Capitol Federal Financial, Inc.® Reports Third 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 June 30, 2019. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which will be filed with the Securities and Exchange Commission ("SEC") on or about August 9, 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 $22.9 million;
  • basic and diluted earnings per share of $0.17;
  • net interest margin of 2.29%;
  • paid dividends of $46.2 million, or $0.335 per share, including a $0.25 per share True Blue® Capitol dividend; and
  • total commercial loans and commitments outstanding of $1.01 billion at quarter-end.

Comparison of Operating Results for the Three Months Ended June 30, 2019 and March 31, 2019

For the quarter ended June 30, 2019, the Company recognized net income of $22.9 million, or $0.17 per share, compared to net income of $24.6 million, or $0.18 per share, for the quarter ended March 31, 2019. The decrease in net income was due primarily to an increase in non-interest expense and interest expense, partially offset by an increase in non-interest income and lower income tax expense.

Net interest income decreased $916 thousand, or 1.7%, from the prior quarter to $51.7 million for the current quarter. The leverage strategy was not in place during the current quarter or the prior quarter. The net interest margin decreased four basis points from 2.33% for the prior quarter to 2.29% for the current quarter. The decrease in the net interest margin was due mainly to an increase in the cost of deposits, primarily retail/business certificates of deposit.

To the extent market rates of interest remain at current levels or go lower during the quarter ending September 30, 2019, the Company expects a decrease in our net interest margin due primarily to lower yields on our loans and securities. If realized, the decrease in the yields on our loans and securities is expected to be from loans originated at lower rates, adjustable-rate loans repricing lower and increased prepayment speeds on our correspondent loans and mortgage-backed securities ("MBS") portfolios, which would accelerate the amortization of the premiums we have paid to acquire these assets. The rates on our certificate of deposit portfolio and borrowings may also decrease if market rates decrease, but likely at a slower pace than interest-earning assets because the majority of those liabilities have stated maturities. It is anticipated that our non-interest income and non-interest expense will remain consistent with prior periods in the upcoming quarter.

Interest and Dividend Income

The weighted average yield on total interest-earning assets for the current quarter was 3.64%, unchanged from the prior quarter, while the average balance of interest-earning assets decreased $646 thousand between the two periods. 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

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

 

71,434

 

 

$

 

71,657

 

 

$

 

(223

)

 

(0.3

)%

MBS

 

6,613

 

 

 

6,301

 

 

 

312

 

 

5.0

 

Federal Home Loan Bank Topeka ("FHLB") stock

 

1,865

 

 

 

1,831

 

 

 

34

 

 

1.9

 

Investment securities

 

1,835

 

 

 

1,505

 

 

 

330

 

 

21.9

 

Cash and cash equivalents

 

464

 

 

 

743

 

 

 

(279

)

 

(37.6

)

Total interest and dividend income

$

 

82,211

 

 

$

 

82,037

 

 

$

 

174

 

 

0.2

 

The decrease in interest income on loans receivable was due primarily to a decrease in interest income on one- to four-family loans, largely offset by an increase in interest income on commercial loans. The increase in interest income on the MBS portfolio was due primarily to a $41.7 million increase in the average balance of the portfolio. The increase in interest income on investment securities was due mainly to a 31 basis point increase in the average yield on the portfolio resulting primarily from discount accretion on securities called during the quarter, along with an $18.5 million increase in the average balance of the portfolio. The decrease in interest income on cash and cash equivalents was due to a $46.8 million decrease in the average balance, as excess operating cash was invested in MBS and investment securities during the current quarter.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities for the current quarter increased three basis points, from 1.51% for the prior quarter to 1.54% for the current quarter, while the average balance of interest-bearing liabilities decreased $796 thousand between the two periods. 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

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

 

16,909

 

 

$

 

16,096

 

 

$

 

813

 

 

5.1

%

FHLB borrowings

 

12,981

 

 

 

12,525

 

 

 

456

 

 

3.6

 

Other borrowings

 

640

 

 

 

819

 

 

 

(179

)

 

(21.9

)

Total interest expense

$

 

30,530

 

 

$

 

29,440

 

 

$

 

1,090

 

 

3.7

 

The increase in interest expense on deposits was due primarily to a five basis point increase in the weighted average rate paid, to 1.21% for the current quarter. The increase in the weighted average rate paid was due primarily to an eight basis point increase in the average retail/business certificate of deposit portfolio rate.

The increase in interest expense on FHLB borrowings was due to a five basis point increase in the weighted average rate paid, to 2.35% for the current quarter. The increase in the weighted average rate paid was due mainly to the maturity of a $100 million advance that had a rate lower than the overall portfolio rate.

The decrease in interest expense on other borrowings was due to a decrease in the average balance as a result of the redemption of the junior subordinated debentures that were assumed as part of the acquisition of Capital City Bancshares, Inc. ("CCB").

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current quarter of $450 thousand, compared to no provision for credit losses during the prior quarter. The $450 thousand provision for credit losses in the current quarter was primarily a result of commercial loan activities. See additional allowance for credit losses ("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

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

 

3,131

 

 

$

 

3,091

 

 

$

 

40

 

 

1.3

%

Income from bank-owned life insurance ("BOLI")

 

590

 

 

 

587

 

 

 

3

 

 

0.5

 

Other non-interest income

 

1,953

 

 

 

1,323

 

 

 

630

 

 

47.6

 

Total non-interest income

$

 

5,674

 

 

$

 

5,001

 

 

$

 

673

 

 

13.5

 

The increase in other non-interest income was due primarily to an increase in insurance commissions resulting from the receipt of annual commissions and the related adjustments to accruals, along with miscellaneous loan related income.

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

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

 

13,454

 

 

$

 

12,789

 

 

$

 

665

 

 

5.2

%

Information technology and related expense

 

4,652

 

 

 

4,284

 

 

 

368

 

 

8.6

 

Occupancy, net

 

3,224

 

 

 

3,292

 

 

 

(68

)

 

(2.1

)

Regulatory and outside services

 

1,425

 

 

 

1,056

 

 

 

369

 

 

34.9

 

Advertising and promotional

 

1,447

 

 

 

1,390

 

 

 

57

 

 

4.1

 

Office supplies and related expense

 

689

 

 

 

736

 

 

 

(47

)

 

(6.4

)

Deposit and loan transaction costs

 

681

 

 

 

465

 

 

 

216

 

 

46.5

 

Federal insurance premium

 

600

 

 

 

659

 

 

 

(59

)

 

(9.0

)

Other non-interest expense

 

1,519

 

 

 

1,470

 

 

 

49

 

 

3.3

 

Total non-interest expense

$

 

27,691

 

 

$

 

26,141

 

 

$

 

1,550

 

 

5.9

 

The increase in salaries and employee benefits expense was due mainly to additional expense on unallocated Employee Stock Ownership Plan ("ESOP") shares arising from the $0.25 per share True Blue Capitol dividend paid on those shares in June 2019. The expense recognized in the current quarter was $453 thousand, and it is expected that $453 thousand will also be recognized during the quarter ending September 30, 2019. The increase in information technology and related expense was due primarily to costs related to the integration of CCB operations. The increase in regulatory and outside services was due mainly to the timing of external audit billings. The increase in deposit and loan transaction costs was due mainly to loan-related activities and debit card expenses related to the CCB integration.

The Company's efficiency ratio was 48.28% for the current quarter compared to 45.38% for the prior quarter. The increase in the efficiency ratio was due primarily to higher 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 $6.3 million for the current quarter, compared to $6.9 million for the prior quarter. The effective tax rate was 21.6% for the current quarter compared to 21.9% 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 Nine Months Ended June 30, 2019 and 2018

The Company recognized net income of $71.8 million, or $0.52 per share, for the nine month period ended June 30, 2019 compared to net income of $77.5 million, or $0.58 per share, for the nine month period ended June 30, 2018. The decrease in net income was due primarily to an increase in non-interest expense during the current year nine month period, as well as the enactment of the Tax Cuts and Jobs Act (the "Tax Act") positively impacting the prior year nine month period as discussed below. 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, which reduced income tax expense.

