Capitol Federal Financial, Inc.® Reports Second Quarter Fiscal Year 2019 Results

TOPEKA, Kan.--()--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.

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.

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.

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 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.

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.

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 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  
 

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.

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  
 
 
 
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  
 
 

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  
 
 

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  
 

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
 

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
 

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
 

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       Outstanding             % of
Principal Amount Amount Commitments Total Total
(Dollars in thousands)
 
Health care and social assistance $ 194,571 $ 54,405 $ 248,976 $ $ 248,976 30.4 %
Real estate rental and leasing 144,881 43,160 188,041 40 188,081 23.0
Accommodation and food services 158,439 27,006 185,445 185,445 22.7
Multi-family 41,538 28,848 70,386 184 70,570 8.6
Retail trade 38,872 2,092 40,964 5,900 46,864 5.7
Arts, entertainment, and recreation 35,568 35,568 35,568 4.3
Other 41,982   1,257   43,239     43,239   5.3  
$ 655,851   $ 156,768   $ 812,619   $ 6,124   $ 818,743   100.0 %
 
Weighted average rate 4.53 % 5.01 % 4.62 % 5.13 % 4.63 %
 

The following table summarizes the Bank's commercial real estate loans and loan commitments by state as of March 31, 2019.

      Unpaid       Undisbursed       Gross Loan       Outstanding             % of
Principal Amount Amount Commitments Total Total
(Dollars in thousands)
 
Kansas $ 251,540 $ 18,188 $ 269,728 $ 164 $ 269,892 33.0 %
Missouri 184,615 52,014 236,629 60 236,689 28.9
Texas 148,354 56,981 205,335 5,900 211,235 25.8
Nebraska 22,295 11,604 33,899 33,899 4.1
Kentucky 9,167 16,392 25,559 25,559 3.1
Colorado 9,046 9,046 9,046 1.1
Other 30,834   1,589   32,423     32,423   4.0  
$ 655,851   $ 156,768   $ 812,619   $ 6,124   $ 818,743   100.0 %
 

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of March 31, 2019.

      Unpaid       Undisbursed       Gross Loan       Outstanding             % of
Principal Amount Amount Commitments Total Total
(Dollars in thousands)
Working capital $ 46,768 $ 17,001 $ 63,769 $ 7,819 $ 71,588 70.5 %
Equipment 17,409 931 18,340 895 19,235 18.9
Small Business Administration 4,187 353 4,540 4,540 4.5
Auto lease 3,589 309 3,898 3,898 3.8
Other 1,899   399   2,298     2,298   2.3  
$ 73,852   $ 18,993   $ 92,845   $ 8,714   $ 101,559   100.0 %
 

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of March 31, 2019.

            Amount
(Dollars in thousands)
 
Greater than $30 million $ 186,298
>$15 to $30 million 242,096
>$10 to $15 million 59,429
>$5 to $10 million 94,324
$1 to $5 million 188,600
Less than $1 million 149,555
$ 920,302
 
 

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO as of the dates indicated. Of the loans 30 to 89 days delinquent at March 31, 2019, approximately 67% were 59 days or less delinquent. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure, and nonaccrual loans that are less than 90 days delinquent but are required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements even if the loans are current. Non-performing assets include non-performing loans and OREO. Over the past 12 months, OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately four months before they were sold.

      Loans Delinquent for 30 to 89 Days at:
March 31, 2019     December 31, 2018     September 30, 2018     June 30, 2018     March 31, 2018
Number     Amount Number     Amount Number     Amount Number     Amount Number     Amount
(Dollars in thousands)
One- to four-family:
Originated 79 $ 8,694 118 $ 9,765 129 $ 10,647 104 $ 7,639 106 $ 8,476
Correspondent purchased 13 4,133 10 1,969 18 3,803 6 1,757 5 744
Bulk purchased 13 2,722 15 2,780 15 3,502 16 3,773 17 4,182
Commercial 13 1,361 2 64 6 322 1 40
Consumer 37   481   42   744   38   533   30   363   24   356  
155   $ 17,391   187   $ 15,322   206   $ 18,807   157   $ 13,572   152   $ 13,758  

