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Section 1: 8-K (CURRENT REPORT, ITEMS 2.02 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)
July 30, 2018

 
 
 
 
 
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:

¨ 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 July 30, 2018, announcing financial results for the quarter ended June 30, 2018 is attached hereto as Exhibit 99, and is incorporated herein by reference.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits

Exhibit 99 – Press release announcing earnings dated July 30, 2018






 
 
 
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: July 30, 2018
By: /s/ Kent G. Townsend
 
 
 
 
 
 
 
 
Kent G. Townsend, Executive Vice-President,
 
 
Chief Financial Officer, and Treasurer
 


(Back To Top)

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

Exhibit



394414711_cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
July 30, 2018
CAPITOL FEDERAL® FINANCIAL, INC.
REPORTS THIRD QUARTER FISCAL YEAR 2018 RESULTS

Topeka, KS - Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended June 30, 2018. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which will be filed with the Securities and Exchange Commission ("SEC") on or about August 9, 2018 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.

Financial highlights for the quarter include:
net income of $22.4 million;
basic and diluted earnings per share of $0.17;
net interest margin of 1.92% (2.24% excluding the effects of the leverage strategy); and
dividends paid of $45.0 million, or $0.335 per share, including a $0.25 per share True Blue® Capitol dividend.

On April 30, 2018, the Company, the parent company of Capitol Federal Savings Bank (the "Bank"), and Capital City Bancshares, Inc. ("CCB"), the parent company of Capital City Bank, a state chartered bank headquartered in Topeka, KS, announced the signing of a definitive agreement and plan of merger pursuant to which CCB will merge with and into the Company. Immediately upon closing the merger, Capital City Bank will merge with and into the Bank. As of June 30, 2018, the Company has recognized approximately $500 thousand in acquisition-related expenses. The transaction is currently expected to close in the fourth quarter of fiscal year 2018, during which the Company anticipates that approximately $700 thousand of additional acquisition-related expenses will be recognized.

As a result of the merger, the Bank will enter the commercial banking business through the origination of commercial lending products, offering of commercial deposit services, and will begin offering trust services. The benefits of the commercial banking business may include the following:
the ability to change the mix of the loan portfolio by reinvesting repayments of correspondent loans into the commercial loan portfolio,
the potential reduction in the cost of funds as a result of having the ability to replace Federal Home Loan Bank Topeka ("FHLB") borrowings with lower-costing commercial deposits,
the potential reduction in the Bank's loans-to-deposits ratio as a result of an increase in commercial deposits, and
the increased diversification of revenue streams and increased cross-selling opportunities resulting from access to new products and a new customer base.

Comparison of Operating Results for the Three Months Ended June 30, 2018 and March 31, 2018

For the quarter ended June 30, 2018, the Company recognized net income of $22.4 million, or $0.17 per share, compared to net income of $23.3 million, or $0.17 per share, for the quarter ended March 31, 2018. The decrease in net income was due primarily to an increase in non-interest expense.

Net interest income decreased $456 thousand, or 0.9%, from the prior quarter to $49.4 million for the current quarter. The net interest margin increased six basis points from 1.86% for the prior quarter to 1.92% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have been 2.24% for the current quarter, unchanged from the prior quarter. The decrease in net interest income and the increase in net interest margin were due mainly to the leverage strategy being in place for fewer days in the current quarter compared to the prior quarter. When the leverage strategy is in place, it increases net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. The leverage strategy was suspended at certain times during the current quarter due to the negative interest rate spreads between the related

1



FHLB borrowings and cash held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City") making the transaction unprofitable.
Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased 14 basis points from the prior quarter, to 3.20%, while the average balance of interest-earning assets decreased $435.1 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased five basis points from the prior quarter, to 3.40%, and the average balance of interest-earning assets would have increased $71.6 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 Three Months Ended
 
 
 
 
 
June 30,
 
March 31,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
64,893

 
$
64,194

 
$
699

 
1.1
 %
Cash and cash equivalents
7,221

 
7,895

 
(674
)
 
(8.5
)
Mortgage-backed securities ("MBS")
5,921

 
5,390

 
531

 
9.9

FHLB stock
2,819

 
3,201

 
(382
)
 
(11.9
)
Investment securities
1,307

 
1,094

 
213

 
19.5

Total interest and dividend income
$
82,161

 
$
81,774

 
$
387

 
0.5


The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy. Interest income on cash and cash equivalents not related to the leverage strategy increased $118 thousand from the prior quarter due to a 28 basis point increase in the weighted average yield, which was related to balances held at the FRB of Kansas City. Interest income on cash associated with the leverage strategy decreased $791 thousand from the prior quarter and dividend income on FHLB stock associated with the leverage strategy decreased $402 thousand from the prior quarter due to the leverage strategy being in place for fewer days in the current quarter compared to the prior quarter.

The increase in interest income on the MBS portfolio was due to a $47.7 million increase in the average balance of the portfolio, as well as a 10 basis point increase in the weighted average yield on the portfolio to 2.40% for the current quarter. The increase in the weighted average yield was due primarily to adjustable-rate MBS repricing to higher market rates, as well as a decrease in the impact of net premium amortization. Net premium amortization of $702 thousand during the current quarter decreased the weighted average yield on the portfolio by 29 basis points. During the prior quarter, $788 thousand of net premiums were amortized which decreased the weighted average yield on the portfolio by 33 basis points. As of June 30, 2018, the remaining net balance of premiums on our portfolio of MBS was $6.3 million.

