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Section 1: 8-K (CURRENT REPORT, ITEMS 2.02 AND 9.01)

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false0001490906 0001490906 2020-01-30 2020-01-30


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)
January 30, 2020

 
 
 
 
 
CAPITOL FEDERAL FINANCIAL, INC.
 
(Exact name of Registrant as specified in its Charter)

 
 
 
Maryland
001-34814
27-2631712
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)


700 South Kansas Avenue,
Topeka
Kansas
66603
(Address of principal executive offices)
(Zip Code)


Registrant's telephone number, including area code
(785) 235-1341

N/A
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock,
par value $0.01 per share
CFFN
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.







ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Registrant’s press release dated January 30, 2020, announcing financial results for the quarter ended December 31, 2019 is attached hereto as Exhibit 99, and is incorporated herein by reference.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits

Exhibit 99 – Press release announcing earnings dated January 30, 2020
Exhibit 104 – Cover page interactive data file, formatted in Inline XBRL.







 
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
CAPITOL FEDERAL FINANCIAL, INC.
Date: January 30, 2020
By: /s/ Kent G. Townsend
 
 
 
 
 
 
 
 
Kent G. Townsend, Executive Vice-President,
 
 
Chief Financial Officer, and Treasurer
 


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Section 2: EX-99 (PRESS RELEASE ANNOUNCING EARNINGS)

Exhibit



402524804_cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
January 30, 2020
CAPITOL FEDERAL FINANCIAL, INC.® 
REPORTS FIRST QUARTER FISCAL YEAR 2020 RESULTS

Topeka, KS - Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended December 31, 2019. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 7, 2020 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 $22.5 million;
basic and diluted earnings per share of $0.16;
net interest margin of 2.18%;
paid dividends of $58.7 million, or $0.425 per share; and
on January 28, 2020, announced a cash dividend of $0.085 per share, payable on February 21, 2020 to stockholders of record as of the close of business on February 7, 2020.

Comparison of Operating Results for the Three Months Ended December 31, 2019 and September 30, 2019

For the quarter ended December 31, 2019, the Company recognized net income of $22.5 million, or $0.16 per share, compared to net income of $22.4 million, or $0.16 per share, for the quarter ended September 30, 2019. Income tax expense decreased $1.6 million from the prior quarter largely offset by a $1.1 million, or 2.2%, decrease in net interest income. The net interest margin increased three basis points from 2.15% for the prior quarter to 2.18% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have decreased six basis points, from 2.24% for the prior quarter to 2.18% for the current quarter. The leverage strategy was in place during a portion of the prior quarter, and was not in place during the current quarter. The leverage strategy was suspended at certain times during the prior quarter and during all of the current quarter due to the negative interest rate spreads between the related Federal Home Loan Bank Topeka ("FHLB") borrowings and cash held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City"), making the transaction unprofitable. See additional discussion regarding the leverage strategy in the Financial Condition 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 decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit and a decrease in the yield on interest-earning assets.

To the extent market rates of interest remain at current levels or go lower during the remainder of fiscal year 2020, the Company expects a continued decrease in our net interest margin, due to our loans and securities repricing to lower market yields at a faster pace than our deposits and borrowings, as the majority of those liabilities have stated maturities. Given current levels of yields on new loans and the amount of one- to four-family refinances and endorsements of terms to lower current market rates, the yield on the total loan portfolio is likely to continue to decrease. Additionally, yields on new securities are lower than the portfolio yield. On the liability side, we are constrained in reducing offered rates on new deposit accounts by our efforts to remain competitive with the rates offered by other financial institutions.


1



Interest and Dividend Income
The weighted average yield on total interest-earning assets was 3.58% for the current quarter, unchanged from the prior quarter, while the average balance of interest-earning assets decreased $354.4 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased four basis points, from 3.62% for the prior quarter to 3.58% for the current quarter, while the average balance of interest-earning assets would have increased $43.4 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
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2019
 
2019
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
69,914

 
$
70,366

 
$
(452
)
 
(0.6
)%
Mortgage-backed securities ("MBS")
6,102

 
6,293

 
(191
)
 
(3.0
)
FHLB stock
1,826

 
2,156

 
(330
)
 
(15.3
)
Investment securities
1,507

 
1,585

 
(78
)
 
(4.9
)
Cash and cash equivalents
687

 
2,885

 
(2,198
)
 
(76.2
)
Total interest and dividend income
$
80,036

 
$
83,285

 
$
(3,249
)
 
(3.9
)

The weighted average yield on the loans receivable portfolio decreased two basis points, from 3.77% for the prior quarter to 3.75% for the current quarter, due mainly to loans repricing to lower market rates as a result of endorsements, refinances, and adjustable-rate loan resets, as well as the origination of new loans at market rates lower than the existing portfolio. The decrease in interest income on the MBS portfolio was due primarily to a six basis point decrease in the weighted average yield on the portfolio to 2.61% for the current quarter. The decrease in the weighted average yield was due primarily to the purchase of MBS at market rates lower than the existing portfolio. The decrease in interest income on FHLB stock and cash and cash equivalents was due mainly to the leverage strategy being in place during a portion of prior quarter, and not being in place during the current quarter.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities for the current quarter decreased three basis points, from 1.62% for the prior quarter to 1.59% for the current quarter, and the average balance of interest-bearing liabilities decreased $370.4 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased two basis points, from 1.57% for the prior quarter to 1.59% for the current quarter, and the average balance of interest-bearing liabilities would have increased $27.5 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
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2019
 
