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Section 1: 10-Q (JUNE 30, 2018 FORM 10-Q)

Document


UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Form 10-Q
_________________
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Maryland    
27-2631712
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
700 South Kansas Avenue, Topeka, Kansas
66603
(Address of principal executive offices)
(Zip Code)
 
 
 
(785) 235-1341
Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller Reporting Company ¨
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. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of August 3, 2018, there were 138,263,635 shares of Capitol Federal Financial, Inc. common stock outstanding.





PART I - FINANCIAL INFORMATION
Page Number
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
Item 3.
Item 4.
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 




PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements


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 ("HTM"), at amortized cost (estimated fair value of $654,965 and $833,009)
664,522

 
827,738

Loans receivable, net (allowance for credit losses ("ACL") of $8,344 and $8,398)
7,239,384

 
7,195,071

Federal Home Loan Bank Topeka ("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, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding

 

Common stock, $.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, Employee Stock Ownership Plan ("ESOP")
(36,756
)
 
(37,995
)
Retained earnings
204,610

 
234,640

Accumulated other comprehensive income ("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

 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 


3


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

 
$
64,013

 
$
193,276

 
$
189,064

Cash and cash equivalents
7,221

 
5,619

 
22,230

 
12,720

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

 
5,821

 
16,563

 
18,374

FHLB stock
2,819

 
3,114

 
9,115

 
9,153

Investment securities
1,307

 
1,063

 
3,395

 
3,301

Total interest and dividend income
82,161

 
79,630

 
244,579

 
232,612

INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
18,501

 
17,884

 
55,190

 
50,772

Deposits
13,587

 
10,895

 
38,028

 
31,655

Repurchase agreements
640

 
1,487

 
2,665

 
4,461

Total interest expense
32,728

 
30,266

 
95,883

 
86,888

NET INTEREST INCOME
49,433

 
49,364

 
148,696

 
145,724

PROVISION FOR CREDIT LOSSES

 

 

 

NET INTEREST INCOME AFTER
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
49,433

 
49,364

 
148,696

 
145,724

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

 
3,832

 
11,550

 
11,123

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

 
573

 
1,320

 
1,669

Other non-interest income
999

 
1,055

 
3,345

 
3,509

Total non-interest income
5,424

 
5,460

 
16,215

 
16,301

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

 
11,210

 
33,631

 
32,388

Information technology and related expense
3,363

 
2,922

 
10,316

 
8,524

Occupancy, net
2,787

 
2,659

 
8,391

 
8,098

Deposit and loan transaction costs
1,437

 
1,304

 
4,157

 
3,918

Regulatory and outside services
1,628

 
1,383

 
3,919

 
3,994

Advertising and promotional
1,490

 
1,322

 
3,512

 
3,275

Federal insurance premium
813

 
879

 
2,512

 
2,651

Office supplies and related expense
455

 
492

 
1,339

 
1,470

Other non-interest expense
602

 
474

 
2,368

 
1,861

Total non-interest expense
24,511

 
22,645

 
70,145

 
66,179

INCOME BEFORE INCOME TAX EXPENSE
30,346

 
32,179

 
94,766

 
95,846

INCOME TAX EXPENSE
7,974

 
10,809

 
17,228

 
32,311

NET INCOME
$
22,372

 
$
21,370

 
$
77,538

 
$
63,535

 
 
 
 
 
 
 
 
Basic earnings per share ("EPS")
$
0.17

 
$
0.16

 
$
0.58

 
$
0.47

Diluted EPS
$
0.17

 
$
0.16

 
$
0.58

 
$
0.47

Dividends declared per share
$
0.34

 
$
0.34

 
$
0.80

 
$
0.80

 
 
 
 
 
 
 
 
Basic weighted average common shares
134,484,240

 
134,253,690

 
134,428,280

 
134,004,281

Diluted weighted average common shares
134,529,953

 
134,359,770

 
134,490,555

 
134,189,758

 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 

4


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
22,372

 
$
21,370

 
$
77,538

 
$
63,535

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Changes in unrealized gains (losses) on AFS securities,
 
