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

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

FORM 8-K

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

Date of Report (Date of earliest event reported)
October 26, 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 October 26, 2018, announcing financial results for fiscal year 2018 is attached hereto as Exhibit 99.1, and is incorporated herein by reference.

ITEM 7.01 REGULATION FD DISCLOSURE
The Registrant’s press release dated October 26, 2018, announcing that its Board of Directors declared a fiscal year 2018 cash true-up dividend of $0.39 per share on outstanding CFFN common stock is attached hereto as Exhibit 99.2, and is incorporated herein by reference. The dividend is payable on November 30, 2018, to stockholders of record as of the close of business on November 16, 2018.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits

Exhibit 99.1 – Press release announcing earnings dated October 26, 2018
Exhibit 99.2 – Press release announcing fiscal year 2018 cash true-up dividend dated October 26, 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: October 26, 2018
By: /s/ Kent G. Townsend
 
 
 
 
 
 
 
 
Kent G. Townsend, Executive Vice-President,
 
 
Chief Financial Officer, and Treasurer
 



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Section 2: EX-99.1 (PRESS RELEASE ANNOUNCING EARNINGS)

Exhibit



395496274_cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
October 26, 2018
CAPITOL FEDERAL® FINANCIAL, INC.
REPORTS FISCAL YEAR 2018 RESULTS

Topeka, KS - Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the fiscal year ended September 30, 2018. Detailed results will be available in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018, which will be filed with the Securities and Exchange Commission ("SEC") on or about November 29, 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.

Highlights for the fourth quarter include:
closed on the acquisition of Capital City Bancshares, Inc. ("CCB");
net income of $21.4 million;
basic and diluted earnings per share of $0.16;
net interest margin of 2.24% (2.26% excluding the effects of the leverage strategy); and
paid dividends of $11.4 million, or $0.085 per share.

Highlights for the fiscal year include:
net income of $98.9 million;
basic and diluted earnings per share of $0.73;
net interest margin of 1.95% (2.24% excluding the effects of the leverage strategy);
paid dividends of $118.3 million, or $0.88 per share; and
declared a fiscal year 2018 cash true-up dividend of $0.39 per share, payable on November 30, 2018.

On August 31, 2018, the Company completed its acquisition of CCB, the parent company of Capital City Bank, a Kansas state chartered bank headquartered in Topeka, KS. Immediately upon closing the merger, Capital City Bank merged with and into the Bank. As a result of the merger, the Bank is entering the commercial banking business through the origination of commercial lending products and offering of commercial deposit services, and began offering trust and brokerage services. During the quarter ended September 30, 2018, the Company recognized approximately $375 thousand of acquisition-related expenses and recognized approximately $875 thousand of such expenses during fiscal year 2018. The Company's fiscal year 2018 results include one month of CCB operating results. Integration of information systems is anticipated to be completed early in the second calendar quarter of 2019.

Comparison of Operating Results for the Fiscal Years Ended September 30, 2018 and 2017

The Company recognized net income of $98.9 million, or $0.73 per share, for the fiscal year ended September 30, 2018 compared to net income of $84.1 million, or $0.63 per share, for the fiscal year ended September 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. The effective tax rate for the current fiscal year was 20.2%. Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.

The net interest margin increased 16 basis points, from 1.79% for the prior fiscal year to 1.95% for the current fiscal year. Excluding the effects of the leverage strategy, the net interest margin would have increased nine basis points, from 2.15% for the prior fiscal year to 2.24% for the current fiscal year. The increase in the net interest margin was due mainly to an increase in interest-earning asset yields.


1



Interest and Dividend Income
The weighted average yield on total interest-earning assets increased 29 basis points, from 2.87% for the prior fiscal year to 3.16% for the current fiscal year, while the average balance of interest-earning assets decreased $720.1 million from the prior fiscal year. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 12 basis points, from 3.27% for the prior fiscal year to 3.39% for the current fiscal year, while the average balance of interest-earning assets would have decreased $93.0 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.
 
For the Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
260,198

 
$
253,393

 
$
6,805

 
2.7
 %
Cash and cash equivalents
23,443

 
19,389

 
4,054

 
20.9

Mortgage-backed securities ("MBS")
22,619

 
23,809

 
(1,190
)
 
(5.0
)
Federal Home Loan Bank Topeka ("FHLB") stock
10,962

 
12,233

 
(1,271
)
 
(10.4
)
Investment securities
4,670

 
4,362

 
308

 
7.1

Total interest and dividend income
$
321,892

 
$
313,186

 
$
8,706

 
2.8


The increase in interest income on loans receivable was due to a six basis point increase in the weighted average yield on the portfolio to 3.60% for the current fiscal year, as well as an $86.2 million increase in the average balance of the portfolio. 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 $1.4 million from the prior fiscal year due to a 71 basis point increase in the weighted average yield. Interest income on cash associated with the leverage strategy increased $2.7 million from the prior fiscal year due to a 61 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 Federal Reserve Bank of Kansas City (the "FRB of Kansas City").

