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

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

FORM 8-K

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

Date of Report (Date of earliest event reported)
January 29, 2019

 
 
 
 
 
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 January 29, 2019, announcing financial results for the quarter ended December 31, 2018 is attached hereto as Exhibit 99, and is incorporated herein by reference.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits

Exhibit 99 – Press release announcing earnings dated January 29, 2019






 
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
CAPITOL FEDERAL FINANCIAL, INC.
Date: January 29, 2019
By: /s/ Kent G. Townsend
 
 
 
 
 
 
 
 
Kent G. Townsend, Executive Vice-President,
 
 
Chief Financial Officer, and Treasurer
 


(Back To Top)

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

Exhibit



396525891_cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
January 29, 2019
CAPITOL FEDERAL® FINANCIAL, INC.
REPORTS FIRST QUARTER FISCAL YEAR 2019 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 quarter ended December 31, 2018. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 8, 2019 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:
net income of $24.4 million;
basic and diluted earnings per share of $0.18;
net interest margin of 2.27% (2.32% excluding the effects of the leverage strategy); and
paid dividends of $65.4 million, or $0.475 per share.

Comparison of Operating Results for the Three Months Ended December 31, 2018 and September 30, 2018

For the quarter ended December 31, 2018, the Company recognized net income of $24.4 million, or $0.18 per share, compared to net income of $21.4 million, or $0.16 per share, for the quarter ended September 30, 2018. The increase in net income was due primarily to an increase in net interest income, which was mainly a result of a full quarter impact of the acquisition of Capital City Bancshares, Inc. ("CCB"), which was completed on August 31, 2018.

Net interest income increased $2.2 million, or 4.4%, from the prior quarter to $52.3 million for the current quarter. The net interest margin increased three basis points from 2.24% for the prior quarter to 2.27% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have increased six basis points from 2.26% for the prior quarter to 2.32% for the current quarter. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans from the CCB acquisition.


1



Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased 10 basis points, from 3.46% for the prior quarter to 3.56% for the current quarter, and the average balance of interest-earning assets increased $300.8 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 12 basis points, from 3.47% for the prior quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $141.0 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
70,772

 
$
66,922

 
$
3,850

 
5.8
%
Mortgage-backed securities ("MBS")
6,523

 
6,056

 
467

 
7.7

Federal Home Loan Bank Topeka ("FHLB") stock
1,971

 
1,847

 
124

 
6.7

Cash and cash equivalents
1,714

 
1,213

 
501

 
41.3

Investment securities
1,441

 
1,275

 
166

 
13.0

Total interest and dividend income
$
82,421

 
$
77,313

 
$
5,108

 
6.6


The increase in interest income on loans receivable was due to a $195.4 million increase in the average balance of the portfolio, as well as a 10 basis point increase in the weighted average yield on the portfolio to 3.75% for the current quarter. The increases in average balance and weighted average yield were due primarily to loans added in the CCB acquisition.

The increase in interest income on the MBS portfolio was due to a 14 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, as well as a $19.7 million increase in the average balance of the portfolio. The increase in the weighted average yield was due primarily to a decrease in net premium amortization in the current quarter, due largely to the accretion of discounts on MBS added in the CCB acquisition. Net premium amortization of $349 thousand during the current quarter decreased the weighted average yield on the portfolio by 14 basis points. During the prior quarter, $624 thousand of net premiums were amortized which decreased the weighted average yield on the portfolio by 25 basis points. As of December 31, 2018, the remaining net balance of premiums on our portfolio of MBS was $3.1 million.

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 decreased $399 thousand from the prior quarter due to a $90.1 million decrease in the average balance, partially offset by a 24 basis point increase in the weighted average yield, which was related to balances held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City"). Interest income on cash associated with the leverage strategy increased $900 thousand from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior quarter. 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 for the current quarter increased nine basis points, from 1.39% for the prior quarter to 1.48% for the current quarter, and the average balance of interest-bearing liabilities increased $291.0 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased eight basis points, from 1.38% for the prior quarter to 1.46% for the current quarter, and the average balance of interest-bearing liabilities would have increased $139.0 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
Deposits
$
15,725

 
$
14,597

 
$
1,128

 
7.7
%
FHLB borrowings
13,530

 
11,930

 
1,600

 
13.4

Other borrowings
865

 
709

 
156

 
22.0

Total interest expense
$
30,120

 
$
27,236

 
$
2,884

 
10.6


The increase in interest expense on deposits was due primarily to a six basis point increase in the weighted average rate paid, to 1.13% for the current quarter. The increase in the weighted average rate paid was due primarily to increases in the average retail/business certificate of deposit portfolio rate and money market portfolio rate, which increased nine basis points and 22 basis points, respectively. The weighted average interest rate on deposit accounts assumed in the CCB acquisition was lower than the overall deposit portfolio rate, which partially offset the increase in the weighted average rate paid on the rest of the deposit portfolio in the current quarter.

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 $593 thousand from the prior quarter due to a 10 basis point increase in the weighted average rate paid, to 2.20% for the current quarter, as maturing advances were replaced at higher current market rates. Interest expense on FHLB borrowings associated with the leverage strategy increased $1.0 million from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior quarter.

