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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)
April 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 April 29, 2019, announcing financial results for the quarter ended March 31, 2019 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 April 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: April 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



397701939_cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
April 29, 2019
CAPITOL FEDERAL FINANCIAL, INC.® 
REPORTS SECOND 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 March 31, 2019. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which will be filed with the Securities and Exchange Commission ("SEC") on or about May 10, 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 $24.6 million;
basic and diluted earnings per share of $0.18;
net interest margin of 2.33%;
originated $92.7 million of commercial loans;
annualized deposit portfolio growth of 10%; and
paid dividends of $11.7 million, or $0.085 per share.

During April 2019, the Bank completed the integration of the operations of Capital City Bank into the Bank's operations. The Company completed its acquisition of Capital City Bank and its parent company, Capital City Bancshares, Inc. ("CCB"), on August 31, 2018.

The acquisition of Capital City Bank, a commercial bank with $450 million in assets, allows us to advance our commercial banking strategy through enhanced commercial deposit and lending products while managing to stay under $10 billion in assets. The acquisition allows the Bank to compete for commercial banking business through a wide variety of commercial deposit services and expanded commercial lending products, as well as trust and brokerage services. A few of the potential benefits of expanding the commercial banking business include the following:
the ability to reinvest correspondent loan repayments into higher yielding commercial loans;
the ability to reduce the cost of funds by replacing Federal Home Loan Bank Topeka ("FHLB") borrowings and wholesale deposits with lower-costing commercial deposits;
the ability to reduce the Bank's loans-to-deposits ratio as a result of an increase in commercial deposits;
the ability to diversify the Bank's revenue streams and increased cross-selling opportunities by leveraging access to new products for existing customers and expanding our new customer base; and
the ability to increase earnings through a remix of assets, diversified revenue sources and lower cost funding.

Comparison of Operating Results for the Three Months Ended March 31, 2019 and December 31, 2018

For the quarter ended March 31, 2019, the Company recognized net income of $24.6 million, or $0.18 per share, compared to net income of $24.4 million, or $0.18 per share, for the quarter ended December 31, 2018.

Net interest income increased $296 thousand, or 0.6%, from the prior quarter to $52.6 million for the current quarter. The net interest margin increased six basis points from 2.27% for the prior quarter to 2.33% for the current quarter. The leverage strategy was in place at certain times during the prior quarter, but was not utilized during the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have increased one basis point from 2.32% for the prior quarter to 2.33% for the current quarter.


1



Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased eight basis points, from 3.56% for the prior quarter to 3.64% for the current quarter, while the average balance of interest-earning assets decreased $204.6 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased five basis points, from 3.59% for the prior quarter to 3.64% for the current quarter, and the average balance of interest-earning assets would have increased $23.6 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
March 31,
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
71,657

 
$
70,772

 
$
885

 
1.3
 %
Mortgage-backed securities ("MBS")
6,301

 
6,523

 
(222
)
 
(3.4
)
FHLB stock
1,831

 
1,971

 
(140
)
 
(7.1
)
Investment securities
1,505

 
1,441

 
64

 
4.4

Cash and cash equivalents
743

 
1,714

 
(971
)
 
(56.7
)
Total interest and dividend income
$
82,037

 
$
82,421

 
$
(384
)
 
(0.5
)

The increase in interest income on loans receivable was due to a $42.1 million increase in the average balance of the portfolio, as well as a four basis point increase in the weighted average yield on the portfolio to 3.79% for the current quarter. The increase in the weighted average yield was due primarily to the origination of loans at higher market rates and adjustable-rate loans repricing to higher market rates.

The decrease in interest income on the MBS portfolio was due to a $47.7 million decrease in the average balance of the portfolio, partially offset by a four basis point increase in the weighted average yield on the portfolio to 2.63% for the current quarter. The increase in the weighted average yield was due primarily to a decrease in net premium amortization in the current quarter, as well as adjustable-rate MBS repricing to higher market rates. Net premium amortization of $309 thousand during the current quarter decreased the weighted average yield on the portfolio by 12 basis points. During the prior quarter, $349 thousand of net premiums were amortized which decreased the weighted average yield on the portfolio by 14 basis points. As of March 31, 2019, the remaining net balance of premiums on our portfolio of MBS was $2.4 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 increased $255 thousand from the prior quarter due to a $37.5 million increase in the average balance, as well as a 19 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 decreased $1.2 million from the prior quarter due to the leverage strategy not being in place during the current 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 three basis points, from 1.48% for the prior quarter to 1.51% for the current quarter, while the average balance of interest-bearing liabilities decreased $130.3 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased five basis points, from 1.46% for the prior quarter to 1.51% for the current quarter, and the average balance of interest-bearing liabilities would have increased $97.9 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
 