2019
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
Deposits
$
17,962

 
$
17,471

 
$
491

 
2.8
 %
Borrowings
13,377

 
16,003

 
(2,626
)
 
(16.4
)
Total interest expense
$
31,339

 
$
33,474

 
$
(2,135
)
 
(6.4
)

The increase in interest expense on deposits was due primarily to an increase in the cost of the retail/business certificate of deposit portfolio during the current quarter, partially offset by a decrease in the cost of the money market portfolio due to a decrease in the weighted average balance and rate of that portfolio. The weighted average rate of the retail/business certificate of deposit portfolio increased seven basis points, to 2.09% for the current quarter, and the average balance increased $76.8 million, or approximately 3%. Late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates, and during the fourth quarter of fiscal year 2019, the Bank ran a special certificate of deposit campaign (the "unTraditional campaign"). These actions resulted in growth in the short-term and certain intermediate-term certificates of deposit throughout the fourth quarter of fiscal year 2019, and the current quarter included a full quarter impact of this growth. See the Financial Condition section below for more information.


2



The borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on borrowings not related to the leverage strategy decreased $64 thousand from the prior quarter due to a decrease in the average rate paid on the FHLB line of credit during the current quarter. Interest expense on FHLB borrowings associated with the leverage strategy decreased $2.6 million from the prior quarter due to the leverage strategy being in place during a portion of the prior quarter and not being in place during the current quarter.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current quarter of $225 thousand, compared to a provision for credit losses during the prior quarter of $300 thousand. The $225 thousand provision for credit losses in the current quarter related to certain commercial loans that were acquired in the Capital City Bancshares, Inc. ("CCB") acquisition and were renewed after the acquisition.

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.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2019
 
2019
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
3,062

 
$
3,159

 
$
(97
)
 
(3.1
)%
Insurance commissions
691

 
749

 
(58
)
 
(7.7
)
Other non-interest income
1,751

 
1,951

 
(200
)
 
(10.3
)
Total non-interest income
$
5,504

 
$
5,859

 
$
(355
)
 
(6.1
)

The decrease in other non-interest income was due mainly to a decrease in commercial loan fee-related income, partially offset by the receipt of a bank-owned life insurance ("BOLI") death benefit during 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.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2019
 
2019
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
13,471

 
$
13,940

 
$
(469
)
 
(3.4
)%
Information technology and related expense
4,141

 
4,080

 
61

 
1.5

Occupancy, net
3,207

 
3,264

 
(57
)
 
(1.7
)
Advertising and promotional
1,410

 
1,647

 
(237
)
 
(14.4
)
Regulatory and outside services
1,343

 
1,566

 
(223
)
 
(14.2
)
Deposit and loan transaction costs
711

 
596

 
115

 
19.3

Office supplies and related expense
519

 
555

 
(36
)
 
(6.5
)
Federal insurance premium

 
(615
)
 
615

 
(100.0
)
Other non-interest expense
1,698

 
1,297

 
401

 
30.9

Total non-interest expense
$
26,500

 
$
26,330

 
$
170

 
0.6


The decrease in salaries and employee benefits expense was due mainly to the prior quarter including compensation expense on unallocated Employee Stock Ownership Plan ("ESOP") shares, which was related to the True Blue Capitol dividend paid in June 2019.  The decrease in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships. The decrease in regulatory and outside services expense was due mainly to the timing of external audit expenses. During the prior fiscal year, the Bank began utilizing a credit from the Federal Deposit Insurance Corporation ("FDIC") as a result of the FDIC deposit insurance fund ratio exceeding 1.38%. Pursuant to regulatory guidance, once the insurance fund exceeds 1.38% of insured deposits, deposit insurance assessment credits are allocated to banks with less than $10 billion in assets, to compensate for premiums previously

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paid that contributed to growth of the fund past 1.15%. The $615 thousand credit in the prior quarter represented the reversal of the accrual related to the June 2019 federal insurance premium payment that was to be paid in September 2019, but was not paid due to utilizing the assessment credit. These credits fully offset the Bank's premium assessments during the current quarter and will continue to offset the Bank's premium assessments as long as the insurance fund ratio remains above 1.38% of insured deposits and the Bank still has a remaining assessment credit balance. As of December 31, 2019, the Bank had a remaining assessment credit of approximately $900 thousand. The increase in other non-interest expense was due primarily to a write-down of an other real estate owned ("OREO") property that was added in the CCB acquisition. This property was sold during the current quarter.

The Company's efficiency ratio was 48.89% for the current quarter compared to 47.30% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income in the current quarter compared to the prior quarter. 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 proportionally lower level of expense.

Income Tax Expense
Income tax expense was $5.0 million for the current quarter, compared to $6.6 million for the prior quarter. The effective tax rate was 18.1% for the current quarter compared to 22.8% for the prior quarter. The effective tax rate was lower in the current quarter due primarily to a discrete benefit recognized as a result of favorable federal tax guidance that was issued during the current quarter related to certain BOLI policies added in the CCB acquisition. Management anticipates the effective income tax rate for the remainder of fiscal year 2020 will be approximately 22% each quarter, resulting in an effective tax rate of approximately 21% for fiscal year 2020.