The decrease in interest income on the MBS portfolio was due to a $127.2 million decrease in the average balance of the portfolio, partially offset by a 16 basis point increase in the weighted average yield on the portfolio to 2.35% for the current fiscal year. 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 $3.0 million during the current fiscal year decreased the weighted average yield on the portfolio by 31 basis points. During the prior fiscal year, $4.2 million of net premiums were amortized which decreased the weighted average yield on the portfolio by 39 basis points. As of September 30, 2018, the remaining net balance of premiums on our portfolio of MBS was $3.4 million.

The decrease in dividend income on FHLB stock was due mainly to the leverage strategy being in place less often during the current fiscal year, as the strategy was not always profitable. See additional discussion regarding the leverage strategy in the Financial Condition section below.


2



Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 15 basis points, from 1.21% for the prior fiscal year to 1.36% for the current fiscal year, while the average balance of interest-bearing liabilities decreased $693.7 million from the prior fiscal year. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased four basis points, from 1.29% for the prior fiscal year to 1.33% for the current fiscal year, while the average balance of interest-bearing liabilities would have decreased $68.6 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 Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
$
67,120

 
$
68,871

 
$
(1,751
)
 
(2.5
)%
Deposits
52,625

 
42,968

 
9,657

 
22.5

Other borrowings
3,374

 
5,965

 
(2,591
)
 
(43.4
)
Total interest expense
$
123,119

 
$
117,804

 
$
5,315

 
4.5


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 $5.4 million from the prior fiscal year due to a 17 basis point decrease in the weighted average rate paid on the portfolio, to 2.07% for the current fiscal year, and an $84.3 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 $3.6 million from the prior fiscal year due to a 66 basis point increase in the weighted average rate paid as a result of an increase in interest rates between periods, partially offset by a decrease in the average balance due the strategy not being in place as often during the current fiscal year.

The increase in interest expense on deposits was due primarily to a 17 basis point increase in the weighted average rate, to 0.99% for the current fiscal year. The increase in the weighted average rate was primarily related to the certificate of deposit portfolio, which increased 24 basis points to 1.62% for the current fiscal year. The weighted average rate paid on wholesale certificates increased 66 basis points, to 1.57% for the current fiscal year.

The decrease in interest expense on other borrowings was due mainly to the maturity of a $100.0 million repurchase agreement, which was not replaced, during the current fiscal year.
 
Provision for Credit Losses
The Bank did not record a provision for credit losses during the current fiscal year or the prior fiscal year. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, it was determined that no provision for credit losses was necessary. Net loan recoveries were $65 thousand during the current fiscal year compared to net charge-offs of $142 thousand in the prior fiscal year. At September 30, 2018, loans 30 to 89 days delinquent were 0.25% of total loans and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans. At September 30, 2017, loans 30 to 89 days delinquent were 0.26% of total loans and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
 
For the Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
15,636

 
$
15,053

 
$
583

 
3.9
 %
Income from bank-owned life insurance ("BOLI")
1,875

 
2,233

 
(358
)
 
(16.0
)
Other non-interest income
4,524

 
4,910

 
(386
)
 
(7.9
)
Total non-interest income
$
22,035

 
$
22,196

 
$
(161
)
 
(0.7
)

3




The increase in deposit service fees 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 more fully utilize the chip card technology. The decrease in income from BOLI was due mainly to a one-time adjustment, in the current fiscal year, to the benchmark interest rate associated with one of the policies. The decrease in other non-interest income was due mainly to a loss on the sale of loans during the current fiscal year compared to a gain on the sale of loans during the prior fiscal year as management tested loan sale processes for liquidity purposes.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Year Ended
 
 
 
 
 
September 30,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
46,563

 
$
43,437

 
$
3,126

 
7.2
 %
Information technology and related expense
13,999

 
11,282

 
2,717

 
24.1

Occupancy, net
11,455

 
10,814

 
641

 
5.9

Regulatory and outside services
5,709

 
5,821

 
(112
)
 
(1.9
)
Deposit and loan transaction costs
5,621

 
5,284

 
337

 
6.4

Advertising and promotional
5,034

 
4,673

 
361

 
7.7

Federal insurance premium
3,277

 
3,539

 
(262
)
 
(7.4
)
Office supplies and related expense
1,888

 
1,981

 
(93
)
 