The net interest margin increased 43 basis points, from 1.87% for the prior year nine month period to 2.30% for the current year nine 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 nine month period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the Federal Reserve Bank of Kansas City (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 nine basis points, from 2.23% for the prior year nine month period to 2.32% for the current year nine 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 53 basis points, from 3.08% for the prior year nine month period to 3.61% for the current year nine month period, while the average balance of interest-earning assets decreased $1.50 billion from the prior year nine month period. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 27 basis points, from 3.35% for the prior year nine month period to 3.62% for the current year nine month period, and the average balance of interest-earning assets would have increased $263.7 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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

 

213,863

 

 

$

 

193,276

 

 

$

 

20,587

 

 

10.7

%

MBS

 

19,437

 

 

 

16,563

 

 

 

2,874

 

 

17.4

 

FHLB stock

 

5,667

 

 

 

9,115

 

 

 

(3,448

)

 

(37.8

)

Investment securities

 

4,781

 

 

 

3,395

 

 

 

1,386

 

 

40.8

 

Cash and cash equivalents

 

2,921

 

 

 

22,230

 

 

 

(19,309

)

 

(86.9

)

Total interest and dividend income

$

 

246,669

 

 

$

 

244,579

 

 

$

 

2,090

 

 

0.9

 

The increase in interest income on loans receivable was due to a $337.9 million increase in the average balance of the portfolio, as well as a 21 basis point increase in the weighted average yield on the portfolio to 3.78% for the current year nine 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, legacy 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 30 basis point increase in the weighted average yield on the portfolio to 2.62% for the current year nine month period, along with a $37.7 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 $1.0 million during the current year nine month period decreased the weighted average yield on the portfolio by 14 basis points. During the prior year nine month period, $2.3 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 33 basis points. As of June 30, 2019, the remaining net balance of premiums on our portfolio of MBS was $2.5 million.

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 nine month period as compared to the prior year nine month period. This was partially offset by a higher dividend rate on FHLB stock during the current year nine 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 2.26%. 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 $420 thousand from the prior year nine month period due to a $94.3 million decrease in the average balance, partially offset by an 86 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 $18.9 million from the prior year nine month period due to a $1.68 billion decrease in the average balance, as the leverage strategy was in place less often during the current year nine month period. 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 increased 15 basis points, from 1.36% for the prior year nine month period to 1.51% for the current year nine month period, while the average balance of interest-bearing liabilities decreased $1.44 billion from the prior year nine 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 1.31% for the prior year nine month period to 1.50% for the current year nine month period, and the average balance of interest-bearing liabilities would have increased $316.7 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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

 

48,730

 

 

$

 

38,028

 

 

$

 

10,702

 

 

28.1

%

FHLB borrowings

 

39,036

 

 

 

55,190

 

 

 

(16,154

)

 

(29.3

)

Other borrowings

 

2,324

 

 

 

2,665

 

 

 

(341

)

 

(12.8

)

Total interest expense

$

 

90,090

 

 

$

 

95,883

 

 

$

 

(5,793

)

 

(6.0

)

The increase in interest expense on deposits was due primarily to a 21 basis point increase in the weighted average rate, to 1.17% for the current year nine 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 nine 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 money market portfolio rate, which increased 28 basis points and 36 basis points, respectively, as market interest rates increased between periods. Additionally, the Bank recently increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms. See the Financial Condition section below for more information.

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 $4.2 million from the prior year nine month period due to a 23 basis point increase in the weighted average rate paid on the portfolio, to 2.29% for the current year nine month period, and a $30.9 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 market interest rates. Interest expense on FHLB borrowings associated with the leverage strategy decreased $20.4 million from the prior year nine month period due to the leverage strategy not being in place as often during the current year nine 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.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current year nine month period of $450 thousand, compared to no provision for credit losses during the prior year nine month period. The $450 thousand provision for credit losses in the current year nine month period is primarily a result of commercial loan activities during the current quarter. 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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

 

9,581

 

 

$

 

11,550

 

 

$

 

(1,969

)

 

(17.0

)%

Income from BOLI

 

1,812

 

 

 

1,320

 

 

 

492

 

 

37.3

 

Other non-interest income

 

4,706

 

 

 

3,345

 

 

 

1,361

 

 

40.7

 

Total non-interest income

$

 

16,099

 

 

$

 

16,215

 

 

$

 

(116

)

 

(0.7

)

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 nine 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 $2.5 million during the current year nine month period and $2.2 million during the prior year nine month period.

The increase in income from BOLI was due primarily to a one-time adjustment during the prior year nine 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, loan related income mainly related to the CCB acquisition, and insurance commission income. Additionally, the prior year nine 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 nine 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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

 

39,205

 

 

$

 

33,631

 

 

$

 

5,574

 

 

16.6

%

Information technology and related expense

 

13,535

 

 

 

10,316

 

 

 

3,219

 

 

31.2

 

Occupancy, net

 

9,768

 

 

 

8,391

 

 

 

1,377

 

 

16.4

 

Regulatory and outside services

 

4,247

 

 

 

3,919

 

 

 

328

 

 

8.4

 

Advertising and promotional

 

3,597

 

 

 

3,512

 

 

 

85

 

 

2.4

 

Office supplies and related expense

 

1,884

 

 

 

1,339

 

 

 

545

 

 

40.7

 

Deposit and loan transaction costs

 

1,882

 

 

 

4,157

 

 

 

(2,275

)

 

(54.7

)

Federal insurance premium

 

1,787

 

 

 

2,512

 

 

 

(725

)

 

(28.9

)

Other non-interest expense

 

4,709

 

 

 

2,368

 

 

 

2,341

 

 

98.9

 

Total non-interest expense

$

 

80,614

 

 

$

 

70,145

 

 

$

 

10,469

 

 

14.9

 

The increase in salaries and employee benefits was due primarily to $4.8 million of expense related to former CCB employees during the current year nine month period. The increase in information technology and related expense was due mainly to an increase in software licensing and costs related to the integration of CCB operations. The increase in occupancy, net was due primarily to expenses related to properties acquired in the CCB acquisition. The increase in regulatory and outside services was due mainly to an increase in consulting expenses. The increase in office supplies and related expense was due primarily to costs related to the integration of CCB customers and operations. The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition standard 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 nine 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 46.68% for the current year nine month period compared to 42.54% for the prior year nine month period. The change in the efficiency ratio was due to higher non-interest expense in the current year nine month period compared to the prior year nine month period.

Income Tax Expense

Income tax expense was $19.8 million for the current year nine month period compared to $17.2 million for the prior year nine month period. The effective tax rate was 21.6% for the current year nine month period compared to 18.2% for the prior year nine month period. The increase in the effective tax rate compared to the prior year nine 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 expense.

Financial Condition as of June 30, 2019

Management continues to manage the size and mix of the loan portfolio by utilizing cash flows from the one- to four-family loan portfolio to fund commercial loan growth. Given the current level of total assets, it is unlikely that net loan growth will substantially increase in the current environment. 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. Additionally, the Bank recently began reducing its balance of public unit certificates of deposit in order to reduce its use of expensive wholesale funds and release securities pledged as collateral, which assists with liquidity levels. Management intends to reduce the balance of public unit certificates of deposit to approximately $300.0 million by September 30, 2019. Management continues to evaluate liquidity levels, as measured by the ratio of securities and cash to total assets, and may consider reducing its target ratio below the current target level of 15%.

Total assets were $9.29 billion at June 30, 2019 compared to $9.53 billion at March 31, 2019. The $248.3 million decrease was spread across all interest-earning asset types. During the current quarter, excess operating cash and cash flows from the payments on securities and loan portfolios were used, in part, to reduce FHLB borrowings by $100.0 million and to fund cash outflows from the deposit portfolio. The loans receivable portfolio decreased by $63.3 million. The decrease in the one- to four-family loan portfolio was partially offset by an increase in the commercial loan portfolio. The commercial loan portfolio was $798.7 million at June 30, 2019, compared to $729.7 million at March 31, 2019 and $569.6 million at September 30, 2018. At June 30, 2019, the commercial loan portfolio was composed of 77% commercial real estate, 15% commercial construction, and 8% commercial and industrial. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $195.3 million, was $925.8 million at June 30, 2019. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $19.6 million, was $87.8 million at June 30, 2019, for a total commercial potential exposure of $1.01 billion.