Comparison of Operating Results for the Three Months Ended December 31, 2019 and 2018

The Company recognized net income of $22.5 million, or $0.16 per share, for the quarter ended December 31, 2019 compared to net income of $24.4 million, or $0.18 per share, for the quarter ended December 31, 2018. The decrease in net income was due primarily to a decrease in net interest income, partially offset by a decrease in income tax expense.

Net interest income decreased $3.6 million, or 6.9%, from the prior year quarter to $48.7 million for the current quarter. The net interest margin decreased nine basis points, from 2.27% for the prior year quarter to 2.18% for the current quarter. The leverage strategy was in place during a portion of the prior year quarter, and was not in place during the current quarter. 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. Excluding the effects of the leverage strategy, the net interest margin would have decreased 14 basis points, from 2.32% for the prior year quarter to 2.18% for the current quarter. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit.

Interest and Dividend Income
The weighted average yield on total interest-earning assets increased two basis points, from 3.56% for the prior year quarter to 3.58% for the current quarter, while the average balance of interest-earning assets decreased $306.6 million from the prior year quarter. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased one basis point, from 3.59% for the prior year quarter to 3.58% for the current quarter, and the average balance of interest-earning assets would have decreased $78.4 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
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
69,914

 
$
70,772

 
$
(858
)
 
(1.2
)%
MBS
6,102

 
6,523

 
(421
)
 
(6.5
)
FHLB stock
1,826

 
1,971

 
(145
)
 
(7.4
)
Investment securities
1,507

 
1,441

 
66

 
4.6

Cash and cash equivalents
687

 
1,714

 
(1,027
)
 
(59.9
)
Total interest and dividend income
$
80,036

 
$
82,421

 
$
(2,385
)
 
(2.9
)

The decrease in interest income on loans receivable was due mainly to a decrease in yield resulting from an increase in the amortization of premiums related to correspondent loan payoff activity. This was partially offset by a shift in the mix of the portfolio,

4



as the average balance of lower-yielding one- to four-family loans decreased $249.9 million, partially offset by a $176.9 million increase in the average balance of higher-yielding commercial loans. The decrease in interest income on the MBS portfolio was due to a $74.2 million decrease in the average balance of the portfolio. The decrease in dividend income on FHLB stock and the decrease in interest income on cash and cash equivalents were due primarily to the leverage strategy being in place for a portion of the prior year quarter and not being in place during the current quarter. See additional discussion regarding the leverage strategy in the Financial Condition section below.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 11 basis points, from 1.48% for the prior year quarter to 1.59% for the current quarter, while the average balance of interest-bearing liabilities decreased $235.5 million from the prior year quarter. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 13 basis points, from 1.46% for the prior year quarter to 1.59% for the current quarter, while the average balance of interest-bearing liabilities would have decreased $7.2 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
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
Deposits
$
17,962

 
$
15,725

 
$
2,237

 
14.2
 %
Borrowings
13,377

 
14,395

 
(1,018
)
 
(7.1
)
Total interest expense
$
31,339

 
$
30,120

 
$
1,219

 
4.0


The increase in interest expense on deposits was due primarily to an increase in the cost of the retail/business certificate of deposit portfolio. The weighted average rate of the retail/business certificate of deposit portfolio increased 27 basis points, to 2.09% for the current quarter, and the average balance increased $182.0 million, or approximately 7%. Late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms and during the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit. See the Financial Condition section below for more information.

The borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on borrowings not related to the leverage strategy increased $359 thousand from the prior year quarter due to an 11 basis point increase in the weighted average rate paid, to 2.36% for the current quarter. The increase in the weighted average rate paid was due primarily to certain maturing FHLB advances being replaced at higher effective market interest rates. Interest expense on FHLB borrowings associated with the leverage strategy decreased $1.4 million from the prior year quarter due to the leverage strategy being in place for a portion of the prior year quarter and not being in place during the current quarter.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current quarter of $225 thousand, compared to no provision for credit losses during the prior year quarter. The $225 thousand provision for credit losses in the current quarter related to certain commercial loans that were acquired in the CCB acquisition and were renewed after the acquisition.


5



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.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
3,062

 
$
3,352

 
$
(290
)
 
(8.7
)%
Insurance commissions
691

 
626

 
65

 
10.4

Other non-interest income
1,751

 
1,446

 
305

 
21.1

Total non-interest income
$
5,504

 
$
5,424

 
$
80

 
1.5


The decrease in deposit service fees was due mainly to the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019. The increase in other non-interest income was due mainly to the receipt of a BOLI death benefit during 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.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
13,471

 
$
12,962

 
$
509

 
3.9
 %
Information technology and related expense
4,141

 
4,599

 
(458
)
 
(10.0
)
Occupancy, net
3,207

 
3,252

 
(45
)
 
(1.4
)
Advertising and promotional
1,410

 
760

 
650

 
85.5

Regulatory and outside services
1,343

 
1,766

 
(423
)
 
(24.0
)
Deposit and loan transaction costs
711

 
736

 
(25
)
 
(3.4
)
Office supplies and related expense
519

 
459

 
60

 
13.1

Federal insurance premium

 
528

 
(528
)
 
(100.0
)
Other non-interest expense
1,698

 
1,720

 
(22
)
 
(1.3
)
Total non-interest expense
$
26,500

 
$
26,782

 
$
(282
)
 
(1.1
)

The increase in salaries and employee benefits expense was due primarily to an increase in commissions and merit increases. The decrease in information technology and related expense was due mainly to the prior year quarter including costs related to the integration of CCB operations. The increase in advertising and promotional expense was due to the timing of campaigns and sponsorships. The decrease in regulatory and outside services expense was due primarily to a decrease in consulting and external audit fees in the current quarter. The decrease in the federal insurance premium was due mainly to the Bank receiving an assessment credit from the FDIC as discussed above.