(4.7
)
Other non-interest expense
3,356

 
2,827

 
529

 
18.7

Total non-interest expense
$
96,902

 
$
89,658

 
$
7,244

 
8.1


The increase in salaries and employee benefits expense was due primarily to an increase in payroll expense, as well as $1.0 million related to the 2018 Tax Savings Bonus Plan and approximately $730 thousand related to the addition of CCB employees and other payroll-related costs associated with the acquisition. The 2018 Tax Savings Bonus plan is a one-time bonus award to qualifying non-officer employees. Management anticipates salaries and employee benefits associated with CCB employees, based on current staffing levels, will be approximately $5.6 million in fiscal year 2019. 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 fiscal year, but this was offset by approximately $875 thousand of acquisition-related expenses. The increase in other non-interest expense was due primarily to $242 thousand of expense related to the amortization of deposit intangibles associated with the CCB acquisition and an increase in other real estate owned ("OREO") operations expense. Management anticipates that the deposit intangible amortization expense will be approximately $2.4 million in fiscal year 2019.

The Company's efficiency ratio was 43.89% for the current fiscal year compared to 41.21% for the prior fiscal year. The change in the efficiency ratio was due primarily to higher non-interest expense in the current fiscal year compared to the prior fiscal year. 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 $25.0 million for the current fiscal year compared to $43.8 million for the prior fiscal year. The effective tax rate was 20.2% for the current fiscal year compared to 34.2% for the prior fiscal year. The decrease in the effective tax rate was due mainly to the Tax Act being signed into law in December 2017.


4



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

For the quarter ended September 30, 2018, the Company recognized net income of $21.4 million, or $0.16 per share, compared to net income of $22.4 million, or $0.17 per share, for the quarter ended June 30, 2018. The decrease in net income was due primarily to an increase in non-interest expense, mainly related to acquisition-related expenses.

Net interest income increased $644 thousand, or 1.3%, from the prior quarter to $50.1 million for the current quarter. The net interest margin increased 32 basis points from 1.92% for the prior quarter to 2.24% for the current quarter. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. The leverage strategy was suspended at certain times during the current quarter due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City making the transaction unprofitable. Excluding the effects of the leverage strategy, the net interest margin would have increased two basis points from 2.24% for the prior quarter to 2.26% for the current quarter. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to an increase in interest-earning asset yields.

Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased 26 basis points from the prior quarter, to 3.46%, while the average balance of interest-earning assets decreased $1.35 billion between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased seven basis points from the prior quarter, to 3.47%, and the average balance of interest-earning assets would have increased $82.8 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
66,922

 
$
64,893

 
$
2,029

 
3.1
 %
Cash and cash equivalents
1,213

 
7,221

 
(6,008
)
 
(83.2
)
MBS
6,056

 
5,921

 
135

 
2.3

FHLB stock
1,847

 
2,819

 
(972
)
 
(34.5
)
Investment securities
1,275

 
1,307

 
(32
)
 
(2.4
)
Total interest and dividend income
$
77,313

 
$
82,161

 
$
(4,848
)
 
(5.9
)

The increase in interest income on loans receivable was due to a $97.2 million increase in the average balance of the portfolio, as well as a six basis point increase in the weighted average yield on the portfolio to 3.65% for the current quarter. The increase in the average balance was also due primarily to the acquisition of CCB. The increase in the weighted average yield was due to the acquisition of CCB and its portfolio of higher yielding commercial loans, along with the origination and purchase of new loans at higher market rates and adjustable-rate loans repricing to 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 $158 thousand from the prior quarter due to a 19 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 $6.2 million from the prior quarter and dividend income on FHLB stock associated with the leverage strategy decreased $1.1 million from the prior quarter due to the leverage strategy being in place for fewer days in the current quarter compared to the prior quarter.


5



Interest Expense
The weighted average rate paid on total interest-bearing liabilities for the current quarter decreased five basis points from the prior quarter, to 1.39%, and the average balance of interest-bearing liabilities decreased $1.34 billion 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 1.38%, and the average balance of interest-bearing liabilities would have increased $83.8 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
$
11,930

 
$
18,501

 
$
(6,571
)
 
(35.5
)%
Deposits
14,597

 
13,587

 
1,010

 
7.4

Other borrowings
709

 
640

 
69

 
10.8

Total interest expense
$
27,236

 
$
32,728

 
$
(5,492
)
 
(16.8
)

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 $343 thousand from the prior quarter due primarily to a four basis point increase in the weighted average rate paid, to 2.10% for the current quarter. Interest expense on FHLB borrowings associated with the leverage strategy decreased $6.9 million 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 expense on deposits was due primarily to a five basis point increase in the weighted average rate paid, to 1.07% 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 of deposit portfolio rate, which increased seven basis points and 17 basis points, respectively.


Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
4,086

 
$
3,915

 
$
171

 
4.4
%
Income from BOLI
555

 
510

 
45

 
8.8

Other non-interest income
1,179

 
999

 
180

 
18.0

Total non-interest income
$
5,820

 
$
5,424

 
$
396

 
7.3


The increase in deposit service fees was due mainly to fees generated on deposit accounts acquired from CCB. The increase in other non-interest income was due primarily to the trust operations acquired from CCB.


6



Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
June 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
12,932

 
$
11,936

 
$
996

 
8.3
 %
Information technology and related expense
3,683

 
3,363

 
320

 
9.5

Occupancy, net
3,064

 
2,787

 
277

 
9.9

Regulatory and outside services
1,790

 
1,628

 
162

 
10.0

Deposit and loan transaction costs
1,464

 
1,437

 
27

 
1.9

Advertising and promotional
1,522

 
1,490

 
32

 
2.1

Federal insurance premium
765

 
813

 
(48
)
 
(5.9
)
Office supplies and related expense
549

 
455

 
94

 
20.7

Other non-interest expense
988

 
602

 
386

 
64.1

Total non-interest expense
$
26,757

 
$
24,511

 
$
2,246

 
9.2


The increase in salaries and employee benefits expense was due mainly to the addition of CCB employees and other payroll-related costs associated with the acquisition. The increase in information technology and related expense was due primarily to ongoing enhancements to the Bank's online banking services, as well as costs related to the integration of CCB operations. The increase in occupancy, net was due largely to expenses related to the properties acquired from CCB. The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB, along with an increase in OREO operations expense.

The Company's efficiency ratio was 47.87% for the current quarter compared to 44.68% 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.

Income Tax Expense
Income tax expense was $7.8 million for the current quarter, compared to $8.0 million for the prior quarter. The decrease was due to lower pretax income in the current quarter. The effective tax rate was 26.6% for the current quarter compared to 26.3% for the prior quarter.

Financial Condition as of September 30, 2018

Total assets were $9.45 billion at September 30, 2018 compared to $9.19 billion at September 30, 2017. The $256.6 million increase was due primarily to an increase in loans receivable due to the acquisition of CCB.

The loans receivable portfolio, net, totaled $7.51 billion at September 30, 2018 compared to $7.20 billion at September 30, 2017. The Bank acquired loans with a fair value of $299.7 million from CCB. During the current fiscal year, the Bank originated and refinanced $633.4 million of loans with a weighted average rate of 4.17% and purchased $391.6 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.80%. The Bank also entered into participations of $135.8 million of commercial real estate loans with a weighted average rate of 4.22%, of which $108.4 million had not yet been funded as of September 30, 2018.

The Bank is continuing to manage the size and mix of its loan portfolio, as it manages its liquidity levels, as measured by the ratio of securities and cash to total assets, to a target level of approximately 15%.  The ratio of securities and cash to total assets was 15.5% at September 30, 2018. 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 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.

7



In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital. At September 30, 2018, this ratio was 12.9%.

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, or earlier if the strategy was suspended. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 7.3% during the current quarter and 6.7% during the current fiscal year, were deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, 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 $8 thousand during the current quarter, compared to $212 thousand during the quarter ending June 30, 2018. Net income attributable to the leverage strategy was $1.7 million for the current fiscal year, compared to $2.8 million for the prior fiscal year. The decrease between quarters and years was due mainly to the suspension of the strategy at certain times during the last half of the current fiscal year due to the large negative interest rate spread, which resulted in the strategy not being profitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

Total liabilities were $8.06 billion at September 30, 2018 compared to $7.82 billion at September 30, 2017. The $233.3 million increase was due mainly to an increase in deposits upon completion of the acquisition of CCB. The Bank acquired deposits totaling $352.5 million from CCB.

Stockholders' equity was $1.39 billion at September 30, 2018 compared to $1.37 billion at September 30, 2017. The $23.3 million increase was due primarily to net income of $98.9 million, along with the issuance of 3.0 million shares, or $39.1 million, related to the acquisition of CCB, partially offset by the payment of $118.3 million in cash dividends. The cash dividends paid during the current fiscal year totaled $0.88 per share and consisted of a $0.29 per share cash true-up dividend related to fiscal year 2017 earnings per the Company's dividend policy, a $0.25 per share True Blue Capitol dividend, and four regular quarterly cash dividends totaling $0.34 per share.

On October 17, 2018, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on November 16, 2018 to stockholders of record as of the close of business on November 2, 2018. On October 26, 2018, the Company announced a fiscal year 2018 cash true-up dividend of $0.39 per share, or approximately $53.7 million, related to fiscal year 2018 earnings. The $0.39 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2018 and total regular quarterly cash dividends paid during fiscal year 2018, divided by the number of shares outstanding as of October 22, 2018. The cash true-up dividend is payable on November 30, 2018 to stockholders of record as of the close of business on November 16, 2018, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of Capitol Federal Financial, Inc. for fiscal year 2018.