 
 
 
 
 
 
net of taxes of $437, $345, $1,756 and $1,374
(1,366
)
 
(567
)
 
(4,430
)
 
(2,260
)
Changes in unrealized gains (losses) on cash flow hedges,
 
 
 
 
 
 
 
net of taxes of $9, $0, $(1,858) and $0
(30
)
 

 
4,608

 

Comprehensive income
$
20,976

 
$
20,803

 
$
77,716

 
$
61,275

 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 


5


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
Unearned
 
 
 
 
 
Total
 
Common
 
Paid-In
 
Compensation
 
Retained
 
 
 
Stockholders'
 
Stock
 
Capital
 
ESOP
 
Earnings
 
AOCI
 
Equity
Balance at September 30, 2016
$
1,375

 
$
1,156,855

 
$
(39,647
)
 
$
268,466

 
$
5,915

 
$
1,392,964

Net income
 
 
 
 
 
 
63,535

 
 
 
63,535

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(2,260
)
 
(2,260
)
ESOP activity, net
 
 
621

 
1,239

 
 
 
 
 
1,860

Restricted stock activity, net
 
 
51

 
 
 
 
 
 
 
51

Stock-based compensation
 
 
419

 
 
 
 
 
 
 
419

Stock options exercised
7

 
8,962

 
 
 
 
 
 
 
8,969

Cash dividends to stockholders ($0.80 per share)
 
 
 
 
 
 
(106,552
)
 
 
 
(106,552
)
Balance at June 30, 2017
$
1,382

 
$
1,166,908

 
$
(38,408
)
 
$
225,449

 
$
3,655

 
$
1,358,986

 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
$
1,382

 
$
1,167,368

 
$
(37,995
)
 
$
234,640

 
$
2,918

 
$
1,368,313

Net income
 
 
 
 
 
 
77,538

 
 
 
77,538

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
178

 
178

Reclassification of certain tax effects related to adoption of Accounting Standards Update ("ASU") 2018-02
 
 
 
 
 
(667
)
 
667

 

ESOP activity, net
 
 
410

 
1,239

 
 
 
 
 
1,649

Stock-based compensation
 
 
280

 
 
 
 
 
 
 
280

Cumulative effect of adopting ASU 2016-09
 
 
19

 
 
 
(19
)
 
 
 

Stock options exercised
1

 
248

 
 
 
 
 
 
 
249

Cash dividends to stockholders ($0.80 per share)
 
 
 
 
 
(106,882
)
 
 
 
(106,882
)
Balance at June 30, 2018
$
1,383

 
$
1,168,325

 
$
(36,756
)
 
$
204,610

 
$
3,763

 
$
1,341,325

 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 
 


6


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
 
 
 
For the Nine Months Ended
 
June 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
77,538

 
$
63,535

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
FHLB stock dividends
(9,115
)
 
(9,153
)
Originations of loans receivable held-for-sale ("LHFS")
(777
)
 

Proceeds from sales of LHFS
16,423

 

Amortization and accretion of premiums and discounts on securities
2,478

 
3,487

Depreciation and amortization of premises and equipment
6,275

 
5,784

Amortization of deferred amounts related to FHLB advances, net
1,008

 
1,083

Common stock committed to be released for allocation - ESOP
1,649

 
1,860

Stock-based compensation
280

 
419

Changes in deferred income tax liabilities, net
(6,038
)
 

Changes in cash collateral received from derivative counterparty, net
6,071

 

Changes in:
 
 
 
Other assets, net
444

 
34

Income taxes payable, net
(531
)
 
1,672

Accounts payable and accrued expenses
(5,643
)
 
(11,612
)
Net cash provided by operating activities
90,062

 
57,109

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of AFS securities
(312,285
)
 
(37,425
)
Proceeds from calls, maturities and principal reductions of AFS securities
164,446

 
108,170

Proceeds from calls, maturities and principal reductions of HTM securities
160,792

 
206,378

Proceeds from sale of AFS securities
2,078

 