The increase in interest income on investment securities was due to a 34 basis point increase in the weighted average yield on the portfolio to 1.77% for the current quarter, primarily resulting from the replacement of maturing securities at higher market rates.


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Interest Expense
The weighted average rate paid on total interest-bearing liabilities for the current quarter increased nine basis points from the prior quarter, to 1.44%, while the average balance of interest-bearing liabilities decreased $450.0 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 four basis points from the prior quarter, to 1.34%, and the average balance of interest-bearing liabilities would have increased $56.6 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
 
 
 
 
 
June 30,
 
March 31,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
$
18,501

 
$
18,772

 
$
(271
)
 
(1.4
)%
Deposits
13,587

 
12,480

 
1,107

 
8.9

Repurchase agreements
640

 
633

 
7

 
1.1

Total interest expense
$
32,728

 
$
31,885

 
$
843

 
2.6


The table above includes interest expense on FHLB borrowings associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy increased $231 thousand from the prior quarter due primarily to a one basis point increase in the weighted average rate paid, to 2.06% for the current quarter. Interest expense on FHLB borrowings associated with the leverage strategy decreased $502 thousand from the prior quarter due to the leverage strategy being in place for fewer days in the current quarter compared to the prior quarter, partially offset by an increase in the weighted average rate paid.

The increase in interest expense on deposits was due primarily to a six basis point increase in the weighted average rate paid, to 1.02% for the current quarter. The increase in the weighted average rate paid was due primarily to increases in the retail certificate of deposit portfolio rate and wholesale certificate portfolio rate, which increased seven basis points and 24 basis points, respectively.

Provision for Credit Losses
The Bank did not record a provision for credit losses during the current quarter or the prior quarter. 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. Net loan charge-offs were $46 thousand during the current quarter compared to net recoveries of $20 thousand in the prior quarter. At June 30, 2018, loans 30 to 89 days delinquent were 0.19% of total loans and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans. At March 31, 2018, loans 30 to 89 days delinquent were 0.19% of total loans and loans 90 or more days delinquent or in foreclosure were 0.16% 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
 
 
 
 
 
June 30,
 
March 31,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
$
3,915

 
$
3,670

 
$
245

 
6.7
 %
Income from bank-owned life insurance ("BOLI")
510

 
276

 
234

 
84.8

Other non-interest income
999

 
1,487

 
(488
)
 
(32.8
)
Total non-interest income
$
5,424

 
$
5,433

 
$
(9
)
 
(0.2
)

The increase in retail fees and charges was due mainly to an increase in debit card income resulting from an increase in transaction volume, which was related to the seasonality of such activity. The increase in income from BOLI was due mainly to a one-time adjustment during the prior quarter to the benchmark interest rate associated with one of the policies. 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 received in the current quarter.


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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
 
 
 
 
 
June 30,
 
March 31,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
11,936

 
$
11,167

 
$
769

 
6.9
 %
Information technology and related expense
3,363

 
3,622

 
(259
)
 
(7.2
)
Occupancy, net
2,787

 
2,839

 
(52
)
 
(1.8
)
Deposit and loan transaction costs
1,437

 
1,313

 
124

 
9.4

Regulatory and outside services
1,628

 
1,151

 
477

 
41.4

Advertising and promotional
1,490

 
1,337

 
153

 
11.4

Federal insurance premium
813

 
847

 
(34
)
 
(4.0
)
Office supplies and related expense
455

 
442

 
13

 
2.9

Other non-interest expense
602

 
880

 
(278
)
 
(31.6
)
Total non-interest expense
$
24,511

 
$
23,598

 
$
913

 
3.9


The increase in salaries and employee benefits expense was due mainly to additional expense on unallocated Employee Stock Ownership Plan ("ESOP") shares arising from the $0.25 per share True Blue Capitol dividend paid on those shares in June 2018. The expense recognized in the current quarter was $344 thousand, and it is expected that $344 thousand will also be recognized during the quarter ending September 30, 2018. The increase in regulatory and outside services was due primarily to expenses related to the acquisition of CCB, as well as the timing of audit-related expenses. The decrease in other non-interest expense was due primarily to the timing of various miscellaneous expenses, along with a decrease in other real estate owned ("OREO") operations expense.

The Company's efficiency ratio was 44.68% for the current quarter compared to 42.66% 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. 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 $8.0 million for the current quarter, compared to $8.4 million for the prior quarter. The decrease was due mainly to a decrease in pretax income. The effective tax rate was 26.3% for the current quarter compared to 26.5% for the prior quarter.

Comparison of Operating Results for the Nine Months Ended June 30, 2018 and 2017

The Company recognized net income of $77.5 million, or $0.58 per share, for the nine month period ended June 30, 2018 compared to net income of $63.5 million, or $0.47 per share, for the nine month period ended June 30, 2017. The increase in net income was due primarily to a decrease in income tax expense. During the current fiscal year, the Tax Cuts and Jobs Act (the "Tax Act") was enacted which reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company revalued its deferred tax assets and liabilities as of December 22, 2017 to account for the lower corporate income tax rate. The revaluation of the Company's deferred income tax assets and liabilities reduced income tax expense by $7.5 million in the quarter ending December 31, 2017. The impact of the enactment of the Tax Act was an increase in basic and diluted earnings per share of $0.08 in the quarter ending December 31, 2017. Management estimates the effective tax rate for the fourth quarter of fiscal year 2018 will be approximately 26% to 27%, resulting in an effective income tax rate of 20% to 21% for fiscal year 2018. Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.