The deposit portfolio decreased $120.2 million during the current quarter due primarily to a $57.2 million decrease in the public unit certificate of deposit portfolio and the typical seasonal reductions in the balance of checking and money market accounts as customers routinely use accumulated balances to pay income taxes during the June quarter. Additionally, money market accounts decreased during the current quarter as certain customers moved money market balances into short-term certificates of deposit. The amount of certificates of deposit scheduled to mature during the current quarter was higher than the previous three quarters, and the Bank retained the maturing certificates of deposit at a higher rate than the previous three quarters. Many of the deposits retained during the current quarter were renewed into shorter term maturities, as customers took advantage of the Bank's higher offered rates on shorter-term and certain intermediate-term certificates of deposit, which will allow the Bank to more quickly reprice deposits lower if market interest rates were to decrease.

While total assets and deposits decreased during the current quarter, when compared to December 31, 2018, total assets are down $17.5 million and the total balance of deposits increased $23.0 million, even after the reduction in public unit certificates of deposit. The increase in deposits during the quarter ended March 31, 2019 appear to have been due to depositors looking to temporarily place money, which was then withdrawn during the quarter ended June 30, 2019. As management considers the changes in the balance sheet over the longer term, we recognize that there may be fluctuations from period to period as we work to build sustainable portfolios over time.

Total assets decreased $163.3 million from September 30, 2018 to June 30, 2019. The decrease was largely in operating cash and the securities portfolio. The loans receivable portfolio has been relatively unchanged during the current fiscal year. The one- to four-family loan portfolio decreased $229.1 million while the commercial loan portfolio increased by the same amount as cash flows from the one- to four-family loan portfolio were used to fund commercial loan growth. During the current year nine month period, the Bank originated and refinanced $429.7 million of one- to four-family and consumer loans with a weighted average rate of 4.45% and purchased $122.4 million of one- to four-family loans from correspondent lenders with a weighted average rate of 4.30%. The Bank also originated $147.0 million of commercial loans with a weighted average rate of 5.05% and entered into commercial real estate loan participations totaling $78.5 million at a weighted average rate of 5.44%.

The deposit portfolio decreased $22.5 million, or 0.4%, from September 30, 2018 to June 30, 2019. The public unit certificate of deposit portfolio decreased $64.8 million which was partially offset by an increase in the checking and retail/business certificate of deposit portfolios. Excluding the impact of the runoff of the public unit certificates of deposit, total deposits would have increased $42.3 million over the same period.

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current year nine 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% from dividends during the current year nine 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 nine month period, compared to $1.7 million during the prior year nine month period. The decrease was due mainly to the strategy being suspended for the majority of the current year nine 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 $1.33 billion at June 30, 2019 compared to $1.39 billion at September 30, 2018. The $64.5 million decrease was due primarily to the payment of $123.2 million in cash dividends, partially offset by net income of $71.8 million. In the long run, management considers a ratio of stockholders' equity to total assets at the Bank of at least 10% an appropriate level of capital. At June 30, 2019, this ratio was 12.6%. The cash dividends paid during the current year nine month period totaled $0.895 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, a $0.25 per share True Blue Capitol dividend, and three regular quarterly cash dividends totaling $0.255 per share. On July 17, 2019, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on August 16, 2019 to stockholders of record as of the close of business on August 2, 2019.

At June 30, 2019, Capitol Federal Financial, Inc., at the holding company level, had $112.0 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 authorized the repurchase of up to $70.0 million of its common stock 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.

 

June 30,

 

September 30,

 

June 30,

 

2019

 

2018

 

2018

 

(Dollars in thousands)

Stockholders' equity

$

 

1,327,099

 

 

$

 

1,391,622

 

 

$

 

1,341,325

 

Equity to total assets at end of period

 

14.3

%

 

 

14.7

%

 

 

14.8

%

The following table presents a reconciliation of total to net shares outstanding as of June 30, 2019.

Total shares outstanding

141,421,630

 

Less unallocated ESOP shares and unvested restricted stock

(3,630,959

)

Net shares outstanding

137,790,671

 

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 June 30, 2019, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at June 30, 2019.

 

 

 

Regulatory

 

 

 

Requirement For

 

Bank

 

Well-Capitalized

 

Ratios

 

Status

Tier 1 leverage ratio

12.4

%

 

5.0

%

Common equity tier 1 capital ratio

23.8

 

 

6.5

 

Tier 1 capital ratio

23.8

 

 

8.0

 

Total capital ratio

24.0

 

 

10.0

 

The following table presents a reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of June 30, 2019 (dollars in thousands):

Total Bank equity as reported under GAAP

$

 

1,171,199

 

Accumulated Other Comprehensive Income ("AOCI")

 

12,532

 

Goodwill and other intangibles, net of deferred tax liabilities

 

(15,579

)

Total tier 1 capital

 

1,168,152

 

ACL

 

9,036

 

Total capital

$

 

1,177,188

 

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, 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)

 

 

 

June 30,

 

September 30,

 

 

2019

 

2018

ASSETS:

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $20,204 and $122,733)

$

 

43,051

 

 

$

 

139,055

 

Securities:

 

 

 

Available-for-sale ("AFS"), at estimated fair value (amortized cost of $759,221 and $718,564)

 

769,393

 

 

 

714,614

 

Held-to-maturity, at amortized cost (estimated fair value of $486,590 and $601,071)

 

483,858

 

 

 

612,318

 

Loans receivable, net (ACL of $9,036 and $8,463)

 

7,507,468

 

 

 

7,514,485

 

FHLB stock, at cost

 

100,109

 

 

 

99,726

 

Premises and equipment, net

 

96,170

 

 

 

96,005

 

Income taxes receivable, net

 

495

 

 

 

2,177

 

Other assets

 

285,731

 

 

 

271,167

 

TOTAL ASSETS

$

 

9,286,275

 

 

$

 

9,449,547

 

 

 

 

 

LIABILITIES:

 

 

 

Deposits

$

 

5,580,871

 

 

$

 

5,603,354

 

FHLB borrowings

 

2,139,987

 

 

 

2,174,981

 

Other borrowings

 

100,000

 

 

 

110,052

 

Advance payments by borrowers for taxes and insurance

 

39,769

 

 

 

65,264

 

Deferred income tax liabilities, net

 

15,135

 

 

 

21,253

 

Accounts payable and accrued expenses

 

83,414

 

 

 

83,021

 

Total liabilities

 

7,959,176

 

 

 

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, 141,421,630 and 141,225,516 shares issued and outstanding as of June 30, 2019 and September 30, 2018, respectively

 

1,414

 

 

 

1,412

 

Additional paid-in capital

 

1,209,740

 

 

 

1,207,644

 

Unearned compensation, ESOP

 

(35,104

)

 

 

(36,343

)

Retained earnings

 

163,581

 

 

 

214,569

 

AOCI, net of tax

 

(12,532

)

 

 

4,340

 

Total stockholders' equity

 

1,327,099

 

 

 

1,391,622

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

 

9,286,275

 

 

$

 

9,449,547

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

June 30,

 

March 31,

 

June 30,

 

 

2019

 

2019

 

2019

 

2018

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

 

71,434

 

 

$

 

71,657

 

 

$

 

213,863

 

 

$

 

193,276

 

MBS

 

6,613

 

 

 

6,301

 

 

 

19,437

 

 

 

16,563

 

FHLB stock

 

1,865

 

 

 

1,831

 

 

 

5,667

 

 

 

9,115

 

Investment securities

 

1,835

 

 

 

1,505

 

 

 

4,781

 

 

 

3,395

 

Cash and cash equivalents

 

464

 

 

 

743

 

 

 

2,921

 

 

 

22,230

 

Total interest and dividend income

 

82,211

 

 

 

82,037

 

 

 

246,669

 

 

 

244,579

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

 

16,909

 

 

 

16,096

 

 

 

48,730

 

 

 

38,028

 

FHLB borrowings

 

12,981

 

 

 

12,525

 

 

 

39,036

 

 

 

55,190

 

Other borrowings

 

640

 

 

 

819

 

 

 

2,324

 

 

 

2,665

 

Total interest expense

 

30,530

 

 

 

29,440

 

 

 

90,090

 

 

 

95,883

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

51,681

 