Provision for Credit Losses
The Bank did not record a provision for credit losses during the current quarter or the prior quarter. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, it was determined that no provision for credit losses was necessary. Net loan recoveries were $95 thousand during the current quarter compared to $119 thousand in the prior quarter. At December 31, 2018, loans 30 to 89 days delinquent were 0.20% of total loans and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans. 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. See additional ACL discussion in the Supplemental Financial Information - Asset Quality section of this release.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
3,352

 
$
4,086

 
$
(734
)
 
(18.0
)%
Income from bank-owned life insurance ("BOLI")
635

 
555

 
80

 
14.4

Other non-interest income
1,437

 
1,179

 
258

 
21.9

Total non-interest income
$
5,424

 
$
5,820

 
$
(396
)
 
(6.8
)

The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard during the current quarter. Previously, interchange network charges were

3



reported in deposit and loan expense. Upon adoption of the new revenue recognition accounting standard on October 1, 2018, interchange transaction fee income is reported net of interchange network charges, which totaled $944 thousand during the current quarter and $767 thousand during the prior quarter. On a net basis, interchange fee income totaled $1.4 million for the current quarter, compared to $1.5 million for the prior quarter.

The increase in other non-interest income was due mainly to an increase in insurance commissions and trust asset management fees recorded. As a result of adopting the new revenue recognition accounting standard discussed above, the Company also began recording an estimate for contingent insurance commissions it expects to receive from insurance carriers. Previously, the Company recorded contingent insurance commissions as revenue when the funds were received. In addition, as part of the acquisition of CCB, the Company began offering trust asset management services. The current quarter included a full quarter of revenue from those activities.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
September 30,
 
Change Expressed in:
 
2018
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
12,962

 
$
12,932

 
$
30

 
0.2
 %
Information technology and related expense
4,599

 
3,683

 
916

 
24.9

Occupancy, net
3,252

 
3,064

 
188

 
6.1

Regulatory and outside services
1,766

 
1,790

 
(24
)
 
(1.3
)
Advertising and promotional
760

 
1,522

 
(762
)
 
(50.1
)
Deposit and loan transaction costs
736

 
1,464

 
(728
)
 
(49.7
)
Federal insurance premium
528

 
765

 
(237
)
 
(31.0
)
Office supplies and related expense
459

 
549

 
(90
)
 
(16.4
)
Other non-interest expense
1,720

 
988

 
732

 
74.1

Total non-interest expense
$
26,782

 
$
26,757

 
$
25

 
0.1


Salaries and employee benefits related to former CCB employees was approximately $1.6 million in the current quarter compared to approximately $730 thousand in the prior quarter. Excluding the impact of former CCB employees, salaries and employee benefits decreased approximately $840 thousand from the prior quarter. The decrease was due primarily to the prior quarter including compensation expense on unallocated Employee Stock Ownership Plan ("ESOP") shares related to the True Blue Capitol dividend paid during the prior fiscal year, along with expense related to the 2018 Tax Savings Bonus Plan. Approximately half of the increase in information technology and related expenses was due to costs related to the integration of CCB operations. The remaining increase was due to depreciation related to the implementation of enhancements in the Bank's information technology infrastructure and an increase in software licensing. The increase in occupancy, net was due primarily to a full quarter of expense related to properties acquired in the CCB acquisition. The decrease in advertising and promotional was due primarily to the timing of advertising campaigns and sponsorships. The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition accounting standard discussed above. The decrease in federal insurance premium was due primarily to a decrease in average assets resulting from a reduction in the usage of the leverage strategy during the prior quarter, as federal insurance premiums are billed and paid on a quarter lag. 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 other real estate owned ("OREO") operations expense.

The Company's efficiency ratio was 46.40% for the current quarter compared to 47.87% for the prior quarter. The change in the efficiency ratio was due primarily to higher net interest income in the current quarter compared to the prior quarter. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense.

Income Tax Expense
Income tax expense was $6.6 million for the current quarter, compared to $7.8 million for the prior quarter. The effective tax rate was 21.2% for the current quarter compared to 26.6% for the prior quarter. In December 2017, the Tax Cuts and Jobs Act (the "Tax Act")

4



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 in December 2017 to account for the lower corporate income tax rate. The revaluation was a discrete item in the December 31, 2017 quarter and reduced income tax expense by $7.5 million, resulting in an effective tax rate of 2.6% for that quarter. The effective tax rate for fiscal year 2018 was 20.2%, primarily due to the fiscal year 2018 rate including the $7.5 million discrete item noted above, which reduced the 24.5% statutory tax rate effective for that fiscal year. Due to the Company's September 30 year end, the Company was required to use a blended statutory tax rate of 24.5% for fiscal year 2018, and the enacted tax rate of 21% will be effective for fiscal year 2019. Although the statutory tax rate decreased to 21% for fiscal year 2019, the Company does not have the same level of discrete items reducing the rate as in the prior fiscal year. Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.

Comparison of Operating Results for the Three Months Ended December 31, 2018 and 2017

The Company recognized net income of $24.4 million, or $0.18 per share, for the quarter ended December 31, 2018 compared to net income of $31.8 million, or $0.24 per share, for the quarter ended December 31, 2017. The decrease in net income was due primarily to the prior year quarter including the impact of the enactment of the Tax Act, as well as to an increase in non-interest expense in the current quarter. These changes were partially offset by an increase in net interest income in the current quarter due primarily to the higher yielding loans added in the CCB acquisition.

