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

TOPEKA, Kan.--(BUSINESS WIRE)--

Capitol Federal Financial, Inc.® (CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended March 31, 2019. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which will be filed with the Securities and Exchange Commission ("SEC") on or about May 10, 2019 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

  • net income of $24.6 million;
  • basic and diluted earnings per share of $0.18;
  • net interest margin of 2.33%;
  • originated $92.7 million of commercial loans;
  • annualized deposit portfolio growth of 10%; and
  • paid dividends of $11.7 million, or $0.085 per share.

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

The acquisition of Capital City Bank, a commercial bank with $450 million in assets, allows us to advance our commercial banking strategy through enhanced commercial deposit and lending products while managing to stay under $10 billion in assets. The acquisition allows the Bank to compete for commercial banking business through a wide variety of commercial deposit services and expanded commercial lending products, as well as trust and brokerage services. A few of the potential benefits of expanding the commercial banking business include the following:

  • the ability to reinvest correspondent loan repayments into higher yielding commercial loans;
  • the ability to reduce the cost of funds by replacing Federal Home Loan Bank Topeka ("FHLB") borrowings and wholesale deposits with lower-costing commercial deposits;
  • the ability to reduce the Bank's loans-to-deposits ratio as a result of an increase in commercial deposits;
  • the ability to diversify the Bank's revenue streams and increased cross-selling opportunities by leveraging access to new products for existing customers and expanding our new customer base; and
  • the ability to increase earnings through a remix of assets, diversified revenue sources and lower cost funding.

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

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

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

Interest and Dividend Income

The weighted average yield on total interest-earning assets for the current quarter increased eight basis points, from 3.56% for the prior quarter to 3.64% for the current quarter, while the average balance of interest-earning assets decreased $204.6 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased five basis points, from 3.59% for the prior quarter to 3.64% for the current quarter, and the average balance of interest-earning assets would have increased $23.6 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

      For the Three Months Ended            
March 31,       December 31, Change Expressed in:
2019 2018 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 71,657 $ 70,772 $ 885 1.3 %
Mortgage-backed securities ("MBS") 6,301 6,523 (222 ) (3.4 )
FHLB stock 1,831 1,971 (140 ) (7.1 )
Investment securities 1,505 1,441 64 4.4
Cash and cash equivalents 743   1,714   (971 ) (56.7 )
Total interest and dividend income $ 82,037   $ 82,421   $ (384 ) (0.5 )
 

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

The decrease in interest income on the MBS portfolio was due to a $47.7 million decrease in the average balance of the portfolio, partially offset by a four basis point increase in the weighted average yield on the portfolio to 2.63% for the current quarter. The increase in the weighted average yield was due primarily to a decrease in net premium amortization in the current quarter, as well as adjustable-rate MBS repricing to higher market rates. Net premium amortization of $309 thousand during the current quarter decreased the weighted average yield on the portfolio by 12 basis points. During the prior quarter, $349 thousand of net premiums were amortized which decreased the weighted average yield on the portfolio by 14 basis points. As of March 31, 2019, the remaining net balance of premiums on our portfolio of MBS was $2.4 million.

The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy. Interest income on cash and cash equivalents not related to the leverage strategy increased $255 thousand from the prior quarter due to a $37.5 million increase in the average balance, as well as a 19 basis point increase in the weighted average yield, which was related to balances held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City"). Interest income on cash associated with the leverage strategy decreased $1.2 million from the prior quarter due to the leverage strategy not being in place during the current quarter. See additional discussion regarding the leverage strategy in the Financial Condition section below.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities for the current quarter increased three basis points, from 1.48% for the prior quarter to 1.51% for the current quarter, while the average balance of interest-bearing liabilities decreased $130.3 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased five basis points, from 1.46% for the prior quarter to 1.51% for the current quarter, and the average balance of interest-bearing liabilities would have increased $97.9 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