The Company's efficiency ratio was 48.89% for the current quarter compared to 46.40% for the prior year quarter. The change in the efficiency ratio was due to lower net interest income in the current quarter compared to the prior year quarter.

Income Tax Expense
Income tax expense was $5.0 million for the current quarter compared to $6.6 million for the prior quarter. The effective tax rate was 18.1% for the current quarter compared to 21.2% for the prior year quarter. The lower effective tax rate in the current quarter compared to the prior year quarter was due mainly to the enactment of favorable tax guidance in the current quarter related to certain BOLI policies added in the CCB acquisition, as discussed above.


6



Financial Condition as of December 31, 2019
Management continues to manage the size and mix of the loan portfolio, over the long-term, by utilizing cash flows from the one- to four-family loan portfolio to fund commercial loan growth. Given the current level of total assets and the interest rate environment, it is unlikely that the total loan portfolio will increase materially during fiscal year 2020. Over the past few years, we have worked to maintain our net interest margin by reinvesting cash flows from lower yielding assets into higher yielding assets and repaying higher costing liabilities. Following the Federal Reserve rate increase in December 2018, the Bank increased its offered rates on certificates of deposit in order to remain competitive with other financial institutions. As the Federal Reserve has reduced overnight rates, the Bank has reduced its offered rates on certificates of deposit. The benefit of the lower rates will be realized over time as existing certificates of deposit mature. The Bank is constrained in reducing offered rates on certificates of deposit by its efforts to remain competitive with the rates offered by other financial institutions. Additionally, the Bank began reducing its balance of public unit certificates of deposit late in the third quarter of fiscal year 2019 in order to reduce its use of wholesale funds and release securities pledged as collateral, which assists with liquidity levels.

Total assets were $9.24 billion at December 31, 2019, a decrease of $103.4 million, or 1.1%, from September 30, 2019, due to a $149.7 million decrease in cash and cash equivalents. During the current quarter, cash flows were used to pay $58.7 million of cash dividends to stockholders, pay down $50.0 million in FHLB borrowings, and pay borrowers' real estate taxes.

Total loans were $7.43 billion at December 31, 2019, an increase of $12.5 million, from September 30, 2019. The increase was primarily in the originated one- to four-family loan portfolio, partially offset by a decrease in commercial loans due mainly to the payoff of a $36.7 million participation loan. During the current quarter, the Bank originated and refinanced $256.4 million of one- to four-family and consumer loans with a weighted average rate of 3.51% and purchased $108.5 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.45%. The Bank also originated $32.4 million of commercial loans with a weighted average rate of 4.89% and entered into commercial real estate loan participations of $28.4 million at a weighted average rate of 4.65%. The commercial loan portfolio totaled $748.2 million at December 31, 2019 and was composed of 78% commercial real estate, 14% commercial construction, and 8% commercial and industrial. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $181.6 million, was $872.8 million at December 31, 2019. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $18.9 million, was $75.9 million at December 31, 2019.

On October 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, Leases and all subsequent ASUs that modified Topic 842. As a result of the adoption, the Company recorded a right-of-use asset of $15.7 million and a lease liability of $15.5 million, based on the present value of the expected remaining lease payments as of October 1, 2019. The right-of-use asset was included in other assets and the lease liability was included in accounts payable and accrued expenses in the Company's December 31, 2019 consolidated balance sheet.

Total deposits were $5.59 billion at December 31, 2019, an increase of $4.0 million from September 30, 2019. There were some compositional changes within the deposit portfolio during the current quarter. Non-maturity deposits increased $71.3 million, partially offset by a $36.4 million decrease in retail/business certificates of deposit and a $30.9 million decrease in public unit certificates of deposit. Within the retail/business certificate of deposit portfolio, short-term and intermediate-term certificates of deposit increased $66.2 million during the current quarter while longer-term and variable rate certificates of deposit decreased $102.6 million. The change in the composition of the retail/business certificate of deposit portfolio was intentional as the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit late in the third quarter of fiscal year 2019 and ran the unTraditional campaign during the fourth quarter of fiscal year 2019. The intention of the unTraditional campaign was to attract deposits with generally shorter terms to maturity, to allow the Bank to more quickly reprice certificate of deposit funds lower if market interest rates decrease.

Beginning in late November 2019 and continuing into December 2019, the Bank reduced offered rates on several certificate of deposit terms. These reductions did not negatively impact the Bank's overall retention rate for fixed-rate certificates of deposit that subsequently matured. Since the reductions occurred later in the quarter, the impact on current quarter interest expense was negligible.

Total borrowings at December 31, 2019 were $2.19 billion, a decrease of $50.0 million, or 2.2%, from September 30, 2019. The decrease was due to not renewing a portion of the FHLB advances that matured during the current quarter.