The net interest margin increased 44 basis points, from 1.83% for the prior year quarter to 2.27% 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. See additional discussion regarding the leverage strategy in the Financial Condition section below. Excluding the effects of the leverage strategy, the net interest margin would have increased 12 basis points, from 2.20% for the prior year quarter to 2.32% for the current quarter. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans in the CCB acquisition.

Interest and Dividend Income
The weighted average yield on total interest-earning assets increased 58 basis points, from 2.98% for the prior year quarter to 3.56% for the current quarter, while the average balance of interest-earning assets decreased $1.55 billion from the prior year quarter. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 28 basis points, from 3.31% for the prior year quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $226.1 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
70,772

 
$
64,189

 
$
6,583

 
10.3
 %
MBS
6,523

 
5,252

 
1,271

 
24.2

FHLB stock
1,971

 
3,095

 
(1,124
)
 
(36.3
)
Cash and cash equivalents
1,714

 
7,114

 
(5,400
)
 
(75.9
)
Investment securities
1,441

 
994

 
447

 
45.0

Total interest and dividend income
$
82,421

 
$
80,644

 
$
1,777

 
2.2


The increase in interest income on loans receivable was due to a $326.0 million increase in the average balance of the portfolio, as well as a 19 basis point increase in the weighted average yield on the portfolio to 3.75% for the current quarter. The increase in the average balance was due mainly to the acquisition of CCB. The increase in the weighted average yield was also due mainly to the addition of higher yielding loans in the CCB acquisition, as well as adjustable-rate loans repricing to higher market rates and the origination and purchase of new loans at higher market rates.

The increase in interest income on the MBS portfolio was due to a 34 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, along with a $74.8 million increase in the average balance of the portfolio. The increase in the weighted average yield was due primarily to a decrease in the impact of net premium amortization, as well as adjustable-rate MBS

5



repricing to higher market rates. Net premium amortization of $349 thousand during the current quarter decreased the weighted average yield on the portfolio by 14 basis points. During the prior year quarter, $854 thousand of net premiums were amortized, which decreased the weighted average yield on the portfolio by 37 basis points.

The decrease in dividend income on FHLB stock was due to a decrease in the average balance of FHLB stock as a result of the leverage strategy not being in place as often during the current quarter as compared to the prior year quarter. This was partially offset by a higher dividend rate on FHLB stock during the current quarter.

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 decreased $287 thousand from the prior year quarter due to a $156.9 million decrease in the average balance, partially offset by a 96 basis point increase in the weighted average yield which was related to cash balances held at the FRB of Kansas City. Interest income on cash associated with the leverage strategy decreased $5.1 million from the prior year quarter due to a $1.70 billion decrease in the average balance, as the leverage strategy was in place less often during the current quarter.

The increase in interest income on the investment securities portfolio was due to a 72 basis point increase in the weighted average yield on the portfolio to 2.04%. The increase in the weighted average yield was primarily a result of replacing maturing securities at higher market rates.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 19 basis points, from 1.29% for the prior year quarter to 1.48% for the current quarter, while the average balance of interest-bearing liabilities decreased $1.53 billion from the prior year quarter. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 17 basis points, from 1.29% for the prior year quarter to 1.46% for the current quarter, and the average balance of interest-bearing liabilities would have increased $248.1 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
Deposits
$
15,725

 
$
11,961

 
$
3,764

 
31.5
 %
FHLB borrowings
13,530

 
17,917

 
(4,387
)
 
(24.5
)
Other borrowings
865

 
1,392

 
(527
)
 
(37.9
)
Total interest expense
$
30,120

 
$
31,270

 
$
(1,150
)
 
(3.7
)

The increase in interest expense on deposits was due primarily to a 22 basis point increase in the weighted average rate, to 1.13% for the current quarter. The deposit accounts assumed in the CCB acquisition were at a lower average rate than our overall deposit portfolio rate, which partially offset the increase in the deposit portfolio rate in the current quarter. The increase in the weighted average rate was primarily related to the certificate of deposit portfolio, which increased 33 basis points to 1.84% for the current quarter. The weighted average rate paid on wholesale certificates increased 63 basis points, to 1.96% for the current quarter.

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 $949 thousand from the prior year quarter due to a 12 basis point increase in the weighted average rate paid on the portfolio, to 2.20% for the current quarter, and a $37.3 million increase in the average balance of the portfolio. The increase in the weighted average rate paid was due to certain maturing advances being replaced at higher effective interest rates. Interest expense on FHLB borrowings associated with the leverage strategy decreased $5.3 million from the prior year quarter due to the strategy not being in place as often during the current quarter.

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 prior fiscal year.