Proceeds from the redemption of FHLB stock
195,246

 
292,400

Purchase of FHLB stock
(185,871
)
 
(274,316
)
Net increase in loans receivable
(61,681
)
 
(284,728
)
Purchase of premises and equipment
(7,062
)
 
(6,509
)
Proceeds from sale of other real estate owned ("OREO")
2,161

 
4,297

Net cash (used in) provided by investing activities
(42,176
)
 
8,267

 
 
 
 
 
 
 
(Continued)


7


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
 
 
 
For the Nine Months Ended
 
June 30,
 
2018
 
2017
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Cash dividends paid
(106,882
)
 
(106,552
)
Net change in deposits
13,215

 
103,667

Proceeds from borrowings
14,900,100

 
2,100,100

Repayments on borrowings
(15,000,100
)
 
(2,500,100
)
Net change in short-term borrowings

 
200,000

Change in advance payments by borrowers for taxes and insurance
(24,049
)
 
(22,975
)
Stock options exercised
249

 
8,642

Excess tax benefits from stock options

 
327

Net cash used in financing activities
(217,467
)
 
(216,891
)
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(169,581
)
 
(151,515
)
 
 
 
 
CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
351,659

 
281,764

End of period
$
182,078

 
$
130,249

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
 
 
 
FINANCING ACTIVITIES:
 
 
 
Loans transferred to LHFS
$
15,814

 
$

 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
(Concluded)


8


Notes to Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal® Financial, Inc. (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has a wholly-owned subsidiary, Capitol Funds, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.

Net Presentation of Cash Flows Related to Borrowings - During the current fiscal year, the Bank entered into certain FHLB advances with contractual maturities of 90 days or less. Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows.

Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Recent Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers. The ASU, as amended, implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of the amended guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the amended guidance identifies specific steps an entity should apply in order to achieve this principle. The amended guidance requires entities to disclose both quantitative and qualitative information regarding contracts with customers. ASU 2014-09 will become effective for the Company on October 1, 2018. The majority of the Company's revenue is composed of interest income from loans and securities which are explicitly excluded from the amended ASU; therefore the amended ASU will likely not have a material impact to the Company's consolidated financial condition and results of operations, but it will likely result in expanded disclosures. The Company has completed its identification of revenue within the scope of the ASU and is in the process of evaluating the need for additional disclosures, the timing of recognition for the applicable revenue streams, and the presentation of certain revenues and expenses on a net basis.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments, Recognition and Measurement of Financial Assets and Liabilities. The ASU supersedes certain accounting guidance related to equity securities with readily determinable fair values and the related impairment assessment. An entity's equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this ASU. The ASU requires public business entities to utilize the exit price notation in determining fair value for financial instruments measured at amortized cost on the balance sheet. The ASU requires additional reporting in other comprehensive income for financial liabilities measured at fair value in accordance with the fair value option. The ASU also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balances or in the notes to the financial statements. ASU 2016-01 will become effective for the Company on October 1, 2018. The Company does not currently hold any equity investments included within the scope of the ASU. The Company is currently evaluating the impact the ASU may have on the Company's consolidated financial condition, results of operations and disclosures. Based on the Company's preliminary analysis, the ASU it is not expected to have a material impact when adopted. Upon adoption, the exit price notion will be utilized when determining the fair value of financial instruments measured at amortized cost in the Company's fair value disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. The ASU amends lease accounting guidance by requiring that lessees recognize the assets and liabilities arising from leases on the balance sheet. Additionally, the ASU requires entities to disclose both quantitative and qualitative information regarding their leasing activities. The accounting applied by a lessor is largely unchanged from that applied under the previous guidance. ASU 2016-02 will become effective for the Company on October 1, 2019. In July 2018, the FASB issued ASU 2018-11, Leases, which provides entities with relief from the costs of implementation by allowing the option to not restate comparative periods as part of the transition. The Company expects to select the transition relief provisions. The

