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

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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)
October 27, 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 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))

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 October 27, 2017, announcing financial results for fiscal year 2017 is attached hereto as Exhibit 99.1, and is incorporated herein by reference.

ITEM 7.01 REGULATION FD DISCLOSURE
The Registrant’s press release dated October 27, 2017, announcing that its Board of Directors declared a fiscal year 2017 cash true-up dividend of $0.29 per share on outstanding CFFN common stock is attached hereto as Exhibit 99.2, and is incorporated herein by reference. The dividend is payable on December 1, 2017, to stockholders of record as of the close of business on November 17, 2017.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits

Exhibit 99.1 – Press release announcing earnings dated October 27, 2017
Exhibit 99.2 – Press release announcing fiscal year 2017 cash true-up dividend dated October 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: October 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 (PRESS RELEASE ANNOUNCING EARNINGS)

Exhibit



390813128_cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
October 27, 2017
CAPITOL FEDERAL® FINANCIAL, INC.
REPORTS FISCAL YEAR 2017 RESULTS

Topeka, KS - Capitol Federal Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the fiscal year ended September 30, 2017. Detailed results will be available in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017, which will be filed with the Securities and Exchange Commission ("SEC") on or about November 29, 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 fourth quarter include:
net income of $20.6 million;
basic and diluted earnings per share of $0.15;
net interest margin of 1.84% (2.21% excluding the effects of the leverage strategy); and
dividends paid of $11.4 million, or $0.085 per share.

Highlights for the fiscal year include:
net income of $84.1 million;
basic and diluted earnings per share of $0.63;
net interest margin of 1.79% (2.15% excluding the effects of the leverage strategy);
dividends paid of $118.0 million, or $0.88 per share; and
declared a fiscal year 2017 cash true-up dividend of $0.29 per share, payable on December 1, 2017.

Comparison of Operating Results for the Years Ended September 30, 2017 and 2016

For fiscal year 2017, the Company recognized net income of $84.1 million, or $0.63 per share, compared to net income of $83.5 million, or $0.63 per share, for fiscal year 2016. The increase in net income was due primarily to a $3.2 million increase in net interest income, partially offset by a $1.1 million decrease in non-interest income. Additionally, no provision for credit losses was recorded in fiscal year 2017, compared to a negative provision for credit losses of $750 thousand in fiscal year 2016.

The net interest margin increased four basis points, from 1.75% for the prior fiscal year to 1.79% for the current fiscal year. Excluding the effects of the leverage strategy, the net interest margin would have increased five basis points, from 2.10% for the prior fiscal year to 2.15% for the current fiscal year. The increase in the net interest margin was due mainly to a shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans, partially offset by a decrease in the weighted average yield on loans. The positive impact of the decrease in interest expense on borrowings not related to the leverage strategy was offset by an increase in interest expense on deposits.


1



Interest and Dividend Income
The weighted average yield on total interest-earning assets increased 13 basis points, from 2.74% for the prior fiscal year to 2.87% for the current fiscal year, while the average balance of interest-earning assets decreased $100.0 million from the prior fiscal year. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased six basis points, from 3.21% for the prior fiscal year to 3.27% for the current fiscal year, while the average balance would have decreased $59.6 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 Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2017
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
253,393

 
$
243,311

 
$
10,082

 
4.1
 %
Mortgage-backed securities ("MBS")
23,809

 
29,794

 
(5,985
)
 
(20.1
)
Cash and cash equivalents
19,389

 
9,831

 
9,558

 
97.2

Federal Home Loan Bank Topeka ("FHLB") stock
12,233

 
12,252

 
(19
)
 
(0.2
)
Investment securities
4,362

 
5,925

 
(1,563
)
 
(26.4
)
Total interest and dividend income
$
313,186

 
$
301,113

 
$
12,073

 
4.0


The increase in interest income on loans receivable was due to a $384.4 million increase in the average balance of the portfolio, partially offset by a six basis point decrease in the weighted average yield on the portfolio to 3.54% for the current fiscal year. Loan growth was funded through cash flows from the securities portfolio. The decrease in the weighted average yield was due primarily to endorsements and refinances repricing loans to lower market rates, the origination and purchase of loans at rates lower than the overall loan portfolio rate at certain points during each year, and an increase in the amortization of premiums related to correspondent loans.

The decrease in interest income on the MBS portfolio was due to a $278.1 million decrease in the average balance of the portfolio as cash flows not reinvested were used primarily to fund loan growth and pay off maturing FHLB borrowings. The weighted average yield on the MBS portfolio increased one basis point, from 2.18% during the prior fiscal year to 2.19% for the current fiscal year. Net premium amortization of $4.2 million during the current fiscal year decreased the weighted average yield on the portfolio by 39 basis points. During the prior fiscal year, $5.0 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 37 basis points. As of September 30, 2017, the remaining net balance of premiums on our portfolio of MBS was $9.0 million.

The increase in interest income on cash and cash equivalents was due to a 45 basis point increase in the weighted average yield resulting from an increase in the yield earned on balances held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City").