The net interest margin increased nine basis points, from 1.78% for the prior year nine month period to 1.87% for the current year nine month period. Excluding the effects of the leverage strategy, the net interest margin would have increased 10 basis points, from 2.13% for the prior year nine month period to 2.23% for the current year nine month period. The increase in the net interest margin was due

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mainly to an increase in interest-earning asset yields, as well as a shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans.

Interest and Dividend Income
The weighted average yield on total interest-earning assets increased 24 basis points, from 2.84% for the prior year nine month period to 3.08% for the current year nine month period, while the average balance of interest-earning assets decreased $328.8 million from the prior year nine month period. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 10 basis points, from 3.25% for the prior year nine month period to 3.35% for the current year nine month period, while the average balance of interest-earning assets would have decreased $144.2 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 Nine Months Ended
 
 
 
 
 
June 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
193,276

 
$
189,064

 
$
4,212

 
2.2
 %
Cash and cash equivalents
22,230

 
12,720

 
9,510

 
74.8

MBS
16,563

 
18,374

 
(1,811
)
 
(9.9
)
FHLB stock
9,115

 
9,153

 
(38
)
 
(0.4
)
Investment securities
3,395

 
3,301

 
94

 
2.8

Total interest and dividend income
$
244,579

 
$
232,612

 
$
11,967

 
5.1


The increase in interest income on loans receivable was due to an $80.6 million increase in the average balance of the portfolio, as well as a three basis point increase in the weighted average yield on the portfolio to 3.57% for the current year nine month period. The increase in the weighted average yield was due primarily to adjustable-rate loans repricing to higher market rates, along with the origination and purchase of new loans at higher market rates.

The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy. Interest income on cash and cash equivalents not related to the leverage strategy increased $1.0 million from the prior year nine month period due to a 70 basis point increase in the weighted average yield. Interest income on cash associated with the leverage strategy increased $8.5 million from the prior year nine month period due to a 72 basis point increase in the weighted average yield. In both cases, the increase in the weighted average yield was related to cash balances held at the FRB of Kansas City.

The decrease in interest income on the MBS portfolio was due to a $173.5 million decrease in the average balance of the portfolio, partially offset by a 14 basis point increase in the weighted average yield on the portfolio to 2.32% for the current year nine month period. Cash flows not reinvested were used primarily to fund loan growth and pay off certain maturing term borrowings. The increase in the weighted average yield was due primarily to adjustable-rate MBS repricing to higher market rates, as well as a decrease in the impact of net premium amortization. Net premium amortization of $2.3 million during the current year nine month period decreased the weighted average yield on the portfolio by 33 basis points. During the prior year nine month period, $3.3 million of net premiums were amortized which decreased the weighted average yield on the portfolio by 39 basis points.


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Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 17 basis points, from 1.19% for the prior year nine month period to 1.36% for the current year nine month period, while the average balance of interest-bearing liabilities decreased $300.3 million from the prior year nine month period. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased one basis point, from 1.30% for the prior year nine month period to 1.31% for the current year nine month period, while the average balance of interest-bearing liabilities would have decreased $115.7 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 Nine Months Ended
 
 
 
 
 
June 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
$
55,190

 
$
50,772

 
$
4,418

 
8.7
 %
Deposits
38,028

 
31,655

 
6,373

 
20.1

Repurchase agreements
2,665

 
4,461

 
(1,796
)
 
(40.3
)
Total interest expense
$
95,883

 
$
86,888

 
$
8,995

 
10.4


The table above includes interest expense on FHLB borrowings associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $5.3 million from the prior year nine month period due to a 21 basis point decrease in the weighted average rate paid on the portfolio, to 2.06% for the current year nine month period, and a $113.6 million decrease in the average balance of the portfolio. The decrease in the weighted average rate paid was due to certain maturing advances being replaced at lower effective interest rates. Interest expense on FHLB borrowings associated with the leverage strategy increased $9.7 million from the prior year nine month period due to a 77 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 15 basis point increase in the weighted average rate, to 0.96% for the current year nine month period. The increase in the weighted average rate was primarily related to the certificate of deposit portfolio, which increased 22 basis points to 1.58% for the current year nine month period. The weighted average rate paid on wholesale certificates increased 66 basis points, to 1.48% for the current year nine month period.
 