30 to 89 days delinquent loans to total loans receivable, net

0.23 % 0.20 % 0.25 % 0.19 % 0.19 %
 
     
Non-Performing Loans and OREO at:
March 31, 2019     December 31, 2018     September 30, 2018     June 30, 2018     March 31, 2018
Number     Amount Number     Amount Number     Amount Number     Amount Number     Amount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated 67 $ 5,172 69 $ 5,301 67 $ 5,040 64 $ 5,043 67 $ 6,434
Correspondent purchased 3 918 5 1,093 1 449 4 863 4 1,151
Bulk purchased 10 2,782 10 3,137 11 3,045 8 2,597 12 3,325
Commercial
Consumer 27   567   28   513   30   569   27   425   28   428  
107 9,439 112 10,044 109 9,103 103 8,928 111 11,338
 

Loans 90 or more days delinquent or in foreclosure as a percentage of total loans

0.12 % 0.13 % 0.12 % 0.12 % 0.16 %
 
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated 18 $ 1,761 17 $ 1,584 19 $ 1,482 24 $ 2,469 27 $ 2,961
Correspondent purchased 1 298 2 396 1 95
Bulk purchased 1 340 1 342
Commercial 2 1,712 2 1,776
Consumer 3   14   3   13   2   9   4   68   3   55  
23   3,487   23   3,671   23   1,887   30   2,972   31   3,358  
Total non-performing loans 130 12,926 135 13,715 132 10,990 133 11,900 142 14,696
 
Non-performing loans as a percentage of total loans 0.17 % 0.18 % 0.15 % 0.16 % 0.20 %
 
OREO:
One- to four-family:
Originated(2) 5 $ 549 4 $ 588 8 $ 843 4 $ 208 2 $ 232
Bulk purchased 1 322 1 322 1 454 2 689 1 454
Commercial 1 600 1 600 1 600
Consumer                    
7   1,471   6   1,510   10   1,897   6   897   3   686  
Total non-performing assets 137   $ 14,397   141   $ 15,225   142   $ 12,887   139   $ 12,797   145   $ 15,382  
 
Non-performing assets as a percentage of total assets 0.15 % 0.16 % 0.14 % 0.14 % 0.17 %
 
(1)     Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements even if the loans are current.
(2) Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.
 

The following tables present ACL activity and related ratios at the dates and for the periods indicated.

      For the Three Months Ended
March 31,       December 31,       September 30,       June 30,       March 31,
2019 2018 2018 2018 2018
(Dollars in thousands)
 
Balance at beginning of period $ 8,558 $ 8,463 $ 8,344 $ 8,390 $ 8,370
Charge-offs:
One- to four-family (10 ) (46 ) (14 ) (51 ) (196 )
Commercial
Consumer (2 ) (10 )   (3 ) (4 )
Total charge-offs (12 ) (56 ) (14 ) (54 ) (200 )
Recoveries:
One- to four-family 19 92 123 4 213
Commercial 25 2
Consumer 29   57   10   4   7  
Total recoveries 73   151   133   8   220  
Net recoveries (charge-offs) 61 95 119 (46 ) 20
Provision for credit losses          
Balance at end of period $ 8,619   $ 8,558   $ 8,463   $ 8,344   $ 8,390  
 

Ratio of net charge-offs during the period to average loans outstanding during the period

% % % % %

Ratio of net (recoveries) charge-offs during the period to average non-performing assets

(0.41 ) (0.68 ) (0.93 ) 0.33 (0.13 )
ACL to non-performing loans at end of period 66.68 62.40 77.01 70.12 57.09
ACL to loans receivable, net at end of period 0.11 0.11 0.11 0.12 0.12
ACL to net charge-offs (annualized) N/M(1) N/M(1) N/M(1)