The decrease in interest income on investment securities was due to a $140.1 million decrease in the average balance. Cash flows not reinvested in the portfolio were used primarily to fund loan growth and pay off maturing FHLB borrowings.


2



Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 10 basis points, from 1.11% for the prior fiscal year to 1.21% for the current fiscal year, while the average balance of interest-bearing liabilities decreased $76.2 million from the prior year fiscal year. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased one basis point, from 1.28% for the prior fiscal year to 1.29% for the current fiscal year, while the average balance of interest-bearing liabilities would have decreased $35.8 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 Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2017
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
$
68,871

 
$
65,091

 
$
3,780

 
5.8
 %
Deposits
42,968

 
37,859

 
5,109

 
13.5

Repurchase agreements
5,965

 
5,981

 
(16
)
 
(0.3
)
Total interest expense
$
117,804

 
$
108,931

 
$
8,873

 
8.1


The table above includes interest expense on FHLB borrowings both associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $4.6 million from the prior fiscal year due to a $221.0 million decrease in the average balance of the portfolio as a result of not replacing all of the advances that matured between periods. Funds generated from deposit growth were primarily used to pay off the maturing advances, along with some cash flows from the securities portfolio. The weighted average rate paid on FHLB borrowings not related to the leverage strategy increased one basis point, to 2.24% for the current fiscal year. Interest expense on FHLB borrowings associated with the leverage strategy increased $8.4 million from the prior fiscal year due to a 43 basis point increase in the weighted average rate paid as a result of an increase in interest rates between periods.

The increase in interest expense on deposits was due primarily to a seven basis point increase in the weighted average rate, to 0.82% for the current fiscal year, along with growth in the portfolio. The increase in the weighted average rate was primarily related to the retail certificate of deposit portfolio, which increased 10 basis points to 1.46% for the current fiscal year. The average balance of the deposit portfolio increased $185.2 million during the current fiscal year, with the majority of the increase in retail deposits.

Provision for Credit Losses
Capitol Federal Savings Bank (the "Bank") did not record a provision for credit losses during the current fiscal year, compared to a negative provision for credit losses of $750 thousand during the prior fiscal year. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, it was determined that no provision for credit losses was necessary for the current fiscal year. Net loan charge-offs were $142 thousand during the current fiscal year compared to $153 thousand in the prior fiscal year. At September 30, 2017, loans 30 to 89 days delinquent were 0.26% of total loans and loans 90 or more days delinquent or in foreclosure were 0.13% 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 Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2017
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
$
15,053

 
$
14,835

 
$
218

 
1.5
 %
Income from bank-owned life insurance ("BOLI")
2,233

 
3,420

 
(1,187
)
 
(34.7
)
Other non-interest income
4,910

 
5,057

 
(147
)
 
(2.9
)
Total non-interest income
$
22,196

 
$
23,312

 
$
(1,116
)
 
(4.8
)

The decrease in income from BOLI was due mainly to the receipt of a death benefit during the prior fiscal year with no such death benefit in the current fiscal year.

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 Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2017
 
2016
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
43,437

 
$
42,378

 
$
1,059

 
2.5
 %
Information technology and communications
11,282

 
10,540

 
742

 
7.0

Occupancy, net
10,814

 
10,576

 
238

 
2.3

Regulatory and outside services
5,821

 
5,645

 
176

 
3.1

Deposit and loan transaction costs
5,284

 
5,585

 
(301
)
 
(5.4
)
Advertising and promotional
4,673

 
4,609

 
64

 
1.4

Federal insurance premium
3,539

 
5,076

 
(1,537
)
 
(30.3
)
Office supplies and related expense
1,981

 
2,640

 
(659
)
 
(25.0
)
Low income housing partnerships

 
3,872

 
(3,872
)
 
(100.0
)
Other non-interest expense
2,827

 
3,384

 
(557
)
 
(16.5
)
Total non-interest expense
$
89,658

 
$
94,305

 
$
(4,647
)
 
(4.9
)

The increase in salaries and employee benefits was due primarily to an increase in employee health care costs. The increase in information technology and communications was due largely to software licensing expenses, website hosting expenses, and communication network expenses. The decrease in federal insurance premiums was due primarily to a decrease in the Federal Deposit Insurance Corporation base assessment rate effective July 1, 2016. The decrease in office supplies and related expense was due primarily to lower debit card expenses compared to the prior fiscal year, during which time the Bank began issuing debit cards enabled with chip card technology. 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 decrease in other non-interest expense was due mainly to a decrease in other real estate owned ("OREO") operations expense, along with lower deposit account charge-offs related to debit card fraud in the current fiscal year.

The Company's efficiency ratio was 41.21% for the current fiscal year compared to 43.76% for the prior fiscal year. The improvement in the efficiency ratio was due primarily to lower non-interest expense in the current year compared to the prior year period. 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 $43.8 million for the current fiscal year compared to $38.4 million for the prior year fiscal year. The effective tax rate for the current fiscal year was 34.2% compared to 31.5% for the prior year fiscal year. The increase in effective tax rate was due mainly to the change in accounting method for low income housing partnerships as previously discussed. Management anticipates the effective tax rate for fiscal year 2018 will be approximately 34%.