 
 
 
 
March 31,
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
Deposits
$
16,096

 
$
15,725

 
$
371

 
2.4
 %
FHLB borrowings
12,525

 
13,530

 
(1,005
)
 
(7.4
)
Other borrowings
819

 
865

 
(46
)
 
(5.3
)
Total interest expense
$
29,440

 
$
30,120

 
$
(680
)
 
(2.3
)

The increase in interest expense on deposits was due primarily to a three basis point increase in the weighted average rate paid, to 1.16% for the current quarter, as well as a $74.7 million increase in the average balance of the portfolio. The increase in the weighted average rate paid was due primarily to increases in the average retail/business certificate of deposit portfolio rate and wholesale certificate of deposit portfolio rate, which increased five basis points and 19 basis points, respectively.

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 $372 thousand from the prior quarter due to a 10 basis point increase in the weighted average rate paid, to 2.30% for the current quarter. The increase in the weighted average rate paid was due mainly to a full quarter impact of advances that matured in the prior quarter being replaced at higher market rates. Interest expense on FHLB borrowings associated with the leverage strategy decreased $1.4 million from the prior quarter due to the leverage strategy not being in place during the current 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 $61 thousand during the current quarter compared to $95 thousand in the prior quarter. At March 31, 2019, loans 30 to 89 days delinquent were 0.23% of total loans and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans. 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. 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
 
 
 
 
 
March 31,
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
3,091

 
$
3,352

 
$
(261
)
 
(7.8
)%
Income from bank-owned life insurance ("BOLI")
587

 
635

 
(48
)
 
(7.6
)
Other non-interest income
1,323

 
1,437

 
(114
)
 
(7.9
)
Total non-interest income
$
5,001

 
$
5,424

 
$
(423
)
 
(7.8
)

The decrease in deposit service fees was due mainly to a decrease in debit card and service charge income resulting from a reduction in transaction volume due to the seasonality of such activity, partially offset by lower interchange network charges in the current quarter.

3



Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Three Months Ended
 
 
 
 
 
March 31,
 
December 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
12,789

 
$
12,962

 
$
(173
)
 
(1.3
)%
Information technology and related expense
4,284

 
4,599

 
(315
)
 
(6.8
)
Occupancy, net
3,292

 
3,252

 
40

 
1.2

Regulatory and outside services
1,056

 
1,766

 
(710
)
 
(40.2
)
Advertising and promotional
1,390

 
760

 
630

 
82.9

Deposit and loan transaction costs
465

 
736

 
(271
)
 
(36.8
)
Office supplies and related expense
736

 
459

 
277

 
60.3

Federal insurance premium
659

 
528

 
131

 
24.8

Other non-interest expense
1,470

 
1,720

 
(250
)
 
(14.5
)
Total non-interest expense
$
26,141

 
$
26,782

 
$
(641
)
 
(2.4
)

The decrease in information technology and related expense was due primarily to the prior quarter including accelerated depreciation related to the implementation of enhancements in the Bank's information technology infrastructure. The decrease in regulatory and outside services was due mainly to a decrease in audit fees. The increase 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 a reduction in costs associated with the Bank's online banking services. The increase in office supplies and related expense was due mainly to the timing of such expenses. The decrease in other non-interest expense was due primarily to a decrease in other real estate owned ("OREO") operations expense.

The Company's efficiency ratio was 45.38% for the current quarter compared to 46.40% for the prior quarter. The improvement in the efficiency ratio was due primarily to lower non-interest expense in the current quarter compared to the prior quarter. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense.

Income Tax Expense
Income tax expense was $6.9 million for the current quarter, compared to $6.6 million for the prior quarter. The effective tax rate was 21.9% for the current quarter compared to 21.2% for the prior quarter. Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.

Comparison of Operating Results for the Six Months Ended March 31, 2019 and 2018

The Company recognized net income of $48.9 million, or $0.36 per share, for the six month period ended March 31, 2019 compared to net income of $55.2 million, or $0.41 per share, for the six month period ended March 31, 2018. The decrease in net income was due primarily to the prior year six month period including the impact of the enactment of the Tax Cuts and Jobs Act (the "Tax Act") as discussed below, as well as an increase in non-interest expense. These changes were partially offset by an increase in net interest income due primarily to the higher yielding loans added in the CCB acquisition. The Tax Act 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 reduced income tax expense by $7.5 million.