45.3

x

N/M(1)
 
              For the Six Months Ended
March 31,
2019           2018
(Dollars in thousands)
 
Balance at beginning of period $ 8,463 $ 8,398
Charge-offs:
One- to four-family (56 ) (199 )
Commercial
Consumer (12 ) (35 )
Total charge-offs (68 ) (234 )
Recoveries:
One- to four-family 111 213
Commercial 27
Consumer 86   13  
Total recoveries 224   226  
Net recoveries (charge-offs) 156 (8 )
Provision for credit losses    
Balance at end of period $ 8,619   $ 8,390  
 

Ratio of net charge-offs during the period to average loans outstanding during the period

% %

Ratio of net (recoveries) charge-offs during the period to average non-performing assets

(1.14 ) 0.04
ACL to net charge-offs (annualized) N/M(1)

560.5

x

 
(1)     This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.
 

The distribution of our ACL at the dates indicated is summarized below. Each quarter, we prepare a formula analysis model which segregates the loan portfolio into categories based on certain risk characteristics. Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model. The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. The historical loss factors and qualitative factors continue to improve for our one- to four-family portfolio. To the extent the commercial loan portfolio continues to grow and the inherent loss factors remain relatively constant, the related ACL amounts are expected to increase as well. In addition to the formula analysis model, management considers several other internal and external data elements when evaluating the overall adequacy of the ACL. Management considers the overall ACL to be adequate for the loan portfolio at March 31, 2019.

      At
March 31,       December 31,       September 30,       June 30,       March 31,
2019 2018 2018 2018 2018
(Dollars in thousands)
One- to four-family:
Originated $ 2,157 $ 2,740 $ 2,933 $ 3,008 $ 3,134
Correspondent purchased 1,392 1,748 1,861 1,923 2,034
Bulk purchased 802 836 925 1,000 1,000
Construction 16   21   20   21   22  
Total 4,367   5,345   5,739   5,952   6,190  
Commercial:
Commercial real estate 2,783 2,056 1,801 1,784 1,778
Commercial and industrial 224 55 21
Construction 1,081   923   734   446   260  
Total 4,088   3,034   2,556   2,230   2,038  
Consumer 164   179   168   162   162  
Total $ 8,619   $ 8,558   $ 8,463   $ 8,344   $ 8,390  
 

Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, replaces the current incurred loss impairment methodology in GAAP. The new impairment methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans and loan commitments, over their contractual lives. This ASU is effective for the Company on October 1, 2020. The Company is working with a third-party vendor solution to implement the new impairment methodology. While we are currently unable to reasonably estimate the impact of adopting this ASU, we expect the impact of adoption will be influenced by the composition of our loan and securities portfolios as well as the economic conditions and forecasts at the time of adoption.

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 76% of our securities portfolio at March 31, 2019. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

      March 31, 2019       December 31, 2018       September 30, 2018
Amount       Yield       WAL Amount       Yield       WAL Amount       Yield       WAL
(Dollars in thousands)
Fixed-rate securities:
MBS $ 671,771 2.47 % 3.2 $ 685,636 2.44 % 3.1 $ 732,095 2.43 % 3.0
U.S. government-sponsored enterprise debentures 268,375 2.44 1.0 243,550 2.20 1.8 268,525 2.09 2.3
Municipal bonds 21,155   1.61   1.3   22,845   1.57   1.6   24,574   1.56   1.8  
Total fixed-rate securities 961,301 2.44 2.6 952,031 2.35 2.8 1,025,194 2.32 2.8
 
Adjustable-rate securities:
MBS 308,134   3.12   4.9   284,584   3.07   4.9   305,688   2.89   4.5  
Total securities portfolio $ 1,269,435   2.61 3.1 $ 1,236,615   2.52 3.3 $ 1,330,882   2.45 3.2
 

MBS: The following table summarizes the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WAL is the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.

