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

TOPEKA, Kan., Jan. 29, 2019 /PRNewswire/ -- Capitol Federal® Financial, Inc. (CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended December 31, 2018.  Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 8, 2019 and posted on our website, http://ir.capfed.comFor best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

  • net income of $24.4 million;
  • basic and diluted earnings per share of $0.18;
  • net interest margin of 2.27% (2.32% excluding the effects of the leverage strategy); and
  • paid dividends of $65.4 million, or $0.475 per share.

Comparison of Operating Results for the Three Months Ended December 31, 2018 and September 30, 2018

For the quarter ended December 31, 2018, the Company recognized net income of $24.4 million, or $0.18 per share, compared to net income of $21.4 million, or $0.16 per share, for the quarter ended September 30, 2018.  The increase in net income was due primarily to an increase in net interest income, which was mainly a result of a full quarter impact of the acquisition of Capital City Bancshares, Inc. ("CCB"), which was completed on August 31, 2018.

Net interest income increased $2.2 million, or 4.4%, from the prior quarter to $52.3 million for the current quarter.  The net interest margin increased three basis points from 2.24% for the prior quarter to 2.27% for the current quarter.  Excluding the effects of the leverage strategy, the net interest margin would have increased six basis points from 2.26% for the prior quarter to 2.32% for the current quarter.  The increase in net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans from the CCB acquisition.

Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased 10 basis points, from 3.46% for the prior quarter to 3.56% for the current quarter, and the average balance of interest-earning assets increased $300.8 million between the two periods.  Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 12 basis points, from 3.47% for the prior quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $141.0 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






December 31,


September 30,


Change Expressed in:


2018


2018


Dollars


Percent


(Dollars in thousands)



INTEREST AND DIVIDEND INCOME:








Loans receivable

$

70,772



$

66,922



$

3,850



5.8%


Mortgage-backed securities ("MBS")

6,523



6,056



467



7.7


Federal Home Loan Bank Topeka ("FHLB") stock

1,971



1,847



124



6.7


Cash and cash equivalents

1,714



1,213



501



41.3


Investment securities

1,441



1,275



166



13.0


Total interest and dividend income

$

82,421



$

77,313



$

5,108



6.6


The increase in interest income on loans receivable was due to a $195.4 million increase in the average balance of the portfolio, as well as a 10 basis point increase in the weighted average yield on the portfolio to 3.75% for the current quarter.  The increases in average balance and weighted average yield were due primarily to loans added in the CCB acquisition.

The increase in interest income on the MBS portfolio was due to a 14 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, as well as a $19.7 million increase in the average balance of the portfolio.  The increase in the weighted average yield was due primarily to a decrease in net premium amortization in the current quarter, due largely to the accretion of discounts on MBS added in the CCB acquisition.  Net premium amortization of $349 thousand during the current quarter decreased the weighted average yield on the portfolio by 14 basis points.  During the prior quarter, $624 thousand of net premiums were amortized which decreased the weighted average yield on the portfolio by 25 basis points.  As of December 31, 2018, the remaining net balance of premiums on our portfolio of MBS was $3.1 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 decreased $399 thousand from the prior quarter due to a $90.1 million decrease in the average balance, partially offset by a 24 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 increased $900 thousand from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior 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 nine basis points, from 1.39% for the prior quarter to 1.48% for the current quarter, and the average balance of interest-bearing liabilities increased $291.0 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 eight basis points, from 1.38% for the prior quarter to 1.46% for the current quarter, and the average balance of interest-bearing liabilities would have increased $139.0 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






December 31,


September 30,


Change Expressed in:


2018


2018


Dollars


Percent


(Dollars in thousands)



INTEREST EXPENSE:








Deposits

$

15,725



$

14,597



$

1,128



7.7%


FHLB borrowings

13,530



11,930



1,600



13.4


Other borrowings

865



709



156



22.0


Total interest expense

$

30,120



$

27,236



$

2,884



10.6


The increase in interest expense on deposits was due primarily to a six basis point increase in the weighted average rate paid, to 1.13% for the current quarter.  The increase in the weighted average rate paid was due primarily to increases in the average retail/business certificate of deposit portfolio rate and money market portfolio rate, which increased nine basis points and 22 basis points, respectively.  The weighted average interest rate on deposit accounts assumed in the CCB acquisition was lower than the overall deposit portfolio rate, which partially offset the increase in the weighted average rate paid on the rest of the deposit portfolio in the current quarter.

