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Section 1: 8-K (CURRENT REPORT, ITEMS 2.02, 5.07, 7.01, 8.01, AND 9.01)

Document


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 24, 2017

 
 
 
 
 
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 Number)


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:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Registrant’s press release dated January 27, 2017, announcing financial results for the quarter ended December 31, 2016 is attached hereto as Exhibit 99.4, and is incorporated herein by reference.






Item 5.07 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Capitol Federal Financial, Inc. (the “Company”) held its Annual Meeting of Stockholders on January 24, 2017 (the “Annual Meeting”). Holders of record of the Company’s common stock at the close of business on December 2, 2016 were entitled to vote on four items at the Annual Meeting. Stockholders elected Michel' Philipp Cole, Jeffrey M. Johnson, and Michael T. McCoy, M.D. each to a three-year term as director. The stockholders approved, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the Annual Meeting (the "Say on Pay Vote"). The stockholders voted for an annual advisory vote on the frequency of future Say on Pay Votes (the "Frequency Vote"). The Board of Directors of the Company determined, in light of the results of the Frequency Vote, the Company will include a Say on Pay Vote in its annual meeting proxy materials every year until the next required Frequency Vote is held. The stockholders also ratified the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending September 30, 2017. The final voting results of each item are set forth below.
 
Number of Votes
 
For
 
Against
 
Abstained
 
Broker Non-Votes
Proposal 1.
 
 
 
 
 
 
 
Election of the following directors for the terms indicated:
 
 
 
 
 
 
Michel' Philipp Cole (three years)
101,136,731

 
2,042,546

 
202,582

 
16,370,931

Jeffrey M. Johnson (three years)
100,218,189

 
2,953,126

 
210,544

 
16,370,930

Michael T. McCoy, M.D. (three years)
100,198,134

 
2,979,614

 
204,111

 
16,370,931

 
 
 
 
 
 
 
 
The following directors had their term of office continue after the meeting:
Morris J. Huey, II
 
 
 
 
 
 
 
Reginald L. Robinson
 
 
 
 
 
 
 
John B. Dicus
 
 
 
 
 
 
 
James G. Morris
 
 
 
 
 
 
 
Jeffrey R. Thompson
 
 
 
 
 
 
 
 
Number of Votes
 
For
 
Against
 
Abstained
 
Broker Non-Votes
Proposal 2.
 
 
 
 
 
 
 
Stockholder approval, on advisory basis, of executive compensation
97,983,050

 
4,932,745

 
466,052

 
16,370,942

 
Number of Votes
 
Every Year
 
Every Two Years
 
Every Three Years
 
Abstained
 
Broker Non-Votes
Proposal 3.
 
 
 
 
 
 
 
 
 
Frequency of advisory vote on executive compensation
92,745,094

 
1,407,086

 
9,111,863

 
117,804

 
16,370,943

 
Number of Votes
 
For
 
Against
 
Abstained
 
Broker Non-Votes
Proposal 4.
 
 
 
 
 
 
 
Ratification of Deloitte & Touche LLP as independent auditors
118,476,648

 
1,128,020

 
148,122

 







ITEM 7.01 REGULATION FD DISCLOSURE
Attached hereto as Exhibit 99.1 and incorporated herein by reference are the slides from the Company's presentation at the Annual Meeting on January 24, 2017.

On January 24, 2017, the Company issued the press release attached hereto as Exhibit 99.2 and incorporated herein by reference announcing a cash dividend of $0.085 per share, payable on February 17, 2017 to holders of record of the Company’s common stock as of the close of business on February 3, 2017.

ITEM 8.01 OTHER EVENTS
On January 24, 2017, the Company issued the press release attached hereto as Exhibit 99.3 and incorporated herein by reference announcing the retirement of Marilyn S. Ward as a director of the Company upon her reaching the board's mandatory retirement age and the election of Michel' Philipp Cole as a director of the Company to succeed Ms. Ward.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits

Exhibit 99.1 – Annual Meeting slide presentation
Exhibit 99.2 – Press release announcing dividend dated January 24, 2017
Exhibit 99.3 – Press release announcing Director Ward retirement, Director Cole election dated January 24, 2017
Exhibit 99.4 – Press release announcing earnings dated January 27, 2017






 
 
 
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 27, 2017
By: /s/ Kent G. Townsend
 
 
 
 
 
 
 
 
Kent G. Townsend, Executive Vice-President,
 
 
Chief Financial Officer, and Treasurer
 



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Section 2: EX-99.1 (ANNUAL MEETING SLIDE PRESENTATION)

annualmtg2016


 
Board of Directors John B. Dicus, Chairman, President & CEO Morris J. Huey, II Jeffrey M. Johnson Michael T. McCoy, M.D. James G. Morris Reginald L. Robinson Jeffrey R. Thompson Marilyn S. Ward


 
Management John B. Dicus, Chairman, President & CEO Natalie G. Haag, Executive Vice President & Corporate Secretary Rick C. Jackson, Executive Vice President Daniel L. Lehman, Executive Vice President Carlton A. Ricketts, Executive Vice President Kent G. Townsend, Executive Vice President Tara D. Van Houweling, First Vice President James D. Wempe, VP - Investor Relations


 
Safe Harbor Disclosure Except for the historical information contained in this presentation, the matters discussed may be deemed to be forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, including changes in economic conditions in Capitol Federal Financial, Inc.’s market area, changes in policies by regulatory agencies and other governmental initiatives affecting the financial services industry, fluctuations in interest rates, demand for loans in Capitol Federal Financial, Inc.’s market area, the future earnings and capital levels of Capitol Federal Savings Bank, which would affect the ability of Capitol Federal Financial, Inc. to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in documents filed or furnished by Capitol Federal Financial, Inc. with the SEC. Actual results may differ materially from those currently expected. These forward- looking statements represent Capitol Federal Financial, Inc.’s judgment as of the date of this presentation. Capitol Federal Financial, Inc. disclaims, however, any intent or obligation to update these forward-looking statements.