Comparison of Operating Results for the Three Months Ended September 30, 2017 and June 30, 2017

For the quarter ended September 30, 2017, the Company recognized net income of $20.6 million, or $0.15 per share, compared to net income of $21.4 million, or $0.16 per share, for the quarter ended June 30, 2017. The decrease in net income was due primarily to an increase in non-interest expense. Net interest income increased $294 thousand, or 0.6%, from the prior quarter to $49.7 million for the current quarter. The net interest margin increased three basis point from 1.81% for the prior quarter to 1.84% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have increased five basis point from 2.16% for the prior

4



quarter to 2.21% for the current quarter. The increase in the net interest margin was due mainly to a decrease in interest expense on borrowings not related to the leverage strategy. The Company's efficiency ratio was 42.26% for the current quarter compared to 41.30% for the prior quarter. The change in the efficiency ratio was due primarily to higher non-interest expense in the current quarter compared to the prior quarter.

Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased seven basis points from the prior quarter, to 2.98%, while the average balance of interest-earning assets decreased $126.6 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased four basis points from the prior quarter, to 3.32%, while the average balance would have decreased $104.5 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2017
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
64,329

 
$
64,013

 
$
316

 
0.5
 %
MBS
5,435

 
5,821

 
(386
)
 
(6.6
)
Cash and cash equivalents
6,669

 
5,619

 
1,050

 
18.7

FHLB stock
3,080

 
3,114

 
(34
)
 
(1.1
)
Investment securities
1,061

 
1,063

 
(2
)
 
(0.2
)
Total interest and dividend income
$
80,574

 
$
79,630

 
$
944

 
1.2


The increase in interest income on loans receivable was due to a two basis point increase in the weighted average yield on the portfolio to 3.56% for the current quarter. The increase in the weighted average yield was due primarily to originating/purchasing loans at rates higher than the overall portfolio rate.

The decrease in interest income on MBS was due mainly to a $73.3 million decrease in the average balance of the portfolio. The weighted average yield on the portfolio increased one basis point, to 2.22% for the current quarter. During the current quarter, $937 thousand of net premiums on MBS were amortized, which decreased the weighted average yield on the portfolio by 39 basis points. During the prior quarter, $992 thousand of net premiums were amortized, which decreased the weighted average yield on the portfolio by 38 basis points.

The increase in interest income on cash and cash equivalents was due primarily to a 21 basis point increase in the weighted average yield, to 1.25% for the current quarter, resulting from an increase in the yield earned on balances held at the FRB of Kansas City.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities for the current quarter increased three basis points from the prior quarter, to 1.27%, while the average balance of interest-bearing liabilities decreased $110.3 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have decreased two basis points from the prior quarter, to 1.28%, and the average balance would have decreased $88.2 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
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2017
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
$
18,099

 
$
17,884

 
$
215

 
1.2
%
Deposits
11,313

 
10,895

 
418

 
3.8

Repurchase agreements
1,504

 
1,487

 
17

 
1.1

Total interest expense
$
30,916

 
$
30,266

 
$
650

 
2.1



5



The table above includes interest expense on FHLB borrowings both associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $890 thousand from the prior quarter due mainly to a 13 basis point decrease in the weighted average rate paid on the portfolio, to 2.12% for the current quarter, along with a $60.1 million decrease in the average balance of the portfolio. During the prior quarter, $300.0 million of advances with an effective rate of 3.24% matured, of which $200.0 million were replaced in the current quarter with an effective rate of 1.99%. Interest expense on FHLB borrowings associated with the leverage strategy increased $1.1 million from the prior quarter due to a 22 basis point increase in the weighted average rate paid as a result of an increase in interest rates between periods.

The increase in interest expense on deposits was due to a three basis point increase in the weighted average rate, to 0.86% for the current quarter. The increase in the weighted average rate was primarily related to the wholesale certificate of deposit portfolio, which increased 21 basis points to 1.17% for the current quarter.

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
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2017
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
$
3,930

 
$
3,832

 
$
98

 
2.6
 %
Income from BOLI
564

 
573

 
(9
)
 
(1.6
)
Other non-interest income
1,401

 
1,055

 
346

 
32.8

Total non-interest income
$
5,895

 
$
5,460

 
$
435

 
8.0


The increase in other non-interest income was due primarily to a gain on the sale of loans during the current quarter and an increase in insurance commissions resulting from the receipt of annual commissions from certain insurance providers.

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
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2017
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
11,049

 
$
11,210

 
$
(161
)
 
(1.4
)%
Information technology and communications
2,758

 
2,922

 
(164
)
 
(5.6
)
Occupancy, net
2,716

 
2,659

 
57

 
2.1

Regulatory and outside services
1,827

 
1,383

 
444

 
32.1

Deposit and loan transaction costs
1,366

 
1,304

 
62

 
4.8

Advertising and promotional
1,398

 
1,322

 
76

 
5.7

Federal insurance premium
888

 
879

 
9

 
1.0

Office supplies and related expense
511

 
492

 
19

 
3.9

Other non-interest expense
966

 
474

 
492

 
103.8

Total non-interest expense
$
23,479

 
$
22,645

 
$
834

 
3.7


The increase in regulatory and outside services was due mainly to the timing of audit-related expenses. The increase in other non-interest expense was due primarily to an increase in OREO operations expense.