The net interest margin increased 45 basis points, from 1.85% for the prior year six month period to 2.30% for the current year six month period. 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 year six month period 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 11 basis points, from 2.22% for the

4



prior year six month period to 2.33% for the current year six month period. 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 3.02% for the prior year six month period to 3.60% for the current year six month period, while the average balance of interest-earning assets decreased $1.62 billion from the prior year six month period. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 29 basis points, from 3.33% for the prior year six month period to 3.62% for the current year six month period, and the average balance of interest-earning assets would have increased $272.1 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 Six Months Ended
 
 
 
 
 
March 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
142,429

 
$
128,383

 
$
14,046

 
10.9
 %
MBS
12,824

 
10,642

 
2,182

 
20.5

FHLB stock
3,802

 
6,296

 
(2,494
)
 
(39.6
)
Investment securities
2,946

 
2,088

 
858

 
41.1

Cash and cash equivalents
2,457

 
15,009

 
(12,552
)
 
(83.6
)
Total interest and dividend income
$
164,458

 
$
162,418

 
$
2,040

 
1.3


The increase in interest income on loans receivable was due to a $347.4 million increase in the average balance of the portfolio, as well as a 20 basis point increase in the weighted average yield on the portfolio to 3.77% for the current year six month period. 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 associated with 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 33 basis point increase in the weighted average yield on the portfolio to 2.61% for the current year six month period, along with a $48.6 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 repricing to higher market rates. Net premium amortization of $659 thousand during the current year six month period decreased the weighted average yield on the portfolio by 13 basis points. During the prior year six month period, $1.6 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 35 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 year six month period as compared to the prior year six month period. This was partially offset by a higher dividend rate on FHLB stock during the current year six month period.

The increase in interest income on the investment securities portfolio was due to a 75 basis point increase in the weighted average yield on the portfolio to 2.13%. The increase in the weighted average yield was primarily a result of replacing maturing securities 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 decreased $155 thousand from the prior year six month period due to a $98.9 million decrease in the average balance, partially offset by a 97 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 $12.4 million from the prior year six month period due to a $1.80 billion decrease in the average balance, as the leverage strategy was in place less often during the current year six month period.


5



Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 17 basis points, from 1.32% for the prior year six month period to 1.49% for the current year six month period, while the average balance of interest-bearing liabilities decreased $1.58 billion from the prior year six month period. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 19 basis points, from 1.29% for the prior year six month period to 1.48% for the current year six month period, and the average balance of interest-bearing liabilities would have increased $315.2 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
 
For the Six Months Ended
 
 
 
 
 
March 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
Deposits
$
31,821

 
$
24,441

 
$
7,380

 
30.2
 %
FHLB borrowings
26,055

 
36,689

 
(10,634
)
 
(29.0
)
Other borrowings
1,684

 
2,025

 
(341
)
 
(16.8
)
Total interest expense
$
59,560

 
$
63,155

 
$
(3,595
)
 
(5.7
)

The increase in interest expense on deposits was due primarily to a 22 basis point increase in the weighted average rate, to 1.15% for the current year six month period. The deposit accounts assumed in the CCB acquisition were at a lower average rate than our legacy deposit portfolio rate and our overall deposit portfolio rate, which partially offset the increase in the deposit portfolio rate in the current year six month period. The increase in the weighted average rate was due primarily to increases in the average retail/business certificate of deposit portfolio rate and wholesale certificate of deposit portfolio rate, which increased 28 basis points and 68 basis points, respectively.

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 $2.5 million from the prior year six month period due to a 19 basis point increase in the weighted average rate paid on the portfolio, to 2.25% for the current year six month period, and a $33.5 million increase in the average balance of the portfolio. The increase in the weighted average rate paid was due primarily to certain maturing advances being replaced at higher effective interest rates. Interest expense on FHLB borrowings associated with the leverage strategy decreased $13.1 million from the prior year six month period due to the leverage strategy not being in place as often during the current year six month period.

The decrease in interest expense on other borrowings was due mainly to the maturity of a $100.0 million repurchase agreement during the prior fiscal year, which was not replaced with a new repurchase agreement.

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 Six Months Ended
 
 
 
 
 
March 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
$
6,443

 
$
7,635

 
$
(1,192
)
 
(15.6
)%
Income from BOLI
1,222

 
810

 
412

 
50.9

Other non-interest income
2,760

 
2,346

 
414

 
17.6

Total non-interest income
$
10,425

 
$
10,791

 
$
(366
)
 
(3.4
)

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 year six month period. Previously, interchange network charges were 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 $1.7 million during the current year six month period and $1.5 million during the prior year six month period.


6



The increase in income from BOLI was due primarily to a one-time adjustment during the prior year six month period to the benchmark rate associated with one of the policies which reduced income from BOLI during that period, as well as to an increase in income 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 acquired from CCB. Additionally, the prior year six month period 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 year six month period.