 
Selected Balance Sheet Data September 30, 2016 2015 (in thousands) Total Assets $ 9,267,247 $ 9,844,161 Total Loans $ 6,958,024 $ 6,625,027 Total Deposits $ 5,164,018 $ 4,832,520 Total Borrowings $ 2,572,389 $ 3,470,521 Total Stockholders' Equity $ 1,392,964 $ 1,416,226


 
Financial Performance FY 2016 Net Income (in thousands) $83,494 Earnings Per Share (basic & diluted) $0.63 Net Interest Margin* 2.10% Return on Average Assets* 0.88% Return on Average Equity* 5.78% *Adjusted to exclude the effects of the daily leverage strategy


 
Efficiency Ratio 43.76% Operating Expense Ratio 0.84% Non-performing Assets to Total Assets 0.35% Equity to Total Assets 15.0% Financial Performance FY 2016


 
Calendar Year 2016 Dividends (in thousands) Regular quarterly dividends* $ 45,305 True Blue® Capitol dividend (June) 33,274 True-up dividend (December) 38,835 Total cash dividends paid in 2016 $ 117,414 *Paid in February, May, August, and November.


 
Calendar Year Dividend History $0 $25,000 $50,000 $75,000 $100,000 $125,000 $150,000 2012 2013 2014 2015 2016 (in thousands)


 
Calendar Year Dividend History $0 $25,000 $50,000 $75,000 $100,000 2012 2013 2014 2015 2016 Regular Dividends (includes true-up dividends) Named Capital Dividends (in thousands)


 
Cumulative Cash Returned to Stockholders †Includes named capital dividends paid (in millions) $1,126.0 Share Repurchases Stockholder Dividends $368.0 31,009,944 Shares Avg. Price of $11.87 $5.26 per Share $0.0 $250.0 $500.0 $750.0 $1,000.0 $1,250.0 Since 2nd Step Corporate Reorganization $758.0 †


 
Payment of Dividends •CFFN declared a regular quarterly dividend of $0.085 per share on January 24, 2017. •For fiscal year 2017, it is the intent of our Board and management to pay out 100% of our net income. •Dividends will be paid in a combination of quarterly and true-up cash dividends.


 
Strength and Value •Single-Family Portfolio Lender •Retail Financial Services •Excellent Asset Quality •Strong Cost Controls •Interest Rate Risk Management •Strong Capital Position •Stockholder Value


 
•Continued strategy of making the balance sheet more efficient by increasing the balance of loans and deposits while decreasing the balance of securities and borrowings. •Balance of correspondent loans grew to $2.21 billion at September 30, 2016 by utilizing correspondent lending relationships in 28 states. •Continued growth of our commercial real estate loan portfolio primarily through loan participations with our correspondent lending relationships. Strength and Value


 
•Continued the daily leverage strategy during fiscal year 2016, which added $2.3 million to net income. •Continued focus on cost controls through technology efficiencies and enhancements. •Cash dividends attributed to our fiscal year 2016 earnings were $0.63 per share, representing a $0.05 per share increase over the previous fiscal year. •Paid out 100% of our earnings for the sixth consecutive year. Strength and Value


 
Daniel Lehman, Executive Vice President Chief Retail Operations Officer Executive Management


 
Questions & Answers


 


 
Director Marilyn Ward, who has served as a director of Capitol Federal Savings since 1977 and of the Company's predecessor since its inception in March 1999, will retire from the Board of Directors upon the conclusion of her current term following this meeting. The Company thanks Ms. Ward for her guidance and 39 years of dedicated service. Marilyn S. Ward, Director


 
Ms. Cole has served as Westar Energy’s Vice President, Corporate Communications and Public Affairs, since 2014. Ms. Cole is responsible for all communication, media, branding, philanthropy and government relations matters for Westar Energy. From 2003 to 2014, Ms. Cole served as Vice President, Corporate Communications and Brand Strategy, for Security Benefit Corporation. Ms. Cole is an Accredited Business Communicator (ABC) with the International Association of Business Communicators. Ms. Cole’s extensive background in all aspects of corporate communications brings to the Board knowledge and experience that enhances the Board’s oversight of those aspects of the Company’s operations that work to maintain and enhance value and ensure appropriate communications both inside and outside of the Company. Michel’ Philipp Cole, Director


 


 
Thank you for attending


 
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Section 3: EX-99.2 (PRESS RELEASE ANNOUNCING DIVIDEND)

Exhibit


37733389_cffnlogo.jpg

NEWS RELEASE

FOR IMMEDIATE RELEASE

January 24, 2017

CAPITOL FEDERAL® FINANCIAL, INC.
ANNOUNCES QUARTERLY DIVIDEND

Topeka, KS - Capitol Federal Financial, Inc. (NASDAQ: CFFN) (the "Company") announced today that its Board of Directors has declared a quarterly cash dividend of $0.085 per share on outstanding CFFN common stock.

The dividend is payable on February 17, 2017 to stockholders of record as of the close of business on February 3, 2017.

The Company will release financial results for the quarter ended December 31, 2016 on January 27, 2017 before the market opens.

Capitol Federal Financial, Inc. is the holding company for Capitol Federal Savings Bank (the "Bank"). The Bank has 47 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 on the Internet at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed 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 that involve risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies and other governmental initiatives affecting the financial services industry, 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:
 
 
Jim Wempe
 
Kent Townsend
Vice President
 
Executive Vice President,
Investor Relations
 
Chief Financial Officer and Treasurer
700 S Kansas Ave
 
700 S Kansas Ave
Topeka, KS 66603
 
Topeka, KS 66603
(785) 270-6055
 
(785) 231-6360
jwempe@capfed.com
 
ktownsend@capfed.com



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Section 4: EX-99.3 (PRESS RELEASE ANNOUNCING WARD RETIREMENT, COLE ELECTED)

Exhibit


37733389_cffnlogo.jpg

NEWS RELEASE

FOR IMMEDIATE RELEASE

January 24, 2017

WARD RETIRES; COLE ELECTED TO CAPITOL FEDERAL® FINANCIAL, INC. BOARD OF DIRECTORS

TOPEKA, Kan. - During its recent annual meeting held Tuesday, January 24, Capitol Federal Financial, Inc. (Nasdaq: CFFN) (the "Company") announced the retirement of longtime board member, Marilyn S. Ward upon her reaching the board's mandatory retirement age. Elected to fill the position left by Ward is Michel' Philipp Cole, Vice President, Corporate Communications and Public Affairs for Westar Energy. This same announcement also is effective for the Capitol Federal Savings Bank (the "Bank") board of directors.

Before joining Westar Energy, Cole served as Vice President, Corporate Communications and Brand Strategy for Security Benefit Corporation from 2003 to 2014. She also served as Senior Vice President, Corporate Practice Group, Fleishman-Hillard in Kansas City, Missouri from 2000 to 2003. An active community volunteer, Ms. Cole has served on numerous non-profit boards, including the Greater Topeka Chamber of Commerce, Family Service and Guidance Center, Junior Achievement of Greater Kansas City, KTWU Public Television's advisory board and the advisory council for the Washburn University Leadership Institute.