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 Nine Months Ended
 
 
 
 
 
June 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
$
11,550

 
$
11,123

 
$
427

 
3.8
 %
Income from BOLI
1,320

 
1,669

 
(349
)
 
(20.9
)
Other non-interest income
3,345

 
3,509

 
(164
)
 
(4.7
)
Total non-interest income
$
16,215

 
$
16,301

 
$
(86
)
 
(0.5
)

The increase in retail fees and charges was due mainly to increases in debit card income due to higher transaction volume in the current year and a reduction in waived fees as customers and vendors have become more accustomed to the chip card technology. The decrease in income from BOLI was due mainly to a one-time adjustment, in the second quarter of fiscal year 2018, to the benchmark interest rate associated with one of the 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 Nine Months Ended
 
 
 
 
 
June 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
33,631

 
$
32,388

 
$
1,243

 
3.8
 %
Information technology and related expense
10,316

 
8,524

 
1,792

 
21.0

Occupancy, net
8,391

 
8,098

 
293

 
3.6

Deposit and loan transaction costs
4,157

 
3,918

 
239

 
6.1

Regulatory and outside services
3,919

 
3,994

 
(75
)
 
(1.9
)
Advertising and promotional
3,512

 
3,275

 
237

 
7.2

Federal insurance premium
2,512

 
2,651

 
(139
)
 
(5.2
)
Office supplies and related expense
1,339

 
1,470

 
(131
)
 
(8.9
)
Other non-interest expense
2,368

 
1,861

 
507

 
27.2

Total non-interest expense
$
70,145

 
$
66,179

 
$
3,966

 
6.0


The increase in salaries and employee benefits expense was due primarily to an increase in payroll expense, as well as a new 2018 Tax Savings Bonus Plan. The 2018 Tax Savings Bonus plan is a one-time bonus award to qualifying non-officer employees. The anticipated expense associated with this plan is being recognized in fiscal year 2018 and will total approximately $1.0 million, of which $667 thousand has been recognized during the current year nine month period. It is expected that the Bank will recognize the remaining $333 thousand of expense in the fourth quarter of fiscal year 2018 related to this plan. The increase in information technology and related expense was due mainly to a change in the presentation of certain information technology professional and consulting expenses beginning in fiscal year 2018. Information technology professional and consulting expenses are now being reported in information technology and related expenses rather than regulatory and outside services. Additionally, these expenses increased compared to the prior year due primarily to ongoing enhancements to the Bank's online banking services, along with increases in information technology expenses related to software licensing and depreciation. The change in the presentation of expenses resulted in a decrease in the amount of regulatory and outside services expenses for the current year nine month period, but this was partially offset by acquisition-related expenses. The increase in other non-interest expense was due mainly to an increase in OREO operations expense.

The Company's efficiency ratio was 42.54% for the current year nine month period compared to 40.84% for the prior year nine month period. The change in the efficiency ratio was due primarily to higher non-interest expense in the current year nine month period compared to the prior year nine month period.

Income Tax Expense
Income tax expense was $17.2 million for the current year nine month period compared to $32.3 million for the prior year nine month period. The effective tax rate was 18.2% for the current year nine month period compared to 33.7% for the prior year nine month period. The decrease in the effective tax rate was due mainly to the Tax Act being signed into law in December 2017.

Financial Condition as of June 30, 2018

Total assets were $9.05 billion at June 30, 2018 compared to $9.19 billion at September 30, 2017. The $144.2 million decrease was due primarily to a $169.6 million decrease in cash and cash equivalents. During the current year nine month period, asset cash flows not reinvested were used mainly to pay off certain maturing term borrowings.

The loans receivable portfolio, net, totaled $7.24 billion at June 30, 2018 compared to $7.20 billion at September 30, 2017. During the current year nine month period, the Bank originated and refinanced $458.5 million of loans with a weighted average rate of 4.05% and purchased $318.6 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.70%. The Bank also entered into participations of $108.6 million of commercial real estate loans with a weighted average rate of 4.15%, of which $93.7 million had not yet been funded as of June 30, 2018. During the current year nine month period, the Bank funded $73.3 million of new and existing commercial real estate loans. There are no agricultural loans in the Bank's loan portfolio.


7



The Bank is continuing to manage the size of its loan portfolio, as it manages its liquidity levels to a target level of approximately 15%.  The size of the loan portfolio has been managed by controlling correspondent loan volume primarily through the rates offered to correspondent lenders.  Management intends to continue to manage the size of the loan portfolio after the merger with Capital City Bank by utilizing cash flows from the correspondent loan portfolio to fund commercial loan growth. Given the balance of total assets, it is unlikely that loan growth will substantially increase in the current environment. Generally, over the past few 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 costing 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 term borrowings. The ratio of securities and cash to total assets was 15.5% at June 30, 2018. In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital. At June 30, 2018, this ratio was 13.0%.

The Bank continued, at times, to utilize a leverage strategy to increase earnings in fiscal year 2018. 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. The proceeds from the borrowings, net of the required FHLB stock holdings, which yielded 6.9% during the current quarter and 6.7% during the current year nine month period, 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, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $212 thousand during the current quarter, compared to $713 thousand during the quarter ending March 31, 2018. The decrease between quarters was due mainly to an increase in the negative net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings. Additionally, management suspended the strategy during the current quarter due to the large negative interest rate spread, which resulted in the strategy not being profitable. Net income attributable to the leverage strategy was $1.7 million for the current year nine month period, compared to $2.2 million for the prior year nine month period. Management continues to monitor the net interest rate spread and overall profitability of the strategy. The strategy will be reimplemented if it reaches a position that is profitable.

Total liabilities were $7.71 billion at June 30, 2018 compared to $7.82 billion at September 30, 2017. The $117.2 million decrease was due mainly to a decrease in repurchase agreements resulting from the payoff of a maturing repurchase agreement during the current year nine month period.