6



Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
3,352

 
$
3,965

 
$
(613
)
 
(15.5
)%
Income from BOLI
635

 
534

 
101

 
18.9

Other non-interest income
1,437

 
859

 
578

 
67.3

Total non-interest income
$
5,424

 
$
5,358

 
$
66

 
1.2


The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard as discussed in the Comparison of Operating Results for the Three Months Ended December 31, 2018 and September 30, 2018 above. The increase in income from BOLI was primarily related to policies acquired in the CCB acquisition. The increase in other non-interest income was due mainly to revenues from the trust asset management operations added in the CCB acquisition and, as discussed above, the Company began recording an estimate for contingent insurance commissions it expects to receive from insurance carriers as part of adopting the new revenue recognition accounting standard in the current quarter. Additionally, the prior year quarter included a loss on the sale of loans as management tested loan sale processes for liquidity purposes and there were no loan sales in the current quarter.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
December 31,
 
Change Expressed in:
 
2018
 
2017
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
12,962

 
$
10,528

 
$
2,434

 
23.1
 %
Information technology and related expense
4,599

 
3,331

 
1,268

 
38.1

Occupancy, net
3,252

 
2,765

 
487

 
17.6

Regulatory and outside services
1,766

 
1,140

 
626

 
54.9

Advertising and promotional
760

 
685

 
75

 
10.9

Deposit and loan transaction costs
736

 
1,407

 
(671
)
 
(47.7
)
Federal insurance premium
528

 
852

 
(324
)
 
(38.0
)
Office supplies and related expense
459

 
442

 
17

 
3.8

Other non-interest expense
1,720

 
886

 
834

 
94.1

Total non-interest expense
$
26,782

 
$
22,036

 
$
4,746

 
21.5


Salaries and employee benefits related to former CCB employees was approximately $1.6 million in the current quarter. Excluding the impact of former CCB employees, salaries and employee benefits increased approximately $830 thousand from the prior year quarter. The increase was primarily due to staff additions and salary adjustments during the prior fiscal year. The increase in information technology and related expense was due mainly to an increase in software licensing, depreciation related to the implementation of enhancements to the Bank's information technology infrastructure, and costs related to the integration of CCB operations. The increase in occupancy, net was due primarily to expenses related to properties acquired in the CCB acquisition. The increase in regulatory and outside services was due mainly to audit fees related to the acquisition of CCB as well as an increase in consulting expenses. The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition standard as discussed above. The decrease in federal insurance premium was due primarily to a decrease in average assets as a result of a reduction in the usage of the leverage strategy. The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB.

7




The Company's efficiency ratio was 46.40% for the current quarter compared to 40.26% for the prior year quarter. The change in the efficiency ratio was due to higher non-interest expense in the current quarter compared to the prior year quarter.

Income Tax Expense
Income tax expense was $6.6 million for the current quarter compared to $860 thousand for the prior year quarter. The effective tax rate was 21.2% for the current quarter compared to 2.6% for the prior year quarter. The increase in the effective tax rate compared to the prior year quarter was due mainly to the Tax Act being signed into law in December 2017. In accordance with GAAP, the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate tax rate. The revaluation reduced income tax expense by $7.5 million in the prior year quarter, resulting in an effective tax rate of 2.6% for the prior year quarter.

Fiscal Year 2019 Projections
Non-Interest Income: Based on current market conditions, management anticipates BOLI income will increase approximately $450 thousand in fiscal year 2019 related to BOLI policies acquired in the CCB acquisition. Based on the current trust asset management services activities and the amount of assets under management, management anticipates trust asset management activities will increase non-interest income by approximately $550 thousand in fiscal year 2019 compared to fiscal year 2018.

Non-Interest Expense: Taking into account salaries and benefits related to former CCB employees along with anticipated annual salary adjustments, management anticipates salaries and employee benefits will be approximately $5.6 million higher in fiscal year 2019. Management anticipates information technology and related expenses will be approximately $4.0 million higher in fiscal year 2019 due to integration costs associated with CCB, higher depreciation related to the continued enhancements to the Bank's information technology infrastructure, and an increase in software licensing. Management anticipates occupancy, net, will be approximately $1.8 million higher in fiscal year 2019 due primarily to the properties acquired in the CCB acquisition. Management anticipates the deposit intangible amortization expense, which is included in other non-interest expense, will be approximately $2.4 million in fiscal year 2019.

Financial Condition as of December 31, 2018

Total assets were $9.30 billion at December 31, 2018 compared to $9.45 billion at September 30, 2018. The $145.8 million decrease was due primarily to decreases in securities and cash and cash equivalents. The cash flows were used primarily to pay dividends to stockholders, fund certificate of deposit maturities, and pay borrowers' real estate taxes.

The loans receivable portfolio, net, totaled $7.53 billion at December 31, 2018 compared to $7.51 billion at September 30, 2018. During the current quarter, the Bank originated and refinanced $189.7 million of loans with a weighted average rate of 4.74% and purchased $52.9 million of one- to four-family loans from correspondent lenders with a weighted average rate of 4.37%. The Bank also entered into participations of $61.9 million of commercial real estate loans with a weighted average rate of 4.99%, of which $45.3 million had not yet been funded as of December 31, 2018.

The Bank is continuing to manage the size and mix of its loan portfolio, while managing 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 14.2% at December 31, 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 and mix of the loan portfolio by utilizing cash flows from the correspondent loan portfolio to fund commercial loan growth. During the current quarter, the commercial loan portfolio grew by $48.2 million, or 8%, while the correspondent one-to four-family loan portfolio decreased by $14.3 million, or 1%, and the bulk purchased one-to four-family loan portfolio decreased by $13.9 million, or 5%. Given the balance of total assets, it is unlikely that net 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. In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital. At December 31, 2018, this ratio was 13.1%.