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 $593 thousand from the prior quarter due to a 10 basis point increase in the weighted average rate paid, to 2.20% for the current quarter, as maturing advances were replaced at higher current market rates.  Interest expense on FHLB borrowings associated with the leverage strategy increased $1.0 million from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior 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 $95 thousand during the current quarter compared to $119 thousand in the prior quarter.  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.  At September 30, 2018, loans 30 to 89 days delinquent were 0.25% of total loans and loans 90 or more days delinquent or in foreclosure were 0.12% 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






December 31,


September 30,


Change Expressed in:


2018


2018


Dollars


Percent


(Dollars in thousands)



NON-INTEREST INCOME:








Deposit service fees

$

3,352



$

4,086



$

(734)



(18.0)%


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

635



555



80



14.4


Other non-interest income

1,437



1,179



258



21.9


Total non-interest income

$

5,424



$

5,820



$

(396)



(6.8)


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 quarter.  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 $944 thousand during the current quarter and $767 thousand during the prior quarter.  On a net basis, interchange fee income totaled $1.4 million for the current quarter, compared to $1.5 million for the prior quarter.

The increase in other non-interest income was due mainly to an increase in insurance commissions and trust asset management fees recorded.  As a result of adopting the new revenue recognition accounting standard discussed above, the Company also began recording an estimate for contingent insurance commissions it expects to receive from insurance carriers.  Previously, the Company recorded contingent insurance commissions as revenue when the funds were received.  In addition, as part of the acquisition of CCB, the Company began offering trust asset management services.  The current quarter included a full quarter of revenue from those activities.

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






December 31,


September 30,


Change Expressed in:


2018


2018


Dollars


Percent


(Dollars in thousands)



NON-INTEREST EXPENSE:








Salaries and employee benefits

$

12,962



$

12,932



$

30



0.2%


Information technology and related expense

4,599



3,683



916



24.9


Occupancy, net

3,252



3,064



188



6.1


Regulatory and outside services

1,766



1,790



(24)



(1.3)


Advertising and promotional

760



1,522



(762)



(50.1)


Deposit and loan transaction costs

736



1,464



(728)



(49.7)


Federal insurance premium

528



765



(237)



(31.0)


Office supplies and related expense

459



549



(90)



(16.4)


Other non-interest expense

1,720



988



732



74.1


Total non-interest expense

$

26,782



$

26,757



$

25



0.1


Salaries and employee benefits related to former CCB employees was approximately $1.6 million in the current quarter compared to approximately $730 thousand in the prior quarter.  Excluding the impact of former CCB employees, salaries and employee benefits decreased approximately $840 thousand from the prior quarter.  The decrease was due primarily to the prior quarter including compensation expense on unallocated Employee Stock Ownership Plan ("ESOP") shares related to the True Blue Capitol dividend paid during the prior fiscal year, along with expense related to the 2018 Tax Savings Bonus Plan.  Approximately half of the increase in information technology and related expenses was due to costs related to the integration of CCB operations.  The remaining increase was due to depreciation related to the implementation of enhancements in the Bank's information technology infrastructure and an increase in software licensing.  The increase in occupancy, net was due primarily to a full quarter of expense related to properties acquired in the CCB acquisition.  The decrease 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 the adoption of the new revenue recognition accounting standard discussed above.  The decrease in federal insurance premium was due primarily to a decrease in average assets resulting from a reduction in the usage of the leverage strategy during the prior quarter, as federal insurance premiums are billed and paid on a quarter lag.  The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB, along with an increase in other real estate owned ("OREO") operations expense.