9


Company has substantially completed its development of a lease inventory and is developing an internal lease data collection, organization, and computing platform for compliance with this standard. The Company expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption. The Company is continuing to evaluate the impact this ASU may have on the Company's consolidated financial condition, results of operations and disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, along with simplifying the classification in the statement of cash flows. The Company adopted the ASU on October 1, 2017. Upon adoption, the Company elected to account for forfeitures of stock-based compensation awards when they occur. The Company will recognize excess tax benefits and tax deficiencies in income tax expense on the consolidated statements of income and present them within operating activities on the consolidated statements of cash flows. This ASU did not have a material impact on the Company's consolidated financial condition or results of operations at the time of adoption. However, the impact of tax benefits and the timing of their recognition within income tax expense is unpredictable, as these benefits are recognized primarily as a result of stock options being exercised.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU replaces the incurred loss impairment methodology in current GAAP, which requires credit losses to be recognized when it is probable that a loss has been incurred, with a new impairment methodology. The new impairment methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans, HTM debt securities, and loan commitments, over their contractual lives. Under the new impairment methodology, expected credit losses will be measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amends the current credit loss measurements for AFS debt securities. Credit losses related to AFS debt securities will be recorded through the ACL rather than as a direct write-down as per current GAAP. The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses. The ASU will become effective for the Company on October 1, 2020. The Company has formed a cross-functional working group comprised of individuals from various functional areas to assist with the implementation of the ASU. The Company is currently in the process of analyzing third-party vendor solutions to assist in the application of this ASU. While we are currently unable to reasonably estimate the impact of adopting this ASU, we expect the impact of adoption will be influenced by the composition of our loan and securities portfolios as well as the economic conditions and forecasts at the time of adoption.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Target Improvements to Accounting for Hedging Activities. The ASU amends the hedge accounting recognition and presentation requirements in current GAAP. The purpose of the ASU was to improve transparency of hedging relationships in the financial statements and to reduce the complexity of applying hedge accounting for preparers. The ASU will become effective for the Company on October 1, 2019. The Company is currently evaluating the effect of the ASU on the Company's consolidated financial condition, results of operations and disclosures.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. The ASU helps organizations address certain stranded income tax effects in AOCI resulting from the tax legislation enacted by the U.S. government on December 22, 2017 commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") by allowing the reclassification of these amounts from AOCI to retained earnings. The effective date of this ASU for the Company is October 1, 2019, with early adoption permitted. The Company elected to early-adopt this ASU during the current fiscal year and reclassify the related tax effects from the enactment of the Tax Act, specifically those related to the change in the federal corporate tax rate, from AOCI to retained earnings. The reclassification was applied prospectively and is reflected in the Consolidated Statements of Stockholders' Equity. The Company releases the income tax effects of unrealized gains and losses related to AFS securities on a portfolio basis.


10


2. EARNINGS PER SHARE
Shares acquired by the ESOP are not considered in the basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in thousands, except per share amounts)
Net income
$
22,372

 
$
21,370

 
$
77,538

 
$
63,535

Income allocated to participating securities
(9
)
 
(11
)
 
(32
)
 
(36
)
Net income available to common stockholders
$
22,363

 
$
21,359

 
$
77,506

 
$
63,499

 
 
 
 
 
 
 
 
Average common shares outstanding
134,401,188

 
134,170,638

 
134,386,678

 
133,962,680

Average committed ESOP shares outstanding
83,052

 
83,052

 
41,602

 
41,601

Total basic average common shares outstanding
134,484,240

 
134,253,690

 
134,428,280

 
134,004,281

 
 
 
 
 
 
 
 
Effect of dilutive stock options
45,713

 
106,080

 
62,275

 
185,477

 
 
 
 
 
 
 
 
Total diluted average common shares outstanding
134,529,953

 
134,359,770

 
134,490,555

 
134,189,758

 
 
 
 
 
 
 
 
Net EPS:
 
 
 
 
 
 
 
Basic
$
0.17

 
$
0.16

 
$
0.58

 
$
0.47

Diluted
$
0.17

 
$
0.16

 
$
0.58

 
$
0.47

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

 
492,360

 
541,493

 
202,718



11


3. SECURITIES
The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS and HTM securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States government-sponsored enterprises ("GSEs").
 