      For the Three Months Ended
March 31, 2019     December 31, 2018     September 30, 2018     June 30, 2018
Amount     Yield     WAL Amount     Yield     WAL Amount     Yield     WAL Amount     Yield     WAL
(Dollars in thousands)
 
Beginning balance - carrying value $ 972,543 2.62 % 3.6 $ 1,036,990 2.57 % 3.4 $ 958,269 2.46 % 3.7 $ 982,405 2.39 % 3.8
Maturities and repayments (62,702 ) (67,214 ) (77,985 ) (69,843 )
Net amortization of (premiums)/discounts (310 ) (349 ) (624 ) (702 )
Purchases:
Fixed 28,921 2.89 5.1 74,178 3.11 3.7 24,348 2.90 3.7
Adjustable 43,776 2.69 4.3 23,544 2.35 3.0
Securities added in CCB acquisition, net 85,741 3.13 2.5
Change in valuation on AFS securities 3,066       3,116       (2,589 )     (1,483 )    
Ending balance - carrying value $ 985,294   2.67 3.7 $ 972,543   2.62 3.6 $ 1,036,990   2.57 3.4 $ 958,269   2.46 3.7
 
      For the Six Months Ended
March 31, 2019       March 31, 2018
Amount       Yield       WAL Amount       Yield       WAL
(Dollars in thousands)
 
Beginning balance - carrying value $ 1,036,990 2.57 % 3.4 $ 942,447 2.28 % 3.5
Maturities and repayments (129,916 ) (129,636 )
Net amortization of (premiums)/discounts (659 ) (1,642 )
Purchases:
Fixed 28,921 2.89 5.1 103,345 2.80 4.5
Adjustable 43,776 2.69 4.3 70,484 2.44 4.6
Change in valuation on AFS securities 6,182       (2,593 )    
Ending balance - carrying value $ 985,294   2.67 3.7 $ 982,405   2.39 3.8
 

Investment Securities: The following table summarizes the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.

      For the Three Months Ended
March 31, 2019     December 31, 2018     September 30, 2018     June 30, 2018
Amount     Yield     WAL Amount     Yield     WAL Amount     Yield     WAL Amount     Yield     WAL
(Dollars in thousands)
 
Beginning balance - carrying value $ 264,782 2.14 % 1.8 $ 289,942 2.05 % 2.2 $ 261,614 1.95 % 2.2 $ 293,113 1.61 % 1.5
Maturities, calls and sales (76,635 ) (26,665 ) (2,010 ) (71,700 )
Net amortization of (premiums)/discounts (39 ) (39 ) (48 ) (43 )
Purchases:
Fixed 99,809 2.67 0.7 24,996 3.01 3.0 40,564 3.02 2.1
Securities added in CCB acquisition, net 5,855 2.12 1.0
Change in valuation on AFS securities 977       1,544       (465 )     (320 )    
Ending balance - carrying value $ 288,894   2.38 1.0 $ 264,782   2.14 1.8 $ 289,942   2.05 2.2 $ 261,614   1.95 2.2
 
      For the Six Months Ended
March 31, 2019       March 31, 2018
Amount       Yield       WAL Amount       Yield       WAL
(Dollars in thousands)
 
Beginning balance - carrying value $ 289,942 2.05 % 2.2 $ 301,122 1.33 % 1.5
Maturities, calls and sales (103,300 ) (56,128 )
Net amortization of (premiums)/discounts (78 ) (91 )
Purchases:
Fixed 99,809 2.67 0.7 50,000 2.63 1.0
Change in valuation on AFS securities 2,521       (1,790 )    
Ending balance - carrying value $ 288,894   2.38 1.0 $ 293,113   1.61 1.5
 
 

Deposit Portfolio

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio at the dates presented. Total deposits increased $143.2 million, or 2.6%, during the current quarter. The deposit growth during the current quarter was primarily in retail/business certificates of deposit, due mainly to the President's Day certificate of deposit campaign in February, along with increases in interest-bearing checking and money market accounts.