The Company's efficiency ratio was 46.40% for the current quarter compared to 47.87% for the prior quarter.  The change in the efficiency ratio was due primarily to higher net interest income 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 $6.6 million for the current quarter, compared to $7.8 million for the prior quarter.  The effective tax rate was 21.2% for the current quarter compared to 26.6% for the prior quarter.  In December 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted, which 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 was a discrete item in the December 31, 2017 quarter and reduced income tax expense by $7.5 million, resulting in an effective tax rate of 2.6% for that quarter.  The effective tax rate for fiscal year 2018 was 20.2%, primarily due to the fiscal year 2018 rate including the $7.5 million discrete item noted above, which reduced the 24.5% statutory tax rate effective for that fiscal year.  Due to the Company's September 30 year end, the Company was required to use a blended statutory tax rate of 24.5% for fiscal year 2018, and the enacted tax rate of 21% will be effective for fiscal year 2019.  Although the statutory tax rate decreased to 21% for fiscal year 2019, the Company does not have the same level of discrete items reducing the rate as in the prior fiscal year.  Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.

Comparison of Operating Results for the Three Months Ended December 31, 2018 and 2017

The Company recognized net income of $24.4 million, or $0.18 per share, for the quarter ended December 31, 2018 compared to net income of $31.8 million, or $0.24 per share, for the quarter ended December 31, 2017.  The decrease in net income was due primarily to the prior year quarter including the impact of the enactment of the Tax Act, as well as to an increase in non-interest expense in the current quarter.  These changes were partially offset by an increase in net interest income in the current quarter due primarily to the higher yielding loans added in the CCB acquisition.

The net interest margin increased 44 basis points, from 1.83% for the prior year quarter to 2.27% for the current quarter.  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 quarter 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 12 basis points, from 2.20% for the prior year quarter to 2.32% for the current quarter.  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 2.98% for the prior year quarter to 3.56% for the current quarter, while the average balance of interest-earning assets decreased $1.55 billion from the prior year quarter.  Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 28 basis points, from 3.31% for the prior year quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $226.1 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 Three Months Ended






December 31,


Change Expressed in:


2018


2017


Dollars


Percent


(Dollars in thousands)



INTEREST AND DIVIDEND INCOME:








Loans receivable

$

70,772



$

64,189



$

6,583



10.3%


MBS

6,523



5,252



1,271



24.2


FHLB stock

1,971



3,095



(1,124)



(36.3)


Cash and cash equivalents

1,714



7,114



(5,400)



(75.9)


Investment securities

1,441



994



447



45.0


Total interest and dividend income

$

82,421



$

80,644



$

1,777



2.2


The increase in interest income on loans receivable was due to a $326.0 million increase in the average balance of the portfolio, as well as a 19 basis point increase in the weighted average yield on the portfolio to 3.75% for the current quarter.  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 in 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 34 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, along with a $74.8 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 $349 thousand during the current quarter decreased the weighted average yield on the portfolio by 14 basis points.  During the prior year quarter, $854 thousand of net premiums were amortized, which decreased the weighted average yield on the portfolio by 37 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 quarter as compared to the prior year quarter.  This was partially offset by a higher dividend rate on FHLB stock during the current quarter.

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 $287 thousand from the prior year quarter due to a $156.9 million decrease in the average balance, partially offset by a 96 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 $5.1 million from the prior year quarter due to a $1.70 billion decrease in the average balance, as the leverage strategy was in place less often during the current quarter.

The increase in interest income on the investment securities portfolio was due to a 72 basis point increase in the weighted average yield on the portfolio to 2.04%.  The increase in the weighted average yield was primarily a result of replacing maturing securities at higher market rates.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 19 basis points, from 1.29% for the prior year quarter to 1.48% for the current quarter, while the average balance of interest-bearing liabilities decreased $1.53 billion from the prior year quarter.  Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 17 basis points, from 1.29% for the prior year quarter to 1.46% for the current quarter, and the average balance of interest-bearing liabilities would have increased $248.1 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






December 31,


Change Expressed in:


2018


2017


Dollars


Percent


(Dollars in thousands)



INTEREST EXPENSE:








Deposits

$

15,725



$

11,961



$

3,764



31.5%


FHLB borrowings

13,530



17,917



(4,387)



(24.5)


Other borrowings

865



1,392



(527)



(37.9)


Total interest expense

$

30,120



$

31,270



$

(1,150)



(3.7)


The increase in interest expense on deposits was due primarily to a 22 basis point increase in the weighted average rate, to 1.13% for the current quarter.  The deposit accounts assumed in the CCB acquisition were at a lower average rate than our overall deposit portfolio rate, which partially offset the increase in the deposit portfolio rate in the current quarter.  The increase in the weighted average rate was primarily related to the certificate of deposit portfolio, which increased 33 basis points to 1.84% for the current quarter.  The weighted average rate paid on wholesale certificates increased 63 basis points, to 1.96% for the current quarter.