The Bank continued, at times, to utilize a leverage strategy to increase earnings during the current quarter. The leverage strategy during the current quarter 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 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, 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

8



attributable to the leverage strategy was $14 thousand during the current quarter, compared to $8 thousand during the quarter ended September 30, 2018 and $767 thousand during the quarter ended December 31, 2017. The decrease compared to the December 31, 2017 quarter was due mainly to the strategy being suspended at certain times as a result of the large negative interest rate spread during the current quarter, which would have 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 $7.96 billion at December 31, 2018 compared to $8.06 billion at September 30, 2018. The $100.1 million decrease was due mainly to decreases in deposits, primarily the certificate of deposit portfolio, and advance payments by borrowers for taxes and insurance due to the timing of payments.

Stockholders' equity was $1.35 billion at December 31, 2018 compared to $1.39 billion at September 30, 2018. The $45.7 million decrease was due primarily to the payment of $65.4 million in cash dividends, partially offset by net income of $24.4 million. The cash dividends paid during the current quarter totaled $0.475 per share and consisted of a $0.39 per share cash true-up dividend related to fiscal year 2018 earnings per the Company's dividend policy and a regular quarterly cash dividend of $0.085 per share. On January 22, 2019, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on February 15, 2019 to stockholders of record as of the close of business on February 1, 2019.

At December 31, 2018, Capitol Federal Financial, Inc., at the holding company level, had $90.4 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.
 
December 31,
 
September 30,
 
December 31,
 
2018
 
2018
 
2017
 
(Dollars in thousands)
Stockholders' equity
$
1,345,913

 
$
1,391,622

 
$
1,350,611

Equity to total assets at end of period
14.5
%
 
14.7
%
 
15.0
%

The following table presents a reconciliation of total to net shares outstanding as of December 31, 2018.
Total shares outstanding
141,269,239

Less unallocated ESOP shares and unvested restricted stock
(3,646,207
)
Net shares outstanding
137,623,032


Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of December 31, 2018, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at December 31, 2018.
 
 
 
Regulatory
 
 
 
Requirement For
 
Bank
 
Well-Capitalized
 
Ratios
 
Status
Tier 1 leverage ratio
12.6%
 
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



9



A reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of December 31, 2018 is as follows (dollars in thousands):
Total Bank equity as reported under GAAP
$
1,219,251

Accumulated Other Comprehensive Income ("AOCI")
1,877

Goodwill and other intangibles, net of deferred tax liabilities
(15,222
)
Total tier 1 capital
1,205,906

ACL
8,558

Total capital
$
1,214,464


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 herein may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including the possibility that expected cost savings, synergies and other benefits from the acquisition of CCB might not be realized within the anticipated time frames or at all, and the possibility that costs or difficulties relating to integration matters might be greater than expected, changes in economic conditions in the Company's market area, changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities, other governmental initiatives affecting the financial services industry, changes in accounting principles, policies or guidelines, fluctuations in interest rates, demand for loans in the Company's market area, the future earnings and capital levels of the Bank, which would affect the ability of the Company to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

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

10




SUPPLEMENTAL FINANCIAL INFORMATION
 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
December 31,
 
September 30,
 
2018
 
2018
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $44,027 and $122,733)
$
81,713

 
$
139,055

Securities:
 
 
 
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $667,777 and $718,564)
668,487

 
714,614

Held-to-maturity at amortized cost (estimated fair value of $563,771 and $601,071)
568,838

 
612,318

Loans receivable, net (ACL of $8,558 and $8,463)
7,525,780

 
7,514,485

FHLB stock, at cost
100,521

 
99,726

Premises and equipment, net
96,109

 
96,005

Income taxes receivable, net

 
2,177

Other assets
262,334

 
271,167

TOTAL ASSETS
$
9,303,782

 
$
9,449,547

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
5,557,864

 
$
5,603,354

FHLB borrowings
2,174,983

 
2,174,981

Other borrowings
106,186

 
110,052

Advance payments by borrowers for taxes and insurance
28,406

 
65,264

Income taxes payable, net
3,413

 

Deferred income tax liabilities, net
18,510

 
21,253

Accounts payable and accrued expenses
68,507

 
83,021

Total liabilities
7,957,869

 
8,057,925

 
 
 
 
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, 141,269,239 and 141,225,516
 
 
 shares issued and outstanding as of December 31, 2018 and September 30, 2018, respectively
1,413

 
1,412

Additional paid-in capital
1,208,323

 
1,207,644

Unearned compensation, ESOP
(35,930
)
 
(36,343
)
Retained earnings
173,984

 
214,569

AOCI, net of tax
(1,877
)
 
4,340

Total stockholders' equity
1,345,913

 
1,391,622

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,303,782

 
$
9,449,547


11



 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
 
For the Three Months Ended
 
December 31,
 
September 30,
 
December 31,
 
2018
 
2018
 
2017
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
Loans receivable
$
70,772

 
$
66,922

 
$
64,189

MBS
6,523

 
6,056

 
5,252

FHLB stock
1,971

 
1,847

 
3,095

Cash and cash equivalents
1,714

 
1,213

 
7,114

Investment securities
1,441

 
1,275

 
994

Total interest and dividend income
82,421

 
77,313

 
80,644

 
 
 
 
 
 
INTEREST EXPENSE:
 
 
 
 
 
Deposits
15,725

 
14,597

 
11,961

FHLB borrowings
13,530

 
11,930

 
17,917

Other borrowings
865

 
709

 
1,392

Total interest expense
30,120

 
27,236

 
31,270

 
 