Stockholders' equity was $1.31 billion at December 31, 2019 compared to $1.34 billion at September 30, 2019. The $29.7 million decrease was due primarily to the payment of $58.7 million in cash dividends, partially offset by net income of $22.5 million during the current quarter. In the long run, management considers a ratio of stockholders' equity to total assets at the Bank of at least 10% an appropriate level of capital. At December 31, 2019, this ratio was 12.7%. The cash dividends paid during the current quarter totaled $0.425 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings per the Company's dividend policy, and a regular quarterly cash dividend of $0.085 per share. On January 28, 2020, the Company announced a regular

7



quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on February 21, 2020 to stockholders of record as of the close of business on February 7, 2020.

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings are repaid at quarter end, or earlier if the strategy is suspended. The proceeds from the borrowings, net of the required FHLB stock holdings which yield approximately 7.5% from dividends, are deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $22 thousand during the quarter ended September 30, 2019 and $14 thousand during the quarter ended December 31, 2018. The leverage strategy was not in place during the current quarter, due to the large negative interest rate spread making the strategy unprofitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

At December 31, 2019, Capitol Federal Financial, Inc., at the holding company level, had $90.6 million on deposit at the Bank. For fiscal year 2020, it is the intent of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. 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.

The Company has authorized the repurchase of up to $70.0 million of its common stock under its stock repurchase plan. Shares may be repurchased from time to time based upon market conditions and available liquidity. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.

The following table presents the balance of stockholders' equity and related information as of the dates presented.
 
December 31,
 
September 30,
 
December 31,
 
2019
 
2019
 
2018
 
(Dollars in thousands)
Stockholders' equity
$
1,306,594

 
$
1,336,326

 
$
1,345,913

Equity to total assets at end of period
14.1
%
 
14.3
%
 
14.5
%

The following table presents a reconciliation of total to net shares outstanding as of December 31, 2019.
Total shares outstanding
141,502,665

Less unallocated ESOP shares and unvested restricted stock
(3,539,709
)
Net shares outstanding
137,962,956


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 December 31, 2019, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at December 31, 2019.
 
 
 
Regulatory
 
 
 
Requirement For
 
Bank
 
Well-Capitalized
 
Ratios
 
Status
Tier 1 leverage ratio
12.5%
 
5.0
%
Common equity tier 1 capital ratio
24.1
 
6.5

Tier 1 capital ratio
24.1
 
8.0

Total capital ratio
24.3
 
10.0


In September 2019, the regulatory agencies, including the Office of the Comptroller of the Currency and Board of Governors of the Federal Reserve System, adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio ("CBLR") for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage

8



capital requirements in the regulatory agencies' capital rules and to have met the well-capitalized ratio requirements. Management intends to elect the CBLR framework for the Bank and Company which will be reflected in the Bank's and Company's March 31, 2020 regulatory reports.

The following table presents a reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory capital amounts as of December 31, 2019 (dollars in thousands):
Total Bank equity as reported under GAAP
$
1,174,713

Accumulated Other Comprehensive Income ("AOCI")
9,927

Goodwill and other intangibles, net of associated deferred taxes
(14,975
)
Total tier 1 capital
1,169,665

Allowance for credit losses ("ACL")
9,435

Total capital
$
1,179,100


Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 54 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.

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 the possibility that expected cost savings, synergies and other benefits from the acquisition of CCB might not be realized within the anticipated time frames or at all, changes in economic conditions in the Company's market area, 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, demand for loans in the Company's market area, the future earnings and capital levels of the Bank, which would 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 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.

For further information contact:
Kent Townsend
Investor Relations
Executive Vice President,
(785) 270-6055
Chief Financial Officer and Treasurer
(785) 231-6360
 
 

9




SUPPLEMENTAL FINANCIAL INFORMATION
 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
December 31,
 
September 30,
 
2019
 
2019
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $46,427 and $198,809)
$
70,703

 
$
220,370

Available-for-sale ("AFS") securities, at estimated fair value
1,229,587

 
1,204,863

Loans receivable, net (ACL of $9,435 and $9,226)
7,429,207

 
7,416,747

FHLB stock, at cost
99,861

 
98,456

Premises and equipment, net
98,188

 
96,784

Income taxes receivable, net

 
2

Other assets
309,026

 
302,796

TOTAL ASSETS
$
9,236,572

 
$
9,340,018

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
5,585,851

 
$
5,581,867

Borrowings
2,189,991

 
2,239,989

Advance payments by borrowers for taxes and insurance
27,284

 
65,686

Income taxes payable, net
3,802

 

Deferred income tax liabilities, net
15,308

 
14,282

Accounts payable and accrued expenses
107,742

 
101,868

Total liabilities
7,929,978

 
8,003,692

 
 
 
 
STOCKHOLDERS' EQUITY:
 
 
 
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued or outstanding

 

Common stock, $0.01 par value; 1,400,000,000 shares authorized, 141,502,665 and 141,440,030
 
 
 shares issued and outstanding as of December 31, 2019 and September 30, 2019, respectively
1,415

 
1,414

Additional paid-in capital
1,211,172

 
1,210,226

Unearned compensation, ESOP
(34,279
)
 
(34,692
)
Retained earnings
138,213

 
174,277

AOCI, net of tax
(9,927
)
 
(14,899
)
Total stockholders' equity
1,306,594

 
1,336,326

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,236,572

 
$
9,340,018


10



 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
 
For the Three Months Ended
 
December 31,
 
September 30,
 
December 31,
 
2019
 
2019
 
2018
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
Loans receivable
$
69,914