      For the Three Months Ended            
March 31,       December 31, Change Expressed in:
2019 2018 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits $ 16,096 $ 15,725 $ 371 2.4 %
FHLB borrowings 12,525 13,530 (1,005 ) (7.4 )
Other borrowings 819   865   (46 ) (5.3 )
Total interest expense $ 29,440   $ 30,120   $ (680 ) (2.3 )
 

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

The table above includes interest expense on FHLB borrowings associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy increased $372 thousand from the prior quarter due to a 10 basis point increase in the weighted average rate paid, to 2.30% for the current quarter. The increase in the weighted average rate paid was due mainly to a full quarter impact of advances that matured in the prior quarter being replaced at higher market rates. Interest expense on FHLB borrowings associated with the leverage strategy decreased $1.4 million from the prior quarter due to the leverage strategy not being in place during the current quarter.

Provision for Credit Losses

The Bank did not record a provision for credit losses during the current quarter or the prior quarter. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, it was determined that no provision for credit losses was necessary. Net loan recoveries were $61 thousand during the current quarter compared to $95 thousand in the prior quarter. At March 31, 2019, loans 30 to 89 days delinquent were 0.23% of total loans and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans. At December 31, 2018, loans 30 to 89 days delinquent were 0.20% of total loans and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans. See additional ACL discussion in the Supplemental Financial Information – Asset Quality section of this release.

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

      For the Three Months Ended            
March 31,       December 31, Change Expressed in:
2019 2018 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees $ 3,091 $ 3,352 $ (261 ) (7.8 )%
Income from bank-owned life insurance ("BOLI") 587 635 (48 ) (7.6 )
Other non-interest income 1,323   1,437   (114 ) (7.9 )
Total non-interest income $ 5,001   $ 5,424   $ (423 ) (7.8 )
 

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

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

      For the Three Months Ended            
March 31,       December 31, Change Expressed in:
2019 2018 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 12,789 $ 12,962 $ (173 ) (1.3 )%
Information technology and related expense 4,284 4,599 (315 ) (6.8 )
Occupancy, net 3,292 3,252 40 1.2
Regulatory and outside services 1,056 1,766 (710 ) (40.2 )
Advertising and promotional 1,390 760 630 82.9
Deposit and loan transaction costs 465 736 (271 ) (36.8 )
Office supplies and related expense 736 459 277 60.3
Federal insurance premium 659 528 131 24.8
Other non-interest expense 1,470   1,720   (250 ) (14.5 )
Total non-interest expense $ 26,141   $ 26,782   $ (641 ) (2.4 )
 

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

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

Income Tax Expense

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

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

The Company recognized net income of $48.9 million, or $0.36 per share, for the six month period ended March 31, 2019, compared to net income of $55.2 million, or $0.41 per share, for the six month period ended March 31, 2018. The decrease in net income was due primarily to the prior year six month period including the impact of the enactment of the Tax Cuts and Jobs Act (the "Tax Act") as discussed below, as well as an increase in non-interest expense. These changes were partially offset by an increase in net interest income due primarily to the higher yielding loans added in the CCB acquisition. The Tax Act reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate income tax rate. The revaluation reduced income tax expense by $7.5 million.

The net interest margin increased 45 basis points, from 1.85% for the prior year six month period to 2.30% for the current year six month period. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. The leverage strategy was suspended at certain times during the current year six month period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City making the transaction unprofitable. See additional discussion regarding the leverage strategy in the Financial Condition section below. Excluding the effects of the leverage strategy, the net interest margin would have increased 11 basis points, from 2.22% for the prior year six month period to 2.33% for the current year six month period. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans in the CCB acquisition.

Interest and Dividend Income

The weighted average yield on total interest-earning assets increased 58 basis points, from 3.02% for the prior year six month period to 3.60% for the current year six month period, while the average balance of interest-earning assets decreased $1.62 billion from the prior year six month period. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 29 basis points, from 3.33% for the prior year six month period to 3.62% for the current year six month period, and the average balance of interest-earning assets would have increased $272.1 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.