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 $949 thousand from the prior year quarter due to a 12 basis point increase in the weighted average rate paid on the portfolio, to 2.20% for the current quarter, and a $37.3 million increase in the average balance of the portfolio.  The increase in the weighted average rate paid was due to certain maturing advances being replaced at higher effective interest rates.  Interest expense on FHLB borrowings associated with the leverage strategy decreased $5.3 million from the prior year quarter due to the strategy not being in place as often during the current quarter.

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

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






December 31,


Change Expressed in:


2018


2017


Dollars


Percent


(Dollars in thousands)



NON-INTEREST INCOME:








Deposit service fees

$

3,352



$

3,965



$

(613)



(15.5)%


Income from BOLI

635



534



101



18.9


Other non-interest income

1,437



859



578



67.3


Total non-interest income

$

5,424



$

5,358



$

66



1.2


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 as discussed in the Comparison of Operating Results for the Three Months Ended December 31, 2018 and September 30, 2018 above.  The increase in income from BOLI was primarily 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 added in the CCB acquisition and, as discussed above, the Company began recording an estimate for contingent insurance commissions it expects to receive from insurance carriers as part of adopting the new revenue recognition accounting standard in the current quarter.  Additionally, the prior year quarter 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 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






December 31,


Change Expressed in:


2018


2017


Dollars


Percent


(Dollars in thousands)



NON-INTEREST EXPENSE:








Salaries and employee benefits

$

12,962



$

10,528



$

2,434



23.1%


Information technology and related expense

4,599



3,331



1,268



38.1


Occupancy, net

3,252



2,765



487



17.6


Regulatory and outside services

1,766



1,140



626



54.9


Advertising and promotional

760



685



75



10.9


Deposit and loan transaction costs

736



1,407



(671)



(47.7)


Federal insurance premium

528



852



(324)



(38.0)


Office supplies and related expense

459



442



17



3.8


Other non-interest expense

1,720



886



834



94.1


Total non-interest expense

$

26,782



$

22,036



$

4,746



21.5


Salaries and employee benefits related to former CCB employees was approximately $1.6 million in the current quarter.  Excluding the impact of former CCB employees, salaries and employee benefits increased approximately $830 thousand from the prior year quarter.  The increase was primarily due to staff additions and salary adjustments during the prior fiscal year.  The increase in information technology and related expense was due mainly to an increase in software licensing, depreciation related to the implementation of enhancements to the Bank's information technology infrastructure, 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 audit fees related to the acquisition of CCB as well as an increase in consulting expenses.  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.  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 46.40% for the current quarter compared to 40.26% for the prior year quarter.  The change in the efficiency ratio was due to higher non-interest expense in the current quarter compared to the prior year quarter.

Income Tax Expense
Income tax expense was $6.6 million for the current quarter compared to $860 thousand for the prior year quarter.  The effective tax rate was 21.2% for the current quarter compared to 2.6% for the prior year quarter.  The increase in the effective tax rate compared to the prior year quarter 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.  The revaluation reduced income tax expense by $7.5 million in the prior year quarter, resulting in an effective tax rate of 2.6% for the prior year quarter.

Fiscal Year 2019 Projections
Non-Interest Income:  Based on current market conditions, management anticipates BOLI income will increase approximately $450 thousand in fiscal year 2019 related to BOLI policies acquired in the CCB acquisition.  Based on the current trust asset management services activities and the amount of assets under management, management anticipates trust asset management activities will increase non-interest income by approximately $550 thousand in fiscal year 2019 compared to fiscal year 2018.