 
$
70,366

 
$
70,772

MBS
6,102

 
6,293

 
6,523

FHLB stock
1,826

 
2,156

 
1,971

Investment securities
1,507

 
1,585

 
1,441

Cash and cash equivalents
687

 
2,885

 
1,714

Total interest and dividend income
80,036

 
83,285

 
82,421

 
 
 
 
 
 
INTEREST EXPENSE:
 
 
 
 
 
Deposits
17,962

 
17,471

 
15,725

Borrowings
13,377

 
16,003

 
14,395

Total interest expense
31,339

 
33,474

 
30,120

 
 
 
 
 
 
NET INTEREST INCOME
48,697

 
49,811

 
52,301

 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
225

 
300

 

NET INTEREST INCOME AFTER
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
48,472

 
49,511

 
52,301

 
 
 
 
 
 
NON-INTEREST INCOME:
 
 
 
 
 
Deposit service fees
3,062

 
3,159

 
3,352

Insurance commissions
691

 
749

 
626

Other non-interest income
1,751

 
1,951

 
1,446

Total non-interest income
5,504

 
5,859

 
5,424

 
 
 
 
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
Salaries and employee benefits
13,471

 
13,940

 
12,962

Information technology and related expense
4,141

 
4,080

 
4,599

Occupancy, net
3,207

 
3,264

 
3,252

Advertising and promotional
1,410

 
1,647

 
760

Regulatory and outside services
1,343

 
1,566

 
1,766

Deposit and loan transaction costs
711

 
596

 
736

Office supplies and related expense
519

 
555

 
459

Federal insurance premium

 
(615
)
 
528

Other non-interest expense
1,698

 
1,297

 
1,720

Total non-interest expense
26,500

 
26,330

 
26,782

INCOME BEFORE INCOME TAX EXPENSE
27,476

 
29,040

 
30,943

INCOME TAX EXPENSE
4,965

 
6,631

 
6,560

NET INCOME
$
22,511

 
$
22,409

 
$
24,383



11



The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.
 
For the Three Months Ended
 
December 31,
 
September 30,
 
December 31,
 
2019
 
2019
 
2018
 
(Dollars in thousands, except per share amounts)
Net income
$
22,511

 
$
22,409

 
$
24,383

Income allocated to participating securities
(19
)
 
(20
)
 
(9
)
Net income available to common stockholders
$
22,492

 
$
22,389

 
$
24,374

 
 
 
 
 
 
Average common shares outstanding
137,897,561

 
137,676,683

 
137,550,471

Average committed ESOP shares outstanding
449

 
124,346

 
449

Total basic average common shares outstanding
137,898,010

 
137,801,029

 
137,550,920

 
 
 
 
 
 
Effect of dilutive stock options
78,112

 
65,960

 
41,459

 
 
 
 
 
 
Total diluted average common shares outstanding
137,976,122

 
137,866,989

 
137,592,379

 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
Basic
$
0.16

 
$
0.16

 
$
0.18

Diluted
$
0.16

 
$
0.16

 
$
0.18

 
 
 
 
 
 
Antidilutive stock options, excluded from the diluted
 
 
 
 
average common shares outstanding calculation
435,750

 
439,750

 
550,021




12



Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
 
 
 
 
 
% of
 
 
 
 
 
% of
 
 
 
 
 
% of
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
$
3,927,015

 
3.71
%
 
52.9
%
 
$
3,873,851

 
3.74
%
 
52.2
%
 
$
3,955,975

 
3.77
%
 
52.6
%
Correspondent purchased
2,343,750

 
3.62

 
31.6

 
2,349,877

 
3.64

 
31.7

 
2,491,692

 
3.61

 
33.2

Bulk purchased
237,691

 
2.93

 
3.2

 
252,347

 
2.94

 
3.4

 
279,719

 
2.67

 
3.7

Construction
38,771

 
3.82

 
0.5

 
36,758

 
4.00

 
0.5

 
33,443

 
4.08

 
0.4

Total
6,547,227

 
3.65

 
88.2

 
6,512,833

 
3.68

 
87.8

 
6,760,829

 
3.67

 
89.9

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
583,848

 
4.48

 
7.9

 
583,617

 
4.48

 
7.9

 
463,317

 
4.36

 
6.2

Commercial and industrial
57,019

 
4.97

 
0.8

 
61,094

 
5.14

 
0.8

 
61,221

 
5.19

 
0.8

Construction
107,372

 
4.68

 
1.4

 
123,159

 
4.81

 
1.7

 
93,244

 
4.74

 
1.2

Total
748,239

 
4.54

 
10.1

 
767,870

 
4.58

 
10.4

 
617,782

 
4.50

 
8.2

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
118,491

 
5.73

 
1.6

 
120,587

 
6.15

 
1.6

 
129,795

 
6.20

 
1.8

Other
10,877

 
4.58

 
0.1

 
11,183

 
4.57

 
0.2

 
10,481

 
4.51

 
0.1

Total
129,368

 
5.63

 
1.7

 
131,770

 
6.02

 
1.8

 
140,276

 
6.07

 
1.9

Total loans receivable
7,424,834

 
3.77

 
100.0
%
 
7,412,473

 
3.81

 
100.0
%
 
7,518,887

 
3.78

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACL
9,435

 
 
 
 
 
9,226

 
 
 
 
 
8,558

 
 
 
 
Discounts/unearned loan fees
30,323

 
 
 
 
 
31,058

 
 
 
 
 
33,139

 
 
 
 
Premiums/deferred costs
(44,131
)
 
 
 
 
 
(44,558
)
 
 
 
 
 
(48,590
)
 
 
 
 
Total loans receivable, net
$
7,429,207

 
 
 
 
 
$
7,416,747

 
 
 
 
 
$
7,525,780

 
 
 
 


13



Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-off as a result of refinances and loans that were sold are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the quarter ended December 31, 2019, the Bank endorsed $53.0 million of one- to four-family loans, reducing the average rate on those loans by 79 basis points. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal.
 