Chief Executive Officer John B. Dicus remarked, "Ms. Cole's extensive background in all aspects of corporate communications brings to the board knowledge and experience that enhances the board's oversight of the Company's operations. Also noteworthy is her volunteerism for charity organizations which connects with our corporate philosophy of community involvement. These attributes will make her a valuable addition to the Capitol Federal Financial, Inc. board."

Ward was elected to the Capitol Federal board of directors in 1977. She was the first woman to join the board and served as Capitol Federal's first Audit Committee Chair. From 1985 until her retirement in 2004, she was Executive Director of ERC/Resource & Referral, a family resource center located in Topeka, Kansas, where she was responsible for financial operations, including fund-raising, budgeting and grant writing. Ms. Ward is a past president of the board of Child Care Aware of Kansas and a past president of Kansas Children's Service League Foundation.

"The Capitol Federal Financial, Inc. board of directors and Capitol Federal employees congratulate Marilyn on her retirement," remarked CEO Dicus, "and we extend our sincere appreciation for her service to the board. During her nearly 40-year tenure, Marilyn saw many changes to the financial industry, including the effects of both the Savings and Loan Crisis of the 1980s and the 2008 Financial Crisis. She also was on the board when Capitol Federal became a public company. Her leadership and foresight helped guide Capitol Federal to the Bank it is today, and her legacy will forever remain a part of the proud history of Capitol Federal."

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 47 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 on the Internet at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed 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 that involve risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies and other governmental initiatives affecting the financial services industry, 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:
 
 
Jim Wempe
 
Kent Townsend
Vice President
 
Executive Vice President,
Investor Relations
 
Chief Financial Officer and Treasurer
700 S Kansas Ave
 
700 S Kansas Ave
Topeka, KS 66603
 
Topeka, KS 66603
(785) 270-6055
 
(785) 231-6360
jwempe@capfed.com
 
ktownsend@capfed.com



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Section 5: EX-99.4 (PRESS RELEASE ANNOUNCING EARNINGS)

Exhibit



37733389_cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
January 27, 2017
CAPITOL FEDERAL® FINANCIAL, INC.
REPORTS FIRST QUARTER FISCAL YEAR 2017 RESULTS

Topeka, KS - Capitol Federal Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended December 31, 2016. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2016, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 9, 2017 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 $20.6 million, including $642 thousand from the leverage strategy;
basic and diluted earnings per share of $0.15;
annualized loan portfolio growth of 6.5%;
net interest margin of 1.73% (2.07% excluding the effects of the leverage strategy); and
dividends paid of $50.2 million, or $0.375 per share.

Comparison of Operating Results for the Three Months Ended December 31, 2016 and September 30, 2016

For the quarter ended December 31, 2016, the Company recognized net income of $20.6 million, or $0.15 per share, compared to net income of $20.7 million, or $0.16 per share, for the quarter ended September 30, 2016. The decrease in earnings per share was due to the decrease in net income between quarters along with an increase in average shares outstanding during the current quarter.

Capitol Federal Savings Bank (the "Bank") continued to utilize a leverage strategy to increase earnings. The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's Federal Home Loan Bank Topeka ("FHLB") line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end for regulatory purposes. The proceeds from the borrowings, net of the required FHLB stock holdings, were deposited at the Federal Reserve Bank of Kansas City. Net income attributable to the leverage strategy was $642 thousand during the current quarter, compared to $616 thousand for the prior quarter.

Net interest income decreased $426 thousand, or 0.9%, from the prior quarter to $47.3 million for the current quarter. The net interest margin decreased one basis point from 1.74% for the prior quarter to 1.73% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have decreased two basis points from 2.09% for the prior quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to an increase in interest expense on deposits and an increase in the average balance of operating cash which excludes funds related to the leverage strategy, partially offset by a decrease in interest expense on term borrowings. The positive impact on the net interest margin resulting from the shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans was offset by a decrease in the loan portfolio yield.


1



Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased one basis point from the prior quarter, to 2.76%, while the average balance of interest-earning assets decreased $78.5 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased one basis point from the prior quarter, to 3.20%, while the average balance would have decreased $10.0 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:
 
2016
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
61,945

 
$
61,516

 
$
429

 
0.7
 %
Mortgage-backed securities ("MBS")
6,362

 
6,860

 
(498
)
 
(7.3
)
Cash and cash equivalents
2,969

 
2,774

 
195

 
7.0

FHLB stock
2,939

 
3,044

 
(105
)
 
(3.4
)
Investment securities
1,107

 
1,401

 
(294
)
 
(21.0
)
Total interest and dividend income
$
75,322

 
$
75,595

 
$
(273
)
 
(0.4
)

The increase in interest income on loans receivable was due to a $116.4 million increase in the average balance of the portfolio, partially offset by a four basis point decrease in the weighted average yield on the portfolio, to 3.53% for the current quarter. The loan growth was funded with cash flows from the securities portfolio and utilizing excess operating cash. The decrease in the weighted average yield was due primarily to loans repricing to lower market rates and the origination and purchase of loans at rates less than the existing portfolio rate, along with an increase in premium amortization related to correspondent loans due to both the increase in the size of the correspondent loan portfolio and repayment activity.

The decrease in interest income on MBS was due mainly to a $92.2 million decrease in the average balance of the portfolio as cash flows were used to fund loan growth and pay off a maturing FHLB advance. During the current quarter, $1.3 million of net premiums on MBS were amortized, which decreased the weighted average yield on the portfolio by 43 basis points. During the prior quarter, $1.3 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 42 basis points. As of December 31, 2016, the remaining net balance of premiums on our portfolio of MBS was $11.9 million.

The decrease in interest income on investment securities was due primarily to a $75.2 million decrease in the average balance of the portfolio as cash flows were used to fund loan growth and pay off a maturing FHLB advance, along with a six basis point decrease in the weighted average yield on the portfolio, to 1.24% for the current quarter. The decrease in the weighted average yield was due to the prior quarter including more discount accretion than the current quarter due to the call of securities in the prior quarter.