At September 30, 2018, Capitol Federal Financial, Inc., at the holding company level, had $137.7 million on deposit at the Bank. For fiscal year 2019, 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.
 
September 30,
 
June 30,
 
September 30,
 
2018
 
2018
 
2017
 
(Dollars in thousands)
Stockholders' equity
$
1,391,622

 
$
1,341,325

 
$
1,368,313

Equity to total assets at end of period
14.7
%
 
14.8
%
 
14.9
%


8



The following table presents a reconciliation of total to net shares outstanding as of September 30, 2018.
Total shares outstanding
141,225,516

Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock
(3,687,506
)
Net shares outstanding
137,538,010


Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of September 30, 2018, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at September 30, 2018.
 
 
 
Regulatory
 
 
 
Requirement For
 
Bank
 
Well-Capitalized
 
Ratios
 
Status
Tier 1 leverage ratio
13.0%
 
5.0
%
Common equity tier 1 capital ratio
25.0
 
6.5

Tier 1 capital ratio
25.0
 
8.0

Total capital ratio
25.2
 
10.0


A reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of September 30, 2018 is as follows (dollars in thousands):
Total Bank equity as reported under GAAP
$
1,221,706

Accumulated Other Comprehensive Income ("AOCI")
(4,340
)
Goodwill and other intangibles, net of deferred tax liabilities
(15,240
)
Total tier 1 capital
1,202,126

ACL
8,463

Total capital
$
1,210,589



9



Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 58 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
(785) 231-6360
 
 

10




SUPPLEMENTAL FINANCIAL INFORMATION
 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
September 30,
 
September 30,
 
2018
 
2017
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $122,733 and $340,748)
$
139,055

 
$
351,659

Securities:
 
 
 
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $718,564 and $410,541)
714,614

 
415,831

Held-to-maturity at amortized cost (estimated fair value of $601,071 and $833,009)
612,318

 
827,738

Loans receivable, net (ACL of $8,463 and $8,398)
7,514,485

 
7,195,071

FHLB stock, at cost
99,726

 
100,954

Premises and equipment, net
96,005

 
84,818

Income taxes receivable, net
2,177

 

Other assets
271,167

 
216,845

TOTAL ASSETS
$
9,449,547

 
$
9,192,916

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
5,603,354

 
$
5,309,868

FHLB borrowings
2,174,981

 
2,173,808

Other borrowings
110,052

 
200,000

Advance payments by borrowers for taxes and insurance
65,264

 
63,749

Income taxes payable, net

 
530

Deferred income tax liabilities, net
21,253

 
24,458

Accounts payable and accrued expenses
83,021

 
52,190

Total liabilities
8,057,925

 
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, 141,225,516 and 138,223,835
 
 
shares issued and outstanding as of September 30, 2018 and 2017, respectively
1,412

 
1,382

Additional paid-in capital
1,207,644

 
1,167,368

Unearned compensation, ESOP
(36,343
)
 
(37,995
)
Retained earnings
214,569

 
234,640

AOCI, net of tax
4,340

 
2,918

Total stockholders' equity
1,391,622

 
1,368,313

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,449,547

 
$
9,192,916


11



 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
 
For the Three Months Ended
 
For the Year Ended
 
September 30,
 
June 30,
 
September 30,
 
2018
 
2018
 
2018
 
2017
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
66,922

 
$
64,893

 
$
260,198

 
$
253,393

Cash and cash equivalents
1,213

 
7,221

 
23,443

 
19,389

MBS
6,056

 
5,921

 
22,619

 
23,809

FHLB stock
1,847

 
2,819

 
10,962

 
12,233

Investment securities
1,275

 
1,307

 
4,670

 
4,362

Total interest and dividend income
77,313

 
82,161

 
321,892

 
313,186

 
 
 
 
 
 
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
11,930

 
18,501

 
67,120

 
68,871

Deposits
14,597

 
13,587

 
52,625

 
42,968

Other borrowings
709

 
640

 
3,374

 
5,965

Total interest expense
27,236

 
32,728

 
123,119

 
117,804

 
 
 
 
 
 
 
 
NET INTEREST INCOME
50,077

 
49,433

 
198,773

 
195,382

 
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES

 

 

 

NET INTEREST INCOME AFTER
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
50,077

 
49,433

 
198,773

 
195,382

 
 
 
 
 
 
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
4,086

 
3,915

 
15,636

 
15,053

Income from BOLI
555

 
510

 
1,875

 
2,233

Other non-interest income
1,179

 
999

 
4,524

 
4,910

Total non-interest income
5,820

 
5,424

 
22,035

 
22,196

 
 