For the Three Months Ended
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,412,473

 
3.81
%
 
$
7,501,741

 
3.83
%
 
$
7,564,076

 
3.82
%
 
$
7,518,887

 
3.78
%
Originated and refinanced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
233,693

 
3.52

 
188,753

 
3.60

 
121,871

 
4.09

 
78,678

 
4.58

Adjustable
55,126

 
4.30

 
59,550

 
4.37

 
63,341

 
4.87

 
123,006

 
4.80

Purchased and participations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
123,118

 
3.77

 
49,161

 
4.12

 
29,447

 
4.65

 
35,387

 
5.46

Adjustable
13,801

 
3.06

 
12,305

 
3.55

 
10,018

 
3.85

 
11,331

 
4.01

Change in undisbursed loan funds
(9,743
)
 
 
 
12,293

 
 
 
34,742

 
 
 
30,500

 
 
Repayments
(403,361
)
 
 
 
(410,624
)
 
 
 
(321,439
)
 
 
 
(233,625
)
 
 
Principal (charge-offs)/recoveries, net
(16
)
 
 
 
(110
)
 
 
 
(33
)
 
 
 
61

 
 
Other
(257
)
 
 
 
(596
)
 
 
 
(282
)
 
 
 
(149
)
 
 
Ending balance
$
7,424,834

 
3.77

 
$
7,412,473

 
3.81

 
$
7,501,741

 
3.83

 
$
7,564,076

 
3.82

 
 
 
 
 
 
 
 
One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores are updated at least semiannually, with the latest update in September 2019, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
 
December 31, 2019
 
December 31, 2018
 
 
 
% of
 
Credit
 
 
 
Average
 
 
 
% of
 
Credit
 
 
 
Average
 
Amount
 
Total
 
Score
 
LTV
 
Balance
 
Amount
 
Total
 
Score
 
LTV
 
Balance
 
(Dollars in thousands)
Originated
$
3,927,015

 
60.3
%
 
768

 
62
%
 
$
142

 
$
3,955,975

 
58.8
%
 
767

 
62
%
 
$
139

Correspondent purchased
2,343,750

 
36.0

 
764

 
65

 
372

 
2,491,692

 
37.0

 
764

 
66

 
377

Bulk purchased
237,691

 
3.7

 
763

 
61

 
302

 
279,719

 
4.2

 
758

 
62

 
304

 
$
6,508,456

 
100.0
%
 
766

 
63

 
187

 
$
6,727,386

 
100.0
%
 
765

 
64

 
186




14



The following table presents originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Of the loans originated during the current quarter, $75.7 million were refinanced from other lenders.
 
For the Three Months Ended
 
December 31, 2019
 
December 31, 2018
 
 
 
 
 
Credit
 
 
 
 
 
Credit
 
Amount
 
LTV
 
Score
 
Amount
 
LTV
 
Score
 
(Dollars in thousands)
Originated
$
172,386

 
74
%
 
768

 
$
126,325

 
77
%
 
754

Refinanced by Bank customers
64,523

 
68

 
761

 
12,954

 
67

 
743

Correspondent purchased
108,493

 
72

 
767

 
52,940

 
74

 
763

 
$
345,402

 
72

 
766

 
$
192,219

 
75

 
756


The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the quarter ended December 31, 2019.
 
 
For the Three Months Ended
 
 
December 31, 2019
State
 
Amount
 
% of Total
 
Rate
 
 
(Dollars in thousands)
Kansas
 
$
207,637

 
60.1
%
 
3.35
%
Missouri
 
60,081

 
17.4

 
3.38

Texas
 
44,068

 
12.8

 
3.37

Other states
 
33,616

 
9.7

 
3.51

 
 
$
345,402

 
100.0
%
 
3.37


The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of December 31, 2019, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.
 
Fixed-Rate
 
 
 
 
 
 
 
15 years
 
More than
 
Adjustable-
 
Total
 
or less
 
15 years
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Originate/refinance
$
14,849

 
$
41,355

 
$
12,311

 
$
68,515

 
3.39
%
Correspondent
21,919

 
98,243

 
19,845

 
140,007

 
3.43

 
$
36,768

 
$
139,598

 
$
32,156

 
$
208,522

 
3.42

 
 
 
 
 
 
 
 
 
 
Rate
2.99
%
 
3.62
%
 
3.02
%
 
 
 
 


Commercial Loans: During the current quarter, the Bank originated $32.4 million of commercial loans, entered into commercial real estate loan participations totaling $28.4 million, and processed commercial loan disbursements, excluding lines of credit, of approximately $40 million at a weighted average rate of 4.91%. Additionally, a single $36.7 million commercial real estate participation loan was repaid in full during the current quarter.