 

 

52,597

 

 

 

156,579

 

 

 

148,696

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

450

 

 

 

 

 

450

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

51,231

 

 

 

52,597

 

 

 

156,129

 

 

 

148,696

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

 

3,131

 

 

 

3,091

 

 

 

9,581

 

 

 

11,550

 

Income from BOLI

 

590

 

 

 

587

 

 

 

1,812

 

 

 

1,320

 

Other non-interest income

 

1,953

 

 

 

1,323

 

 

 

4,706

 

 

 

3,345

 

Total non-interest income

 

5,674

 

 

 

5,001

 

 

 

16,099

 

 

 

16,215

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

 

13,454

 

 

 

12,789

 

 

 

39,205

 

 

 

33,631

 

Information technology and related expense

 

4,652

 

 

 

4,284

 

 

 

13,535

 

 

 

10,316

 

Occupancy, net

 

3,224

 

 

 

3,292

 

 

 

9,768

 

 

 

8,391

 

Regulatory and outside services

 

1,425

 

 

 

1,056

 

 

 

4,247

 

 

 

3,919

 

Advertising and promotional

 

1,447

 

 

 

1,390

 

 

 

3,597

 

 

 

3,512

 

Office supplies and related expense

 

689

 

 

 

736

 

 

 

1,884

 

 

 

1,339

 

Deposit and loan transaction costs

 

681

 

 

 

465

 

 

 

1,882

 

 

 

4,157

 

Federal insurance premium

 

600

 

 

 

659

 

 

 

1,787

 

 

 

2,512

 

Other non-interest expense

 

1,519

 

 

 

1,470

 

 

 

4,709

 

 

 

2,368

 

Total non-interest expense

 

27,691

 

 

 

26,141

 

 

 

80,614

 

 

 

70,145

 

INCOME BEFORE INCOME TAX EXPENSE

 

29,214

 

 

 

31,457

 

 

 

91,614

 

 

 

94,766

 

INCOME TAX EXPENSE

 

6,317

 

 

 

6,903

 

 

 

19,780

 

 

 

17,228

 

NET INCOME

$

 

22,897

 

 

$

 

24,554

 

 

$

 

71,834

 

 

$

 

77,538

 

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 Nine Months Ended

 

June 30,

 

March 31,

 

June 30,

 

2019

 

2019

 

2019

 

2018

 

(Dollars in thousands, except per share amounts)

Net income

$

 

22,897

 

 

$

 

24,554

 

 

$

 

71,834

 

 

$

 

77,538

 

Income allocated to participating securities

 

(16

)

 

 

(10

)

 

 

(35

)

 

 

(32

)

Net income available to common stockholders

$

 

22,881

 

 

$

 

24,544

 

 

$

 

71,799

 

 

$

 

77,506

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

137,637,428

 

 

 

137,593,062

 

 

 

137,593,497

 

 

 

134,386,678

 

Average committed ESOP shares outstanding

 

83,052

 

 

 

41,758

 

 

 

41,602

 

 

 

41,602

 

Total basic average common shares outstanding

 

137,720,480

 

 

 

137,634,820

 

 

 

137,635,099

 

 

 

134,428,280

 

 

 

 

 

 

 

 

 

Effect of dilutive stock options

 

67,048

 

 

 

55,897

 

 

 

55,335

 

 

 

62,275

 

 

 

 

 

 

 

 

 

Total diluted average common shares outstanding

 

137,787,528

 

 

 

137,690,717

 

 

 

137,690,434

 

 

 

134,490,555

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

Basic

$

 

0.17

 

 

$

 

0.18

 

 

$

 

0.52

 

 

$

 

0.58

 

Diluted

$

 

0.17

 

 

$

 

0.18

 

 

$

 

0.52

 

 

$

 

0.58

 

 

 

 

 

 

 

 

 

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

 

457,486

 

 

 

494,395

 

 

 

491,669

 

 

 

541,493

 

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.

 

June 30, 2019

 

March 31, 2019

 

September 30, 2018

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

 

3,853,289

 

 

3.77

%

 

51.4

%

 

$

 

3,922,565

 

 

3.78

%

 

51.9

%

 

$

 

3,965,692

 

 

3.74

%

 

52.8

%

Correspondent purchased

 

2,417,307

 

 

3.64

 

 

32.2

 

 

 

2,470,619

 

 

3.63

 

 

32.7

 

 

 

2,505,987

 

 

3.59

 

 

33.4

 

Bulk purchased

 

264,256

 

 

2.85

 

 

3.5

 

 

 

272,575

 

 

2.77

 

 

3.6

 

 

 

293,607

 

 

2.60

 

 

3.9

 

Construction

 

34,481

 

 

4.16

 

 

0.5

 

 

 

33,525

 

 

4.38

 

 

0.4

 

 

 

33,149

 

 

4.03

 

 

0.4

 

Total

 

6,569,333

 

 

3.69

 

 

87.6

 

 

 

6,699,284

 

 

3.68

 

 

88.6

 

 

 

6,798,435

 

 

3.64

 

 

90.5

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

612,287

 

 

4.53

 

 

8.2

 

 

 

547,202

 

 

4.48

 

 

7.2

 

 

 

426,243

 

 

4.33

 

 

5.7

 

Commercial and industrial

 

68,243

 

 

5.20

 

 

0.9

 

 

 

73,852

 

 

5.25

 

 

1.0

 

 

 

62,869

 

 

5.00

 

 

0.9

 

Construction

 

118,218

 

 

4.94

 

 

1.6

 

 

 

108,649

 

 

4.76

 

 

1.4

 

 

 

80,498

 

 

4.59

 

 

1.1

 

Total

 

798,748

 

 

4.65

 

 

10.7

 

 

 

729,703

 

 

4.60

 

 

9.6

 

 

 

569,610

 

 

4.44

 

 

7.7

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

122,696

 

 

6.38

 

 

1.6

 

 

 

125,176

 

 

6.38

 

 

1.7

 

 

 

129,588

 

 

5.97

 

 

1.7

 

Other

 

10,964

 

 

4.51

 

 

0.1

 

 

 

9,913

 

 

4.52

 

 

0.1

 

 

 

10,012

 

 

4.59

 

 

0.1

 

Total

 

133,660

 

 

6.22

 

 

1.7

 

 

 

135,089

 

 

6.24

 

 

1.8

 

 

 

139,600

 

 

5.87

 

 

1.8

 

Total loans receivable

 

7,501,741

 

 

3.83

 

 

100.0

%

 

 

7,564,076

 

 

3.82

 

 

100.0

%

 

 

7,507,645

 

 

3.74

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

 

9,036

 

 

 

 

 

 

 

8,619

 

 

 

 

 

 

 

8,463

 

 

 

 

 

Discounts/unearned loan fees

 

31,748

 

 

 

 

 

 

 

32,582

 

 

 

 

 

 

 

33,933

 

 

 

 

 

Premiums/deferred costs

 

(46,511

)

 

 

 

 

 

 

(47,931

)

 

 

 

 

 

 

(49,236

)

 

 

 

 

Total loans receivable, net

$

 

7,507,468

 

 

 

 

 

 

$

 

7,570,806

 

 

 

 

 

 

$

 

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

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

 

7,564,076

 

 

3.82

%

 

$

 

7,518,887

 

 

3.78

%

 

$

 

7,507,645

 

 

3.74

%

 

$

 

7,226,169

 

 

3.66

%

Originated and refinanced:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

121,871

 

 

4.09

 

 

 

78,678

 

 

4.58

 

 

 

116,032

 

 

4.59

 

 

 

117,904

 

 

4.44

 

Adjustable

 

63,341

 

 

4.87

 

 

 

123,006

 

 

4.80

 

 

 

73,711

 

 

4.98

 

 

 

56,996

 

 

4.55

 

Purchased and participations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

29,447

 

 

4.65

 

 

 

35,387

 

 

5.46

 

 

 

72,140

 

 

4.60

 

 

 

80,138

 

 

4.40

 

Adjustable

 

10,018

 

 

3.85

 

 

 

11,331

 

 

4.01

 

 

 

42,651

 

 

4.88

 

 

 

20,105

 

 

3.92

 

Loans added in CCB acquisition, net

 

 