Income Tax Expense
Income tax expense was $11.5 million for the current quarter, compared to $10.8 million for the prior quarter. The effective tax rate was 35.8% for the current quarter and 33.6% for the prior quarter. The increase in effective tax rate was mainly a result of increasing

6



income tax expense to account for the impact of a higher effective tax rate year-to-date, primarily a result of year-end tax accounting adjustments to the low income housing partnership investments and related deferred tax assets.

Financial Condition as of September 30, 2017

Total assets were $9.19 billion at September 30, 2017 compared to $9.27 billion at September 30, 2016. The $74.3 million decrease was due primarily to a $384.6 million decrease in the securities portfolio, partially offset by an increase in the loan portfolio.

The loans receivable portfolio, net, increased $237.0 million to $7.20 billion at September 30, 2017, from $6.96 billion at September 30, 2016. During the current fiscal year, the Bank originated and refinanced $698.5 million of loans with a weighted average rate of 3.68% and purchased $563.2 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.60%. The Bank also entered into participations of $67.7 million of commercial real estate loans with a weighted average rate of 3.98%, of which $43.2 million had not yet been funded as of September 30, 2017.

Loan activity in the current fiscal year decreased compared to the prior fiscal year due to the Bank managing the size of the loan portfolio as it manages its liquidity levels.  Loan volume has primarily been maintained through the rates offered to correspondent lenders.  Generally, over the past couple years, cash flows from the securities portfolio have been used primarily to purchase loans and in part to pay down FHLB advances. By moving cash from lower yielding assets to higher yielding assets and repaying higher cost liabilities, we have been able to maintain our net interest margin.  In addition to the repayment of securities, the Bank has emphasized growth in the deposit portfolio in part to pay down FHLB advances. The ratio of securities and cash to total assets was 17.4% at September 30, 2017, and we will be managing this ratio to approximately 15%. In the long run, management considers a ten percent ratio of stockholders' equity to total assets at the Bank as an appropriate level of capital. At September 30, 2017, this ratio was 13.1%.

The Bank continued to utilize a leverage strategy to increase earnings. The leverage strategy during the current fiscal year involved 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 were repaid prior to each quarter end for regulatory purposes. The proceeds from the borrowings, net of the required FHLB stock holdings, which yielded approximately 6.4% during the current fiscal year, were 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, net of the 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 $633 thousand during the current quarter and $2.8 million during the current fiscal year, compared to $2.3 million for the prior fiscal year. The increase was due primarily to a more positive interest rate spread between the yield earned on the cash held at the FRB of Kansas City and the rate paid on the related FHLB borrowings than in the prior fiscal year period, as well as to a decrease in federal insurance premiums attributed to the strategy and an increase in the yield on the FHLB stock attributed to the strategy.

Total liabilities were $7.82 billion at September 30, 2017 compared to $7.87 billion at September 30, 2016. FHLB borrowings decreased $198.6 million, to $2.17 billion at September 30, 2017, as certain maturing FHLB advances were not replaced. Deposits increased $145.9 million, to $5.31 billion at September 30, 2017, due mainly to increases in wholesale certificates and non-maturity retail deposits.

Stockholders' equity was $1.37 billion at September 30, 2017 compared to $1.39 billion at September 30, 2016. The $24.7 million decrease was due primarily to the payment of $118.0 million in cash dividends, partially offset by net income of $84.1 million. The cash dividends paid during the current fiscal year totaled $0.88 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, a $0.25 per share True Blue Capitol dividend, and four regular quarterly cash dividends totaling $0.34 per share.

On October 18, 2017, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.4 million, payable on November 17, 2017 to stockholders of record as of the close of business on November 3, 2017. On October 27, 2017, the Company announced a fiscal year 2017 cash true-up dividend of $0.29 per share, or approximately $39.0 million, related to fiscal year 2017 earnings. The $0.29 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2017 and total regular quarterly cash dividends paid during fiscal year 2017, divided by the number of shares outstanding as of October 24, 2017. The cash true-up dividend is payable on December 1, 2017 to stockholders of record as of the close of business on November 17, 2017, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of Capitol Federal Financial, Inc. for fiscal year 2017.


7



At September 30, 2017, Capitol Federal Financial, Inc., at the holding company level, had $120.8 million on deposit at the Bank. For fiscal year 2018, 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.
 
September 30,
 
June 30,
 
September 30,
 
2017
 
2017
 
2016
 
(Dollars in thousands)
Stockholders' equity
$
1,368,313

 
$
1,358,986

 
$
1,392,964

Equity to total assets at end of period
14.9
%
 
14.9
%
 
15.0
%

The following table presents a reconciliation of total to net shares outstanding as of September 30, 2017.
Total shares outstanding
138,223,835

Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock
(3,856,154
)
Net shares outstanding
134,367,681


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 September 30, 2017, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at September 30, 2017.
 