      March 31, 2019       December 31, 2018       September 30, 2018
            % of             % of             % of
Amount Rate Total Amount Rate Total Amount Rate Total
(Dollars in thousands)
Non-interest-bearing checking $ 361,126 % 6.3 % $ 348,867 % 6.3 % $ 336,454 % 6.0 %
Interest-bearing checking 768,856 0.08 13.5 729,712 0.07 13.1 724,066 0.08 12.9
Savings 361,204 0.06 6.3 350,089 0.06 6.3 352,896 0.07 6.3
Money market 1,287,753 0.72 22.6 1,256,302 0.72 22.6 1,252,881 0.47 22.4
Retail/business certificates of deposit 2,522,044 1.93 44.3 2,479,614 1.86 44.6 2,529,368 1.79 45.1
Public unit certificates of deposit 400,128   2.22   7.0   393,280   2.07   7.1   407,689   1.89   7.3  
$ 5,701,111   1.19 100.0 % $ 5,557,864   1.15 100.0 % $ 5,603,354   1.06 100.0 %
 

The following table presents scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, as of March 31, 2019.

      Amount Due            
      More than       More than      
1 year 1 year to 2 years to 3 More than Total
Rate range or less 2 years years 3 years Amount Rate
(Dollars in thousands)
 
0.00 – 0.99% $ 87,392 $ 2,760 $ 1,782 $ 14 $ 91,948 0.71 %
1.00 – 1.99% 839,010 453,054 256,789 112,435 1,661,288 1.72
2.00 – 2.99% 446,257 227,832 119,053 375,555 1,168,697 2.43
3.00 – 3.99%       239   239   3.00  
$ 1,372,659   $ 683,646   $ 377,624   $ 488,243   $ 2,922,172   1.97
 
Percent of total 47.0 % 23.4 % 12.9 % 16.7 %
Weighted average rate 1.83 1.97 2.04 2.34
Weighted average maturity (in years) 0.5 1.4 2.5 3.6 1.5
Weighted average maturity for the retail/business certificate of deposit portfolio (in years) 1.6
 
 

Borrowings

The following table presents the maturity of term borrowings (including FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of March 31, 2019.

      FHLB Advances Amount       Repurchase            
Maturity by       Interest rate Agreements Contractual Effective
Fiscal Year Fixed-rate swaps(1) Amount Rate Rate(2)
(Dollars in thousands)
 
2019 $ 200,000 $ 375,000 $ 2.25 2.29
2020 350,000 265,000 100,000 2.32 2.25
2021 550,000 2.27 2.27
2022 200,000 2.23 2.23
2023 100,000 1.82 1.82
2024 100,000       3.39   3.39  
$ 1,500,000   $ 640,000   $ 100,000   2.31 2.29
 
(1)     Represents 12-month adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed each year until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 4.9 years at March 31, 2019.
(2) The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.
 

As of March 31, 2019, the Bank had $100.0 million outstanding on its FHLB line of credit which was not related to the leverage strategy. The average rate paid on FHLB line of credit borrowings during the current year six month period was 2.55%.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/business and public unit amounts, and term borrowings for the next four quarters as of March 31, 2019.

      Retail/Business             Public Unit             Term                  
Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing Repricing
Quarter End Amount Rate Amount Rate Amount Rate Total Rate
(Dollars in thousands)
 
June 30, 2019 $ 237,478 1.36 % $ 152,706 2.13 % $ 200,000 2.11 % $ 590,184 1.81 %
September 30, 2019 277,646 1.71 82,022 2.00 375,000 2.38 734,668 2.09
December 31, 2019 321,600 1.91 59,450 2.23 350,000 2.40 731,050 2.17
March 31, 2020 211,991   1.84   29,766   2.71   65,000   2.57   306,757   2.08  
$ 1,048,715   1.72 $ 323,944   2.17 $ 990,000   2.35 $ 2,362,659   2.04
 

The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.