Stockholders' equity was $1.34 billion at June 30, 2018 compared to $1.37 billion at September 30, 2017. The $27.0 million decrease was due primarily to the payment of $106.9 million in cash dividends, partially offset by net income of $77.5 million. The cash dividends paid during the current year nine month period totaled $0.795 per share and consisted of a $0.29 per share cash true-up dividend related to fiscal year 2017 earnings per the Company's dividend policy, a $0.25 per share True Blue Capitol dividend, and three regular quarterly cash dividends totaling $0.255 per share. On July 18, 2018, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.4 million, payable on August 17, 2018 to stockholders of record as of the close of business on August 3, 2018.

At June 30, 2018, Capitol Federal Financial, Inc., at the holding company level, had $124.6 million on deposit at the Bank. For fiscal year 2018, it is the intent of the Board of Directors and management to continue 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.
 
June 30,
 
September 30,
 
June 30,
 
2018
 
2017
 
2017
 
(Dollars in thousands)
Stockholders' equity
$
1,341,325

 
$
1,368,313

 
$
1,358,986

Equity to total assets at end of period
14.8
%
 
14.9
%
 
14.9
%


8



The following table presents a reconciliation of total to net shares outstanding as of June 30, 2018.
Total shares outstanding
138,256,735

Less unallocated ESOP shares and unvested restricted stock
(3,727,507
)
Net shares outstanding
134,529,228


Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of June 30, 2018, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at June 30, 2018.
 
 
 
Regulatory
 
 
 
Requirement For
 
Bank
 
Well-Capitalized
 
Ratios
 
Status
Tier 1 leverage ratio
11.0%
 
5.0
%
Common equity tier 1 capital ratio
26.2
 
6.5

Tier 1 capital ratio
26.2
 
8.0

Total capital ratio
26.4
 
10.0


A reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of June 30, 2018 is as follows (dollars in thousands):
Total Bank equity as reported under GAAP
$
1,172,779

Accumulated Other Comprehensive Income ("AOCI")
(3,763
)
Total tier 1 capital
1,169,016

ACL
8,344

Total capital
$
1,177,360


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

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 involve risks and uncertainties, including the possibility that expected cost savings, synergies and other benefits from the acquisition of CCB might not be realized within the anticipated time frames or at all, and the possibility that costs or difficulties relating to integration matters might be greater than expected, changes in economic conditions in the Company's market area, changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities, other governmental initiatives affecting the financial services industry, changes in accounting principles, policies or guidelines, fluctuations in interest rates, demand for loans in the Company's market area, the future earnings and capital levels of the Bank, which would affect the ability of the Company to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

For further information contact:
Kent Townsend
Investor Relations
Executive Vice President,
700 S Kansas Ave
Chief Financial Officer and Treasurer
Topeka, KS 66603
700 S Kansas Ave
(785) 270-6055
Topeka, KS 66603
investorrelations@capfed.com
(785) 231-6360
 
ktownsend@capfed.com
 

9




SUPPLEMENTAL FINANCIAL INFORMATION
 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
June 30,
 
September 30,
 
2018
 
2017
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $174,490 and $340,748)
$
182,078

 
$
351,659

Securities:
 
 
 
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $556,257 and $410,541)
555,361

 
415,831

Held-to-maturity at amortized cost (estimated fair value of $654,965 and $833,009)
664,522

 
827,738

Loans receivable, net (ACL of $8,344 and $8,398)
7,239,384

 
7,195,071

FHLB stock, at cost
100,694

 
100,954

Premises and equipment, net
85,604

 
84,818

Other assets
221,094

 
216,845

TOTAL ASSETS
$
9,048,737

 
$
9,192,916

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
5,323,083

 
$
5,309,868

FHLB borrowings
2,174,816

 
2,173,808

Repurchase agreements
100,000

 
200,000

Advance payments by borrowers for taxes and insurance
39,700

 
63,749

Income taxes payable, net

 
530

Deferred income tax liabilities, net
18,525

 
24,458

Accounts payable and accrued expenses
51,288

 
52,190

Total liabilities
7,707,412

 
7,824,603

 
 
 
 
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, 138,256,735 and 138,223,835
 
 
 
 shares issued and outstanding as of June 30, 2018 and September 30, 2017, respectively
1,383

 
1,382

Additional paid-in capital
1,168,325

 
1,167,368

Unearned compensation, ESOP
(36,756
)
 
(37,995
)
Retained earnings
204,610

 
234,640

AOCI, net of tax
3,763

 
2,918

Total stockholders' equity
1,341,325

 
1,368,313

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,048,737

 
$
9,192,916


10



 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
March 31,
 
June 30,
 
2018
 
2018
 
2018
 
2017
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
64,893

 
$
64,194

 
$
193,276

 
$
189,064

Cash and cash equivalents
7,221

 
7,895

 
22,230

 
12,720

MBS
5,921

 
5,390

 
16,563

 
18,374

FHLB stock
2,819

 
3,201

 
9,115

 
9,153

Investment securities
1,307

 
1,094

 
3,395

 
3,301

Total interest and dividend income
82,161

 
81,774

 
244,579

 
232,612

 
 
 
 
 
 
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
18,501

 
18,772

 
55,190

 
50,772

Deposits
13,587

 
12,480

 
38,028

 
31,655

Repurchase agreements
640

 
633

 
2,665

 
4,461

Total interest expense
32,728

 
31,885

 
95,883

 
86,888

 
 