June 30, 2018
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
MBS
$
314,192

 
$
3,917

 
$
2,121

 
$
315,988

GSE debentures
240,543

 
102

 
2,779

 
237,866

Municipal bonds
1,522

 

 
15

 
1,507

 
$
556,257

 
$
4,019

 
$
4,915

 
$
555,361

HTM:
 
 
 
 
 
 
 
MBS
$
642,281

 
$
5,124

 
$
14,576

 
$
632,829

Municipal bonds
22,241

 
3

 
108

 
22,136

 
$
664,522

 
$
5,127

 
$
14,684

 
$
654,965


 
September 30, 2017
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
GSE debentures
$
271,300

 
$
16

 
$
587

 
$
270,729

MBS
135,644

 
5,923

 
51

 
141,516

Trust preferred securities
2,067

 

 
16

 
2,051

Municipal bonds
1,530

 
5

 

 
1,535

 
$
410,541

 
$
5,944

 
$
654

 
$
415,831

HTM:
 
 
 
 
 
 
 
MBS
$
800,931

 
$
10,460

 
$
5,295

 
$
806,096

Municipal bonds
26,807

 
119

 
13

 
26,913

 
$
827,738

 
$
10,579

 
$
5,308

 
$
833,009




12


The following tables summarize the estimated fair value and gross unrealized losses of those securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.
 
June 30, 2018
 
Less Than 12 Months
 
Equal to or Greater Than 12 Months
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
GSE debentures
$
123,539

 
$
1,460

 
$
98,653

 
$
1,319

MBS
215,904

 
2,116

 
591

 
5

Municipal bonds
1,507

 
15

 

 

 
$
340,950

 
$
3,591

 
$
99,244

 
$
1,324

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HTM:
 
 
 
 
 
 
 
MBS
$
200,386

 
$
4,206

 
$
255,472

 
$
10,370

Municipal bonds
18,229

 
108

 

 

 
$
218,615

 
$
4,314

 
$
255,472

 
$
10,370


 
September 30, 2017
 
Less Than 12 Months
 
Equal to or Greater Than 12 Months
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
GSE debentures
$
224,421

 
$
539

 
$
24,952

 
$
48

MBS
9,648

 
46

 
673

 
5

Trust preferred securities

 

 
2,051

 
16

 
$
234,069

 
$
585

 
$
27,676

 
$
69

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HTM:
 
 
 
 
 
 
 
MBS
$
259,200

 
$
1,582

 
$
201,094

 
$
3,713

Municipal bonds
5,638

 
8

 
1,460

 
5

 
$
264,838

 
$
1,590

 
$
202,554

 
$
3,718


The unrealized losses at June 30, 2018 and September 30, 2017 were primarily a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary. Therefore, these securities have not been classified as other-than-temporarily impaired. The impairment is also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity. As a result of the analysis, management has concluded that no other-than-temporary impairments existed at June 30, 2018 or September 30, 2017.

13


The amortized cost and estimated fair value of debt securities as of June 30, 2018, by contractual maturity, are shown below.  Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without prepayment penalty. For this reason, MBS are not included in the maturity categories.
 
AFS
 
HTM
 
Amortized
 
Estimated
 
Amortized
 
Estimated
 
Cost
 
Fair Value
 
Cost
 
Fair Value
 
(Dollars in thousands)
One year or less
$
50,000

 
$
49,758

 
$
5,102

 
$
5,098

One year through five years
192,065

 
189,615

 
17,139

 
17,038

 
242,065

 
239,373

 
22,241

 
22,136

MBS
314,192

 
315,988

 
642,281

 
632,829

 
$
556,257

 
$
555,361

 
$
664,522

 
$
654,965



The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in thousands)
Taxable
$
1,214

 
$
941

 
$
3,092

 
$
2,905

Non-taxable
93

 
122

 
303

 
396

 
$
1,307

 
$
1,063

 
$
3,395

 
$
3,301



The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
 
June 30, 2018
 
September 30, 2017
 
(Dollars in thousands)
Public unit deposits
$
454,721

 
$
499,993

Repurchase agreements
108,546

 
214,298

Federal Reserve Bank of Kansas City ("FRB of Kansas City")
7,959

 
11,769

 
$
571,226

 
$
726,060


During the current year nine month period, the Company sold trust preferred securities and received proceeds of $2.1 million. The Company recognized a gain of $9 thousand on the sale. All other dispositions of securities during the period were the result of principal repayments, calls, or maturities.