      For the Six Months Ended            
March 31, Change Expressed in:
2019       2018 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 142,429 $ 128,383 $ 14,046 10.9 %
MBS 12,824 10,642 2,182 20.5
FHLB stock 3,802 6,296 (2,494 ) (39.6 )
Investment securities 2,946 2,088 858 41.1
Cash and cash equivalents 2,457   15,009   (12,552 ) (83.6 )
Total interest and dividend income $ 164,458   $ 162,418   $ 2,040   1.3
 

The increase in interest income on loans receivable was due to a $347.4 million increase in the average balance of the portfolio, as well as a 20 basis point increase in the weighted average yield on the portfolio to 3.77% for the current year six month period. The increase in the average balance was due mainly to the acquisition of CCB. The increase in the weighted average yield was also due mainly to the addition of higher yielding loans associated with the CCB acquisition, as well as adjustable-rate loans repricing to higher market rates and the origination and purchase of new loans at higher market rates.

The increase in interest income on the MBS portfolio was due to a 33 basis point increase in the weighted average yield on the portfolio to 2.61% for the current year six month period, along with a $48.6 million increase in the average balance of the portfolio. The increase in the weighted average yield was due primarily to a decrease in the impact of net premium amortization, as well as adjustable-rate MBS repricing to higher market rates. Net premium amortization of $659 thousand during the current year six month period decreased the weighted average yield on the portfolio by 13 basis points. During the prior year six month period, $1.6 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 35 basis points.

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

The increase in interest income on the investment securities portfolio was due to a 75 basis point increase in the weighted average yield on the portfolio to 2.13%. The increase in the weighted average yield was primarily a result of replacing maturing securities at higher market rates.

The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy. Interest income on cash and cash equivalents not related to the leverage strategy decreased $155 thousand from the prior year six month period due to a $98.9 million decrease in the average balance, partially offset by a 97 basis point increase in the weighted average yield which was related to cash balances held at the FRB of Kansas City. Interest income on cash associated with the leverage strategy decreased $12.4 million from the prior year six month period due to a $1.80 billion decrease in the average balance, as the leverage strategy was in place less often during the current year six month period.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities increased 17 basis points, from 1.32% for the prior year six month period to 1.49% for the current year six month period, while the average balance of interest-bearing liabilities decreased $1.58 billion from the prior year six month period. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 19 basis points, from 1.29% for the prior year six month period to 1.48% for the current year six month period, and the average balance of interest-bearing liabilities would have increased $315.2 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

      For the Six Months Ended            
March 31, Change Expressed in:
2019       2018 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits $ 31,821 $ 24,441 $ 7,380 30.2 %
FHLB borrowings 26,055 36,689 (10,634 ) (29.0 )
Other borrowings 1,684   2,025   (341 ) (16.8 )
Total interest expense $ 59,560   $ 63,155   $ (3,595 ) (5.7 )
 

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

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

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

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

      For the Six Months Ended            
March 31, Change Expressed in:
2019       2018 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees $ 6,443 $ 7,635 $ (1,192 ) (15.6 )%
Income from BOLI 1,222 810 412 50.9
Other non-interest income 2,760   2,346   414   17.6  
Total non-interest income $ 10,425   $ 10,791   $ (366 ) (3.4 )
 

The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard during the current year six month period. Previously, interchange network charges were reported in deposit and loan expense. Upon adoption of the new revenue recognition accounting standard on October 1, 2018, interchange transaction fee income is reported net of interchange network charges, which totaled $1.7 million during the current year six month period and $1.5 million during the prior year six month period.