 
 
 
 
 
 
NET INTEREST INCOME
49,433

 
49,889

 
148,696

 
145,724

 
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES

 

 

 

NET INTEREST INCOME AFTER
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
49,433

 
49,889

 
148,696

 
145,724

 
 
 
 
 
 
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
3,915

 
3,670

 
11,550

 
11,123

Income from BOLI
510

 
276

 
1,320

 
1,669

Other non-interest income
999

 
1,487

 
3,345

 
3,509

Total non-interest income
5,424

 
5,433

 
16,215

 
16,301

 
 
 
 
 
 
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
11,936

 
11,167

 
33,631

 
32,388

Information technology and related expense
3,363

 
3,622

 
10,316

 
8,524

Occupancy, net
2,787

 
2,839

 
8,391

 
8,098

Deposit and loan transaction costs
1,437

 
1,313

 
4,157

 
3,918

Regulatory and outside services
1,628

 
1,151

 
3,919

 
3,994

Advertising and promotional
1,490

 
1,337

 
3,512

 
3,275

Federal insurance premium
813

 
847

 
2,512

 
2,651

Office supplies and related expense
455

 
442

 
1,339

 
1,470

Other non-interest expense
602

 
880

 
2,368

 
1,861

Total non-interest expense
24,511

 
23,598

 
70,145

 
66,179

INCOME BEFORE INCOME TAX EXPENSE
30,346

 
31,724

 
94,766

 
95,846

INCOME TAX EXPENSE
7,974

 
8,394

 
17,228

 
32,311

NET INCOME
$
22,372

 
$
23,330

 
$
77,538

 
$
63,535


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 Nine Months Ended
 
June 30,
 
March 31,
 
June 30,
 
2018
 
2018
 
2018
 
2017
 
(Dollars in thousands, except per share amounts)
Net income
$
22,372

 
$
23,330

 
$
77,538

 
$
63,535

Income allocated to participating securities
(9
)
 
(10
)
 
(32
)
 
(36
)
Net income available to common stockholders
$
22,363

 
$
23,320

 
$
77,506

 
$
63,499

 
 
 
 
 
 
 
 
Average common shares outstanding
134,401,188

 
134,386,469

 
134,386,678

 
133,962,680

Average committed ESOP shares outstanding
83,052

 
41,758

 
41,602

 
41,601

Total basic average common shares outstanding
134,484,240

 
134,428,227

 
134,428,280

 
134,004,281

 
 
 
 
 
 
 
 
Effect of dilutive stock options
45,713

 
47,001

 
62,275

 
185,477

 
 
 
 
 
 
 
 
Total diluted average common shares outstanding
134,529,953

 
134,475,228

 
134,490,555

 
134,189,758

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
0.17

 
$
0.17

 
$
0.58

 
$
0.47

Diluted
$
0.17

 
$
0.17

 
$
0.58

 
$
0.47

 
 
 
 
 
 
 
 
Antidilutive stock options, excluded from the diluted
 
 
 
 
 
 
average common shares outstanding calculation
578,777

 
598,195

 
541,493

 
202,718




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.
 
June 30, 2018
 
March 31, 2018
 
September 30, 2017
 
 
 
 
 
% of
 
 
 
 
 
% of
 
 
 
 
 
% of
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
$
3,931,251

 
3.71
%
 
54.4
%
 
$
3,919,353

 
3.69
%
 
54.5
%
 
$
3,959,232

 
3.70
%
 
55.1
%
Correspondent purchased
2,514,929

 
3.56

 
34.8

 
2,490,776

 
3.54

 
34.6

 
2,445,311

 
3.53

 
34.0

Bulk purchased
309,837

 
2.41

 
4.3

 
327,611

 
2.33

 
4.6

 
351,705

 
2.29

 
4.9

Construction
27,565

 
3.54

 
0.4

 
28,195

 
3.49

 
0.4

 
30,647

 
3.45

 
0.4

Total
6,783,582

 
3.59

 
93.9

 
6,765,935

 
3.57

 
94.1

 
6,786,895

 
3.56

 
94.4

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanent
274,410

 
4.10

 
3.8

 
273,507

 
4.10

 
3.8

 
183,030

 
4.24

 
2.6

Construction
44,645

 
4.64

 
0.6

 
25,995

 
4.59

 
0.4

 
86,952

 
3.80

 
1.2

Total
319,055

 
4.17

 
4.4

 
299,502

 
4.14

 
4.2

 
269,982

 
4.10

 
3.8

Total real estate loans
7,102,637

 
3.62

 
98.3

 
7,065,437

 
3.59

 
98.3

 
7,056,877

 
3.58

 
98.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
119,079

 
5.79

 
1.6

 
117,971

 
5.57

 
1.6

 
122,066

 
5.40

 
1.7

Other
4,453

 
4.02

 
0.1

 
4,334

 
4.03

 
0.1

 
3,808

 
4.05

 
0.1

Total consumer loans
123,532

 
5.73

 
1.7

 
122,305

 
5.52

 
1.7

 
125,874

 
5.36

 
1.8

Total loans receivable
7,226,169

 
3.66

 
100.0
%
 
7,187,742

 
3.63

 
100.0
%
 
7,182,751

 
3.61

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACL
8,344

 
 
 
 
 
8,390

 
 
 
 
 
8,398

 
 
 
 
Discounts/unearned loan fees
25,124

 
 
 
 
 
24,996

 
 
 
 
 
24,962

 
 
 
 
Premiums/deferred costs
(46,683
)
 
 
 
 
 
(46,307
)
 
 
 
 
 
(45,680
)
 
 
 
 
Total loans receivable, net
$
7,239,384

 
 
 
 
 
$
7,200,663

 
 
 
 
 
$
7,195,071

 
 
 
 




13



Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-off as a result of refinances and loans that are sold are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the nine months ended June 30, 2018, the Bank endorsed $15.4 million of one- to four-family loans, reducing the average rate on those loans by 20 basis points.
 