14


4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
 
June 30, 2018
 
September 30, 2017
 
(Dollars in thousands)
Real estate loans:
 
 
 
One- to four-family:
 
 
 
Originated
$
3,931,251

 
$
3,959,232

Correspondent purchased
2,514,929

 
2,445,311

Bulk purchased
309,837

 
351,705

Construction
27,565

 
30,647

Total
6,783,582

 
6,786,895

Commercial:
 
 
 
Permanent
274,410

 
183,030

Construction
44,645

 
86,952

Total
319,055

 
269,982

Total real estate loans
7,102,637

 
7,056,877

 
 
 
 
Consumer loans:
 
 
 
Home equity
119,079

 
122,066

Other
4,453

 
3,808

Total consumer loans
123,532

 
125,874

 
 
 
 
Total loans receivable
7,226,169

 
7,182,751

 
 
 
 
Less:
 
 
 
ACL
8,344

 
8,398

Discounts/unearned loan fees
25,124

 
24,962

Premiums/deferred costs
(46,683
)
 
(45,680
)
 
$
7,239,384

 
$
7,195,071


Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial real estate loans. The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri.

One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Generally, loans are currently underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function and approved by our Board of Directors.

The underwriting standards for loans purchased from correspondent lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters.

The Bank also originates construction-to-permanent loans secured by one- to four-family residential real estate. Construction loans are obtained by homeowners who will occupy the property when construction is complete. The Bank does not originate construction loans to builders for speculative purposes. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided.


15


Commercial real estate loans - The Bank's commercial real estate loans are originated by the Bank or are in participation with a lead bank. When underwriting a commercial real estate loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank.
At the time of origination, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 80% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.25. Appraisals on properties securing these loans are performed by independent state certified fee appraisers.

Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, auto loans, and loans secured by savings deposits. The Bank also originates a very limited amount of unsecured loans. The Bank does not originate any consumer loans on an indirect basis, such as contracts purchased from retailers of goods or services which have extended credit to their customers. The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount.

Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial real estate. The one- to four-family and consumer loan portfolios are further segmented into classes for purposes of providing disaggregated information about the credit quality of the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, and consumer - other.

The Bank's primary credit quality indicators for the one- to four-family and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores. The Bank's primary credit quality indicators for the commercial real estate and consumer - other loan portfolios are delinquency status and asset classifications.


16


The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented. The recorded investment in loans is defined as the unpaid principal balance of a loan, less charge-offs and inclusive of unearned loan fees and deferred costs. At June 30, 2018 and September 30, 2017, all loans 90 or more days delinquent were on nonaccrual status.
 
June 30, 2018
 
 
 
90 or More Days
 
Total
 
 
 
Total
 
30 to 89 Days
 
Delinquent or
 
Delinquent
 
Current
 
Recorded
 
Delinquent
 
in Foreclosure
 
Loans
 
Loans
 
Investment
 
(Dollars in thousands)
One- to four-family - originated
$
7,614

 
$
5,028

 
$
12,642

 
$
3,932,144

 
$
3,944,786

One- to four-family - correspondent
1,776

 
880

 
2,656

 
2,547,714

 
2,550,370

One- to four-family - bulk purchased
3,802

 
2,612

 
6,414

 
304,863

 
311,277

Commercial real estate
41

 

 
41

 
317,722

 
317,763

Consumer - home equity
341

 
423

 
764

 
118,315

 
119,079

Consumer - other
22

 
2

 
24

 
4,429

 
4,453

 
$
13,596

 
$
8,945

 
$
22,541

 
$
7,225,187

 
$
7,247,728

 
September 30, 2017
 
 
 