      For the Three Months Ended
March 31, 2019     December 31, 2018     September 30, 2018     June 30, 2018
    Effective         Effective         Effective         Effective    
Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM
(Dollars in thousands)
 
Beginning balance $ 2,181,186 2.31 % 3.0 $ 2,185,052 2.17 % 2.9 $ 2,175,000 2.10 % 2.7 $ 2,175,000 2.09 % 2.4
Maturities:
FHLB advances (300,000 ) 1.73 (275,000 ) 2.17 (100,000 ) 2.82
CCB acquisition - junior subordinated debentures assumed (redeemed) (6,186 ) 10.60 11.5 (3,866 ) 5.82 13.5 10,052 8.75 12.7
New FHLB borrowings:
Fixed-rate 100,000 3.39 5.0
Interest rate swaps(1) 65,000   2.57   5.0   200,000   2.46   3.5   275,000   2.53   5.6   100,000   2.92   10.0
Ending balance $ 2,240,000   2.29 2.8 $ 2,181,186   2.31 3.0 $ 2,185,052   2.17 2.9 $ 2,175,000   2.10 2.7
 
      For the Six Months Ended
March 31, 2019       March 31, 2018
      Effective             Effective      
Amount Rate WAM Amount Rate WAM
(Dollars in thousands)
 
Beginning balance $ 2,185,052 2.17 % 2.9 $ 2,375,000 2.16 % 2.7
Maturities:
FHLB advances (300,000 ) 1.73 (100,000 ) 2.53
Repurchase agreements (100,000 ) 3.35
CCB acquisition - junior subordinated debentures assumed (redeemed) (10,052 ) 8.76 12.3
New FHLB borrowings:
Fixed-rate 100,000 3.39 5.0
Interest rate swaps(1) 265,000   2.49   3.9      
Ending balance $ 2,240,000   2.29 2.8 $ 2,175,000   2.09 2.4
 
(1)     Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps.
 
 

Average Rates and Lives

At March 31, 2019, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $433.5 million, or 4.54% of total assets, compared to $100.6 million, or 1.08% of total assets, at December 31, 2018. The increase in the one-year gap amount was due primarily to an expected increase in cash flows from mortgage-related assets compared to December 31, 2018 as a result of lower interest rates. As interest rates fall, borrowers have more economic incentive to refinance their mortgages and agency debt issuers have more economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in higher projected cash flows on these assets.

The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of March 31, 2019, the Bank's one-year gap is projected to be $(271.1) million, or (2.84)% of total assets. This compares to a one-year gap of $(419.2) million, or (4.51)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2018. The decrease in the gap compared to no change in rates is due to lower anticipated cash flows in the higher rate environment.

During the current quarter, loan repayments totaled $233.6 million and cash flows from the securities portfolio totaled $139.3 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from fixed-rate liabilities that matured and repriced into current market interest rates during the current quarter were $293.8 million. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.

Other strategies include managing the Bank's wholesale assets and liabilities. The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of March 31, 2019 was 1.5 years. However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of March 31, 2019 was 2.8 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

The Bank uses the securities portfolio to shorten the average life of the Bank's assets. Security purchases over the past few years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS. These securities have a shorter average life and provide a steady source of cash flow that can be reinvested as interest rates rise into higher-yielding assets.

In addition to the wholesale strategies, the Bank has sought to increase non-maturity deposits and long-term certificates of deposit. Non-maturity deposits are expected to reduce the risk of higher interest rates because their interest rates are not expected to increase significantly as market interest rates rise. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances.

Over the last few years, the Bank has priced long-term certificates of deposit more aggressively than short-term certificates of deposit with the goal of giving customers incentive to move funds into longer-term certificates of deposit when interest rates were lower. Since December 2015, when short-term interest rates began to rise, the Bank's portfolio of retail/business certificates of deposit with terms of four years or longer has increased approximately 25%, while the Bank's portfolio of retail/business certificates of deposit with terms of one year to four years has decreased approximately 15%. Long-term certificates of deposit reduce the amount of liabilities repricing as interest rates rise in a given time period.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of March 31, 2019. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.