 
 
Regulatory
 
 
 
Requirement For
 
Bank
 
"Well-Capitalized"
 
Ratios
 
Status
Tier 1 leverage ratio
10.8%
 
5.0
%
Common equity tier 1 capital ratio
27.2
 
6.5

Tier 1 capital ratio
27.2
 
8.0

Total capital ratio
27.3
 
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 September 30, 2017 is as follows (dollars in thousands):
Total Bank equity as reported under GAAP
$
1,204,781

Accumulated Other Comprehensive Income ("AOCI") adjustments
(2,918
)
Total tier 1 capital
1,201,863

ACL
8,398

Total capital
$
1,210,261


The Fiscal Year 2017 Annual Meeting of Stockholders will be held on January 23, 2018, and the voting record date will be December 1, 2017. Management plans to furnish the Company's September 30, 2017 annual proxy materials to stockholders via the internet. A notice containing instructions on how to access the proxy materials over the internet and vote online will be mailed to stockholders who are eligible to vote at the Fiscal Year 2017 Annual Meeting of Stockholders at least 40 days prior to the Annual Meeting. The notice will explain how a stockholder can arrange to have printed materials sent to them, if so desired. Proxy materials will include the definitive proxy statement for the Fiscal Year 2017 Annual Meeting of Stockholders, and the September 30, 2017 Annual Report to Stockholders.


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

9




SUPPLEMENTAL FINANCIAL INFORMATION
 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
September 30,
 
September 30,
 
2017
 
2016
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $340,748 and $267,829)
$
351,659

 
$
281,764

Securities:
 
 
 
Available-for-sale ("AFS") at estimated fair value (amortized cost of $410,541 and $517,791)
415,831

 
527,301

Held-to-maturity at amortized cost (estimated fair value of $833,009 and $1,122,867)
827,738

 
1,100,874

Loans receivable, net (ACL of $8,398 and $8,540)
7,195,071

 
6,958,024

FHLB stock, at cost
100,954

 
109,970

Premises and equipment, net
84,818

 
83,221

Other assets
216,845

 
206,093

TOTAL ASSETS
$
9,192,916

 
$
9,267,247

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
5,309,868

 
$
5,164,018

FHLB borrowings
2,173,808

 
2,372,389

Repurchase agreements
200,000

 
200,000

Advance payments by borrowers for taxes and insurance
63,749

 
62,643

Income taxes payable, net
530

 
310

Deferred income tax liabilities, net
24,458

 
25,374

Accounts payable and accrued expenses
52,190

 
49,549

Total liabilities
7,824,603

 
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, 138,223,835 and 137,486,172
 
 
 
shares issued and outstanding as of September 30, 2017 and 2016, respectively
1,382

 
1,375

Additional paid-in capital
1,167,368

 
1,156,855

Unearned compensation, ESOP
(37,995
)
 
(39,647
)
Retained earnings
234,640

 
268,466

AOCI, net of tax
2,918

 
5,915

Total stockholders' equity
1,368,313

 
1,392,964

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,192,916

 
$
9,267,247


10



 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
 
For the Three Months Ended
 
For the Year Ended
 
September 30,
 
June 30,
 
September 30,
 
2017
 
2017
 
2017
 
2016
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
64,329

 
$
64,013

 
$
253,393

 
$
243,311

MBS
5,435

 
5,821

 
23,809

 
29,794

Cash and cash equivalents
6,669

 
5,619

 
19,389

 
9,831

FHLB stock
3,080

 
3,114

 
12,233

 
12,252

Investment securities
1,061

 
1,063

 
4,362

 
5,925

Total interest and dividend income
80,574

 
79,630

 
313,186

 
301,113

 
 
 
 
 
 
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
18,099

 
17,884

 
68,871

 
65,091

Deposits
11,313

 
10,895

 
42,968

 
37,859

Repurchase agreements
1,504

 
1,487

 
5,965

 
5,981

Total interest expense
30,916

 
30,266

 
117,804

 
108,931

 
 
 
 
 
 
 
 
NET INTEREST INCOME
49,658

 
49,364

 
195,382

 
192,182

 
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES

 

 

 
(750
)
NET INTEREST INCOME AFTER
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
49,658

 
49,364

 
195,382

 
192,932

 
 
 
 
 
 
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
3,930

 
3,832

 
15,053

 
14,835

Income from BOLI
564

 
573

 
2,233

 
3,420

Other non-interest income
1,401

 
1,055

 
4,910

 
5,057

Total non-interest income
5,895

 
5,460

 
22,196

 
23,312

 
 
 
 
 
 