90 or More Days
 
Total
 
 
 
Total
 
30 to 89 Days
 
Delinquent or
 
Delinquent
 
Current
 
Recorded
 
Delinquent
 
in Foreclosure
 
Loans
 
Loans
 
Investment
 
(Dollars in thousands)
One- to four-family - originated
$
13,216

 
$
5,500

 
$
18,716

 
$
3,956,598

 
$
3,975,314

One- to four-family - correspondent
1,855

 
92

 
1,947

 
2,477,916

 
2,479,863

One- to four-family - bulk purchased
3,233

 
3,399

 
6,632

 
346,807

 
353,439

Commercial real estate

 

 

 
268,979

 
268,979

Consumer - home equity
467

 
406

 
873

 
121,193

 
122,066

Consumer - other
33

 
4

 
37

 
3,771

 
3,808

 
$
18,804

 
$
9,401

 
$
28,205

 
$
7,175,264

 
$
7,203,469


The recorded investment in mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2018 and September 30, 2017 was $2.8 million and $4.3 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table above.   The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $897 thousand at June 30, 2018 and $1.4 million at September 30, 2017.

The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented.
 
June 30, 2018
 
September 30, 2017
 
(Dollars in thousands)
One- to four-family - originated
$
7,490

 
$
10,054

One- to four-family - correspondent
977

 
1,804

One- to four-family - bulk purchased
2,964

 
4,264

Commercial real estate

 

Consumer - home equity
492

 
519

Consumer - other
2

 
4

 
$
11,925

 
$
16,645



17


In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification. Loan classifications are defined as follows:

Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the non-performing loan categories.
Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at the dates presented. Special mention and substandard loans are included in the ACL formula analysis model if the loans are not individually evaluated for loss. Loans classified as doubtful or loss are individually evaluated for loss. At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.
 
June 30, 2018
 
September 30, 2017
 
Special Mention
 
Substandard
 
Special Mention
 
Substandard
 
(Dollars in thousands)
One- to four-family - originated
$
8,867

 
$
22,892

 
$
7,031

 
$
30,059

One- to four-family - correspondent
885

 
3,497

 
261

 
3,800

One- to four-family - bulk purchased

 
6,765

 

 
8,005

Commercial real estate
41

 

 

 

Consumer - home equity
286

 
889

 
9

 
1,032

Consumer - other

 
3

 

 
4

 
$
10,079

 
$
34,046

 
$
7,301

 
$
42,900


The following table shows the weighted average credit score and weighted average LTV for one- to four-family loans and consumer home equity loans at the dates presented. Borrower credit scores are intended to provide an indication as to the likelihood that a borrower will repay their debts. Credit scores are updated at least semiannually, with the last update in March 2018, from a nationally recognized consumer rating agency. The LTV ratios provide an estimate of the extent to which the Bank may incur a loss on any given loan that may go into foreclosure. The consumer - home equity LTV does not take into account the first lien position, if applicable.  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
 
September 30, 2017
 
Credit Score
 
LTV
 
Credit Score
 
LTV
One- to four-family - originated
768
 
63
%
 
767
 
63
%
One- to four-family - correspondent
764
 
67

 
764
 
68

One- to four-family - bulk purchased
759
 
62

 
757
 
63

Consumer - home equity
755
 
19

 
755
 
19

 
766
 
63

 
765
 
64






18


Troubled Debt Restructurings ("TDRs") - The following tables present the recorded investment prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the recorded investment at the end of the periods indicated. Any increase in the recorded investment at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances. During the fourth quarter of fiscal year 2017, management refined its methodology for assessing whether a loan modification qualifies as a TDR which, though not material, resulted in fewer loans being classified as TDRs in the current fiscal year.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30, 2018
 
June 30, 2018
 
Number
 
Pre-
 
Post-
 
Number
 
Pre-
 
Post-
 
of
 
Restructured
 
Restructured
 
of
 
Restructured
 
Restructured
 
Contracts
 
Outstanding
 
Outstanding
 
Contracts
 
Outstanding
 
Outstanding
 
(Dollars in thousands)
One- to four-family - originated
1

 
$
40

 
$
47

 
4

 
$
207

 
$
223

One- to four-family - correspondent
1

 
97

 
97

 
1

 
97

 
97

One- to four-family - bulk purchased

 