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

The increase in other non-interest income was due mainly to revenues from the trust asset management operations acquired from CCB. Additionally, the prior year six month period included a loss on the sale of loans as management tested loan sale processes for liquidity purposes, and there were no loan sales in the current year six month period.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

      For the Six Months Ended            
March 31, Change Expressed in:
2019       2018 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 25,751 $ 21,695 $ 4,056 18.7 %
Information technology and related expense 8,883 6,953 1,930 27.8
Occupancy, net 6,544 5,604 940 16.8
Regulatory and outside services 2,822 2,291 531 23.2
Advertising and promotional 2,150 2,022 128 6.3
Deposit and loan transaction costs 1,201 2,720 (1,519 ) (55.8 )
Office supplies and related expense 1,195 884 311 35.2
Federal insurance premium 1,187 1,699 (512 ) (30.1 )
Other non-interest expense 3,190   1,766   1,424   80.6  
Total non-interest expense $ 52,923   $ 45,634   $ 7,289   16.0
 

The increase in salaries and employee benefits was due primarily to $3.2 million of expense related to former CCB employees during the current year six month period, as well as an increase due to salary adjustments. The increase in information technology and related expense was due mainly to an increase in software licensing, costs related to the integration of CCB operations, and accelerated depreciation related to the implementation of enhancements to the Bank's information technology infrastructure. The increase in occupancy, net was due primarily to expenses related to properties acquired in the CCB acquisition. The increase in regulatory and outside services was due mainly to an increase in consulting expenses as well as expenses related to the acquisition of CCB. The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition standard as discussed above. The decrease in federal insurance premium was due primarily to a decrease in average assets as a result of a reduction in the usage of the leverage strategy in the current year six month period. The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB.

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

Income Tax Expense

Income tax expense was $13.5 million for the current year six month period compared to $9.3 million for the prior year six month period. The effective tax rate was 21.6% for the current year six month period compared to 14.4% for the prior year six month period. The increase in the effective tax rate compared to the prior year six month period was due mainly to the Tax Act being signed into law in December 2017. In accordance with GAAP, the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate tax rate which reduced income tax expenses by $7.5 million.

Financial Condition as of March 31, 2019

The loans receivable portfolio, net, totaled $7.57 billion at March 31, 2019 compared to $7.51 billion at September 30, 2018. During the current year six month period, the Bank originated and refinanced $268.8 million of one- to four-family and consumer loans with a weighted average rate of 4.63% and purchased $88.9 million of one- to four-family loans from correspondent lenders with a weighted average rate of 4.32%. The Bank also originated $122.7 million of commercial loans with a weighted average rate of 4.94% and entered into commercial real estate loan participations totaling $72.6 million with a weighted average rate of 5.44%, of which $37.9 million had not yet been funded as of March 31, 2019.

The Bank is continuing to manage the size and mix of its loan portfolio, while managing liquidity levels as measured by the ratio of securities and cash to total assets, to a target level of approximately 15%. The ratio of securities and cash to total assets was 15.7% at March 31, 2019. Management intends to continue to manage the size and mix of the loan portfolio by utilizing cash flows from the correspondent one- to four-family loan portfolio to fund commercial loan growth. Given the balance of total assets, it is unlikely that net loan growth will substantially increase in the current environment. Generally, over the past few years, cash flows from the securities portfolio have been used primarily to purchase loans and in part to pay down FHLB advances. By moving cash from lower yielding assets to higher yielding assets and repaying higher costing liabilities, we have been able to maintain our net interest margin. In addition to the repayment of securities, the Bank has emphasized growth in the deposit portfolio in part to pay down term borrowings.

At times, the Bank has utilized a leverage strategy to increase earnings in fiscal year 2019. The leverage strategy during the current year six month period involved borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end, or earlier if the strategy was suspended. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 7.3% during the current year six month period, were deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $14 thousand during the current year six month period, compared to $1.5 million during the prior year six month period. The decrease was due mainly to the strategy being suspended for the majority of the current year six month period due to the large negative interest rate spread making the strategy unprofitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

Stockholders' equity was $1.36 billion at March 31, 2019 compared to $1.39 billion at September 30, 2018. The $35.6 million decrease was due primarily to the payment of $77.1 million in cash dividends, partially offset by net income of $48.9 million. In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital. At March 31, 2019, this ratio was 12.8%. The cash dividends paid during the current year six month period totaled $0.56 per share and consisted of a $0.39 per share cash true-up dividend related to fiscal year 2018 earnings per the Company's dividend policy, and two regular quarterly cash dividends totaling $0.17 per share. On April 17, 2019, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on May 17, 2019 to stockholders of record as of the close of business on May 3, 2019.