15



The following table presents the Bank's commercial real estate loans and loan commitments by type of primary collateral, as of December 31, 2019. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $494.6 million at a weighted average rate of 4.36% and adjustable-rate loans totaling $331.5 million at a weighted average rate of 4.88%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at December 31, 2019 having shorter terms to maturity.
 
Unpaid
 
Undisbursed
 
Gross Loan
 
Outstanding
 
 
 
% of
 
Principal
 
Amount
 
Amount
 
Commitments
 
Total
 
Total
 
(Dollars in thousands)
Senior housing
$
218,686

 
$
54,851

 
$
273,537

 
$

 
$
273,537

 
31.3
%
Hotel
113,238

 
23,823

 
137,061

 
40,000

 
177,061

 
20.3

Retail building
119,383

 
27,331

 
146,714

 
6,390

 
153,104

 
17.5

Multi-family
56,473

 
18,238

 
74,711

 

 
74,711

 
8.6

One- to four-family property
55,174

 
3,740

 
58,914

 
163

 
59,077

 
6.8

Office building
48,634

 
1,583

 
50,217

 

 
50,217

 
5.8

Single use building
45,224

 
4,598

 
49,822

 

 
49,822

 
5.7

Other
34,408

 
670

 
35,078

 
181

 
35,259

 
4.0

 
$
691,220

 
$
134,834

 
$
826,054

 
$
46,734

 
$
872,788

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average rate
4.51
%
 
4.89
%
 
4.57
%
 
5.56
%
 
4.62
%
 
 

The following table summarizes the Bank's commercial real estate loans and loan commitments by state as of December 31, 2019.
 
Unpaid
 
Undisbursed
 
Gross Loan
 
Outstanding
 
 
 
% of
 
Principal
 
Amount
 
Amount
 
Commitments
 
Total
 
Total
 
(Dollars in thousands)
Kansas
$
284,738

 
$
17,122

 
$
301,860

 
$
4,675

 
$
306,535

 
35.1
%
Missouri
218,080

 
71,120

 
289,200

 
2,059

 
291,259

 
33.4

Texas
91,438

 
36,000

 
127,438

 
40,000

 
167,438

 
19.2

Nebraska
30,864

 
2,822

 
33,686

 

 
33,686

 
3.9

Kentucky
23,589

 
1,970

 
25,559

 

 
25,559

 
2.9

California
5,990

 
4,300

 
10,290

 

 
10,290

 
1.2

Other
36,521

 
1,500

 
38,021

 

 
38,021

 
4.3

 
$
691,220

 
$
134,834

 
$
826,054

 
$
46,734

 
$
872,788

 
100.0
%

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of December 31, 2019.
 
Count
 
Amount
 
(Dollars in thousands)
Greater than $30 million
4

 
$
152,031

>$15 to $30 million
11

 
266,835

>$10 to $15 million
4

 
50,350

>$5 to $10 million
13

 
84,543

$1 to $5 million
91

 
206,017

Less than $1 million
1,186

 
188,950

 
1,309

 
$
948,726


16


Asset Quality
The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO as of the dates indicated. Of the loans 30 to 89 days delinquent at December 31, 2019, approximately 72% were 59 days or less delinquent. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure, and nonaccrual loans that are less than 90 days delinquent but are required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current. Non-performing assets include non-performing loans and OREO. Over the past 12 months, OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately three months before they were sold.
 
Loans Delinquent for 30 to 89 Days at:
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
96

 
$
9,004

 
90

 
$
7,223

 
94

 
$
7,749

 
79

 
$
8,694

 
118

 
$
9,765

Correspondent purchased
13

 
4,117

 
9

 
2,721

 
14

 
3,727

 
13

 
4,133

 
10

 
1,969

Bulk purchased
14

 
3,307

 
16

 
3,581

 
13

 
2,249

 
13

 
2,722

 
15

 
2,780

Commercial
7

 
1,192

 
8

 
826

 
12

 
1,699

 
13

 
1,361

 
2

 
64

Consumer
40

 
488

 
42

 
525

 
43

 
630

 
37

 
481

 
42

 
744

 
170

 
$
18,108

 
165

 
$
14,876

 
176

 
$
16,054

 
155

 
$
17,391

 
187

 
$
15,322

30 to 89 days delinquent loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
to total loans receivable, net
 
 
0.24
%
 
 
 
0.20
%
 
 
 
0.21
%
 
 
 
0.23
%
 
 
 
0.20
%

17


 
Non-Performing Loans and OREO at:
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
44

 
$
3,552

 
44

 
$
3,268

 
58

 
$
5,069

 
67

 
$
5,172

 
69

 
$
5,301

Correspondent purchased
4

 
1,376

 
4

 
1,008

 
2

 
871

 
3

 
918

 
5

 
1,093

Bulk purchased
2

 
689

 
6

 
1,465

 
7

 
2,194

 
10

 
2,782

 
10

 
3,137

Commercial

 

 
4

 
170

 

 

 

 

 

 

Consumer
20

 
340

 
25

 
362

 
25

 
437

 
27

 
567

 
28

 
513

 
70

 
5,957

 
83

 
6,273

 
92

 
8,571

 
107

 
9,439

 
112

 
10,044

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans 90 or more days delinquent or in foreclosure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 as a percentage of total loans
 
 
0.08
%
 
 
 
0.08
%
 
 
 
0.11
%
 
 
 
0.12
%
 
 
 
0.13
%