For the Three Months Ended
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,187,742

 
3.63
%
 
$
7,177,504

 
3.62
%
 
$
7,182,751

 
3.61
%
 
$
7,228,425

 
3.60
%
Originations and refinances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
143,059

 
4.21

 
77,825

 
3.80

 
109,102

 
3.70

 
102,687

 
3.82

Adjustable
54,385

 
4.42

 
36,612

 
4.28

 
37,502

 
4.26

 
44,900

 
4.10

Purchases and participations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
78,650

 
4.04

 
120,155

 
3.85

 
85,565

 
3.73

 
76,906

 
3.92

Adjustable
30,017

 
3.49

 
48,062

 
3.61

 
64,689

 
3.87

 
17,046

 
3.33

Change in undisbursed loan funds
19,808

 
 
 
(25,002
)
 
 
 
(17,706
)
 
 
 
21,823

 
 
Repayments
(286,923
)
 
 
 
(246,894
)
 
 
 
(283,880
)
 
 
 
(307,909
)
 
 
Principal (charge-offs) recoveries, net
(46
)
 
 
 
20

 
 
 
(28
)
 
 
 
(88
)
 
 
Other
(523
)
 
 
 
(540
)
 
 
 
(491
)
 
 
 
(1,039
)
 
 
Ending balance
$
7,226,169

 
3.66

 
$
7,187,742

 
3.63

 
$
7,177,504

 
3.62

 
$
7,182,751

 
3.61

 
For the Nine Months Ended
 
June 30, 2018
 
June 30, 2017
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,182,751

 
3.61
%
 
$
6,949,522

 
3.60
%
Originations and refinances:
 
 
 
 
 
 
 
Fixed
329,986

 
3.94

 
408,536

 
3.57

Adjustable
128,499

 
4.33

 
142,355

 
3.75

Purchases and participations:
 
 
 
 
 
 
 
Fixed
284,370

 
3.87

 
466,567

 
3.70

Adjustable
142,768

 
3.71

 
70,350

 
2.96

Change in undisbursed loan funds
(22,900
)
 
 
 
55,206

 
 
Repayments
(817,697
)
 
 
 
(861,899
)
 
 
Principal charge-offs, net
(54
)
 
 
 
(54
)
 
 
Other
(1,554
)
 
 
 
(2,158
)
 
 
Ending balance
$
7,226,169

 
3.66

 
$
7,228,425

 
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 Nine Months Ended 
 
June 30, 2018
 
June 30, 2018
 
Amount
 
Rate
 
% of Total
 
Amount
 
Rate
 
% of Total
Fixed-rate:
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 15 years
$
51,678

 
3.67
%
 
16.9
%
 
$
131,665

 
3.40
%
 
14.9
%
> 15 years
167,293

 
4.27

 
54.7

 
440,018

 
4.02

 
49.7

Commercial real estate
1,000

 
4.00

 
0.3

 
39,049

 
4.13

 
4.4

Home equity
1,631

 
6.13

 
0.5

 
3,250

 
6.06

 
0.4

Other
107

 
11.41

 

 
374

 
9.16

 

Total fixed-rate
221,709

 
4.15

 
72.4

 
614,356

 
3.91

 
69.4

 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 36 months
2,568

 
3.37

 
0.8

 
5,111

 
3.11

 
0.6

> 36 months
60,419

 
3.57

 
19.8

 
139,035

 
3.36

 
15.7

Commercial real estate
420

 
4.50

 
0.1

 
69,963

 
4.17

 
7.9

Home equity
20,190

 
5.79

 
6.6

 
54,809

 
5.55

 
6.2

Other
805

 
2.54

 
0.3

 
2,349

 
3.30

 
0.2

Total adjustable-rate
84,402

 
4.09

 
27.6

 
271,267

 
4.00

 
30.6

 
 
 
 
 
 
 
 
 
 
 
 
Total originated, refinanced and purchased
$
306,111

 
4.13

 
100.0
%
 
$
885,623

 
3.94

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Purchased and participation loans included above:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
$
77,650

 
4.04

 
 
 
$
245,361

 
3.82

 
 
Participations - commercial real estate
1,000

 
4.00

 
 
 
39,009

 
4.13

 
 
Total fixed-rate purchased/participations
78,650

 
4.04

 
 
 
284,370

 
3.87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
30,017

 
3.49

 
 
 
73,225

 
3.27

 
 
Participations - commercial real estate

 

 
 
 
69,543

 
4.16

 
 
Total adjustable-rate purchased/participations
30,017

 
3.49

 
 
 
142,768

 
3.71

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total purchased/participation loans
$
108,667

 
3.89

 
 
 
$
427,138

 
3.81

 
 




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 March 2018, 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.
 
