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Section 1: 10-Q (JUNE 30, 2020 FORM 10-Q)

cffn-20200630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
Form 10-Q
________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission file number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)
Maryland27-2631712
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
700 South Kansas Avenue, Topeka,Kansas66603
(Address of principal executive offices)(Zip Code)

(785) 235-1341
(Registrant's telephone number, including area code)
_____________________________________
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
par value $0.01 per share
CFFNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer ☐  Non-accelerated filer ☐
Smaller reporting company   Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of July 31, 2020, there were 141,515,596 shares of Capitol Federal Financial, Inc. common stock outstanding.



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




PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
June 30, September 30,
20202019
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $381,946 and $198,809)
$396,219  $220,370  
Available-for-sale ("AFS") securities, at estimated fair value1,220,054  1,204,863  
Loans receivable, net (allowance for credit losses ("ACL") of $31,215 and $9,226)
7,388,090  7,416,747  
Federal Home Loan Bank Topeka ("FHLB") stock, at cost102,782  98,456  
Premises and equipment, net98,953  96,784  
Income taxes receivable, net1,655  2  
Other assets351,061  302,796  
TOTAL ASSETS$9,558,814  $9,340,018  
LIABILITIES:
Deposits$6,069,684  $5,581,867  
Borrowings1,989,089  2,239,989  
Advance payments by borrowers for taxes and insurance39,125  65,686  
Deferred income tax liabilities, net10,942  14,282  
Accounts payable and accrued expenses149,454  101,868  
Total liabilities8,258,294  8,003,692  
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding
    
Common stock, $.01 par value; 1,400,000,000 shares authorized, 141,511,716 and 141,440,030
shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively1,415  1,414  
Additional paid-in capital1,211,653  1,210,226  
Unearned compensation, Employee Stock Ownership Plan ("ESOP")(33,453) (34,692) 
Retained earnings138,496  174,277  
Accumulated other comprehensive (loss) income ("AOCI"), net of tax(17,591) (14,899) 
Total stockholders' equity1,300,520  1,336,326  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,558,814  $9,340,018  
See accompanying notes to consolidated financial statements.

3


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2020201920202019
INTEREST AND DIVIDEND INCOME:
Loans receivable$66,652  $71,434  $206,179  $213,863  
Mortgage-backed securities ("MBS")5,616  6,613  17,584  19,437  
FHLB stock1,207  1,865  4,747  5,667  
Investment securities847  1,835  3,736  4,781  
Cash and cash equivalents59  464  1,126  2,921  
Total interest and dividend income74,381  82,211  233,372  246,669  
INTEREST EXPENSE:
Deposits16,533  16,909  52,299  48,730  
Borrowings11,561  13,621  37,421  41,360  
Total interest expense28,094  30,530  89,720  90,090  
NET INTEREST INCOME46,287  51,681  143,652  156,579  
PROVISION FOR CREDIT LOSSES  450  22,300  450  
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES46,287  51,231  121,352  156,129  
NON-INTEREST INCOME:
Deposit service fees2,539  3,131  8,384  9,581  
Insurance commissions671  905  1,762  2,072  
Other non-interest income1,229  1,638  4,468  4,446  
Total non-interest income4,439  5,674  14,614  16,099  
NON-INTEREST EXPENSE:
Salaries and employee benefits13,059  13,454  39,765  39,205  
Information technology and related expense4,285  4,652  12,694  13,535  
Occupancy, net3,556  3,224  10,212  9,768  
Regulatory and outside services1,548  1,425  4,188  4,247  
Advertising and promotional1,004  1,447  3,773  3,597  
Deposit and loan transaction costs697  681  2,086  1,882  
Office supplies and related expense475  689  1,586  1,884  
Federal insurance premium287  600  287  1,787  
Other non-interest expense1,253  1,519  4,237  4,709  
Total non-interest expense26,164  27,691  78,828  80,614  
INCOME BEFORE INCOME TAX EXPENSE24,562  29,214  57,138  91,614  
INCOME TAX EXPENSE5,088  6,317  10,877  19,780  
NET INCOME$19,474  $22,897  $46,261  $71,834  
Basic earnings per share ("EPS")$0.14  $0.17  $0.34  $0.52  
Diluted EPS$0.14  $0.17  $0.34  $0.52  
Basic weighted average common shares138,018,052  137,720,480  137,961,231  137,635,099  
Diluted weighted average common shares138,018,052  137,787,528  137,992,978  137,690,434  
See accompanying notes to consolidated financial statements.
4


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2020201920202019
Net income$19,474  $22,897  $46,261  $71,834  
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on AFS securities arising during the period,
net of taxes of $(1,775), $(1,317), $(4,962) and $(3,432)
5,533  4,102  15,459  10,690  
Changes in unrealized gains (losses) on cash flow hedges,
net of taxes of $367, $3,601, $5,826 and $8,847
(1,146) (11,218) (18,151) (27,562) 
Comprehensive (loss) income$23,861  $15,781  $43,569  $54,962  
See accompanying notes to consolidated financial statements.

