a result of the losses associated with the securities strategy, all dividends paid to stockholders by the Company during fiscal year 2024 will be treated as a return of capital, pursuant to Internal Revenue Code Section 301(c)(2), which reduces the tax basis in the shares of the holder by the amount of the dividend received. Stockholders should consult their own tax advisors to determine the income tax consequences of their specific situation. The Company is providing this for informational purposes only and not as legal or tax advice. Based on current tax earnings and profits projections for fiscal year 2025, the Company anticipates that the majority, if not all, of the dividend payments to Company stockholders in fiscal year 2025 will be treated as dividends for tax purposes.

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of June 30, 2024, the Bank's capital ratios exceeded the well-capitalized requirements and the Bank exceeded all internal policy thresholds for sensitivity to changes in interest rates. As of June 30, 2024, the Bank's community bank leverage ratio was 9.1%.

At June 30, 2024, Capitol Federal Financial, Inc., at the holding company level, had $49.1 million in cash on deposit at the Bank. For fiscal year 2024, it is the intention of the Company's Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, totaling $0.34 per share for the year. To the extent that earnings in fiscal year 2024 exceed $0.34 per share, the Board of Directors will consider the payment of additional dividends. Dividend payments depend upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

During the current year period, the Company repurchased 3,280,110 shares of common stock at an average price of $5.87 per share. The Company has $77.0 million authorized for repurchase under existing stock repurchase plans. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. These plans have no expiration date; however, the FRB's existing approval for the Company to repurchase shares up to $2.0 million expires in August 2024 and $75.0 million expires in February 2025.

During the current quarter no shares were repurchased as the Company evaluated the impact of the pre-1988 bad debt recapture requirements at the Bank and the impact that has on the amount of cash that can be distributed from the Bank to the Company. The pre-1988 bad debt recapture reduces the amount of earnings that can be distributed from the Bank to the Company, and to the extent this amount is less than the amount needed for quarterly dividends to stockholders, cash balances at the holding company would need to be used to cover the shortfall. Once the Company fully resolves the implications of the pre-1988 bad debt recapture, it may resume the repurchase of shares.

The following table presents a reconciliation of total to net shares outstanding as of June 30, 2024.

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 48 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas. News and other information about the Company can be found at the Bank's website, http://www.capfed.com.

Forward-Looking Statements

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning 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. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates and the effects of inflation or a potential recession, whether caused by Federal Reserve action or otherwise; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor or depositor sentiment; demand for loans in the Company's market areas; the future earnings and capital levels of the Bank and the impact of the pre-1988 bad debt recapture, which could affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the Securities and Exchange Commission (SEC). Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

Average Balance Sheets

The following tables present 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 shown. Weighted average yields are derived by dividing income (annualized for the three-month periods) by the average balance of the related assets, and weighted average rates are derived by dividing expense (annualized for the three-month periods) 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.