 

 

 

 

 

 

 

 

 

 

 

299,659

 

 

4.77

 

Change in undisbursed loan funds

 

34,742

 

 

 

 

 

30,500

 

 

 

 

 

(25,315

)

 

 

 

 

(8,104

)

 

 

Repayments

 

(321,439

)

 

 

 

 

(233,625

)

 

 

 

 

(267,469

)

 

 

 

 

(284,927

)

 

 

Principal (charge-offs)/recoveries, net

 

(33

)

 

 

 

 

61

 

 

 

 

 

95

 

 

 

 

 

119

 

 

 

Other

 

(282

)

 

 

 

 

(149

)

 

 

 

 

(603

)

 

 

 

 

(414

)

 

 

Ending balance

$

 

7,501,741

 

 

3.83

 

 

$

 

7,564,076

 

 

3.82

 

 

$

 

7,518,887

 

 

3.78

 

 

$

 

7,507,645

 

 

3.74

 

 

 

For the Nine Months Ended

 

 

June 30,
2019

 

June 30,
2018

 

 

Amount

 

Rate

 

Amount

 

Rate

 

 

(Dollars in thousands)

 

Beginning balance

$

 

7,507,645

 

 

3.74

%

 

$

 

7,182,751

 

 

3.61

%

 

Originated and refinanced:

 

 

 

 

 

 

 

 

Fixed

 

316,581

 

 

4.39

 

 

 

329,986

 

 

3.94

 

 

Adjustable

 

260,058

 

 

4.87

 

 

 

128,499

 

 

4.33

 

 

Purchased and participations:

 

 

 

 

 

 

 

 

Fixed

 

136,974

 

 

4.83

 

 

 

284,370

 

 

3.87

 

 

Adjustable

 

64,000

 

 

4.57

 

 

 

142,768

 

 

3.71

 

 

Change in undisbursed loan funds

 

39,927

 

 

 

 

 

(22,900

)

 

 

 

Repayments

 

(822,533

)

 

 

 

 

(817,697

)

 

 

 

Principal recoveries/(charge-offs), net

 

123

 

 

 

 

 

(54

)

 

 

 

Other

 

(1,034

)

 

 

 

 

(1,554

)

 

 

 

Ending balance

$

 

7,501,741

 

 

3.83

 

 

$

 

7,226,169

 

 

3.66

 

 

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 except to the extent 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 Nine Months Ended

 

June 30, 2019

 

June 30, 2019

 

Amount

 

Rate

 

% of Total

 

Amount

 

Rate

 

% of Total

Fixed-rate:

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

<= 15 years

$

 

21,097

 

 

3.62

%

 

9.4

%

 

$

 

58,025

 

 

4.00

%

 

7.4

%

> 15 years

 

103,515

 

 

4.13

 

 

46.1

 

 

 

276,642

 

 

4.38

 

 

35.6

 

One- to four-family construction

 

9,362

 

 

3.92

 

 

4.2

 

 

 

37,641

 

 

4.38

 

 

4.8

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

2,813

 

 

5.42

 

 

1.2

 

 

 

25,642

 

 

6.29

 

 

3.3

 

Commercial and industrial

 

5,058

 

 

4.98

 

 

2.3

 

 

 

11,416

 

 

5.16

 

 

1.5

 

Commercial construction

 

7,061

 

 

5.57

 

 

3.1

 

 

 

36,980

 

 

4.94

 

 

4.8

 

Home equity

 

1,317

 

 

6.44

 

 

0.6

 

 

 

3,700

 

 

6.26

 

 

0.5

 

Other

 

1,095

 

 

5.94

 

 

0.5

 

 

 

3,509

 

 

5.07

 

 

0.5

 

Total fixed-rate

 

151,318

 

 

4.20

 

 

67.4

 

 

 

453,555

 

 

4.53

 

 

58.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustable-rate:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

<= 36 months

 

333

 

 

3.18

 

 

0.1

 

 

 

8,020

 

 

3.73

 

 

1.0

 

> 36 months

 

35,922

 

 

3.59

 

 

16.0

 

 

 

99,069

 

 

3.87

 

 

12.7

 

One- to four-family construction

 

3,079

 

 

3.48

 

 

1.4

 

 

 

14,791

 

 

4.08

 

 

1.9

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

3,347

 

 

5.73

 

 

1.5

 

 

 

96,930

 

 

4.83

 

 

12.5

 

Commercial and industrial

 

10,896

 

 

5.80

 

 

4.8

 

 

 

24,846

 

 

5.61

 

 

3.2

 

Commercial construction

 

1,049

 

 

6.38

 

 

0.5

 

 

 

29,699

 

 

5.39

 

 

3.8

 

Home equity

 

18,020

 

 

6.35

 

 

8.0

 

 

 

48,896

 

 

6.35

 

 

6.3

 

Other

 

713

 

 

3.74

 

 

0.3

 

 

 

1,807

 

 

3.38

 

 

0.2

 

Total adjustable-rate

 

73,359

 

 

4.73

 

 

32.6

 

 

 

324,058

 

 

4.81

 

 

41.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Total originated, refinanced and purchased

$

 

224,677

 

 

4.37

 

 

100.0

%

 

$

 

777,613

 

 

4.64

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Purchased and participation loans included above:

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate:

 

 

 

 

 

 

 

 

 

 

 

Correspondent - one- to four-family

$

 

23,547

 

 

4.43

 

 

 

 

$

 

87,097

 

 

4.45

 

 

 

Participations - commercial

 

5,900

 

 

5.50

 

 

 

 

 

49,877

 

 

5.49

 

 

 

Total fixed-rate purchased/participations

 

29,447

 

 

4.65

 

 

 

 

 

136,974

 

 

4.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustable-rate:

 

 

 

 

 

 

 

 

 

 

 

Correspondent - one- to four-family

 

10,018

 

 

3.85

 

 

 

 

 

35,350

 

 

3.93

 

 

 

Participations - commercial

 

 

 

 

 

 

 

28,650

 

 

5.35

 

 

 

Total adjustable-rate purchased/participations

 

10,018

 

 

3.85

 

 

 

 

 

64,000

 

 

4.57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total purchased/participation loans

$

 

39,465

 

 

4.44

 

 

 

 

$

 

200,974

 

 

4.75

 

 

 

 

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.

 

June 30, 2019

 

September 30, 2018

 

 

 

% of

 

Credit

 

 

 

Average

 

 

 

% of

 

Credit

 

 

 

Average

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

(Dollars in thousands)

Originated

$

 

3,853,289

 

 

59.0

%

 

768

 

 

62

%

 

$

 

139

 

 

$

 

3,965,692

 

 

58.6

%

 

767

 

 

62

%

 

$

 

138

 

Correspondent purchased

 

2,417,307

 

 

37.0

 

 

764

 

 

66

 

 

 

373

 

 

 

2,505,987

 

 

37.1

 

 

764

 

 

67

 

 

 

378

 

Bulk purchased

 

264,256

 

 

4.0

 

 

762

 

 

61

 

 

 

305

 

 

 

293,607

 

 

4.3

 

 

758

 

 

62

 

 

 

304

 

 

$

 

6,534,852

 

 

100.0

%

 

766

 

 

63

 

 

 

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 nine month period, $14.0 million and $38.9 million, respectively, were refinanced from other lenders.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2019

 

June 30, 2019

 

 

 

 

 

Credit

 

 

 

 

 

Credit

 

Amount

 

LTV

 

Score

 

Amount

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

 

119,600

 

 

80

%

 

761

 

 

$

 

329,026

 

 

78

%

 

757

 

Refinanced by Bank customers

 

20,143

 

 

67

 

 

748

 

 

 

42,715

 

 

67

 

 

747

 

Correspondent purchased

 

33,565

 

 

74

 

 

760

 

 

 

122,447

 

 

74

 

 

762

 

 

$

 

173,308

 

 

77

 

 

759

 

 

$

 

494,188

 

 

76

 

 

757

 

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 nine month period ended June 30, 2019.