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 Six Months Ended
 
 
 
 
 
March 31,
 
Change Expressed in:
 
2019
 
2018
 
Dollars
 
Percent
 
(Dollars in thousands)
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
$
25,751

 
$
21,695

 
$
4,056

 
18.7
 %
Information technology and related expense
8,883

 
6,953

 
1,930

 
27.8

Occupancy, net
6,544

 
5,604

 
940

 
16.8

Regulatory and outside services
2,822

 
2,291

 
531

 
23.2

Advertising and promotional
2,150

 
2,022

 
128

 
6.3

Deposit and loan transaction costs
1,201

 
2,720

 
(1,519
)
 
(55.8
)
Office supplies and related expense
1,195

 
884

 
311

 
35.2

Federal insurance premium
1,187

 
1,699

 
(512
)
 
(30.1
)
Other non-interest expense
3,190

 
1,766

 
1,424

 
80.6

Total non-interest expense
$
52,923

 
$
45,634

 
$
7,289

 
16.0


The increase in salaries and employee benefits was due primarily to $3.2 million of expense related to former CCB employees during the current year six month period, as well as an increase due to salary adjustments. The increase in information technology and related expense was due mainly to an increase in software licensing, costs related to the integration of CCB operations, and accelerated depreciation related to the implementation of enhancements to the Bank's information technology infrastructure. 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 an increase in consulting expenses as well as expenses related to the acquisition of CCB. 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 in the current year six month period. The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB.

The Company's efficiency ratio was 45.89% for the current year six month period compared to 41.47% for the prior year six month period. The change in the efficiency ratio was due to higher non-interest expense in the current year six month period compared to the prior year six month period.

Income Tax Expense
Income tax expense was $13.5 million for the current year six month period compared to $9.3 million for the prior year six month period. The effective tax rate was 21.6% for the current year six month period compared to 14.4% for the prior year six month period. The increase in the effective tax rate compared to the prior year six month period 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 which reduced income tax expenses by $7.5 million.

Financial Condition as of March 31, 2019
The loans receivable portfolio, net, totaled $7.57 billion at March 31, 2019 compared to $7.51 billion at September 30, 2018. During the current year six month period, the Bank originated and refinanced $268.8 million of one- to four-family and consumer loans with a weighted average rate of 4.63% and purchased $88.9 million of one- to four-family loans from correspondent lenders with a weighted average rate of 4.32%. The Bank also originated $122.7 million of commercial loans with a weighted average rate of 4.94% and

7



entered into commercial real estate loan participations totaling $72.6 million with a weighted average rate of 5.44%, of which $37.9 million had not yet been funded as of March 31, 2019.

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 15.7% at March 31, 2019. Management intends to continue to manage the size and mix of the loan portfolio by utilizing cash flows from the correspondent one- to four-family loan portfolio to fund commercial loan growth. 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.

At times, the Bank has utilized a leverage strategy to increase earnings in fiscal year 2019. The leverage strategy during the current year six month period 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 year six month period, were deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $14 thousand during the current year six month period, compared to $1.5 million during the prior year six month period. The decrease was due mainly to the strategy being suspended for the majority of the current year six month period due to the large negative interest rate spread making the strategy unprofitable. 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.

Stockholders' equity was $1.36 billion at March 31, 2019 compared to $1.39 billion at September 30, 2018. The $35.6 million decrease was due primarily to the payment of $77.1 million in cash dividends, partially offset by net income of $48.9 million. In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital. At March 31, 2019, this ratio was 12.8%. The cash dividends paid during the current year six month period totaled $0.56 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 two regular quarterly cash dividends totaling $0.17 per share. On April 17, 2019, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on May 17, 2019 to stockholders of record as of the close of business on May 3, 2019.

At March 31, 2019, Capitol Federal Financial, Inc., at the holding company level, had $102.7 million on deposit at the Bank. For fiscal year 2019, it is the intent of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's 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.

The Company has $70.0 million of common stock authorized under its stock repurchase plan. Shares may be repurchased from time to time based upon market conditions and available liquidity. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.

The following table presents the balance of stockholders' equity and related information as of the dates presented.
 
March 31,
 
September 30,
 
March 31,
 
2019
 
2018
 
2018
 
(Dollars in thousands)
Stockholders' equity
$
1,355,983

 
$
1,391,622

 
$
1,364,740

Equity to total assets at end of period
14.2
%
 
14.7
%
 
15.0
%

The following table presents a reconciliation of total to net shares outstanding as of March 31, 2019.
Total shares outstanding
141,279,239

Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock
(3,601,308
)
Net shares outstanding
137,677,931


8




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 March 31, 2019, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at March 31, 2019.
 