2



Interest Expense
The weighted average rate paid on total interest-bearing liabilities for the current quarter increased two basis points from the prior quarter, to 1.15%, while the average balance of interest-bearing liabilities decreased $96.8 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased one basis point from the prior quarter, to 1.30%, while the average balance would have decreased $28.3 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2016
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB advances
$
13,236

 
$
13,400

 
$
(164
)
 
(1.2
)%
FHLB leverage strategy
2,881

 
2,862

 
19

 
0.7

Deposits
10,396

 
10,098

 
298

 
3.0

Repurchase agreements
1,503

 
1,503

 

 

Total interest expense
$
28,016

 
$
27,863

 
$
153

 
0.5


The decrease in interest expense on FHLB advances was due to an $82.2 million decrease in the average balance of the portfolio, partially offset by a five basis point increase in the weighted average rate paid during the current quarter, to 2.27%. During the current quarter, a $100.0 million advance with an effective rate of 0.78%, which was lower than the existing portfolio rate, matured and was not renewed or replaced, thereby increasing the weighted average rate paid on the portfolio.

The increase in interest expense on deposits was due primarily to a $53.9 million increase in the average balance of the deposit portfolio, along with a one basis point increase in the weighted average rate paid on the deposit portfolio, to 0.80% for the current quarter. The increase between quarters in the average balance and the weighted average rate paid was due largely to changes in the certificate of deposit portfolio.

Provision for Credit Losses
The Bank did not record a provision for credit losses during the current quarter compared to a negative provision for credit losses during the prior quarter of $750 thousand. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, management determined that no provision for credit losses was necessary in the current quarter. Net loan charge-offs were $19 thousand during the current quarter compared to $22 thousand in the prior quarter. At December 31, 2016, loans 30 to 89 days delinquent were 0.35% of total loans and loans 90 or more days delinquent or in foreclosure were 0.22% of total loans.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2016
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
$
3,709

 
$
3,738

 
$
(29
)
 
(0.8
)%
Income from bank-owned life insurance ("BOLI")
523

 
610

 
(87
)
 
(14.3
)
Other non-interest income
1,036

 
1,343

 
(307
)
 
(22.9
)
Total non-interest income
$
5,268

 
$
5,691

 
$
(423
)
 
(7.4
)

The decrease in other non-interest income was due primarily to a decrease in insurance commissions resulting from the receipt of annual commissions from certain insurance providers during the prior quarter and no such commissions being received in the current quarter.


3



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:
 
2016
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
10,634

 
$
10,774

 
$
(140
)
 
(1.3
)%
Information technology and communications
2,834

 
2,657

 
177

 
6.7

Occupancy, net
2,675

 
2,682

 
(7
)
 
(0.3
)
Deposit and loan transaction costs
1,386

 
1,466

 
(80
)
 
(5.5
)
Regulatory and outside services
1,346

 
1,645

 
(299
)
 
(18.2
)
Federal insurance premium
894

 
918

 
(24
)
 
(2.6
)
Advertising and promotional
690

 
1,419

 
(729
)
 
(51.4
)
Office supplies and related expense
437

 
624

 
(187
)
 
(30.0
)
Low income housing partnerships

 
1,057

 
(1,057
)
 
(100.0
)
Other non-interest expense
701

 
720

 
(19
)
 
(2.6
)
Total non-interest expense
$
21,597

 
$
23,962

 
$
(2,365
)
 
(9.9
)

The decrease in regulatory and outside services was due primarily to the timing of external audit fees. The decrease in advertising and promotional expense was due mainly to the timing of media campaigns and sponsorships. The decrease in office supplies and related expense was due mainly to the timing of certain expenses. The decrease in low income housing partnerships expense was due to a change in the Bank's method of accounting for those investments. The Bank had been accounting for these partnerships using the equity method of accounting as two of the Bank's officers were involved in the operational management of the low income housing partnership investment group. Effective September 30, 2016, those two Bank officers discontinued their involvement in the operational management of the investment group. On October 1, 2016, the Bank began using the proportional method of accounting for those investments rather than the equity method. As a result, the Bank no longer reports low income housing partnership expenses in non-interest expense; rather, the pretax operating losses and related tax benefits from the investments are reported as a component of income tax expense.

The Company's efficiency ratio was 41.08% for the current quarter compared to 44.85% for the prior quarter. The change in the efficiency ratio was due primarily to a decrease in non-interest expense, mainly a result of the change in the method of accounting for low income housing partnerships. 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 lower level of expense.

Income Tax Expense
Income tax expense was $10.4 million for the current quarter, compared to $9.5 million for the prior quarter. The effective tax rate for the current quarter was 33.6% compared to 31.5% for the prior quarter. The increase in effective tax rate was due primarily to the change in accounting for low income housing partnerships as previously discussed. Management anticipates the effective tax rate for fiscal year 2017 will be approximately 34%, based on fiscal year 2017 estimates as of December 31, 2016.

Comparison of Operating Results for the Three Months Ended December 31, 2016 and 2015

The Company recognized net income of $20.6 million, or $0.15 per share, for the quarter ended December 31, 2016, a decrease of $140 thousand, or 0.7%, from the quarter ended December 31, 2015. The Company's efficiency ratio was 41.08% for the current quarter compared to 44.05% for the prior year quarter. The change in the efficiency ratio was due primarily to a decrease in non-interest expense. See "Non-interest Expense" section below for additional information regarding the decrease in expense.

Net income attributable to the leverage strategy was $642 thousand during the current quarter, compared to $583 thousand for the prior year quarter. The increase was due primarily to a decrease in the Federal Deposit Insurance Corporation ("FDIC") base assessment rate, as a portion of federal insurance premiums are attributable to the leverage strategy due to the increase in average assets resulting from the strategy. The decrease in the FDIC base assessment rate was effective July 1, 2016 and was the result of the FDIC Deposit Insurance Fund reaching 1.15% of total estimated insured deposits of the banking system on June 30, 2016.

4




The net interest margin decreased two basis points, from 1.75% for the prior year quarter to 1.73% for the current year quarter. Excluding the effects of the leverage strategy, the net interest margin would have decreased four basis points, from 2.11% for the prior year quarter to 2.07% for the current year quarter. The decrease in the net interest margin was due mainly to an increase in interest expense on deposits and a decrease in the yield on the MBS portfolio, partially offset by a decrease in interest expense on borrowings not related to the leverage strategy. The positive impact on the net interest margin resulting from the shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans was offset by a decrease in the loan portfolio yield.