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
11,049

 
11,210

 
43,437

 
42,378

Information technology and communications
2,758

 
2,922

 
11,282

 
10,540

Occupancy, net
2,716

 
2,659

 
10,814

 
10,576

Regulatory and outside services
1,827

 
1,383

 
5,821

 
5,645

Deposit and loan transaction costs
1,366

 
1,304

 
5,284

 
5,585

Advertising and promotional
1,398

 
1,322

 
4,673

 
4,609

Federal insurance premium
888

 
879

 
3,539

 
5,076

Office supplies and related expense
511

 
492

 
1,981

 
2,640

Low income housing partnerships

 

 

 
3,872

Other non-interest expense
966

 
474

 
2,827

 
3,384

Total non-interest expense
23,479

 
22,645

 
89,658

 
94,305

INCOME BEFORE INCOME TAX EXPENSE
32,074

 
32,179

 
127,920

 
121,939

INCOME TAX EXPENSE
11,472

 
10,809

 
43,783

 
38,445

NET INCOME
$
20,602

 
$
21,370

 
$
84,137

 
$
83,494


11



The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.
 
For the Three Months Ended
 
For the Year Ended
 
September 30,
 
June 30,
 
September 30,
 
2017
 
2017
 
2017
 
2016
 
(Dollars in thousands, except per share amounts)
Net income
$
20,602

 
$
21,370

 
$
84,137

 
$
83,494

Income allocated to participating securities
(8
)
 
(11
)
 
(44
)
 
(66
)
Net income available to common stockholders
$
20,594

 
$
21,359

 
$
84,093

 
$
83,428

 
 
 
 
 
 
 
 
Average common shares outstanding
134,189,943

 
134,170,638

 
134,019,962

 
132,982,815

Average committed ESOP shares outstanding
124,346

 
83,052

 
62,458

 
62,400

Total basic average common shares outstanding
134,314,289

 
134,253,690

 
134,082,420

 
133,045,215

 
 
 
 
 
 
 
 
Effect of dilutive stock options
89,747

 
106,080

 
161,442

 
131,161

 
 
 
 
 
 
 
 
Total diluted average common shares outstanding
134,404,036

 
134,359,770

 
134,243,862

 
133,176,376

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
0.15

 
$
0.16

 
$
0.63

 
$
0.63

Diluted
$
0.15

 
$
0.16

 
$
0.63

 
$
0.63

 
 
 
 
 
 
 
 
Antidilutive stock options, excluded from the diluted
 
 
 
 
 
 
average common shares outstanding calculation
506,539

 
492,360

 
200,800

 
886,417




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.
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016
 
 
 
 
 
% of
 
 
 
 
 
% of
 
 
 
 
 
% of
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
$
3,959,232

 
3.70
%
 
55.1
%
 
$
4,005,081

 
3.70
%
 
55.4
%
 
$
4,005,615

 
3.74
%
 
57.6
%
Correspondent purchased
2,445,311

 
3.53

 
34.0

 
2,442,557

 
3.51

 
33.8

 
2,206,072

 
3.50

 
31.7

Bulk purchased
351,705

 
2.29

 
4.9

 
367,353

 
2.24

 
5.1

 
416,653

 
2.23

 
6.0

Construction
30,647

 
3.45

 
0.4

 
33,854

 
3.36

 
0.4

 
39,430

 
3.45

 
0.6

Total
6,786,895

 
3.56

 
94.4

 
6,848,845

 
3.55

 
94.7

 
6,667,770

 
3.56

 
95.9

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent
183,030

 
4.24

 
2.6

 
148,485

 
4.18

 
2.0

 
110,768

 
4.16

 
1.6

Construction
86,952

 
3.80

 
1.2

 
107,079

 
3.99

 
1.5

 
43,375

 
4.13

 
0.6

Total
269,982

 
4.10

 
3.8

 
255,564

 
4.10

 
3.5

 
154,143

 
4.15

 
2.2

Total real estate loans
7,056,877

 
3.58

 
98.2

 
7,104,409

 
3.57

 
98.2

 
6,821,913

 
3.58

 
98.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
122,066

 
5.40

 
1.7

 
119,822

 
5.27

 
1.7

 
123,345

 
5.01

 
1.8

Other
3,808

 
4.05

 
0.1

 
4,194

 
4.03

 
0.1

 
4,264

 
4.21

 
0.1

Total consumer loans
125,874

 
5.36

 
1.8

 
124,016

 
5.23

 
1.8

 
127,609

 
4.99

 
1.9

Total loans receivable
7,182,751

 
3.61

 
100.0
%
 
7,228,425

 
3.60

 
100.0
%
 
6,949,522

 
3.60

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACL
8,398

 
 
 
 
 
8,486

 
 
 
 
 
8,540

 
 
 
 
Discounts/unearned loan fees
24,962

 
 
 
 
 
25,221

 
 
 
 
 
24,933

 
 
 
 
Premiums/deferred costs
(45,680
)
 
 
 
 
 
(45,876
)
 
 
 
 
 
(41,975
)
 
 
 
 
Total loans receivable, net
$
7,195,071

 
 
 
 
 
$
7,240,594

 
 
 
 
 
$
6,958,024

 
 
 
 




13



Loan Activity: The following tables summarize 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 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 fiscal years ended September 30, 2017 and 2016, the Bank endorsed $53.1 million and $160.0 million of one- to four-family loans, respectively, reducing the average rate on those loans by 71 and 91 basis points, respectively.
 