 
 
Regulatory
 
 
 
Requirement For
 
Bank
 
Well-Capitalized
 
Ratios
 
Status
Tier 1 leverage ratio
12.9%
 
5.0
%
Common equity tier 1 capital ratio
24.7
 
6.5

Tier 1 capital ratio
24.7
 
8.0

Total capital ratio
24.8
 
10.0


The following table presents a reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of March 31, 2019 (dollars in thousands):
Total Bank equity as reported under GAAP
$
1,216,532

Accumulated Other Comprehensive Income ("AOCI")
5,416

Goodwill and other intangibles, net of deferred tax liabilities
(14,641
)
Total tier 1 capital
1,207,307

ACL
8,619

Total capital
$
1,215,926


Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 54 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
(785) 231-6360
 
 

9




SUPPLEMENTAL FINANCIAL INFORMATION
 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
March 31,
 
September 30,
 
2019
 
2018
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $199,476 and $122,733)
$
218,051

 
$
139,055

Securities:
 
 
 
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $741,975 and $718,564)
746,728

 
714,614

Held-to-maturity, at amortized cost (estimated fair value of $526,099 and $601,071)
527,460

 
612,318

Loans receivable, net (ACL of $8,619 and $8,463)
7,570,806

 
7,514,485

FHLB stock, at cost
102,631

 
99,726

Premises and equipment, net
96,492

 
96,005

Income taxes receivable, net

 
2,177

Other assets
272,383

 
271,167

TOTAL ASSETS
$
9,534,551

 
$
9,449,547

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
5,701,111

 
$
5,603,354

FHLB borrowings
2,239,985

 
2,174,981

Other borrowings
100,000

 
110,052

Advance payments by borrowers for taxes and insurance
48,301

 
65,264

Income taxes payable, net
115

 

Deferred income tax liabilities, net
17,375

 
21,253

Accounts payable and accrued expenses
71,681

 
83,021

Total liabilities
8,178,568

 
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, 141,279,239 and 141,225,516
 
 
 shares issued and outstanding as of March 31, 2019 and September 30, 2018, respectively
1,413

 
1,412

Additional paid-in capital
1,208,665

 
1,207,644

Unearned compensation, ESOP
(35,517
)
 
(36,343
)
Retained earnings
186,838

 
214,569

AOCI, net of tax
(5,416
)
 
4,340

Total stockholders' equity
1,355,983

 
1,391,622

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,534,551

 
$
9,449,547


10



 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
 
For the Three Months Ended
 
For the Six Months Ended
 
March 31,
 
December 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
71,657

 
$
70,772

 
$
142,429

 
$
128,383

MBS
6,301

 
6,523

 
12,824

 
10,642

FHLB stock
1,831

 
1,971

 
3,802

 
6,296

Investment securities
1,505

 
1,441

 
2,946

 
2,088

Cash and cash equivalents
743

 
1,714

 
2,457

 
15,009

Total interest and dividend income
82,037

 
82,421

 
164,458

 
162,418

 
 
 
 
 
 
 
 
INTEREST EXPENSE:
 
 
 
 
 
 
 
Deposits
16,096

 
15,725

 
31,821

 
24,441

FHLB borrowings
12,525

 
13,530

 
26,055

 
36,689

Other borrowings
819

 
865

 
1,684

 
2,025

Total interest expense
29,440

 
30,120

 
59,560

 
63,155

 
 
 
 
 
 
 
 
NET INTEREST INCOME
52,597

 
52,301

 
104,898

 
99,263

 
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES

 

 

 

NET INTEREST INCOME AFTER
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
52,597

 
52,301

 
104,898

 
99,263

 
 
 
 
 
 
 
 
NON-INTEREST INCOME:
 
 
 
 
 
 
 
Deposit service fees
3,091

 
3,352

 
6,443

 
7,635

Income from BOLI
587

 
635

 
1,222

 
810

Other non-interest income
1,323

 
1,437

 
2,760

 
2,346

Total non-interest income
5,001

 
5,424

 
10,425

 
10,791

 
 
 
 
 
 
 
 
NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
12,789

 
12,962

 
25,751

 
21,695

Information technology and related expense
4,284

 
4,599

 
8,883

 
6,953

Occupancy, net
3,292

 
3,252

 
6,544

 
5,604

Regulatory and outside services
1,056

 
1,766

 
2,822

 
2,291

Advertising and promotional
1,390

 
760

 
2,150

 
2,022

Deposit and loan transaction costs
465

 
736

 
1,201

 
2,720

Office supplies and related expense
736

 
459

 
1,195

 
884

Federal insurance premium
659

 
528

 
1,187

 
1,699

Other non-interest expense
1,470

 
1,720

 
3,190

 
1,766

Total non-interest expense
26,141

 
26,782

 
52,923

 
45,634

INCOME BEFORE INCOME TAX EXPENSE
31,457

 
30,943

 
62,400

 
64,420

INCOME TAX EXPENSE
6,903

 
6,560

 
13,463

 
9,254

NET INCOME
$
24,554

 
$
24,383

 
$
48,937

 
$
55,166


11



The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.
 