 
 
 
 
NET INTEREST INCOME
52,301

 
50,077

 
49,374

 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES

 

 

NET INTEREST INCOME AFTER
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
52,301

 
50,077

 
49,374

 
 
 
 
 
 
NON-INTEREST INCOME:
 
 
 
 
 
Deposit service fees
3,352

 
4,086

 
3,965

Income from BOLI
635

 
555

 
534

Other non-interest income
1,437

 
1,179

 
859

Total non-interest income
5,424

 
5,820

 
5,358

 
 
 
 
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
Salaries and employee benefits
12,962

 
12,932

 
10,528

Information technology and related expense
4,599

 
3,683

 
3,331

Occupancy, net
3,252

 
3,064

 
2,765

Regulatory and outside services
1,766

 
1,790

 
1,140

Advertising and promotional
760

 
1,522

 
685

Deposit and loan transaction costs
736

 
1,464

 
1,407

Federal insurance premium
528

 
765

 
852

Office supplies and related expense
459

 
549

 
442

Other non-interest expense
1,720

 
988

 
886

Total non-interest expense
26,782

 
26,757

 
22,036

INCOME BEFORE INCOME TAX EXPENSE
30,943

 
29,140

 
32,696

INCOME TAX EXPENSE
6,560

 
7,751

 
860

NET INCOME
$
24,383

 
$
21,389

 
$
31,836


12



The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.
 
For the Three Months Ended
 
December 31,
 
September 30,
 
December 31,
 
2018
 
2018
 
2017
 
(Dollars in thousands, except per share amounts)
Net income
$
24,383

 
$
21,389

 
$
31,836

Income allocated to participating securities
(9
)
 
(8
)
 
(13
)
Net income available to common stockholders
$
24,374

 
$
21,381

 
$
31,823

 
 
 
 
 
 
Average common shares outstanding
137,550,471

 
135,375,386

 
134,372,531

Average committed ESOP shares outstanding
449

 
124,346

 
449

Total basic average common shares outstanding
137,550,920

 
135,499,732

 
134,372,980

 
 
 
 
 
 
Effect of dilutive stock options
41,459

 
55,928

 
94,329

 
 
 
 
 
 
Total diluted average common shares outstanding
137,592,379

 
135,555,660

 
134,467,309

 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
Basic
$
0.18

 
$
0.16

 
$
0.24

Diluted
$
0.18

 
$
0.16

 
$
0.24

 
 
 
 
 
 
Antidilutive stock options, excluded from the diluted
 
 
 
 
average common shares outstanding calculation
550,021

 
529,195

 
498,900




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.
 
December 31, 2018
 
September 30, 2018
 
December 31, 2017
 
 
 
 
 
% of
 
 
 
 
 
% of
 
 
 
 
 
% of
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
$
3,955,975

 
3.77
%
 
52.6
%
 
$
3,965,692

 
3.74
%
 
52.8
%
 
$
3,940,288

 
3.69
%
 
54.9
%
Correspondent purchased
2,491,692

 
3.61

 
33.2

 
2,505,987

 
3.59

 
33.4

 
2,453,625

 
3.54

 
34.2

Bulk purchased
279,719

 
2.67

 
3.7

 
293,607

 
2.60

 
3.9

 
338,084

 
2.31

 
4.7

Construction
33,443

 
4.08

 
0.4

 
33,149

 
4.03

 
0.4

 
33,063

 
3.47

 
0.4

Total
6,760,829

 
3.67

 
89.9

 
6,798,435

 
3.64

 
90.5

 
6,765,060

 
3.57

 
94.2

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
463,317

 
4.36

 
6.2

 
426,243

 
4.33

 
5.7

 
205,020

 
4.22

 
2.9

Commercial and industrial
61,221

 
5.19

 
0.8

 
62,869

 
5.00

 
0.9

 

 

 

Construction
93,244

 
4.74

 
1.2

 
80,498

 
4.59

 
1.1

 
80,062

 
3.89

 
1.1

Total
617,782

 
4.50

 
8.2

 
569,610

 
4.44

 
7.7

 
285,082

 
4.13

 
4.0

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
129,795

 
6.20

 
1.8

 
129,588

 
5.97

 
1.7

 
123,124

 
5.40

 
1.7

Other
10,481

 
4.51

 
0.1

 
10,012

 
4.59

 
0.1

 
4,238

 
4.04

 
0.1

Total
140,276

 
6.07

 
1.9

 
139,600

 
5.87

 
1.8

 
127,362

 
5.36

 
1.8

Total loans receivable
7,518,887

 
3.78

 
100.0
%
 
7,507,645

 
3.74

 
100.0
%
 
7,177,504

 
3.62

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACL
8,558

 
 
 
 
 
8,463

 
 
 
 
 
8,370

 
 
 
 
Discounts/unearned loan fees
33,139

 
 
 
 
 
33,933

 
 
 
 
 
25,110

 
 
 
 
Premiums/deferred costs
(48,590
)
 
 
 
 
 
(49,236
)
 
 
 
 
 
(45,720
)
 
 
 
 
Total loans receivable, net
$
7,525,780

 
 
 
 
 
$
7,514,485

 
 
 
 
 
$
7,189,744

 
 
 
 




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
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,507,645