      Amount       Yield/Rate       WAL       % of Category       % of Total
(Dollars in thousands)
 
Investment securities $ 288,894 2.38 % 0.8 22.7 % 3.2 %
MBS - fixed 674,696 2.47 3.2 52.9 7.4
MBS - adjustable 310,598   3.12   2.7   24.4   3.4  
Total securities 1,274,188 2.61 2.5 100.0 % 14.0
Loans receivable:
Fixed-rate one- to four-family:
<= 15 years 1,087,536 3.16 3.8 14.4 % 11.9
> 15 years 4,475,937 3.89 6.1 59.2 48.9
Fixed-rate commercial 398,455 4.61 6.2 5.3 4.4
All other fixed-rate loans 49,927   5.38   3.2   0.6   0.4  
Total fixed-rate loans 6,011,855 3.82 5.6 79.5 65.6

Adjustable-rate one- to four-family:

<= 36 months 238,789 2.37 3.1 3.1 2.6
> 36 months 863,497 3.40 2.4 11.4 9.4
Adjustable-rate commercial 331,248 5.20 6.4 4.4 3.6
All other adjustable-rate loans 118,687   6.16   1.5   1.6   1.3  
Total adjustable-rate loans 1,552,221   3.84   3.3   20.5   16.9  
Total loans receivable 7,564,076 3.82 5.2 100.0 % 82.5
FHLB stock 102,631 7.47 1.5 1.1
Cash and cash equivalents 218,051   2.39     2.4  
Total interest-earning assets $ 9,158,946   3.66 4.6 100.0 %
 
Non-maturity deposits $ 2,778,939 0.36 13.6 48.8 % 34.6 %
Retail/business certificates of deposit 2,522,044 1.93 1.6 44.2 31.4
Public unit certificates of deposit 400,128   2.22   0.6   7.0   5.0  
Total deposits 5,701,111   1.19   7.4   100.0 % 71.0  
Term borrowings 2,240,000 2.29 2.8 95.7 % 27.8
FHLB line of credit 100,000   2.64     4.3   1.2  
Total borrowings 2,340,000   2.31   2.6   100.0 % 29.0  
Total interest-bearing liabilities $ 8,041,111   1.51 6.0 100.0 %
 
 

Average Balance Sheets

The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated and the weighted average yield/rate on our interest-earning assets and interest-bearing liabilities at March 31, 2019, as well as selected performance ratios and other information as of the dates and for the periods shown. The leverage strategy was not in place at March 31, 2019, so the yields/rates presented at March 31, 2019 in the table below do not reflect this strategy. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

      At     For the Six Months Ended
March 31, March 31, 2019     March 31, 2018
2019 Average     Interest     Average     Interest    
Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Rate Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans 3.66% $ 6,770,175 $ 122,309 3.61 % $ 6,787,491 $ 119,006 3.51 %
Commercial loans 4.88 634,229 15,787 4.92 282,730 5,973 4.18
Consumer loans 6.30 138,369   4,333   6.28   125,182   3,404   5.45  
Total loans receivable(1) 3.82 7,542,773   142,429   3.77   7,195,403   128,383   3.57  
MBS(2) 2.67 984,033 12,824 2.61 935,442 10,642 2.28
Investment securities(2)(3) 2.38 277,292 2,946 2.13 302,669 2,088 1.38
FHLB stock 7.47 104,023 3,802 7.33 192,469 6,296 6.56
Cash and cash equivalents(4) 2.39 215,660   2,457   2.25   2,118,019   15,009   1.40  
Total interest-earning assets(1)(2) 3.66 9,123,781 164,458 3.60 10,744,002 162,418 3.02
Other non-interest-earning assets 368,864   307,596  
Total assets $ 9,492,645   $ 11,051,598  
 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking 0.06 $ 1,063,346 294 0.06 $ 856,773 153 0.04
Savings 0.06 357,243 113 0.06 354,457 569 0.32
Money market 0.72 1,260,999 4,441 0.71 1,192,571 1,897 0.32
Retail/business certificates 1.93 2,495,475 22,947 1.84 2,431,173 18,954 1.56
Wholesale certificates 2.22 392,693   4,026   2.06   415,907   2,868   1.38  
Total deposits 1.19 5,569,756   31,821   1.15   5,250,881   24,441   0.93  
FHLB borrowings(5) 2.30 2,304,818 26,055 2.26 4,163,650 36,689 1.75
Other borrowings 2.53 107,087   1,684   3.11   144,242   2,025   2.78  
Total borrowings 2.31 2,411,905   27,739   2.29   4,307,892   38,714   1.79  
Total interest-bearing liabilities 1.51 7,981,661 59,560 1.49 9,558,773 63,155 1.32
Other non-interest-bearing liabilities 142,060 130,219
Stockholders' equity 1,368,924   1,362,606  
Total liabilities and stockholders' equity $ 9,492,645   $ 11,051,598  
 