5


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
For the Nine Months Ended June 30, 2020
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
StockCapitalESOPEarningsAOCIEquity
Balance at September 30, 2019$1,414  $1,210,226  $(34,692) $174,277  $(14,899) $1,336,326  
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-0288  88  
Net income22,511  22,511  
Other comprehensive income, net of tax4,972  4,972  
ESOP activity169  413  582  
Restricted stock activity, net(1) (1) 
Stock-based compensation166  166  
Stock options exercised1  612  613  
Cash dividends to stockholders ($0.425 per share)
(58,663) (58,663) 
Balance at December 31, 2019$1,415  $1,211,172  $(34,279) $138,213  $(9,927) $1,306,594  
Net income4,276  4,276  
Other comprehensive loss, net of tax(12,051) (12,051) 
ESOP activity117  413  530  
Stock-based compensation152  152  
Stock options exercised25  25  
Cash dividends to stockholders ($0.085 per share)
(11,733) (11,733) 
Balance at March 31, 20201,415  1,211,466  (33,866) 130,756  (21,978) 1,287,793  
Net income19,474  19,474  
Other comprehensive income, net of tax4,387  4,387  
ESOP activity61  413  474  
Restricted stock activity, net(6) (6) 
Stock-based compensation132  132  
Cash dividends to stockholders ($0.085 per share)
(11,734) (11,734) 
Balance at June 30, 2020$1,415  $1,211,653  $(33,453) $138,496  $(17,591) $1,300,520  
(Continued)
6


For the Nine Months Ended June 30, 2019
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2018$1,412  $1,207,644  $(36,343) $214,569  $4,340  $1,391,622  
Cumulative effect of adopting ASU 2014-09394  394  
Net income24,383  24,383  
Other comprehensive loss, net of tax(6,217) (6,217) 
ESOP activity118  413  531  
Stock-based compensation95  95  
Stock options exercised1  466  467  
Cash dividends to stockholders ($0.475 per share)
(65,362) (65,362) 
Balance at December 31, 2018$1,413  $1,208,323  $(35,930) $173,984  $(1,877) $1,345,913  
Net income24,554  24,554  
Other comprehensive loss, net of tax(3,539) (3,539) 
ESOP activity134  413  547  
Stock-based compensation90  90  
Stock options exercised118  118  
Cash dividends to stockholders ($0.085 per share)
(11,700) (11,700) 
Balance at March 31, 20191,413  1,208,665  (35,517) 186,838  (5,416) 1,355,983  
Net income22,897  22,897  
Other comprehensive loss, net of tax(7,116) (7,116) 
ESOP activity147  413  560  
Stock-based compensation167  167  
Stock options exercised1  761  762  
Cash dividends to stockholders ($0.335 per share)
(46,154) (46,154) 
Balance at June 30, 2019$1,414  $1,209,740  $(35,104) $163,581  $(12,532) $1,327,099  
See accompanying notes to consolidated financial statements.

7


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
June 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$46,261  $71,834  
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends(4,747) (5,667) 
Provision for credit losses22,300  450  
Amortization and accretion of premiums and discounts on securities999  959  
Depreciation and amortization of premises and equipment6,812  6,907  
Amortization of intangible assets1,493  1,766  
Amortization of deferred amounts related to FHLB advances, net315  6  
Common stock committed to be released for allocation - ESOP1,586  1,638  
Stock-based compensation450  352  
Changes in:
Unrestricted cash collateral (provided to)/received from derivative counterparties, net  (9,970) 
Other assets, net5,049  2,962  
Income taxes payable/receivable, net(1,649) 1,679  
Deferred income tax liabilities, net(2,507) (699) 
Accounts payable and accrued expenses(7,225) (16,691) 
Net cash provided by operating activities69,137  55,526  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities(465,764) (286,488) 
Proceeds from calls, maturities and principal reductions of AFS securities469,995  246,648  
Proceeds from calls, maturities and principal reductions of held-to-maturity ("HTM") securities  126,684  
Proceeds from the redemption of FHLB stock421  102,554  
Purchase of FHLB stock  (97,270) 
Net change in loans receivable6,120  5,533  
Purchase of premises and equipment(9,422) (8,846) 
Proceeds from sale of other real estate owned ("OREO")993  1,624  
Proceeds from bank-owned life insurance ("BOLI") death benefit490    
Net cash provided by investing activities2,833  90,439  
(Continued)
8


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
June 30,
20202019
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid(82,130) (123,216) 
Net change in deposits487,817  (22,483) 
Proceeds from borrowings1,325,600  3,043,700  
Repayments on borrowings(1,572,600) (3,088,752) 
Change in advance payments by borrowers for taxes and insurance(26,561) (25,495) 
Payment of FHLB prepayment penalties(4,215)   
Stock options exercised638  1,347  
Net cash provided by (used in) financing activities128,549  (214,899) 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS200,519  (68,934) 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:
Beginning of period253,700  139,055  
End of period$454,219  $70,121  
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Operating lease right-of-use assets obtained$16,841  $  
Operating lease liabilities obtained$16,726  $ &