June 30, 2018
 
March 31, 2018
 
September 30, 2017
 
 
 
% 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
$
3,931,251

 
58.2
%
 
768

 
63
%
 
$
137

 
$
3,919,353

 
58.2
%
 
768

 
62
%
 
$
136

 
$
3,959,232

 
58.6
%
 
767

 
63
%
 
$
135

Correspondent purchased
2,514,929

 
37.2

 
764

 
67

 
378

 
2,490,776

 
37.0

 
764

 
67

 
377

 
2,445,311

 
36.2

 
764

 
68

 
375

Bulk purchased
309,837

 
4.6

 
759

 
62

 
305

 
327,611

 
4.8

 
759

 
62

 
305

 
351,705

 
5.2

 
757

 
63

 
305

 
$
6,756,017

 
100.0
%
 
766

 
64

 
186

 
$
6,737,740

 
100.0
%
 
766

 
64

 
185

 
$
6,756,248

 
100.0
%
 
765

 
65

 
182


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 June 30, 2018, 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
$
10,638

 
$
31,613

 
$
15,352

 
$
57,603

 
4.09
%
Correspondent
4,761

 
58,655

 
8,872

 
72,288

 
4.30

 
$
15,399

 
$
90,268

 
$
24,224

 
$
129,891

 
4.21

 
 
 
 
 
 
 
 
 
 
Rate
3.80
%
 
4.38
%
 
3.81
%
 
 
 
 


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 current year nine month period, $20.6 million and $59.0 million, respectively, were refinanced from other lenders.
 
For the Three Months Ended
 
For the Nine Months Ended 
 
June 30, 2018
 
June 30, 2018
 
 
 
 
 
Credit
 
 
 
 
 
Credit
 
Amount
 
LTV
 
Score
 
Amount
 
LTV
 
Score
 
(Dollars in thousands)
Originated
$
159,771

 
78
%
 
762

 
$
341,407

 
77
%
 
762

Refinanced by Bank customers
14,520

 
66

 
744

 
55,836

 
67

 
750

Correspondent purchased
107,667

 
73

 
766

 
318,586

 
73

 
765

 
$
281,958

 
76

 
763

 
$
715,829

 
75

 
763


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 nine month period ended June 30, 2018.
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
June 30, 2018
 
June 30, 2018
State
 
Amount
 
% of Total
 
Rate
 
Amount
 
% of Total
 
Rate
 
 
(Dollars in thousands)
Kansas
 
$
150,867

 
53.5
%
 
4.08
%
 
$
350,282

 
48.9
%
 
3.83
%
Missouri
 
52,081

 
18.5

 
4.05

 
131,854

 
18.4

 
3.80

Texas
 
40,621

 
14.4

 
3.83

 
128,773

 
18.0

 
3.66

Other states
 
38,389

 
13.6

 
3.84

 
104,920

 
14.7

 
3.67

 
 
$
281,958

 
100.0
%
 
4.01

 
$
715,829

 
100.0
%
 
3.77


Commercial Real Estate Loans: During the current year nine month period, the Bank entered into commercial real estate loan participations of $108.6 million, which included $102.6 million of commercial real estate construction loans. Substantially all of the $102.6 million of commercial real estate construction loans had not yet been funded as of June 30, 2018.

17



The following table presents the Bank's commercial real estate loans and loan commitments by industry classification, as defined by the North American Industry Classification System, as of June 30, 2018. Based on the terms of the construction loans as of June 30, 2018, of the $142.5 million of undisbursed amounts in the table, which does not include outstanding commitments, $29.8 million is projected to be disbursed by September 30, 2018, and an additional $88.0 million is projected to be disbursed by June 30, 2019. It is possible that not all of the funds will be disbursed due to the nature of the funding of construction projects. Included in the table are fixed-rate loans totaling $347.3 million at a weighted average rate of 4.13% and adjustable-rate loans totaling $201.1 million at a weighted average rate of 4.69%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at June 30, 2018 having shorter terms to maturity. Additionally, the credit risk for most of the Bank's commercial real estate borrowing relationships is mitigated due to the amount of equity injected into the projects, strong debt service coverage ratios, and the liquidity, personal cash flow and net worth of the guarantors. Several of these borrowing relationships have a preference for fixed-rate loans and the market interest rates are typically lower for these types of borrowers.
 
Unpaid
 
Undisbursed
 
Gross Loan
 
Outstanding
 
 
 
% of
 
Principal
 
Amount
 
Amount
 
Commitments
 
Total
 
Total
 
(Dollars in thousands)
Accommodation and food services
$
144,640

 
$
35,416

 
$
180,056

 
$
24,000

 
$
204,056

 
37.2
%
Health care and social assistance
71,871

 
61,326

 
133,197

 
27,941

 
161,138

 
29.4

Real estate rental and leasing
35,744

 
23,813

 
59,557

 

 
59,557

 
10.9

Multi-family
9,997

 
20,806

 
30,803

 
24,783

 
55,586

 
10.1

Arts, entertainment, and recreation
32,700

 

 
32,700

 

 
32,700

 
6.0

Retail trade
17,653

 
1,159

 
18,812

 
10,100

 
28,912