 

 

 

 

Commercial real estate

 

 

 

 

 

Consumer - home equity

 

 

 

 

 

Consumer - other

 

 

 

 

 

 
2

 
$
137

 
$
144

 
5

 
$
304

 
$
320

 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30, 2017
 
June 30, 2017
 
Number
 
Pre-
 
Post-
 
Number
 
Pre-
 
Post-
 
of
 
Restructured
 
Restructured
 
of
 
Restructured
 
Restructured
 
Contracts
 
Outstanding
 
Outstanding
 
Contracts
 
Outstanding
 
Outstanding
 
(Dollars in thousands)
One- to four-family - originated
28

 
$
2,447

 
$
2,518

 
109

 
$
11,735

 
$
12,195

One- to four-family - correspondent
7

 
1,435

 
1,443

 
10
 
1,695

 
1,704

One- to four-family - bulk purchased
1

 
344

 
348

 
3

 
1,031

 
1,048

Commercial real estate

 

 

 

 

 

Consumer - home equity
3

 
51

 
53

 
17

 
368

 
380

Consumer - other

 

 

 

 

 

 
39

 
$
4,277

 
$
4,362

 
139

 
$
14,829

 
$
15,327



19


The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
 
Number of
 
Recorded
 
Number of
 
Recorded
 
Number of
 
Recorded
 
Number of
 
Recorded
 
Contracts
 
Investment
 
Contracts
 
Investment
 
Contracts
 
Investment
 
Contracts
 
Investment
 
(Dollars in thousands)
One- to four-family - originated
1

 
$
34

 
14

 
$
1,439

 
20

 
$
1,288

 
36

 
$
3,486

One- to four-family - correspondent

 

 
1

 
119

 
1

 
124

 
1

 
119

One- to four-family - bulk purchased

 

 
1

 
354

 
3

 
1,040

 
1

 
354

Commercial real estate

 

 

 

 

 

 

 

Consumer - home equity

 

 
6

 
93

 
4

 
133

 
15

 
432

Consumer - other

 

 

 

 

 

 

 

 
1

 
$
34

 
22

 
$
2,005

 
28

 
$
2,585

 
53

 
$
4,391



Impaired loans - The following information pertains to impaired loans, by class, as of the dates presented. All impaired loans were individually evaluated for loss and all losses were charged-off, resulting in no related ACL for these loans.
 
June 30, 2018
 
September 30, 2017
 
 
 
Unpaid
 
 
 
Unpaid
 
Recorded
 
Principal
 
Recorded
 
Principal
 
Investment
 
Balance
 
Investment
 
Balance
 
(Dollars in thousands)
One- to four-family - originated
$
20,662

 
$
21,329

 
$
30,251

 
$
30,953

One- to four-family - correspondent
2,926

 
3,023

 
3,800

 
3,771

One- to four-family - bulk purchased
6,041

 
7,005

 
7,403

 
8,606

Commercial real estate

 

 

 

Consumer - home equity
535

 
767

 
775

 
997

Consumer - other

 
29

 

 
24

 
$
30,164

 
$
32,153

 
$
42,229

 
$
44,351


20


The following information pertains to impaired loans, by class, for the periods presented. During the fourth quarter of fiscal year 2017, management refined its methodology for classifying loans as impaired. The change resulting from this refinement was immaterial. Impaired loans include loans partially charged-off and TDRs.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
 
Average
 
Interest
 
Average
 
Interest
 
Average
 
Interest
 
Average
 
Interest
 
Recorded
 
Income
 
Recorded
 
Income
 
Recorded
 
Income
 
Recorded
 
Income
 
Investment
 
Recognized
 
Investment
 
Recognized
 
Investment
 
Recognized
 
Investment
 
Recognized
 
(Dollars in thousands)
With no related allowance recorded