Interest and Dividend Income
The weighted average yield on total interest-earning assets increased five basis points, from 2.71% for the prior year quarter to 2.76% for the current quarter, and the average balance of interest-earning assets decreased $56.4 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 3.21% for the prior year quarter to 3.20% for the current quarter, while the average balance would have increased $12.1 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:
 
2016
 
2015
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
61,945

 
$
60,223

 
$
1,722

 
2.9
 %
MBS
6,362

 
7,831

 
(1,469
)
 
(18.8
)
Cash and cash equivalents
2,969

 
1,620

 
1,349

 
83.3

FHLB stock
2,939

 
3,152

 
(213
)
 
(6.8
)
Investment securities
1,107

 
1,533

 
(426
)
 
(27.8
)
Total interest and dividend income
$
75,322

 
$
74,359

 
$
963

 
1.3


The increase in interest income on loans receivable was due to a $363.6 million increase in the average balance of the portfolio, partially offset by a nine basis point decrease in the weighted average yield on the portfolio, to 3.53% for the current quarter. Loan growth was primarily funded through cash flows from the securities portfolio. The decrease in the weighted average yield was due primarily to an increase in the amortization of premiums related to correspondent loans due mainly to repayment activity, along with loans repricing to lower market rates and the origination and purchase of loans between periods at rates less than the existing portfolio rate.

The decrease in interest income on the MBS portfolio was due primarily to a $212.3 million decrease in the average balance of the portfolio as cash flows not reinvested were used to fund loan growth and pay off maturing FHLB advances. Additionally, the weighted average yield on the MBS portfolio decreased 10 basis points, from 2.22% during the prior year quarter to 2.12% for the current quarter. The decrease in the weighted average yield was due to an increase in the impact of net premium amortization. Net premium amortization of $1.3 million during the current quarter decreased the weighted average yield on the portfolio by 43 basis points. During the prior year quarter, $1.2 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 33 basis points.

The increase in interest income on cash and cash equivalents was due to a 25 basis point increase in the weighted average yield resulting from an increase in the yield earned on balances held at the Federal Reserve Bank.

The decrease in interest income on investment securities was due to a $146.5 million decrease in the average balance. Cash flows not reinvested in the portfolio were used to fund loan growth and pay off maturing FHLB advances.


5



Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased seven basis points, from 1.08% for the prior year quarter to 1.15% for the current quarter, while the average balance of interest-bearing liabilities decreased $31.6 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 two basis points from the prior year quarter, to 1.30% for the current quarter, while the average balance of interest-bearing liabilities would have increased $36.8 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:
 
2016
 
2015
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB advances
$
13,236

 
$
14,325

 
$
(1,089
)
 
(7.6
)%
FHLB leverage strategy
2,881

 
1,749

 
1,132

 
64.7

Deposits
10,396

 
8,799

 
1,597

 
18.1

Repurchase agreements
1,503

 
1,504

 
(1
)
 
(0.1
)
Total interest expense
$
28,016

 
$
26,377

 
$
1,639

 
6.2


The decrease in interest expense on FHLB advances was due to a $217.9 million decrease in the average balance of the portfolio as a result of not replacing all of the FHLB advances that matured between periods, partially offset by a three basis point increase in the weighted average rate paid on the portfolio, to 2.27% for the current quarter. Cash flows from the deposit and securities portfolios were used to pay off the maturing FHLB advances. The increase in the weighted average rate paid was due to the maturing FHLB advances having a lower rate than the overall FHLB advance portfolio rate. The increase in interest expense on FHLB leverage strategy borrowings was due to a 23 basis point increase in the weighted average rate paid due to an increase in interest rates between periods.

The increase in interest expense on deposits was due primarily to a nine basis point increase in the weighted average rate, to 0.80% for the current quarter, along with growth in the portfolio. The increase in weighted average rate was primarily related to the retail certificate of deposit portfolio. The average balance of the deposit portfolio increased $254.7 million for the current quarter, with the majority of the increase in the retail deposit portfolio.

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:
 
2016
 
2015
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
$
3,709

 
$
3,814

 
$
(105
)
 
(2.8
)%
Income from BOLI
523

 
703

 
(180
)
 
(25.6
)
Other non-interest income
1,036

 
1,049

 
(13
)
 
(1.2
)
Total non-interest income
$
5,268

 
$
5,566

 
$
(298
)
 
(5.4
)

The decrease in income from BOLI was due mainly to a decrease in the yield on the Bank's BOLI policies.


6



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:
 
2016
 
2015
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
10,634

 
$
10,487

 
$
147

 
1.4
 %
Information technology and communications
2,834

 
2,558

 
276

 
10.8

Occupancy, net
2,675

 
2,672

 
3

 
0.1

Deposit and loan transaction costs
1,386

 
1,274

 
112

 
8.8

Regulatory and outside services
1,346

 
1,486

 
(140
)
 
(9.4
)
Federal insurance premium
894

 
1,382

 
(488
)
 
(35.3
)
Advertising and promotional
690

 
1,154

 
(464
)
 
(40.2
)
Office supplies and related expense
437

 
887

 
(450
)
 
(50.7
)
Low income housing partnerships

 
773

 
(773
)
 
(100.0
)
Other non-interest expense
701

 
917

 
(216
)
 
(23.6
)
Total non-interest expense
$
21,597

 
$
23,590

 
$
(1,993
)
 
(8.4
)

The increase in information technology and communications was due largely to software licensing and communication network expenses. The decrease in federal insurance premiums was due primarily to a decrease in the FDIC base assessment rate. The decrease in advertising and promotional expense was due mainly to the timing of media campaigns and sponsorships. The decrease in office supplies and related expense was due primarily to the purchase of cards enabled with chip card technology during the prior year quarter and no such expenses in the current quarter. The decrease in low income housing partnerships expense was due to a change in accounting method as previously discussed. The decrease in other non-interest expense was due mainly to lower deposit account charge-offs related to debit card fraud in the current year quarter, along with a decrease in other real estate owned ("OREO") operations expense.

Income Tax Expense
Income tax expense was $10.4 million for the current quarter compared to $9.2 million for the prior year quarter. The effective tax rate for the current quarter was 33.6% compared to 30.8% for the prior year quarter. The increase in effective tax rate was due mainly to the change in accounting method for low income housing partnerships as previously discussed.

Financial Condition as of December 31, 2016

Total assets were $9.14 billion at December 31, 2016 compared to $9.27 billion at September 30, 2016. The $127.7 million decrease was due primarily to a $131.2 million decrease in cash and cash equivalents and a $106.2 million decrease in the securities portfolio. These cash flows were used to fund loan growth and pay off a maturing $100.0 million FHLB advance during the current quarter.

The loans receivable portfolio, net, increased $113.4 million to $7.07 billion at December 31, 2016, from $6.96 billion at September 30, 2016. This growth was primarily funded with cash flows from the securities portfolio. During the current quarter, the Bank originated and refinanced $223.1 million of loans with a weighted average rate of 3.32% and purchased $180.6 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.33%. The Bank also entered into participations of $32.3 million of commercial real estate loans with a weighted average rate of 3.96%, of which $24.5 million had not yet been funded as of December 31, 2016.