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

June 30, 2019

 

June 30, 2019

State

 

Amount

 

% of Total

 

Rate

 

Amount

 

% of Total

 

Rate

 

 

(Dollars in thousands)

Kansas

 

$

 

125,156

 

 

72.2

%

 

3.87

%

 

$

 

328,783

 

 

66.5

%

 

4.19

%

Missouri

 

 

28,413

 

 

16.4

 

 

3.99

 

 

 

77,727

 

 

15.7

 

 

4.25

 

Texas

 

 

11,932

 

 

6.9

 

 

4.22

 

 

 

51,366

 

 

10.4

 

 

4.19

 

Other states

 

 

7,807

 

 

4.5

 

 

4.31

 

 

 

36,312

 

 

7.4

 

 

4.36

 

 

$

 

173,308

100.0

%

3.93

$

 

494,188

100.0

%

4.21

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 June 30, 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

$

 

 

9,567

 

 

$

 

 

38,271

 

 

$

 

 

23,201

 

 

$

 

 

71,039

 

 

3.73

%

Correspondent

 

1,978

 

 

 

35,238

 

 

 

7,307

 

 

 

44,523

 

 

4.33

 

 

$

 

 

11,545

 

 

$

 

 

73,509

 

 

$

 

 

30,508

 

 

$

 

 

115,562

 

 

3.96

 

 

 

 

 

 

 

 

 

 

 

Rate

 

3.50

%

 

 

4.21

%

 

 

3.54

%

 

 

 

 

Commercial Loans: During the current year nine month period, the Bank originated $147.0 million of commercial loans and entered into commercial real estate loan participations totaling $78.5 million, which included $64.5 million of commercial real estate construction 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 June 30, 2019. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $483.2 million at a weighted average rate of 4.40% and adjustable-rate loans totaling $378.9 million at a weighted average rate of 5.03%. 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 June 30, 2019 having shorter terms to maturity.

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

(Dollars in thousands)

Real estate rental and leasing

$

 

247,817

 

 

$

 

52,334

 

 

$

 

300,151

 

 

$

 

8,899

 

 

$

 

309,050

 

 

33.4

%

Health care and social assistance

 

210,921

 

 

 

43,316

 

 

 

254,237

 

 

 

5,000

 

 

 

259,237

 

 

28.0

 

Accommodation and food services

 

161,503

 

 

 

30,371

 

 

 

191,874

 

 

 

40,000

 

 

 

231,874

 

 

25.0

 

Arts, entertainment, and recreation

 

35,068

 

 

 

 

 

35,068

 

 

 

 

 

35,068

 

 

3.8

 

Retail trade

 

27,610

 

 

 

2,585

 

 

 

30,195

 

 

 

 

 

30,195

 

 

3.3

 

Construction

 

14,880

 

 

 

2,123

 

 

 

17,003

 

 

 

 

 

17,003

 

 

1.8

 

Other

 

32,706

 

 

 

846

 

 

 

33,552

 

 

 

9,825

 

 

 

43,377

 

 

4.7

 

 

$

 

730,505

 

 

$

 

131,575

 

 

$

 

862,080

 

 

$

 

63,724

 

 

$

 

925,804

 

 

100.0

%

Weighted average rate

 

4.59

%

 

 

5.14

%

 

 

4.68

%

 

 

5.51

%

 

 

4.73

%

 

 

The following table summarizes the Bank's commercial real estate loans and loan commitments by state as of June 30, 2019.

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

(Dollars in thousands)

Kansas

$

 

281,901

 

 

$

 

15,974

 

 

$

 

297,875

 

 

$

 

14,324

 

 

$

 

312,199

 

 

33.7

%

Missouri

 

203,019

 

 

 

40,473

 

 

 

243,492

 

 

 

9,400

 

 

 

252,892

 

 

27.3

 

Texas

 

155,458

 

 

 

55,369

 

 

 

210,827

 

 

 

40,000

 

 

 

250,827

 

 

27.1

 

Nebraska

 

26,142

 

 

 

7,689

 

 

 

33,831

 

 

 

 

 

33,831

 

 

3.6

 

Kentucky

 

17,253

 

 

 

8,306

 

 

 

25,559

 

 

 

 

 

25,559

 

 

2.8

 

Colorado

 

9,289

 

 

 

 

 

9,289

 

 

 

 

 

9,289

 

 

1.0

 

Other

 

37,443

 

 

 

3,764

 

 

 

41,207

 

 

 

 

 

41,207

 

 

4.5

 

 

$

 

730,505

 

 

$

 

131,575

 

 

$

 

862,080

 

 

$

 

63,724

 

 

$

 

925,804

 

 

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 June 30, 2019.

 

Amount

 

(Dollars in thousands)

Greater than $30 million

$

 

225,533

 

>$15 to $30 million

 

243,437

 

>$10 to $15 million

 

59,160

 

>$5 to $10 million

 

88,730

 

$1 to $5 million

 

203,205

 

Less than $1 million

 

193,555

 

 

$

 

1,013,620

 

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") as of the dates indicated. Of the loans 30 to 89 days delinquent at June 30, 2019, approximately 79% 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:

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

September 30, 2018

 

June 30, 2018

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

94

 

 

$

 

7,749

 

 

79

 

 

$

 

8,694

 

 

118

 

 

$

 

9,765

 

 

129

 

 

$

 

10,647

 

 

104

 

 

$

 

7,639

 

Correspondent purchased

14

 

 

 

3,727

 

 

13

 

 

 

4,133

 

 

10

 

 

 

1,969

 

 

18

 

 

 

3,803

 

 

6

 

 

 

1,757

 

Bulk purchased

13

 

 

 

2,249

 

 

13

 

 

 

2,722

 

 

15

 

 

 

2,780

 

 

15

 

 

 

3,502

 

 

16

 

 

 

3,773

 

Commercial

12

 

 

 

1,699

 

 

13

 

 

 

1,361

 

 

2

 

 

 

64

 

 

6

 

 

 

322

 

 

1

 

 

 

40

 

Consumer

43

 

 

 

630

 

 

37

 

 

 

481

 

 

42

 

 

 

744

 

 

38

 

 

 

533

 

 

30

 

 

 

363

 

 

176

 

 

$

 

16,054

 

 

155

 

 

$

 

17,391

 

 

187

 

 

$

 

15,322

 

 

206

 

 

$

 

18,807

 

 

157

 

 

$

 

13,572

 

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

 

 

 

0.21

%

 

 

 

 

0.23

%

 

 

 

 

0.20

%

 

 

 

 

0.25

%

 

 

 

 

0.19

%

 

Non-Performing Loans and OREO at:

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

September 30, 2018

 

June 30, 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

58

 

 

$

 

5,069

 

 

67

 

 

$

 

5,172

 

 

69

 

 

$

 

5,301

 

 

67

 

 

$

 

5,040

 

 

64

 

 

$

 

5,043

 

Correspondent purchased

2

 

 

 

871

 

 

3

 

 

 

918

 

 

5

 

 

 

1,093

 

 

1

 

 

 

449

 

 

4

 

 

 

863

 

Bulk purchased

7

 

 

 

2,194

 

 

10

 

 

 

2,782

 

 

10

 

 

 

3,137

 

 

11

 

 

 

3,045

 

 

8

 

 

 

2,597

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

25

 

 

 

437

 

 

27

 

 

 

567

 

 

28

 

 

 

513

 

 

30

 

 

 

569

 

 

27

 

 

 

425

 

 

92

 

 

 

8,571

 

 

107

 

 

 

9,439

 

 

112

 

 

 

10,044

 

 

109

 

 

 

9,103

 

 

103

 

 

 

8,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

0.11

%

 

 

 

 

0.12

%

 

 

 

 

0.13

%

 

 

 

 

0.12

%

 

 

 

 

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

15

 

 

$

 

1,057

 

 

18

 

 

$

 

1,761

 

 

17

 

 

$

 

1,584

 

 

19

 

 

$

 

1,482

 

 

24

 

 

$

 

2,469

 

Correspondent purchased

 

 

 

 

 

 

 

 

1

 

 

 

298

 

 

2

 

 

 

396

 

 

1

 

 

 

95

 

Bulk purchased

2

 

 

 

374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

340

 

Commercial

1

 

 

 

7

 

 

2

 

 

 

1,712

 

 

2

 

 

 

1,776

 

 

 

 

 

 

 

 

 

Consumer

2

 

 

 

4

 

 

3

 

 

 