For the Three Months Ended
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,228,425

 
3.60
%
 
$
7,182,346

 
3.59
%
 
$
7,061,557

 
3.58
%
 
$
6,949,522

 
3.60
%
Originations and refinances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
102,687

 
3.82

 
116,422

 
3.94

 
115,560

 
3.66

 
176,554

 
3.26

Adjustable
44,900

 
4.10

 
59,372

 
3.87

 
36,417

 
3.82

 
46,566

 
3.54

Purchases and participations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
76,906

 
3.92

 
135,041

 
3.97

 
143,852

 
3.69

 
187,674

 
3.52

Adjustable
17,046

 
3.33

 
17,930

 
3.24

 
27,158

 
2.98

 
25,262

 
2.73

Change in undisbursed loan funds
21,823

 
 
 
13,648

 
 
 
37,862

 
 
 
3,696

 
 
Repayments
(307,909
)
 
 
 
(295,988
)
 
 
 
(239,072
)
 
 
 
(326,839
)
 
 
Principal (charge-offs) recoveries, net
(88
)
 
 
 
39

 
 
 
(74
)
 
 
 
(19
)
 
 
Other
(1,039
)
 
 
 
(385
)
 
 
 
(914
)
 
 
 
(859
)
 
 
Ending balance
$
7,182,751

 
3.61

 
$
7,228,425

 
3.60

 
$
7,182,346

 
3.59

 
$
7,061,557

 
3.58

 
For the Year Ended
 
September 30, 2017
 
September 30, 2016
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
6,949,522

 
3.60
%
 
$
6,622,728

 
3.66
%
Originations and refinances:
 
 
 
 
 
 
 
Fixed
511,223

 
3.62

 
606,365

 
3.52

Adjustable
187,255

 
3.83

 
166,539

 
3.65

Purchases and participations:
 
 
 
 
 
 
 
Fixed
543,473

 
3.73

 
720,253

 
3.64

Adjustable
87,396

 
3.03

 
143,679

 
3.36

Change in undisbursed loan funds
77,029

 
 
 
(142,027
)
 
 
Repayments
(1,169,808
)
 
 
 
(1,164,000
)
 
 
Principal charge-offs, net
(142
)
 
 
 
(153
)
 
 
Other
(3,197
)
 
 
 
(3,862
)
 
 
Ending balance
$
7,182,751

 
3.61

 
$
6,949,522

 
3.60


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. Loan originations, purchases, and refinances are reported together. 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
 
For the Year Ended
 
September 30, 2017
 
September 30, 2017
 
Amount
 
Rate
 
% of Total
 
Amount
 
Rate
 
% of Total
Fixed-rate:
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 15 years
$
31,918

 
3.27
%
 
13.2
%
 
$
212,477

 
3.04
%
 
16.0
%
> 15 years
139,113

 
3.96

 
57.6

 
772,549

 
3.81

 
58.1

Commercial real estate
7,209

 
4.15

 
3.0

 
65,696

 
4.03

 
4.9

Home equity
1,187

 
5.93

 
0.5

 
3,510

 
5.87

 
0.3

Other
166

 
9.44

 
0.1

 
464

 
9.87

 

Total fixed-rate
179,593

 
3.86

 
74.4

 
1,054,696

 
3.68

 
79.3

 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 36 months
3,657

 
3.03

 
1.5

 
7,554

 
2.88

 
0.6

> 36 months
35,150

 
3.28

 
14.6

 
189,576

 
3.06

 
14.3

Commercial real estate
2,992

 
3.25

 
1.2

 
2,992

 
3.25

 
0.2

Home equity
19,643

 
5.24

 
8.1

 
72,245

 
5.03

 
5.4

Other
504

 
3.45

 
0.2

 
2,284

 
3.40

 
0.2

Total adjustable-rate
61,946

 
3.89

 
25.6

 
274,651

 
3.58

 
20.7

 
 
 
 
 
 
 
 
 
 
 
 
Total originated, refinanced and purchased
$
241,539

 
3.87

 
100.0
%
 
$
1,329,347

 
3.66

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Purchased and participation loans included above:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
$
70,692

 
3.92

 
 
 
$
478,772

 
3.70

 
 
Participations - commercial real estate
6,214

 
3.95

 
 
 
64,701

 
4.01

 
 
Total fixed-rate purchased/participations
76,906

 
3.92

 
 
 
543,473

 
3.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
14,054

 
3.35

 
 
 
84,404

 
3.02

 
 
Participations - commercial real estate
2,992

 
3.25

 
 
 
2,992

 
3.25

 
 
Total adjustable-rate purchased/participations
17,046

 
3.33

 
 
 
87,396

 
3.03

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total purchased/participation loans
$
93,952

 
3.82

 
 
 
$
630,869

 
3.64

 
 