 
 
 
 
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
12,932

 
11,936

 
46,563

 
43,437

Information technology and related expense
3,683

 
3,363

 
13,999

 
11,282

Occupancy, net
3,064

 
2,787

 
11,455

 
10,814

Regulatory and outside services
1,790

 
1,628

 
5,709

 
5,821

Deposit and loan transaction costs
1,464

 
1,437

 
5,621

 
5,284

Advertising and promotional
1,522

 
1,490

 
5,034

 
4,673

Federal insurance premium
765

 
813

 
3,277

 
3,539

Office supplies and related expense
549

 
455

 
1,888

 
1,981

Other non-interest expense
988

 
602

 
3,356

 
2,827

Total non-interest expense
26,757

 
24,511

 
96,902

 
89,658

INCOME BEFORE INCOME TAX EXPENSE
29,140

 
30,346

 
123,906

 
127,920

INCOME TAX EXPENSE
7,751

 
7,974

 
24,979

 
43,783

NET INCOME
$
21,389

 
$
22,372

 
$
98,927

 
$
84,137


12



The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.
 
For the Three Months Ended
 
For the Year Ended
 
September 30,
 
June 30,
 
September 30,
 
2018
 
2018
 
2018
 
2017
 
(Dollars in thousands, except per share amounts)
Net income
$
21,389

 
$
22,372

 
$
98,927

 
$
84,137

Income allocated to participating securities
(8
)
 
(9
)
 
(40
)
 
(44
)
Net income available to common stockholders
$
21,381

 
$
22,363

 
$
98,887

 
$
84,093

 
 
 
 
 
 
 
 
Average common shares outstanding
135,375,386

 
134,401,188

 
134,635,886

 
134,019,962

Average committed ESOP shares outstanding
124,346

 
83,052

 
62,458

 
62,458

Total basic average common shares outstanding
135,499,732

 
134,484,240

 
134,698,344

 
134,082,420

 
 
 
 
 
 
 
 
Effect of dilutive stock options
55,928

 
45,713

 
60,647

 
161,442

 
 
 
 
 
 
 
 
Total diluted average common shares outstanding
135,555,660

 
134,529,953

 
134,758,991

 
134,243,862

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.17

 
$
0.73

 
$
0.63

Diluted
$
0.16

 
$
0.17

 
$
0.73

 
$
0.63

 
 
 
 
 
 
 
 
Antidilutive stock options, excluded from the diluted
 
 
 
 
 
 
average common shares outstanding calculation
529,195

 
578,777

 
541,418

 
200,800




13



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. The increase in commercial loans from June 30, 2018 to September 30, 2018 was due primarily to the acquisition of CCB.
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
 
 
 
 
% of
 
 
 
 
 
% of
 
 
 
 
 
% of
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
$
3,964,172

 
3.74
%
 
52.8
%
 
$
3,931,251

 
3.71
%
 
54.4
%
 
$
3,959,232

 
3.70
%
 
55.1
%
Correspondent purchased
2,505,987

 
3.59

 
33.4

 
2,514,929

 
3.56

 
34.8

 
2,445,311

 
3.53

 
34.0

Bulk purchased
293,606

 
2.60

 
3.9

 
309,837

 
2.41

 
4.3

 
351,705

 
2.29

 
4.9

Construction
34,670

 
4.05

 
0.5

 
27,565

 
3.54

 
0.4

 
30,647

 
3.45

 
0.4

Total
6,798,435

 
3.64

 
90.6

 
6,783,582

 
3.59

 
93.9

 
6,786,895

 
3.56

 
94.4

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
421,016

 
4.32

 
5.6

 
274,410

 
4.10

 
3.8

 
183,030

 
4.24

 
2.6

Commercial and industrial
62,869

 
5.00

 
0.9

 

 

 

 

 

 

Construction
85,725

 
4.62

 
1.1

 
44,645

 
4.64

 
0.6

 
86,952

 
3.80

 
1.2

Total
569,610

 
4.44

 
7.6

 
319,055

 
4.17

 
4.4

 
269,982

 
4.10

 
3.8

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
129,588

 
5.97

 
1.7

 
119,079

 
5.79

 
1.6

 
122,066

 
5.40

 
1.7

Other
10,012

 
4.59

 
0.1

 
4,453

 
4.02

 
0.1

 
3,808

 
4.05

 
0.1

Total
139,600

 
5.87

 
1.8

 
123,532

 
5.73

 
1.7

 
125,874

 
5.36

 
1.8

Total loans receivable
7,507,645

 
3.74

 
100.0
%
 
7,226,169

 
3.66

 
100.0
%
 
7,182,751

 
3.61

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACL
8,463

 
 
 
 
 
8,344

 
 
 
 
 
8,398

 
 
 
 
Discounts/unearned loan fees
33,933

 
 
 
 
 
25,124

 
 
 
 
 
24,962

 
 
 
 
Premiums/deferred costs
(49,236
)
 
 
 
 
 
(46,683
)
 
 
 
 
 
(45,680
)
 
 
 
 
Total loans receivable, net
$
7,514,485

 
 
 
 
 
$
7,239,384

 
 
 
 
 
$
7,195,071

 
 
 
 




14



Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-off as a result of refinances and loans that were sold are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal.
 