For the Three Months Ended
 
For the Six Months Ended
 
March 31,
 
December 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
(Dollars in thousands, except per share amounts)
Net income
$
24,554

 
$
24,383

 
$
48,937

 
$
55,166

Income allocated to participating securities
(10
)
 
(9
)
 
(19
)
 
(23
)
Net income available to common stockholders
$
24,544

 
$
24,374

 
$
48,918

 
$
55,143

 
 
 
 
 
 
 
 
Average common shares outstanding
137,593,062

 
137,550,471

 
137,571,533

 
134,379,424

Average committed ESOP shares outstanding
41,758

 
449

 
20,876

 
20,876

Total basic average common shares outstanding
137,634,820

 
137,550,920

 
137,592,409

 
134,400,300

 
 
 
 
 
 
 
 
Effect of dilutive stock options
55,897

 
41,459

 
48,717

 
70,959

 
 
 
 
 
 
 
 
Total diluted average common shares outstanding
137,690,717

 
137,592,379

 
137,641,126

 
134,471,259

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.18

 
$
0.36

 
$
0.41

Diluted
$
0.18

 
$
0.18

 
$
0.36

 
$
0.41

 
 
 
 
 
 
 
 
Antidilutive stock options, excluded from the diluted
 
 
 
 
 
 
average common shares outstanding calculation
494,395

 
550,021

 
529,261

 
527,642




12



Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
 
 
 
 
% of
 
 
 
 
 
% of
 
 
 
 
 
% of
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
Amount
 
Rate
 
Total
 
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated
$
3,922,565

 
3.78
%
 
51.9
%
 
$
3,955,975

 
3.77
%
 
52.6
%
 
$
3,965,692

 
3.74
%
 
52.8
%
Correspondent purchased
2,470,619

 
3.63

 
32.7

 
2,491,692

 
3.61

 
33.2

 
2,505,987

 
3.59

 
33.4

Bulk purchased
272,575

 
2.77

 
3.6

 
279,719

 
2.67

 
3.7

 
293,607

 
2.60

 
3.9

Construction
33,525

 
4.38

 
0.4

 
33,443

 
4.08

 
0.4

 
33,149

 
4.03

 
0.4

Total
6,699,284

 
3.68

 
88.6

 
6,760,829

 
3.67

 
89.9

 
6,798,435

 
3.64

 
90.5

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
547,202

 
4.48

 
7.2

 
463,317

 
4.36

 
6.2

 
426,243

 
4.33

 
5.7

Commercial and industrial
73,852

 
5.25

 
1.0

 
61,221

 
5.19

 
0.8

 
62,869

 
5.00

 
0.9

Construction
108,649

 
4.76

 
1.4

 
93,244

 
4.74

 
1.2

 
80,498

 
4.59

 
1.1

Total
729,703

 
4.60

 
9.6

 
617,782

 
4.50

 
8.2

 
569,610

 
4.44

 
7.7

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
125,176

 
6.38

 
1.7

 
129,795

 
6.20

 
1.8

 
129,588

 
5.97

 
1.7

Other
9,913

 
4.52

 
0.1

 
10,481

 
4.51

 
0.1

 
10,012

 
4.59

 
0.1

Total
135,089

 
6.24

 
1.8

 
140,276

 
6.07

 
1.9

 
139,600

 
5.87

 
1.8

Total loans receivable
7,564,076

 
3.82

 
100.0
%
 
7,518,887

 
3.78

 
100.0
%
 
7,507,645

 
3.74

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ACL
8,619

 
 
 
 
 
8,558

 
 
 
 
 
8,463

 
 
 
 
Discounts/unearned loan fees
32,582

 
 
 
 
 
33,139

 
 
 
 
 
33,933

 
 
 
 
Premiums/deferred costs
(47,931
)
 
 
 
 
 
(48,590
)
 
 
 
 
 
(49,236
)
 
 
 
 
Total loans receivable, net
$
7,570,806

 
 
 
 
 
$
7,525,780

 
 
 
 
 
$
7,514,485

 
 
 
 




13



Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-off as a result of refinances and loans that 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
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,518,887

 
3.78
%
 
$
7,507,645

 
3.74
%
 
$
7,226,169

 
3.66
%
 
$
7,187,742

 
3.63
%
Originated and refinanced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
78,678

