Capitol Federal Financial in Topeka, Kan., sold most of its securities at a large loss in the third quarter – a move that will drop it below a key regulatory threshold.
The $10.2 billion-asset company said in a press release that it sold $1.3 billion of securities – 94% of its portfolio – earlier this month. The company incurred a $206 million pretax loss from the sales.
Overall, Capitol Federal reported a quarterly loss of $150.5 million.
Some of the proceeds from the securities sales will be used to pay down $500 million of borrowings, which will lower the bank’s assets to $9.7 billion by the end of this year.
Capitol Federal also plans to reinvest $650 million into fixed-rate securities.
Banks with more than $10 billion of assets face more regulatory scrutiny, including oversight from the Consumer Financial Protection Bureau, and caps on interchange fees.
The strategy should increase the company’s fiscal 2024 earnings per share by 30 cents and its net interest margin by roughly 60 basis points. It should take nearly four years for Capital Federal to earn back the costs associated with the securities sales.
Capitol Federal still plans to maintain cash and securities in excess of $1 billion.
Separately, the company said it implemented new core processing and digital banking systems during the third quarter.