For the Three Months Ended
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,226,169

 
3.66
%
 
$
7,187,742

 
3.63
%
 
$
7,177,504

 
3.62
%
 
$
7,182,751

 
3.61
%
Originations and refinances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
117,904

 
4.44

 
143,059

 
4.21

 
77,825

 
3.80

 
109,102

 
3.70

Adjustable
56,996

 
4.55

 
54,385

 
4.42

 
36,612

 
4.28

 
37,502

 
4.26

Purchases and participations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
80,138

 
4.40

 
78,650

 
4.04

 
120,155

 
3.85

 
85,565

 
3.73

Adjustable
20,105

 
3.92

 
30,017

 
3.49

 
48,062

 
3.61

 
64,689

 
3.87

Acquisition of CCB loans, net
299,659

 
4.77

 

 

 

 

 

 

Change in undisbursed loan funds
(8,104
)
 
 
 
19,808

 
 
 
(25,002
)
 
 
 
(17,706
)
 
 
Repayments
(284,927
)
 
 
 
(286,923
)
 
 
 
(246,894
)
 
 
 
(283,880
)
 
 
Principal recoveries (charge-offs), net
119

 
 
 
(46
)
 
 
 
20

 
 
 
(28
)
 
 
Other
(414
)
 
 
 
(523
)
 
 
 
(540
)
 
 
 
(491
)
 
 
Ending balance
$
7,507,645

 
3.74

 
$
7,226,169

 
3.66

 
$
7,187,742

 
3.63

 
$
7,177,504

 
3.62

 
For the Year Ended
 
September 30, 2018
 
September 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
447,890

 
4.07

 
511,223

 
3.62

Adjustable
185,495

 
4.40

 
187,255

 
3.83

Purchases and participations:
 
 
 
 
 
 
 
Fixed
364,508

 
3.98

 
543,473

 
3.73

Adjustable
162,873

 
3.73

 
87,396

 
3.03

Acquisition of CCB loans, net
299,659

 
4.77

 

 

Change in undisbursed loan funds
(31,004
)
 
 
 
77,029

 
 
Repayments
(1,102,624
)
 
 
 
(1,169,808
)
 
 
Principal recoveries (charge-offs), net
65

 
 
 
(142
)
 
 
Other
(1,968
)
 
 
 
(3,197
)
 
 
Ending balance
$
7,507,645

 
3.74

 
$
7,182,751

 
3.61


15



The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement and renewal activity and $299.7 million of loans at a rate of 4.77% purchased in connection with the acquisition of CCB, along with associated weighted average rates and percent of total. Loan originations, purchases, and refinances are reported together. The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years. The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination, and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.
 
For the Three Months Ended
 
For the Year Ended
 
September 30, 2018
 
September 30, 2018
 
Amount
 
Rate
 
% of Total
 
Amount
 
Rate
 
% of Total
Fixed-Rate:
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 15 years
$
33,074

 
3.92
%
 
12.0
%
 
$
160,099

 
3.51
%
 
13.8
%
> 15 years
112,243

 
4.50

 
40.8

 
530,606

 
4.12

 
45.7

One- to four-family construction
17,309

 
4.35

 
6.3

 
43,604

 
4.11

 
3.8

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
4,696

 
4.90

 
1.7

 
10,644

 
4.48

 
0.9

Commercial and industrial
1,579

 
5.24

 
0.6

 
1,579

 
5.24

 
0.1

Commercial construction
27,316

 
4.50

 
9.9

 
60,417

 
4.30

 
5.2

Home equity
1,508

 
6.46

 
0.5

 
4,758

 
6.18

 
0.4

Other
317

 
5.64

 
0.1

 
691

 
7.54

 
0.1

Total fixed-rate
198,042

 
4.42

 
71.9

 
812,398

 
4.03

 
70.0

 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-Rate:
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 36 months
3,572

 
3.79

 
1.3

 
8,233

 
3.39

 
0.7

> 36 months
45,448

 
3.86

 
16.5

 
173,775

 
3.49

 
15.0

One- to four-family construction
7,633

 
3.82

 
2.8

 
18,791

 
3.58

 
1.6

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
150

 
6.50

 
0.1

 
570

 
5.03

 