Non-Interest Expense:  Taking into account salaries and benefits related to former CCB employees along with anticipated annual salary adjustments, management anticipates salaries and employee benefits will be approximately $5.6 million higher in fiscal year 2019.  Management anticipates information technology and related expenses will be approximately $4.0 million higher in fiscal year 2019 due to integration costs associated with CCB, higher depreciation related to the continued enhancements to the Bank's information technology infrastructure, and an increase in software licensing.  Management anticipates occupancy, net, will be approximately $1.8 million higher in fiscal year 2019 due primarily to the properties acquired in the CCB acquisition.  Management anticipates the deposit intangible amortization expense, which is included in other non-interest expense, will be approximately $2.4 million in fiscal year 2019.

Financial Condition as of December 31, 2018

Total assets were $9.30 billion at December 31, 2018 compared to $9.45 billion at September 30, 2018.  The $145.8 million decrease was due primarily to decreases in securities and cash and cash equivalents.  The cash flows were used primarily to pay dividends to stockholders, fund certificate of deposit maturities, and pay borrowers' real estate taxes.

The loans receivable portfolio, net, totaled $7.53 billion at December 31, 2018 compared to $7.51 billion at September 30, 2018.  During the current quarter, the Bank originated and refinanced $189.7 million of loans with a weighted average rate of 4.74% and purchased $52.9 million of one- to four-family loans from correspondent lenders with a weighted average rate of 4.37%.  The Bank also entered into participations of $61.9 million of commercial real estate loans with a weighted average rate of 4.99%, of which $45.3 million had not yet been funded as of December 31, 2018.

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 14.2% at December 31, 2018.  The size of the loan portfolio has been managed by controlling correspondent loan volume primarily through the rates offered to correspondent lenders.  Management intends to continue to manage the size and mix of the loan portfolio by utilizing cash flows from the correspondent loan portfolio to fund commercial loan growth.  During the current quarter, the commercial loan portfolio grew by $48.2 million, or 8%, while the correspondent one-to four-family loan portfolio decreased by $14.3 million, or 1%, and the bulk purchased one-to four-family loan portfolio decreased by $13.9 million, or 5%.  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.  In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital.  At December 31, 2018, this ratio was 13.1%.

The Bank continued, at times, to utilize a leverage strategy to increase earnings during the current quarter.  The leverage strategy during the current quarter 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 quarter, 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 quarter, compared to $8 thousand during the quarter ended September 30, 2018 and $767 thousand during the quarter ended December 31, 2017.  The decrease compared to the December 31, 2017 quarter was due mainly to the strategy being suspended at certain times as a result of the large negative interest rate spread during the current quarter, which would have resulted in the strategy not being profitable.  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.

Total liabilities were $7.96 billion at December 31, 2018 compared to $8.06 billion at September 30, 2018.  The $100.1 million decrease was due mainly to decreases in deposits, primarily the certificate of deposit portfolio, and advance payments by borrowers for taxes and insurance due to the timing of payments.

Stockholders' equity was $1.35 billion at December 31, 2018 compared to $1.39 billion at September 30, 2018.  The $45.7 million decrease was due primarily to the payment of $65.4 million in cash dividends, partially offset by net income of $24.4 million.  The cash dividends paid during the current quarter totaled $0.475 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 a regular quarterly cash dividend of $0.085 per share.  On January 22, 2019, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on February 15, 2019 to stockholders of record as of the close of business on February 1, 2019.

At December 31, 2018, Capitol Federal Financial, Inc., at the holding company level, had $90.4 million on deposit at the Bank.  For fiscal year 2019, it is the intent of the Board of Directors and management to continue the payout of 100% of the Company's earnings to its 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.

In October 2015, the Company announced a stock repurchase plan for up to $70.0 million of common stock.  The repurchase plan does not have an expiration date.  The Company has not repurchased any shares under the repurchase plan through the date of this release.

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


December 31,


September 30,


December 31,


2018


2018


2017


(Dollars in thousands)

Stockholders' equity

$

1,345,913



$

1,391,622



$

1,350,611


Equity to total assets at end of period

14.5%



14.7%



15.0%


The following table presents a reconciliation of total to net shares outstanding as of December 31, 2018.