At March 31, 2019, Capitol Federal Financial, Inc., at the holding company level, had $102.7 million on deposit at the Bank. For fiscal year 2019, it is the intent of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.

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

The following table presents the balance of stockholders' equity and related information as of the dates presented.

      March 31,       September 30,       March 31,
2019 2018 2018
(Dollars in thousands)
Stockholders' equity $ 1,355,983 $ 1,391,622 $ 1,364,740
Equity to total assets at end of period 14.2 % 14.7 % 15.0 %
 

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

Total shares outstanding               141,279,239
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock (3,601,308 )
Net shares outstanding 137,677,931  
 

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of March 31, 2019, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at March 31, 2019.

                          Regulatory
Requirement For
Bank Well-Capitalized
Ratios Status
Tier 1 leverage ratio 12.9 % 5.0 %
Common equity tier 1 capital ratio 24.7 6.5
Tier 1 capital ratio 24.7 8.0
Total capital ratio 24.8 10.0
 

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

Total Bank equity as reported under GAAP               $ 1,216,532
Accumulated Other Comprehensive Income ("AOCI") 5,416
Goodwill and other intangibles, net of deferred tax liabilities (14,641 )
Total tier 1 capital 1,207,307
ACL 8,619  
Total capital $ 1,215,926  
 

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 54 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas. News and other information about the Company can be found at the Bank's website, http://www.capfed.com.

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

SUPPLEMENTAL FINANCIAL INFORMATION

 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
              March 31,           September 30,
2019 2018
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $199,476 and $122,733) $ 218,051 $ 139,055
Securities:
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $741,975 and $718,564) 746,728 714,614
Held-to-maturity, at amortized cost (estimated fair value of $526,099 and $601,071) 527,460 612,318
Loans receivable, net (ACL of $8,619 and $8,463) 7,570,806 7,514,485
FHLB stock, at cost 102,631 99,726
Premises and equipment, net 96,492 96,005
Income taxes receivable, net 2,177
Other assets 272,383   271,167  
TOTAL ASSETS $ 9,534,551   $ 9,449,547  
 
LIABILITIES:
Deposits $ 5,701,111 $ 5,603,354
FHLB borrowings 2,239,985 2,174,981
Other borrowings 100,000 110,052
Advance payments by borrowers for taxes and insurance 48,301 65,264
Income taxes payable, net 115
Deferred income tax liabilities, net 17,375 21,253
Accounts payable and accrued expenses 71,681   83,021  
Total liabilities 8,178,568 8,057,925
 
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued or outstanding

Common stock, $0.01 par value; 1,400,000,000 shares authorized, 141,279,239 and 141,225,516 shares issued and outstanding as of March 31, 2019 and September 30, 2018, respectively

1,413 1,412
Additional paid-in capital 1,208,665 1,207,644
Unearned compensation, ESOP (35,517 ) (36,343 )
Retained earnings 186,838 214,569
AOCI, net of tax (5,416 ) 4,340  
Total stockholders' equity 1,355,983   1,391,622  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,534,551   $ 9,449,547  
 
 
 
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
 
      For the Three Months Ended       For the Six Months Ended
March 31,       December 31, March 31,
2019 2018 2019       2018
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 71,657 $ 70,772 $ 142,429 $ 128,383
MBS 6,301 6,523 12,824 10,642
FHLB stock 1,831 1,971 3,802 6,296
Investment securities 1,505 1,441 2,946 2,088
Cash and cash equivalents 743   1,714   2,457   15,009  
Total interest and dividend income 82,037 82,421 164,458 162,418
 
INTEREST EXPENSE:
Deposits 16,096 15,725 31,821 24,441
FHLB borrowings 12,525 13,530 26,055 36,689
Other borrowings 819   865   1,684   2,025  
Total interest expense 29,440   30,120   59,560   63,155  
 