14

 

 

3

 

 

 

13

 

 

2

 

 

 

9

 

 

4

 

 

 

68

 

 

20

 

 

 

1,442

 

 

23

 

 

 

3,487

 

 

23

 

 

 

3,671

 

 

23

 

 

 

1,887

 

 

30

 

 

 

2,972

 

Total non-performing loans

112

 

 

 

10,013

 

 

130

 

 

 

12,926

 

 

135

 

 

 

13,715

 

 

132

 

 

 

10,990

 

 

133

 

 

 

11,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans as a percentage of total loans

 

 

0.13

%

 

 

 

 

0.17

%

 

 

 

 

0.18

%

 

 

 

 

0.15

%

 

 

 

 

0.16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

8

 

 

$

 

546

 

 

5

 

 

$

 

549

 

 

4

 

 

$

 

588

 

 

8

 

 

$

 

843

 

 

4

 

 

$

 

208

 

Bulk purchased

 

 

 

 

1

 

 

 

322

 

 

1

 

 

 

322

 

 

1

 

 

 

454

 

 

2

 

 

 

689

 

Commercial

1

 

 

 

600

 

 

1

 

 

 

600

 

 

1

 

 

 

600

 

 

1

 

 

 

600

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

1,146

 

 

7

 

 

 

1,471

 

 

6

 

 

 

1,510

 

 

10

 

 

 

1,897

 

 

6

 

 

 

897

 

Total non-performing assets

121

 

 

$

 

11,159

 

 

137

 

 

$

 

14,397

 

 

141

 

 

$

 

15,225

 

 

142

 

 

$

 

12,887

 

 

139

 

 

$

 

12,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

 

0.12

%

 

 

 

 

0.15

%

 

 

 

 

0.16

%

 

 

 

 

0.14

%

 

 

 

 

0.14

%

(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 table presents loans classified as special mention or substandard at the dates presented. The increase in special mention loans during the current quarter was due primarily to one $50.0 million commercial real estate loan. The loan relates to a recently opened large hotel and convention center in a high growth area in the central-southern United States. Management has identified credit weaknesses associated with this loan, including a debt service coverage ratio below policy, the development surrounding the hotel and convention center has been slower than initially anticipated, and construction delays have occurred. The Bank has personal guarantees from members of a financially strong borrowing group. Due to the identified credit weaknesses, management made the decision to classify the loan as special mention during the current quarter. Management continues to closely monitor the hotel and convention center and surrounding activities.

 

June 30, 2019

 

March 31, 2019

 

September 30, 2018

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

 

12,528

 

 

$

 

25,657

 

 

$

 

11,943

 

 

$

 

28,774

 

 

$

 

9,705

 

 

$

 

32,866

 

Commercial

 

55,021

 

 

 

5,999

 

 

 

5,330

 

 

 

1,712

 

 

 

2,456

 

 

 

1,793

 

Consumer

 

172

 

 

 

696

 

 

 

126

 

 

 

882

 

 

 

298

 

 

 

911

 

 

$

 

67,721

 

 

$

 

32,352

 

 

$

 

17,399

 

 

$

 

31,368

 

 

$

 

12,459

 

 

$

 

35,570

 

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

 

For the Three Months Ended

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

2019

 

2019

 

2018

 

2018

 

2018

 

(Dollars in thousands)

Balance at beginning of period

$

8,619

 

 

$

8,558

 

 

$

8,463

 

 

$

8,344

 

 

$

8,390

 

Charge-offs:

 

 

 

 

 

 

 

 

 

One- to four-family

(45

)

 

(10

)

 

(46

)

 

(14

)

 

(51

)

Commercial

 

 

 

 

 

 

 

 

 

Consumer

(16

)

 

(2

)

 

(10

)

 

 

 

(3

)

Total charge-offs

(61

)

 

(12

)

 

(56

)

 

(14

)

 

(54

)

Recoveries:

 

 

 

 

 

 

 

 

 

One- to four-family

3

 

 

19

 

 

92

 

 

123

 

 

4

 

Commercial

17

 

 

25

 

 

2

 

 

 

 

 

Consumer

8

 

 

29

 

 

57

 

 

10

 

 

4

 

Total recoveries

28

 

 

73

 

 

151

 

 

133

 

 

8

 

Net (charge-offs) recoveries

(33

)

 

61

 

 

95

 

 

119

 

 

(46

)

Provision for credit losses

450

 

 

 

 

 

 

 

 

 

Balance at end of period

$

9,036

 

 

$

8,619

 

 

$

8,558

 

 

$

8,463

 

 

$

8,344

 

 

 

 

 

 

 

 

 

 

 

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

0.26

 

 

(0.41

)

 

(0.68

)

 

(0.93

)

 

0.33

 

ACL to non-performing loans at end of period

90.24

 

 

66.68

 

 

62.40

 

 

77.01

 

 

70.12

 

ACL to loans receivable, net at end of period

0.12

 

 

0.11

 

 

0.11

 

 

0.11

 

 

0.12

 

ACL to net charge-offs (annualized)

68.1x

 

N/M(1)

 

N/M(1)

 

N/M(1)

 

45.3x

 

For the Nine Months Ended

 

June 30,

 

2019

 

2018

 

(Dollars in thousands)

Balance at beginning of period

$

 

8,463

 

 

$

 

8,398

 

Charge-offs:

 

 

 

One- to four-family

 

(101

)

 

 

(250

)

Commercial

 

 

 

Consumer

 

(28

)

 

 

(38

)

Total charge-offs

 

(129

)

 

 

(288

)

Recoveries:

 

 

 

One- to four-family

 

114

 

 

 

217

 

Commercial

 

44

 

 

 

Consumer

 

94

 

 

 

17

 

Total recoveries

 

252

 

 

 

234

 

Net recoveries (charge-offs)

 

123

 

 

 

(54

)

Provision for credit losses

 

450

 

 

 

Balance at end of period

$

 

9,036

 

 

$

 

8,344

 

 

 

 

 

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

 

(1.02

)

 

 

0.35

 

ACL to net charge-offs (annualized)

N/M(1)

 

116.8x

(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. During the current quarter, the Bank recorded a $450 thousand provision for credit losses due mainly to the classification of a $50.0 million commercial real estate loan as special mention, along with commercial loan growth. 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 June 30, 2019.

 

At

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

2019

 

2019

 

2018

 

2018

 

2018

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

Originated

$

 

2,019

 

 

$

 

2,157

 

 

$

 

2,740

 

 

$

 

2,933

 

 

$

 

3,008

 

Correspondent purchased

 

1,275

 

 

 

1,392

 

 

 

1,748

 

 

 

1,861

 

 

 

1,923

 

Bulk purchased

 

742

 

 

 

802

 

 

 

836

 

 

 

925

 

 

 

1,000

 

Construction

 

17

 

 

 

16

 

 

 

21

 

 

 

20

 

 

 

21

 

Total

 

4,053

 

 

 

4,367

 

 

 

5,345

 

 

 

5,739

 

 

 

5,952

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate

 

3,394

 

 

 

2,783

 

 

 

2,056

 

 

 

1,801

 

 

 

1,784

 

Commercial and industrial

 

256

 

 

 

224

 

 

 

55

 

 

 

21

 

 

 

Construction

 

1,182

 

 

 

1,081

 

 

 

923

 

 

 

734

 

 

 

446

 

Total

 

4,832

 

 

 

4,088

 

 

 

3,034

 

 

 

2,556

 

 

 

2,230

 

Consumer

 

151

 

 

 

164

 

 

 

179

 

 

 

168

 

 

 

162

 

Total

$

 

9,036

 

 

$

 

8,619

 

 

$

 

8,558

 

 

$

 

8,463

 

 

$

 

8,344

 

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 74% of our securities portfolio at June 30, 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.