 
3.74
%
 
$
7,226,169

 
3.66
%
 
$
7,187,742

 
3.63
%
 
$
7,177,504

 
3.62
%
Originations and refinances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
116,032

 
4.59

 
117,904

 
4.44

 
143,059

 
4.21

 
77,825

 
3.80

Adjustable
73,711

 
4.98

 
56,996

 
4.55

 
54,385

 
4.42

 
36,612

 
4.28

Purchases and participations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
72,140

 
4.60

 
80,138

 
4.40

 
78,650

 
4.04

 
120,155

 
3.85

Adjustable
42,651

 
4.88

 
20,105

 
3.92

 
30,017

 
3.49

 
48,062

 
3.61

Acquisition of CCB loans, net

 

 
299,659

 
4.77

 

 

 

 

Change in undisbursed loan funds
(25,315
)
 
 
 
(8,104
)
 
 
 
19,808

 
 
 
(25,002
)
 
 
Repayments
(267,469
)
 
 
 
(284,927
)
 
 
 
(286,923
)
 
 
 
(246,894
)
 
 
Principal recoveries (charge-offs), net
95

 
 
 
119

 
 
 
(46
)
 
 
 
20

 
 
Other
(603
)
 
 
 
(414
)
 
 
 
(523
)
 
 
 
(540
)
 
 
Ending balance
$
7,518,887

 
3.78

 
$
7,507,645

 
3.74

 
$
7,226,169

 
3.66

 
$
7,187,742

 
3.63

 
 
 
 
 
 
 
 

15



The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement and commercial renewal activity, along with associated weighted average rates and percent of total. Loan originations, purchases, and refinances are reported together. The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years. The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination, and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.
 
For the Three Months Ended
 
December 31, 2018
 
December 31, 2017
 
Amount
 
Rate
 
% of Total
 
Amount
 
Rate
 
% of Total
Fixed-Rate:
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 15 years
$
23,055

 
4.19
%
 
7.6
%
 
$
35,734

 
3.16
%
 
12.1
%
> 15 years
106,134

 
4.58

 
34.9

 
143,949

 
3.82

 
48.5

One- to four-family construction
16,478

 
4.51

 
5.4

 
9,139

 
3.70

 
3.1

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
7,802

 
4.78

 
2.5

 
4,792

 
4.13

 
1.6

Commercial and industrial
2,402

 
5.34

 
0.8

 

 

 

Commercial construction
29,919

 
4.78

 
9.8

 

 

 

Home equity
1,194

 
6.50

 
0.4

 
950

 
5.94

 
0.3

Other
1,188

 
4.69

 
0.4

 
103

 
9.36

 

Total fixed-rate
188,172

 
4.59

 
61.8

 
194,667

 
3.71

 
65.6

 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-Rate:
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 36 months
5,228

 
3.72

 
1.7

 
767

 
2.75

 
0.3

> 36 months
33,079

 
4.04

 
10.9

 
31,935

 
3.12

 
10.7

One- to four-family construction
8,245

 
4.38

 
2.7

 
4,035

 
3.30

 
1.4

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
20,704

 
5.16

 
6.8

 

 

 

Commercial and industrial
2,335

 
5.98

 
0.8

 

 

 

Commercial construction
28,650

 
5.35

 
9.4

 
45,650

 
4.20

 
15.4

Home equity
17,426

 
6.32

 
5.7

 
18,826

 
5.31

 
6.3

Other
695

 
2.94

 
0.2

 
978

 
3.79

 
0.3

Total adjustable-rate
116,362

 
4.95

 
38.2

 
102,191

 
4.02

 
34.4

 
 
 
 
 
 
 
 
 
 
 
 
Total originated, refinanced and purchased
$
304,534

 
4.73

 
100.0
%
 
$
296,858

 
3.82

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Purchased and participation loans included above:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
$
38,939

 
4.53

 
 
 
$
80,773

 
3.71

 
 
Participations - commercial
33,201

 
4.68

 
 
 
4,792

 
4.13

 
 
Total fixed-rate purchased/participations
72,140

 
4.60

 
 
 
85,565

 
3.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
14,001

 
3.93

 
 
 
19,039

 
3.10

 
 
Participations - commercial
28,650

 
5.35

 
 
 
45,650

 
4.20

 
 
Total adjustable-rate purchased/participations
42,651

 
4.88

 
 
 
64,689

 
3.87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total purchased/participation loans
$
114,791

 
4.70

 
 
 
$
150,254

 
3.79

 
 

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.
 
December 31, 2018
 
September 30, 2018
 
December 31, 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
$
3,955,975

 
58.8
%
 
767

 
62
%
 
$
139

 
$
3,965,692

 
58.6
%
 
767

 
62
%
 
$
138

 
$
3,940,288

 
58.5
%
 
767

 
63
%
 
$
135

Correspondent purchased
2,491,692

 
37.0

 
764

 
66

 
377

 
2,505,987

 
37.1

 
764

 
67

 
378

 
2,453,625

 
36.5

 
764

 
68

 
377

Bulk purchased
279,719

 
4.2

 
758

 
62

 
304

 
293,607

 
4.3

 
758

 
62

 
304

 
338,084

 
5.0

 
757

 
62

 
304

 
$
6,727,386

 
100.0
%
 
765

 
64

 
186

 
$
6,765,286

 
100.0
%
 
765

 
64

 
186

 
$
6,731,997

 
100.0
%
 
765

 
64

 
183


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, $15.4 million were refinanced from other lenders.
 