Total liabilities were $7.77 billion at December 31, 2016 compared to $7.87 billion at September 30, 2016. The $102.9 million decrease was due primarily to a $99.6 million decrease in FHLB borrowings as a result of the maturity of a $100.0 million FHLB advance during the current quarter which was not replaced.

Stockholders' equity was $1.37 billion at December 31, 2016 compared to $1.39 billion at September 30, 2016. The $24.8 million decrease was due primarily to the payment of $50.2 million in cash dividends, partially offset by net income of $20.6 million. The cash dividends paid during the current quarter totaled $0.375 per share and consisted of a $0.29 per share cash true-up dividend related to fiscal year 2016 earnings per the Company's dividend policy, and a regular quarterly cash dividend of $0.085 per share. On January

7



24, 2017, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.4 million, payable on February 17, 2017 to stockholders of record as of the close of business on February 3, 2017.

At December 31, 2016, Capitol Federal Financial, Inc., at the holding company level, had $83.6 million on deposit at the Bank. For fiscal year 2017, it is the intent of the Board of Directors and management to continue with the payout of 100% of the Company's earnings to its 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.

In October 2015, the Company announced a stock repurchase plan for up to $70.0 million of common stock. The repurchase plan does not have an expiration date. The Company has not repurchased any shares under the repurchase plan through the date of this release.

The following table presents the balance of stockholders' equity and related information as of the dates presented.
 
December 31,
 
September 30,
 
December 31,
 
2016
 
2016
 
2015
 
(Dollars in thousands)
Stockholders' equity
$
1,368,175

 
$
1,392,964

 
$
1,390,833

Equity to total assets at end of period
15.0
%
 
15.0
%
 
15.2
%

The following table presents a reconciliation of total to net shares outstanding as of December 31, 2016.
Total shares outstanding
137,915,672

Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock
(4,007,553
)
Net shares outstanding
133,908,119


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, 2016, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at December 31, 2016.
 
 
 
Regulatory
 
 
 
Requirement For
 
Bank
 
"Well-Capitalized"
 
Ratios
 
Status
Tier 1 leverage ratio
11.0%
 
5.0
%
Common equity tier 1 capital ratio
28.3
 
6.5

Tier 1 capital ratio
28.3
 
8.0

Total capital ratio
28.5
 
10.0


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, 2016 is as follows (dollars in thousands):
Total Bank equity as reported under GAAP
$
1,240,252

Unrealized gains on available-for-sale ("AFS") securities
(4,601
)
Total tier 1 capital
1,235,651

ACL
8,521

Total capital
$
1,244,172


8




Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 47 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 on the Internet at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed 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 that involve risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies and other governmental initiatives affecting the financial services industry, 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:
Jim Wempe
Kent Townsend
Vice President,
Executive Vice President,
Investor Relations
Chief Financial Officer and Treasurer
700 S Kansas Ave.
700 S Kansas Ave.
Topeka, KS 66603
Topeka, KS 66603
(785) 270-6055
(785) 231-6360
jwempe@capfed.com
ktownsend@capfed.com

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,
 
2016
 
2016
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $128,460 and $267,829)
$
150,560

 
$
281,764

Securities:
 
 
 
AFS at estimated fair value (amortized cost of $492,395 and $517,791)
499,792

 
527,301

Held-to-maturity at amortized cost (estimated fair value of $1,027,292 and $1,122,867)
1,022,215

 
1,100,874

Loans receivable, net (ACL of $8,521 and $8,540)
7,071,410

 
6,958,024

FHLB stock, at cost
105,364

 
109,970

Premises and equipment, net
83,838

 
83,221

Other assets
206,331

 
206,093

TOTAL ASSETS
$
9,139,510

 
$
9,267,247

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
5,192,674

 
$
5,164,018

FHLB borrowings
2,272,754

 
2,372,389

Repurchase agreements
200,000

 
200,000

Advance payments by borrowers for taxes and insurance
25,403

 
62,643

Income taxes payable, net
9,369

 
310

Deferred income tax liabilities, net
24,594

 
25,374

Accounts payable and accrued expenses
46,541

 
49,549

Total liabilities
7,771,335

 
7,874,283

 
 
 
 
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, 137,915,672 and 137,486,172
 
 
 
 shares issued and outstanding as of December 31, 2016 and September 30, 2016, respectively
1,379

 
1,375

Additional paid-in capital
1,162,584

 
1,156,855

Unearned compensation, ESOP
(39,235
)
 
(39,647
)
Retained earnings
238,846

 
268,466

Accumulated other comprehensive income, net of tax
4,601

 
5,915

Total stockholders' equity
1,368,175

 
1,392,964

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,139,510

 
$
9,267,247


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,
 
2016
 
2016
 
2015
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
Loans receivable
$
61,945

 
$
61,516

 
$
60,223

MBS
6,362

 
6,860

 
7,831

Cash and cash equivalents
2,969

 
2,774

 
1,620

FHLB stock
2,939

 
3,044

 
3,152

Investment securities
1,107

 
1,401

 
1,533

Total interest and dividend income
75,322

 
75,595

 
74,359

 
 
 
 
 
 
INTEREST EXPENSE:
 
 
 
 
 
FHLB borrowings
16,117

 
16,262

 
16,074

Deposits
10,396

 
10,098

 
8,799

Repurchase agreements
1,503

 
1,503

 
1,504

Total interest expense
28,016

 
27,863

 
26,377

 
 
 
 
 
 
NET INTEREST INCOME
47,306

 
47,732

 
47,982

 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES

 
(750
)
 

NET INTEREST INCOME AFTER
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
47,306

 
48,482

 
47,982

 
 
 
 
 
 
NON-INTEREST INCOME:
 
 
 
 
 
Retail fees and charges
3,709

 
3,738

 
3,814

Income from BOLI
523

 
610

 
703

Other non-interest income
1,036

 
1,343

 
1,049

Total non-interest income
5,268

 
5,691

 
5,566

 
 
 
 
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
Salaries and employee benefits
10,634