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 as of the dates presented. Credit scores are updated at least semiannually, with the latest update in September 2017, 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.
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016
 
 
 
% 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
$
3,959,232

 
58.6
%
 
767

 
63
%
 
$
135

 
$
4,005,081

 
58.8
%
 
767

 
63
%
 
$
135

 
$
4,005,615

 
60.4
%
 
766

 
63
%
 
$
132

Correspondent purchased
2,445,311

 
36.2

 
764

 
68

 
375

 
2,442,557

 
35.8

 
764

 
68

 
374

 
2,206,072

 
33.3

 
764

 
68

 
360

Bulk purchased
351,705

 
5.2

 
757

 
63

 
305

 
367,353

 
5.4

 
755

 
63

 
305

 
416,653

 
6.3

 
753

 
64

 
308

 
$
6,756,248

 
100.0
%
 
765

 
65

 
182

 
$
6,814,991

 
100.0
%
 
765

 
65

 
182

 
$
6,628,340

 
100.0
%
 
765

 
65

 
175


One- to Four-Family Loan Commitments - 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 September 30, 2017, 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 future cash needs.
 
Fixed-Rate
 
 
 
 
 
 
 
15 years
 
More than
 
Adjustable-
 
Total
 
or less
 
15 years
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Originate/refinance
$
9,185

 
$
27,814

 
$
9,790

 
$
46,789

 
3.58
%
Correspondent
5,555

 
68,930

 
7,100

 
81,585

 
3.88

 
$
14,740

 
$
96,744

 
$
16,890

 
$
128,374

 
3.77

 
 
 
 
 
 
 
 
 
 
Rate
3.21
%
 
3.94
%
 
3.28
%
 
 
 
 


16



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 and fiscal year, $13.6 million and $115.4 million, respectively, were refinanced from another lender.
 
For the Three Months Ended
 
For the Year Ended
 
September 30, 2017
 
September 30, 2017
 
 
 
 
 
Credit
 
 
 
 
 
Credit
 
Amount
 
LTV
 
Score
 
Amount
 
LTV
 
Score
 
(Dollars in thousands)
Originated
$
107,162

 
77
%
 
760

 
$
498,145

 
77
%
 
766

Refinanced by Bank customers
17,930

 
69

 
747

 
120,835

 
66

 
760

Correspondent purchased
84,746

 
75

 
760

 
563,176

 
74

 
765

 
$
209,838

 
76

 
759

 
$
1,182,156

 
74

 
765


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 fiscal year ended September 30, 2017.
 
 
For the Three Months Ended
 
For the Year Ended
 
 
September 30, 2017
 
September 30, 2017
State
 
Amount
 
% of Total
 
Rate
 
Amount
 
% of Total
 
Rate
 
 
(Dollars in thousands)
Kansas
 
$
114,605

 
54.6
%
 
3.69
%
 
$
554,282

 
46.9
%
 
3.51
%
Texas
 
33,731

 
16.1

 
3.77

 
223,289

 
18.9

 
3.58

Missouri
 
31,299

 
14.9

 
3.70

 
180,426

 
15.3

 
3.59

Other states
 
30,203

 
14.4

 
3.85

 
224,159

 
18.9

 
3.58

 
 
$
209,838

 
100.0
%
 
3.72

 
$
1,182,156

 
100.0
%
 
3.55


Commercial Real Estate Loans: During the current fiscal year, the Bank entered into commercial real estate loan participations of $67.7 million, which included $54.0 million of commercial real estate construction loans. The majority of the $54.0 million of commercial real estate construction loans had not yet been funded as of September 30, 2017. 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.


17



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 September 30, 2017. Included in the table are fixed-rate loans totaling $294.8 million at a weighted average rate of 4.05% and adjustable-rate loans totaling $128.4 million at a weighted average rate of 4.46%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due to the majority of the fixed-rate loans in the portfolio at September 30, 2017 having shorter terms. Based on the terms of the construction loans as of September 30, 2017, of the $105.9 million of undisbursed amounts in the table, approximately $31.0 million is projected to be disbursed by December 31, 2017, and an additional $55.7 million is projected to be disbursed by September 30, 2018. It is possible that not all of the funds will be disbursed due to the nature of the funding of construction projects. For outstanding commitments, in certain cases, the weighted average rate presented represents our best estimate.
 
Unpaid
 
Undisbursed
 
Gross Loan
 
Outstanding
 
 
 
% of
 
Principal
 
Amount
 
Amount
 
Commitments
 
Total
 
Total
 
(Dollars in thousands)
Accommodation and food services
$
123,839

 
$
16,664

 
$
140,503

 
$
24,700

 
$
165,203

 
39.0
%
Health care and social assistance
38,273

 
49,563

 
87,836

 

 
87,836

 
20.8

Real estate rental and leasing
23,420

 
37,835

 
61,255

 
1,650

 
62,905

 
14.9

Arts, entertainment, and recreation
33,944

 

 
33,944

 

 
33,944

 
8.0

Multi-family
10,322

 

 
10,322

 
20,950

 
31,272

 
7.4

Retail trade