NET INTEREST INCOME 52,597 52,301 104,898 99,263
 
PROVISION FOR CREDIT LOSSES        

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

52,597 52,301 104,898 99,263
 
NON-INTEREST INCOME:
Deposit service fees 3,091 3,352 6,443 7,635
Income from BOLI 587 635 1,222 810
Other non-interest income 1,323   1,437   2,760   2,346  
Total non-interest income 5,001 5,424 10,425 10,791
 
NON-INTEREST EXPENSE:
Salaries and employee benefits 12,789 12,962 25,751 21,695
Information technology and related expense 4,284 4,599 8,883 6,953
Occupancy, net 3,292 3,252 6,544 5,604
Regulatory and outside services 1,056 1,766 2,822 2,291
Advertising and promotional 1,390 760 2,150 2,022
Deposit and loan transaction costs 465 736 1,201 2,720
Office supplies and related expense 736 459 1,195 884
Federal insurance premium 659 528 1,187 1,699
Other non-interest expense 1,470   1,720   3,190   1,766  
Total non-interest expense 26,141   26,782   52,923   45,634  
INCOME BEFORE INCOME TAX EXPENSE 31,457 30,943 62,400 64,420
INCOME TAX EXPENSE 6,903   6,560   13,463   9,254  
NET INCOME $ 24,554   $ 24,383   $ 48,937   $ 55,166  
 
 

The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.

      For the Three Months Ended       For the Six Months Ended
March 31,       December 31, March 31,
2019 2018 2019       2018
(Dollars in thousands, except per share amounts)
 
Net income $ 24,554 $ 24,383 $ 48,937 $ 55,166
Income allocated to participating securities (10 ) (9 ) (19 ) (23 )
Net income available to common stockholders $ 24,544   $ 24,374   $ 48,918   $ 55,143  
 
Average common shares outstanding 137,593,062 137,550,471 137,571,533 134,379,424
Average committed ESOP shares outstanding 41,758   449   20,876   20,876  
Total basic average common shares outstanding 137,634,820 137,550,920 137,592,409 134,400,300
 
Effect of dilutive stock options 55,897   41,459   48,717   70,959  
 
Total diluted average common shares outstanding 137,690,717   137,592,379   137,641,126   134,471,259  
 
Net earnings per share:
Basic $ 0.18   $ 0.18   $ 0.36   $ 0.41  
Diluted $ 0.18   $ 0.18   $ 0.36   $ 0.41  
 

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

494,395   550,021   529,261   527,642  
 
 

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.

...
      March 31, 2019       December 31, 2018       September 30, 2018
            % of             % of             % of
Amount Rate Total Amount Rate Total Amount Rate Total
(Dollars in thousands)
One- to four-family:
Originated $ 3,922,565 3.78 % 51.9 % $ 3,955,975 3.77 % 52.6 % $ 3,965,692 3.74 % 52.8 %
Correspondent purchased 2,470,619 3.63 32.7 2,491,692 3.61 33.2 2,505,987 3.59 33.4
Bulk purchased 272,575 2.77 3.6 279,719 2.67 3.7 293,607 2.60 3.9
Construction 33,525   4.38   0.4   33,443   4.08   0.4   33,149   4.03   0.4  
Total 6,699,284   3.68   88.6   6,760,829   3.67   89.9   6,798,435   3.64   90.5  
Commercial:
Commercial real estate 547,202 4.48 7.2 463,317 4.36 6.2 426,243 4.33 5.7
Commercial and industrial 73,852 5.25 1.0 61,221 5.19 0.8 62,869 5.00 0.9
Construction 108,649   4.76   1.4   93,244   4.74   1.2   80,498   4.59   1.1  
Total 729,703 4.60 9.6 617,782 4.50 8.2 569,610 4.44 7.7
Consumer loans:
Home equity 125,176 6.38 1.7 129,795 6.20 1.8 129,588 5.97 1.7
Other 9,913   4.52   0.1   10,481   4.51   0.1   10,012   4.59   0.1  
Total 135,089   6.24   1.8   140,276   6.07   1.9   139,600   5.87   1.8  
Total loans receivable 7,564,076 3.82