Net interest income(6) $ 104,898   $ 99,263  
Net interest rate spread(7)(8) 2.15 2.11 1.70
Net interest-earning assets $ 1,142,120   $ 1,185,229  
Net interest margin(8)(9) 2.30 1.85
Ratio of interest-earning assets to interest-bearing liabilities

1.14

x

1.12

x

 
Selected performance ratios:
Return on average assets (annualized)(8) 1.03 % 1.00 %
Return on average equity (annualized)(8) 7.15 8.10
Average equity to average assets 14.42 12.33
Operating expense ratio(10) 1.12 0.83
Efficiency ratio(8)(11) 45.89 41.47
Pre-tax yield on leverage strategy(12) 0.03 0.19
 
      For the Three Months Ended
March 31, 2019     December 31, 2018
Average     Interest     Average     Interest    
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans $ 6,746,611 $ 61,325 3.64 % $ 6,793,226 $ 60,983 3.59 %
Commercial loans 680,110 8,186 4.80 589,346 7,602 5.05
Consumer loans 137,342   2,146   6.33   139,373   2,187   6.23  
Total loans receivable(1) 7,564,063   71,657   3.79   7,521,945   70,772   3.75  
MBS(2) 959,897 6,301 2.63 1,007,645 6,523 2.59
Investment securities(2)(3) 272,218 1,505 2.21 282,256 1,441 2.04
FHLB stock 99,725 1,831 7.45 108,227 1,971 7.23
Cash and cash equivalents(4) 124,444   743   2.39   304,893   1,714   2.20  
Total interest-earning assets(1)(2) 9,020,347 82,037 3.64 9,224,966 82,421 3.56
Other non-interest-earning assets 370,396   367,755  
Total assets $ 9,390,743   $ 9,592,721  
 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $ 1,076,504 149 0.06 $ 1,050,474 144 0.05
Savings 358,733 56 0.06 349,406 57 0.06
Money market 1,275,504 2,269 0.72 1,246,809 2,172 0.69
Retail/business certificates 2,491,814 11,492 1.87 2,499,056 11,455 1.82
Wholesale certificates 401,722   2,130   2.15   383,860   1,897   1.96  
Total deposits 5,604,277   16,096   1.16   5,529,605   15,725   1.13  
FHLB borrowings(5) 2,203,872 12,525 2.30 2,403,568 13,530 2.22
Other borrowings 104,399   819   3.14   109,716   865   3.08  
Total borrowings 2,308,271   13,344   2.33   2,513,284   14,395   2.26  
Total interest-bearing liabilities 7,912,548 29,440 1.51 8,042,889 30,120 1.48
Other non-interest-bearing liabilities 123,280 167,205
Stockholders' equity 1,354,915   1,382,627  
Total liabilities and stockholders' equity $ 9,390,743   $ 9,592,721