 

June 30, 2019

 

March 31, 2019

 

September 30, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Fixed-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

$

 

647,484

 

 

2.47

%

 

3.0

 

 

$

 

671,771

 

 

2.47

%

 

3.2

 

 

$

 

732,095

 

 

2.43

%

 

3.0

 

U.S. government-sponsored enterprise debentures

 

252,795

 

 

2.35

 

 

1.0

 

 

 

268,375

 

 

2.44

 

 

1.0

 

 

 

268,525

 

 

2.09

 

 

2.3

 

Municipal bonds

 

21,107

 

 

1.63

 

 

1.0

 

 

 

21,155

 

 

1.61

 

 

1.3

 

 

 

24,574

 

 

1.56

 

 

1.8

 

Total fixed-rate securities

 

921,386

 

 

2.42

 

 

2.4

 

 

 

961,301

 

 

2.44

 

 

2.6

 

 

 

1,025,194

 

 

2.32

 

 

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustable-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

 

321,693

 

 

3.11

 

 

4.3

 

 

 

308,134

 

 

3.12

 

 

4.9

 

 

 

305,688

 

 

2.89

 

 

4.5

 

Total securities portfolio

$

 

1,243,079

 

 

2.60

 

 

2.9

 

 

$

 

1,269,435

 

 

2.61

 

 

3.1

 

 

$

 

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

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

September 30, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning 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

 

Maturities and repayments

 

(74,335

)

 

 

 

 

 

 

(62,702

)

 

 

 

 

 

 

(67,214

)

 

 

 

 

 

 

(77,985

)

 

 

 

 

Net amortization of (premiums)/discounts

 

(375

)

 

 

 

 

 

 

(310

)

 

 

 

 

 

 

(349

)

 

 

 

 

 

 

(624

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

23,620

 

 

2.74

 

 

3.8

 

 

 

28,921

 

 

2.89

 

 

5.1

 

 

 

 

 

 

 

 

 

74,178

 

 

3.11

 

 

3.7

 

Adjustable

 

40,362

 

 

2.79

 

 

4.5

 

 

 

43,776

 

 

2.69

 

 

4.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities added in CCB acquisition, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85,741

 

 

3.13

 

 

2.5

 

Change in valuation on AFS securities

 

4,690

 

 

 

 

 

 

 

3,066

 

 

 

 

 

 

 

3,116

 

 

 

 

 

 

 

(2,589

)

 

 

 

 

Ending balance - carrying value

$

 

979,256

 

 

2.68

 

 

3.4

 

 

$

 

985,294

 

 

2.67

 

 

3.7

 

 

$

 

972,543

 

 

2.62

 

 

3.6

 

 

$

 

1,036,990

 

 

2.57

 

 

3.4

 

 

For the Nine Months Ended

 

June 30, 2019

 

June 30, 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

 

(204,251

)

 

 

 

 

 

 

(199,479

)

 

 

 

 

Net amortization of (premiums)/discounts

 

(1,034

)

 

 

 

 

 

 

(2,344

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

52,541

 

 

2.82

 

 

4.5

 

 

 

127,693

 

 

2.82

 

 

4.3

 

Adjustable

 

84,138

 

 

2.74

 

 

4.4

 

 

 

94,028

 

 

2.42

 

 

4.2

 

Change in valuation on AFS securities

 

10,872

 

 

 

 

 

 

 

(4,076

)

 

 

 

 

Ending balance - carrying value

$

 

979,256

 

 

2.68

 

 

3.4

 

 

$

 

958,269

 

 

2.46

 

 

3.7

 

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

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

September 30, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning 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

 

Maturities, calls and sales

 

(65,781

)

 

 

 

 

 

 

(76,635

)

 

 

 

 

 

 

(26,665

)

 

 

 

 

 

 

(2,010

)

 

 

 

 

Net amortization of (premiums)/discounts

 

153

 

 

 

 

 

 

 

(39

)

 

 

 

 

 

 

(39

)

 

 

 

 

 

 

(48

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

50,000

 

 

2.60

 

 

1.0

 

 

 

99,809

 

 

2.67

 

 

0.7

 

 

 

 

 

 

 

 

 

24,996

 

 

3.01

 

 

3.0

 

Securities added in CCB acquisition, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,855

 

 

2.12

 

 

1.0

 

Change in valuation on AFS securities

 

729

 

 

 

 

 

 

 

977

 

 

 

 

 

 

 

1,544

 

 

 

 

 

 

 

(465

)

 

 

 

 

Ending balance - carrying value

$

 

273,995

 

 

2.30

 

 

1.0

 

 

$

 

288,894

 

 

2.38

 

 

1.0

 

 

$

 

264,782

 

 

2.14

 

 

1.8

 

 

$

 

289,942

 

 

2.05

 

 

2.2

 

 

For the Nine Months Ended

 

June 30, 2019

 

June 30, 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

 

(169,081

)

 

 

 

 

 

 

(127,828

)

 

 

 

 

Net amortization of (premiums)/discounts

 

75

 

 

 

 

 

 

 

(134

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

149,809

 

 

2.65

 

 

0.8

 

 

 

90,564

 

 

2.80

 

 

1.5

 

Change in valuation on AFS securities

 

3,250

 

 

 

 

 

 

 

(2,110

)

 

 

 

 

Ending balance - carrying value

$

 

273,995

 

 

2.30

 

 

1.0

 

 

$

 

261,614

 

 

1.95

 

 

2.2

 

 

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.

 

June 30, 2019

 

March 31, 2019

 

September 30, 2018

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

362,216

 

 

%

 

6.5

%

 

$

361,126

 

 

%

 

6.3

%

 

$

336,454

 

 

%

 

6.0

%

Interest-bearing checking

744,183

 

 

0.09

 

 

13.3

 

 

768,856

 

 

0.08

 

 

13.5

 

 

724,066

 

 

0.08

 

 

12.9

 

Savings

327,077

 

 

0.05

 

 

5.9

 

 

361,204

 

 

0.06

 

 

6.3

 

 

352,896

 

 

0.07

 

 

6.3

 

Money market

1,244,039

 

 

0.71

 

 

22.3

 

 

1,287,753

 

 

0.72

 

 

22.6

 

 

1,252,881

 

 

0.47

 

 

22.4

 

Retail/business certificates of deposit

2,560,469

 

 

2.01

 

 

45.9

 

 

2,522,044

 

 

1.93

 

 

44.3

 

 

2,529,368

 

 

1.79

 

 

45.1

 

Public unit certificates of deposit

342,887

 

 

2.32

 

 

6.1

 

 

400,128

 

 

2.22

 

 

7.0

 

 

407,689

 

 

1.89

 

 

7.3

 

 

$

5,580,871

 

 

1.24

 

 

100.0

%

 

$

5,701,111

 

 

1.19

 

 

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 June 30, 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%

 

$

 

46,351

 

 

$

 

3,105

 

 

$

 

182

 

 

$

 

7

 

 

$

 

49,645

 

 

0.69

%

1.00 – 1.99%

 

 

785,713

 

 

 

364,142

 

 

 

231,544

 

 

 

56,969

 

 

 

1,438,368

 

 

1.76

 

2.00 – 2.99%

 

 

684,229

 

 

 

167,525

 

 

 

162,141

 

 

 

401,207

 

 

 

1,415,102

 

 

2.38

 

3.00 – 3.99%

 

 

 

 

 

 

 

 

241

 

 

 

241

 

 

3.00

 

 

 

$

 

1,516,293

 

 

$

 

534,772

 

 

$

 

393,867

 

 

$

 

458,424

 

 

$

 

2,903,356

 

 

2.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of total

 

 

52.2

%

 

 

18.4

%

 

 

13.6

%

 

 

15.8

%

 

 

 

 

Weighted average rate

 

 

1.94

 

 

 

1.98

 

 

 

2.12

 

 

 

2.40

 

 

 

 

 

Weighted average maturity (in years)

 

 

0.5

 

 

 

1.4

 

 

 

2.5

 

 

 

3.5

 

 

 

1.4

 

 

 

Weighted average maturity for the retail/business certificate of deposit portfolio (in years)

 

1.5

 

 

 

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 June 30, 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

 

$

100,000

 

 

$

275,000

 

 

$

 

 

2.32

 

 

2.38

 

2020

 

350,000

 

 

365,000

 

 

100,000

 

 

2.30

 

 

2.35

 

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

 

 

 

$

1,400,000

 

 

$

640,000

 

 

$

100,000

 

 

2.32

 

 

2.35

 

(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 4.6 years at June 30, 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 June 30, 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 nine month period was 2.58%.

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 June 30, 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)

September 30, 2019

 

$