 
4.58

 
116,032

 
4.59

 
117,904

 
4.44

 
143,059

 
4.21

Adjustable
123,006

 
4.80

 
73,711

 
4.98

 
56,996

 
4.55

 
54,385

 
4.42

Purchased and participations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
35,387

 
5.46

 
72,140

 
4.60

 
80,138

 
4.40

 
78,650

 
4.04

Adjustable
11,331

 
4.01

 
42,651

 
4.88

 
20,105

 
3.92

 
30,017

 
3.49

Loans added in CCB acquisition, net

 

 

 

 
299,659

 
4.77

 

 

Change in undisbursed loan funds
30,500

 
 
 
(25,315
)
 
 
 
(8,104
)
 
 
 
19,808

 
 
Repayments
(233,625
)
 
 
 
(267,469
)
 
 
 
(284,927
)
 
 
 
(286,923
)
 
 
Principal recoveries (charge-offs), net
61

 
 
 
95

 
 
 
119

 
 
 
(46
)
 
 
Other
(149
)
 
 
 
(603
)
 
 
 
(414
)
 
 
 
(523
)
 
 
Ending balance
$
7,564,076

 
3.82

 
$
7,518,887

 
3.78

 
$
7,507,645

 
3.74

 
$
7,226,169

 
3.66

 
For the Six Months Ended
 
March 31, 2019
 
March 31, 2018
 
Amount
 
Rate
 
Amount
 
Rate
 
(Dollars in thousands)
Beginning balance
$
7,507,645

 
3.74
%
 
$
7,182,751

 
3.61
%
Originated and refinanced:
 
 
 
 
 
 
 
Fixed
194,710

 
4.58

 
186,927

 
3.74

Adjustable
196,717

 
4.87

 
74,114

 
4.27

Purchased and participations:
 
 
 
 
 
 
 
Fixed
107,527

 
4.88

 
205,720

 
3.80

Adjustable
53,982

 
4.70

 
112,751

 
3.76

Change in undisbursed loan funds
5,185

 
 
 
(42,708
)
 
 
Repayments
(501,094
)
 
 
 
(530,774
)
 
 
Principal recoveries (charge-offs), net
156

 
 
 
(8
)
 
 
Other
(752
)
 
 
 
(1,031
)
 
 
Ending balance
$
7,564,076

 
3.82

 
$
7,187,742

 
3.63


14



The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. 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 Six Months Ended
 
March 31, 2019
 
March 31, 2019
 
Amount
 
Rate
 
% of Total
 
Amount
 
Rate
 
% of Total
Fixed-rate:
(Dollars in thousands)
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 15 years
$
13,873

 
4.25
%
 
5.5
%
 
$
36,928

 
4.21
%
 
6.7
%
> 15 years
66,993

 
4.45

 
27.0

 
173,127

 
4.53

 
31.3

One- to four-family construction
11,801

 
4.56

 
4.8

 
28,279

 
4.53

 
5.1

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
15,027

 
7.23

 
6.0

 
22,829

 
6.40

 
4.1

Commercial and industrial
3,956

 
5.29

 
1.6

 
6,358

 
5.31

 
1.2

Commercial construction

 

 

 
29,919

 
4.78

 
5.4

Home equity
1,189

 
5.83

 
0.5

 
2,383

 
6.16

 
0.4

Other
1,226

 
4.67

 
0.5

 
2,414

 
4.68

 
0.5

Total fixed-rate
114,065

 
4.85

 
45.9

 
302,237

 
4.69

 
54.7

 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
One- to four-family:
 
 
 
 
 
 
 
 
 
 
 
<= 36 months
2,459

 
3.83

 
1.0

 
7,687

 
3.76

 
1.4

> 36 months
30,068

 
4.03

 
12.1

 
63,147

 
4.03

 
11.4

One- to four-family construction
3,467

 
3.87

 
1.4

 
11,712

 
4.23

 
2.1

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
72,879

 
4.69

 
29.3

 
93,583

 
4.79

 
16.9

Commercial and industrial
11,615

 
5.35

 
4.7

 
13,950

 
5.46

 
2.5

Commercial construction

 

 

 
28,650

 
5.35

 
5.2

Home equity
13,450

 
6.42

 
5.4

 
30,876

 
6.36

 
5.6

Other
399

 
3.50

 
0.2

 
1,094

 
3.15

 
0.2

Total adjustable-rate
134,337

 
4.73

 
54.1

 
250,699

 
4.83

 
45.3

 
 
 
 
 
 
 
 
 
 
 
 
Total originated, refinanced and purchased
$
248,402

 
4.79

 
100.0
%
 
$
552,936

 
4.75

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Purchased and participation loans included above:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
$
24,611