 
10,774

 
10,487

Information technology and communications
2,834

 
2,657

 
2,558

Occupancy, net
2,675

 
2,682

 
2,672

Deposit and loan transaction costs
1,386

 
1,466

 
1,274

Regulatory and outside services
1,346

 
1,645

 
1,486

Federal insurance premium
894

 
918

 
1,382

Advertising and promotional
690

 
1,419

 
1,154

Low income housing partnerships

 
1,057

 
773

Office supplies and related expense
437

 
624

 
887

Other non-interest expense
701

 
720

 
917

Total non-interest expense
21,597

 
23,962

 
23,590

INCOME BEFORE INCOME TAX EXPENSE
30,977

 
30,211

 
29,958

INCOME TAX EXPENSE
10,399

 
9,513

 
9,240

NET INCOME
$
20,578

 
$
20,698

 
$
20,718


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,
 
2016
 
2016
 
2015
 
(Dollars in thousands, except per share amounts)
Net income
$
20,578

 
$
20,698

 
$
20,718

Income allocated to participating securities
(13
)
 
(12
)
 
(27
)
Net income available to common stockholders
$
20,565

 
$
20,686

 
$
20,691

 
 
 
 
 
 
Average common shares outstanding
133,696,125

 
133,171,931

 
132,821,834

Average committed ESOP shares outstanding
449

 
124,346

 
449

Total basic average common shares outstanding
133,696,574

 
133,296,277

 
132,822,283

 
 
 
 
 
 
Effect of dilutive stock options
253,222

 
196,922

 
88,873

 
 
 
 
 
 
Total diluted average common shares outstanding
133,949,796

 
133,493,199

 
132,911,156

 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
Basic
$
0.15

 
$
0.16

 
$
0.16

Diluted
$
0.15

 
$
0.16

 
$
0.16

 
 
 
 
 
 
Antidilutive stock options, excluded from the diluted
 
 
 
 
average common shares outstanding calculation
236,400

 
711,827

 
872,039




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, 2016
 
September 30, 2016
 
December 31, 2015
 
 
 
 
 
% of
 
 
 
 
 
% of
 
 
 
 
 
% of
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
$
4,027,991

 
3.70
%
 
57.0
%
 
$
4,005,615

 
3.74
%
 
57.6
%
 
$
4,005,585

 
3.82
%
 
60.1
%
Correspondent purchased
2,288,368

 
3.48

 
32.4

 
2,206,072

 
3.50

 
31.7

 
1,896,393

 
3.52

 
28.5

Bulk purchased
400,506

 
2.24

 
5.7

 
416,653

 
2.23

 
6.0

 
469,400

 
2.23

 
7.0

Construction
37,524

 
3.44

 
0.5

 
39,430

 
3.45

 
0.6

 
31,427

 
3.58

 
0.5

Total
6,754,389

 
3.54

 
95.6

 
6,667,770

 
3.56

 
95.9

 
6,402,805

 
3.62

 
96.1

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent
104,323

 
4.15

 
1.5

 
110,768

 
4.16

 
1.6

 
112,917

 
4.14

 
1.7

Construction
76,254

 
4.10

 
1.1

 
43,375

 
4.13

 
0.6

 
15,448

 
3.85

 
0.2

Total
180,577

 
4.13

 
2.6

 
154,143

 
4.15

 
2.2

 
128,365

 
4.10

 
1.9

Total real estate loans
6,934,966

 
3.55

 
98.2

 
6,821,913

 
3.58

 
98.1

 
6,531,170

 
3.63

 
98.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
122,378

 
4.99

 
1.7

 
123,345

 
5.01

 
1.8

 
126,259

 
4.96

 
1.9

Other
4,213

 
4.19

 
0.1

 
4,264

 
4.21

 
0.1

 
4,219

 
4.12

 
0.1

Total consumer loans
126,591

 
4.96

 
1.8

 
127,609

 
4.99

 
1.9

 
130,478

 
4.94

 
2.0

Total loans receivable
7,061,557

 
3.58

 
100.0
%
 
6,949,522

 
3.60

 
100.0
%
 
6,661,648

 
3.65

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACL
8,521

 
 
 
 
 
8,540

 
 
 
 
 
9,201

 
 
 
 
Discounts/unearned loan fees
25,028

 
 
 
 
 
24,933

 
 
 
 
 
24,172

 
 
 
 
Premiums/deferred costs
(43,402
)
 
 
 
 
 
(41,975
)
 
 
 
 
 
(36,853
)
 
 
 
 
Total loans receivable, net
$
7,071,410

 
 
 
 
 
$
6,958,024

 
 
 
 
 
$
6,665,128

 
 
 
 




13



Loan Activity: The following table summarizes activity in our loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in undisbursed loan funds, ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following tables 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 quarters ended December 31, 2016 and 2015, the Bank endorsed $33.8 million and $23.6 million of one- to four-family loans, respectively, reducing the average rate on those loans by 89 and 90 basis points, respectively.
 
For the Three Months Ended
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
6,949,522

 
3.60
%
 
$
6,832,770

 
3.63
%
 
$
6,763,980

 
3.64
%
 
$
6,661,648

 
3.65
%
Originated and refinanced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
176,554

 
3.26

 
176,534

 
3.31

 
155,179

 
3.52

 
117,205

 
3.65

Adjustable
46,566

 
3.54

 
48,608

 
3.53

 
44,319

 
3.61

 
35,495

 
3.77

Purchased and participations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
187,674

 
3.52

 
190,830

 
3.50

 
178,762

 
3.71

 
249,017

 
3.68

Adjustable
25,262

 
2.73

 
65,748

 
3.79

 
24,715

 
2.90

 
27,355

 
2.93

Change in undisbursed loan funds
3,696

 
 
 
(26,760
)
 
 
 
(23,431
)
 
 
 
(90,800
)
 
 
Repayments
(326,839
)
 
 
 
(337,779
)
 
 
 
(310,041
)
 
 
 
(235,202
)
 
 
Principal (charge-offs) recoveries, net
(19
)
 
 
 
(22
)
 
 
 
119

 
 
 
(8
)
 
 
Other
(859
)
 
 
 
(407
)
 
 
 
(832
)
 
 
 
(730
)
 
 
Ending balance
$
7,061,557

 
3.58

 
$
6,949,522

 
3.60

 
$
6,832,770

 
3.63

 
$
6,763,980

 
3.64

 
 
 
 
 
 
 
 

14



The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years. The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination, and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.
 