Commercial and industrial
325

 
5.81

 
0.1

 
325

 
5.81

 

Commercial construction

 

 

 
69,543

 
4.16

 
6.0

Home equity
19,233

 
5.97

 
7.0

 
74,042

 
5.66

 
6.4

Other
740

 
3.04

 
0.3

 
3,089

 
3.24

 
0.3

Total adjustable-rate
77,101

 
4.39

 
28.1

 
348,368

 
4.09

 
30.0

 
 
 
 
 
 
 
 
 
 
 
 
Total originated, refinanced and purchased
$
275,143

 
4.41

 
100.0
%
 
$
1,160,766

 
4.05

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Purchased and participation loans included above:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
$
52,938

 
4.35

 
 
 
$
298,299

 
3.92

 
 
Participations - commercial
27,200

 
4.50

 
 
 
66,209

 
4.28

 
 
Total fixed-rate purchased/participations
80,138

 
4.40

 
 
 
364,508

 
3.98

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
20,105

 
3.92

 
 
 
93,330

 
3.41

 
 
Participations - commercial

 

 
 
 
69,543

 
4.16

 
 
Total adjustable-rate purchased/participations
20,105

 
3.92

 
 
 
162,873

 
3.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total purchased/participation loans
$
100,243

 
4.31

 
 
 
$
527,381

 
3.91

 
 

16



One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores are updated at least semiannually, with the latest update in September 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.
 
September 30, 2018
 
June 30, 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
$
3,964,172

 
58.6
%
 
767

 
62
%
 
$
136

 
$
3,931,251

 
58.2
%
 
768

 
63
%
 
$
137

 
$
3,959,232

 
58.6
%
 
767

 
63
%
 
$
135

Correspondent purchased
2,505,987

 
37.1

 
764

 
67

 
378

 
2,514,929

 
37.2

 
764

 
67

 
378

 
2,445,311

 
36.2

 
764

 
68

 
375

Bulk purchased
293,606

 
4.3

 
758

 
62

 
304

 
309,837

 
4.6

 
759

 
62

 
305

 
351,705

 
5.2

 
757

 
63

 
305

 
$
6,763,765

 
100.0
%
 
766

 
64

 
184

 
$
6,756,017

 
100.0
%
 
766

 
64

 
186

 
$
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 September 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
$
9,651

 
$
28,915

 
$
11,920

 
$
50,486

 
4.20
%
Correspondent
1,822

 
58,897

 
10,669

 
71,388

 
4.26

 
$
11,473

 
$
87,812

 
$
22,589

 
$
121,874

 
4.23

 
 
 
 
 
 
 
 
 
 
Rate
3.98
%
 
4.38
%
 
3.80
%
 
 
 
 


17



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 fiscal year, $15.8 million and $74.8 million, respectively, were refinanced from other lenders.
 
For the Three Months Ended
 
For the Year Ended
 
September 30, 2018
 
September 30, 2018
 
 
 
 
 
Credit
 
 
 
 
 
Credit
 
Amount
 
LTV
 
Score
 
Amount
 
LTV
 
Score
 
(Dollars in thousands)
Originated
$
131,733

 
77
%
 
762

 
$
473,140

 
77
%
 
762

Refinanced by Bank customers
14,503

 
67

 
747

 
70,339

 
67

 
750

Correspondent purchased
73,043

 
75

 
767

 
391,629

 
74

 
766

 
$
219,279

 
75

 
762

 
$
935,108

 
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 fiscal year ended September 30, 2018.
 
 
For the Three Months Ended
 
For the Year Ended
 
 
September 30, 2018
 
September 30, 2018
State
 
Amount
 
% of Total
 
Rate
 
Amount
 
% of Total
 
Rate
 
 
(Dollars in thousands)
Kansas
 
$
126,719

 
57.8
%
 
4.23
%
 
$
477,001

 
51.0
%
 
3.94
%
Missouri
 
42,003

 
19.2

 
4.29

 
173,857

 
18.6

 
3.92

Texas
 
25,118

 
11.4

 
4.14

 
153,891

 
16.5

 
3.74

Other states
 
25,439

 
11.6

 
4.26

 
130,359

 
13.9

 
3.79

 
 
$
219,279

 
100.0
%
 
4.24

 
$
935,108

 
100.0
%
 
3.88


Commercial Loans: During the current fiscal year, the Bank entered into commercial real estate loan participations totaling $135.8 million, which included $129.8 million of commercial real estate construction loans. The majority of the $129.8 million of commercial real estate construction loans had not yet been funded as of September 30, 2018.

18



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