 
4.35

 
 
 
$
63,550

 
4.46

 
 
Participations - commercial
10,776

 
8.00

 
 
 
43,977

 
5.49

 
 
Total fixed-rate purchased/participations
35,387

 
5.46

 
 
 
107,527

 
4.88

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustable-rate:
 
 
 
 
 
 
 
 
 
 
 
Correspondent - one- to four-family
11,331

 
4.01

 
 
 
25,332

 
3.97

 
 
Participations - commercial

 

 
 
 
28,650

 
5.35

 
 
Total adjustable-rate purchased/participations
11,331

 
4.01

 
 
 
53,982

 
4.70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total purchased/participation loans
$
46,718

 
5.11

 
 
 
$
161,509

 
4.82

 
 

15



One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores are updated at least semiannually, with the latest update in March 2019, 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.
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
 
 
% 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
$
3,922,565

 
58.8
%
 
768

 
62
%
 
$
138

 
$
3,955,975

 
58.8
%
 
767

 
62
%
 
$
139

 
$
3,965,692

 
58.6
%
 
767

 
62
%
 
$
138

Correspondent purchased
2,470,619

 
37.1

 
764

 
66

 
375

 
2,491,692

 
37.0

 
764

 
66

 
377

 
2,505,987

 
37.1

 
764

 
67

 
378

Bulk purchased
272,575

 
4.1

 
761

 
61

 
303

 
279,719

 
4.2

 
758

 
62

 
304

 
293,607

 
4.3

 
758

 
62

 
304

 
$
6,665,759

 
100.0
%
 
766

 
64

 
186

 
$
6,727,386

 
100.0
%
 
765

 
64

 
186

 
$
6,765,286

 
100.0
%
 
765

 
64

 
186


The following table presents originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Of the loans originated during the current quarter and current year six month period, $9.5 million and $24.9 million, respectively, were refinanced from other lenders.
 
For the Three Months Ended
 
For the Six Months Ended
 
March 31, 2019
 
March 31, 2019
 
 
 
 
 
Credit
 
 
 
 
 
Credit
 
Amount
 
LTV
 
Score
 
Amount
 
LTV
 
Score
 
(Dollars in thousands)
Originated
$
83,101

 
77
%
 
755

 
$
209,426

 
77
%
 
755

Refinanced by Bank customers
9,618

 
67

 
749

 
22,572

 
67

 
746

Correspondent purchased
35,942

 
74

 
761

 
88,882

 
74

 
762

 
$
128,661

 
76

 
756

 
$
320,880

 
75

 
756


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 six month period ended March 31, 2019.
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
March 31, 2019
 
March 31, 2019
State
 
Amount
 
% of Total
 
Rate
 
Amount
 
% of Total
 
Rate
 
 
(Dollars in thousands)
Kansas
 
$
81,867

 
63.6
%
 
4.34
%
 
$
203,627

 
63.4
%
 
4.39
%
Missouri
 
17,106

 
13.3

 
4.34

 
49,314

 
15.4

 
4.40

Texas
 
21,913

 
17.0

 
4.14

 
39,434

 
12.3

 
4.18

Other states
 
7,775

 
6.1

 
4.44

 
28,505

 
8.9

 
4.38

 
 
$
128,661

 
100.0
%
 
4.31

 
$
320,880

 
100.0
%
 
4.37


16



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 March 31, 2019, 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
$
6,346

 
$
27,123

 
$
15,135

 
$
48,604

 
4.07
%
Correspondent
805

 
45,730

 
5,475

 
52,010

 
4.51

 
$
7,151

 
$
72,853

 
$
20,610

 
$
100,614

 
4.30

 
 
 
 
 
 
 
 
 
 
Rate
3.86
%
 
4.48
%
 
3.81
%
 
 
 
 


Commercial Loans: During the current year six month period, the Bank originated $122.7 million of commercial loans and entered into commercial real estate loan participations totaling $72.6 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 March 31, 2019. During the current year six month period, the Bank funded $62.1 million of commercial real estate construction participation loans.

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 March 31, 2019. Based on the terms of the construction loans as of March 31, 2019, of the $156.8 million of undisbursed amounts in the table, which does not include outstanding commitments, $40.4 million is projected to be disbursed by June 30, 2019, and an additional $80.9 million is projected to be disbursed by March 31, 2020. 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 $439.0 million at a weighted average rate of 4.37% and adjustable-rate loans totaling $373.6 million at a weighted average rate of 4.91%. 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 March 31, 2019 having shorter terms to maturity.
 
Unpaid
 
Undisbursed
 
Gross Loan