For the Three Months Ended
 
December 31, 2016
 
December 31, 2015
 
Amount
 
Rate
 
% of Total
 
Amount
 
Rate
 
% of Total
Fixed-rate:
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 15 years
$
84,347

 
2.78
%
 
19.3
%
 
$
60,427

 
3.01
%
 
18.7
%
> 15 years
246,730

 
3.52

 
56.6

 
166,383

 
3.79

 
51.5

Commercial real estate
32,291

 
3.96

 
7.4

 
31,164

 
4.25

 
9.6

Home equity
733

 
6.09

 
0.2

 
893

 
5.65

 
0.3

Other
127

 
9.90

 

 
224

 
8.41

 
0.1

Total fixed-rate
364,228

 
3.39

 
83.5

 
259,091

 
3.68

 
80.2

 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 36 months
1,427

 
2.42

 
0.3

 
904

 
2.66

 
0.3

> 36 months
52,031

 
2.76

 
12.0

 
41,097

 
3.02

 
12.7

Commercial real estate

 

 

 
3,376

 
4.25

 
1.0

Home equity
17,933

 
4.77

 
4.1

 
18,059

 
4.52

 
5.6

Other
437

 
3.30

 
0.1

 
542

 
3.44

 
0.2

Total adjustable-rate
71,828

 
3.25

 
16.5

 
63,978

 
3.51

 
19.8

 
 
 
 
 
 
 
 
 
 
 
 
Total originated, refinanced and purchased
$
436,056

 
3.37

 
100.0
%
 
$
323,069

 
3.64

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Purchased and participation loans included above:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
$
155,383

 
3.43

 
 
 
$
96,111

 
3.66

 
 
Participations - commercial real estate
32,291

 
3.96

 
 
 
5,533

 
4.25

 
 
Total fixed-rate purchased/participations
187,674

 
3.52

 
 
 
101,644

 
3.69

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
25,262

 
2.73

 
 
 
22,485

 
3.01

 
 
Participations - commercial real estate

 

 
 
 
3,376

 
4.25

 
 
Total adjustable-rate purchased/participations
25,262

 
2.73

 
 
 
25,861

 
3.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total purchased/participation loans
$
212,936

 
3.43

 
 
 
$
127,505

 
3.59

 
 




15



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 at the dates presented. Credit scores are updated at least semiannually, with the last update in September 2016, 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, 2016
 
September 30, 2016
 
December 31, 2015
 
 
 
% of
 
Credit
 
 
 
Average
 
 
 
% of
 
Credit
 
 
 
Average
 
 
 
% of
 
Credit
 
 
 
Average
 
Amount
 
Total
 
Score
 
LTV
 
Balance
 
Amount
 
Total
 
Score
 
LTV
 
Balance
 
Amount
 
Total
 
Score
 
LTV
 
Balance
 
(Dollars in thousands)
Originated
$
4,027,991

 
60.0
%
 
766

 
63
%
 
$
133

 
$
4,005,615

 
60.4
%
 
766

 
63
%
 
$
132

 
$
4,005,585

 
62.9
%
 
765

 
64
%
 
$
129

Correspondent purchased
2,288,368

 
34.0

 
764

 
68

 
366

 
2,206,072

 
33.3

 
764

 
68

 
360

 
1,896,393

 
29.7

 
764

 
68

 
344

Bulk purchased
400,506

 
6.0

 
753

 
64

 
307

 
416,653

 
6.3

 
753

 
64

 
308

 
469,400

 
7.4

 
753

 
65

 
308

 
$
6,716,865

 
100.0
%
 
765

 
65

 
178

 
$
6,628,340

 
100.0
%
 
765

 
65

 
175

 
$
6,371,378

 
100.0
%
 
764

 
65

 
168


The following table summarizes our one- to four-family loan origination, refinance, and correspondent purchase commitments as of December 31, 2016, along with associated weighted average rates. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. A percentage of the commitments are expected to expire unfunded, so the amounts reflected in the table below are not necessarily indicative of future cash requirements.
 
Fixed-Rate
 
 
 
 
 
 
 
15 years
 
More than
 
Adjustable-
 
Total
 
or less
 
15 years
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Originate/refinance
$
20,406

 
$
56,251

 
$
16,591

 
$
93,248

 
3.37
%
Correspondent
16,967

 
98,218

 
20,959

 
136,144

 
3.63

 
$
37,373

 
$
154,469

 
$
37,550

 
$
229,392

 
3.52

 
 
 
 
 
 
 
 
 
 
Rate
2.99
%
 
3.78
%
 
3.01
%
 
 
 
 


16



The following table presents originated, refinanced, and correspondent 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.
 
For the Three Months Ended
 
December 31, 2016
 
December 31, 2015
 
 
 
 
 
Credit
 
 
 
 
 
Credit
 
Amount
 
LTV
 
Score
 
Amount
 
LTV
 
Score
 
(Dollars in thousands)
Originated
$
144,737

 
76
%
 
771

 
$
113,655

 
76
%
 
766

Refinanced by Bank customers
59,153

 
66

 
768

 
36,560

 
68

 
769

Correspondent purchased
180,645

 
72

 
767

 
118,596

 
74

 
763

 
$
384,535

 
73

 
769

 
$
268,811

 
74

 
765


The following table presents the amount, percent of total, and weighted average rate, by state, for 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, 2016.
State
 
Amount
 
% of Total
 
Rate
 
 
(Dollars in thousands)
Kansas
 
$
179,453

 
46.6
%
 
3.17
%
Texas
 
78,100

 
20.3

 
3.31

Missouri
 
60,206

 
15.7

 
3.29

Other states
 
66,776

 
17.4

 
3.35

 
 
$
384,535

 
100.0
%
 
3.25


Commercial Real Estate Loans: During the current quarter, the Bank entered into commercial real estate loan participations of $32.3 million, which included $27.8 million of commercial real estate construction loans. The majority of the $27.8 million of commercial real estate construction loans had not yet been funded at December 31, 2016. The Bank intends to continue to grow its commercial real estate loan portfolio through participations with correspondent lenders and other lead banks with which the Bank has commercial real estate lending relationships.

The following table presents the Bank's commercial real estate loans and commitments by industry classification, as defined by the North American Industry Classification System, as of December 31, 2016.
 
Unpaid
 
Undisbursed
 
Gross Loan
 
Outstanding
 
 
 
% of
 
Principal
 
Amount
 
Amount
 
Commitments
 
Total
 
Total
 
(Dollars in thousands)
Accommodation and food services
$
76,062

 
$
66,228

 
$
142,290

 
$

 
$
142,290

 
38.8
%
Health care and social assistance
21,841

 
53,431

 
75,272

 

 
75,272

 
20.6

Real estate rental and leasing
17,042

 
42,269

 
59,311

 
1,250

 
60,561

 
16.5

Arts, entertainment, and recreation
19,700

 
14,775

 
34,475