For the Three Months Ended
 
December 31, 2018
 
December 31, 2017
 
 
 
 
 
Credit
 
 
 
 
 
Credit
 
Amount
 
LTV
 
Score
 
Amount
 
LTV
 
Score
 
(Dollars in thousands)
Originated
$
126,325

 
77
%
 
754

 
$
101,420

 
77
%
 
763

Refinanced by Bank customers
12,954

 
67

 
743

 
24,327

 
66

 
754

Correspondent purchased
52,940

 
74

 
763

 
99,812

 
75

 
766

 
$
192,219

 
75

 
756

 
$
225,559

 
75

 
764


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 quarter ended December 31, 2018.
 
 
For the Three Months Ended
 
 
December 31, 2018
State
 
Amount
 
% of Total
 
Rate
 
 
(Dollars in thousands)
Kansas
 
$
121,760

 
63.3
%
 
4.43
%
Missouri
 
32,208

 
16.8

 
4.44

Texas
 
17,521

 
9.1

 
4.22

Other states
 
20,730

 
10.8

 
4.35

 
 
$
192,219

 
100.0
%
 
4.40


17



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 December 31, 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
$
5,186

 
$
28,271

 
$
11,413

 
$
44,870

 
4.47
%
Correspondent
2,002

 
56,991

 
10,167

 
69,160

 
4.43

 
$
7,188

 
$
85,262

 
$
21,580

 
$
114,030

 
4.45

 
 
 
 
 
 
 
 
 
 
Rate
4.19
%
 
4.57
%
 
4.05
%
 
 
 
 


Commercial Loans: During the current quarter, the Bank entered into commercial real estate loan participations totaling $61.9 million, which included $58.6 million of commercial real estate construction loans. The majority of the $58.6 million of commercial real estate construction loans had not yet been funded as of December 31, 2018. During the current quarter, the Bank funded $35.4 million of commercial real estate construction participation loans. The Bank also originated $30.0 million of commercial loans during the current quarter.

The following table presents the Bank's commercial real estate loans and outstanding loan commitments by industry classification, as defined by the North American Industry Classification System, as of December 31, 2018. Based on the terms of the construction loans as of December 31, 2018, of the $182.9 million of undisbursed amounts in the table, which does not include outstanding commitments, $44.7 million is projected to be disbursed by March 31, 2019, and an additional $99.1 million is projected to be disbursed by December 31, 2019. It is possible that not all of the funds will be disbursed due to the nature of the funding of construction projects. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $434.1 million at a weighted average rate of 4.26% and adjustable-rate loans totaling $305.4 million at a weighted average rate of 4.95%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at December 31, 2018 having shorter terms to maturity. Additionally, the credit risk for most of the Bank's commercial real estate borrowing relationships is mitigated due to the amount of borrower equity injected into the projects, strong debt service coverage ratios, and the liquidity, personal cash flow and net worth of the guarantors. Several of these borrowing relationships have a preference for fixed-rate loans and the market interest rates are typically lower for these types of borrowers.
 
Unpaid
 
Undisbursed
 
Gross Loan
 
Outstanding
 
 
 
% of
 
Principal
 
Amount
 
Amount
 
Commitments
 
Total
 
Total
 
(Dollars in thousands)
Health care and social assistance
$
117,621

 
$
65,002

 
$
182,623

 
$
71,069

 
$
253,692

 
30.9
%
Accommodation and food services
150,446

 
29,565

 
180,011

 

 
180,011

 
21.9

Real estate rental and leasing
130,905

 
22,521

 
153,426

 
435

 
153,861

 
18.7

Retail trade
45,208

 
25,478

 
70,686

 
9,186

 
79,872

 
9.7

Multi-family
33,208

 
37,141

 
70,349

 

 
70,349

 
8.6

Arts, entertainment, and recreation
36,934

 
597

 
37,531

 

 
37,531

 
4.6

Other
42,239

 
2,625

 
44,864

 
900

 
45,764

 
5.6

 
$
556,561

 
$
182,929

 
$
739,490

 
$
81,590

 
$
821,080

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average rate
4.42
%
 
4.92
%
 
4.54
%
 
4.72
%
 
4.56
%
 
 


18



The following table summarizes the Bank's commercial real estate loans and outstanding loan commitments by state as of December 31, 2018.
 
Unpaid
 
Undisbursed
 
Gross Loan
 
Outstanding
 
 
 
% of
 
Principal
 
Amount
 
Amount
 
Commitments
 
Total
 
Total
 
(Dollars in thousands)
Kansas
$
211,272

 
$
17,692

 
$
228,964

 
$
72,404

 
$
301,368

 
36.7
%
Missouri
171,458

 
65,447

 
236,905

 
3,286

 
240,191

 
29.2

Texas
137,594

 
61,902

 
199,496

 
5,900

 
205,396

 
25.0

Kentucky
4,317

 
21,242

 
25,559

 

 
25,559

 
3.1

Nebraska
6,995

 
15,146

 
22,141

 

 
22,141

 
2.7

Colorado
9,130

 

 
9,130

 

 
9,130

 
1.1

Other
15,795

 
1,500

 
17,295

 

 
17,295

 
2.2

 
$
556,561