Total shares outstanding

141,269,239


Less unallocated ESOP shares and unvested restricted stock

(3,646,207)


Net shares outstanding

137,623,032


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 December 31, 2018, the Bank and Company exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at December 31, 2018.




Regulatory




Requirement For


Bank


Well-Capitalized


Ratios


Status

Tier 1 leverage ratio

12.6%


5.0%


Common equity tier 1 capital ratio

25.0


6.5


Tier 1 capital ratio

25.0


8.0


Total capital ratio

25.2


10.0


A reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of December 31, 2018 is as follows (dollars in thousands):

Total Bank equity as reported under GAAP

$

1,219,251


Accumulated Other Comprehensive Income ("AOCI")

1,877

Goodwill and other intangibles, net of deferred tax liabilities

(15,222)

Total tier 1 capital

1,205,906

ACL

8,558

Total capital

$

1,214,464







Capitol Federal Financial, Inc. is the holding company for the Bank.  The Bank has 58 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)



December 31,


September 30,


2018


2018

ASSETS:




Cash and cash equivalents (includes interest-earning deposits of $44,027 and $122,733)

$

81,713



$

139,055


Securities:




Available-for-sale ("AFS"), at estimated fair value (amortized cost of $667,777 and $718,564)

668,487



714,614


Held-to-maturity at amortized cost (estimated fair value of $563,771 and $601,071)

568,838



612,318


Loans receivable, net (ACL of $8,558 and $8,463)

7,525,780



7,514,485


FHLB stock, at cost

100,521



99,726


Premises and equipment, net

96,109



96,005


Income taxes receivable, net



2,177


Other assets

262,334



271,167


TOTAL ASSETS

$

9,303,782



$

9,449,547






LIABILITIES:




Deposits

$

5,557,864



$

5,603,354


FHLB borrowings

2,174,983



2,174,981


Other borrowings

106,186



110,052


Advance payments by borrowers for taxes and insurance

28,406



65,264


Income taxes payable, net

3,413




Deferred income tax liabilities, net

18,510



21,253


Accounts payable and accrued expenses

68,507



83,021


Total liabilities

7,957,869



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, 141,269,239 and 141,225,516 
   
shares issued and outstanding as of December 31, 2018 and September 30, 2018, respectively

1,413



1,412


Additional paid-in capital

1,208,323



1,207,644


Unearned compensation, ESOP

(35,930)



(36,343)


Retained earnings

173,984



214,569


AOCI, net of tax

(1,877)



4,340


Total stockholders' equity

1,345,913



1,391,622


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,303,782



$

9,449,547


 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)



For the Three Months Ended


December 31,


September 30,


December 31,


2018


2018


2017

INTEREST AND DIVIDEND INCOME:






Loans receivable

$

70,772



$

66,922



$

64,189


MBS

6,523



6,056



5,252


FHLB stock

1,971



1,847



3,095


Cash and cash equivalents

1,714



1,213



7,114


Investment securities

1,441



1,275



994


Total interest and dividend income

82,421



77,313



80,644








INTEREST EXPENSE:






Deposits

15,725



14,597



11,961


FHLB borrowings

13,530



11,930



17,917


Other borrowings

865



709



1,392


Total interest expense

30,120



27,236



31,270








NET INTEREST INCOME

52,301



50,077



49,374








PROVISION FOR CREDIT LOSSES






NET INTEREST INCOME AFTER 
   
PROVISION FOR CREDIT LOSSES

52,301



50,077



49,374








NON-INTEREST INCOME:






Deposit service fees

3,352



4,086



3,965


Income from BOLI

635



555



534


Other non-interest income

1,437



1,179



859


Total non-interest income

5,424



5,820



5,358








NON-INTEREST EXPENSE:






Salaries and employee benefits

12,962



12,932



10,528


Information technology and related expense

4,599



3,683



3,331


Occupancy, net

3,252



3,064



2,765


Regulatory and outside services

1,766



1,790



1,140


Advertising and promotional

760



1,522



685


Deposit and loan transaction costs

736



1,464



1,407


Federal insurance premium

528



765



852


Office supplies and related expense

459



549



442


Other non-interest expense

1,720



988



886


Total non-interest expense

26,782



26,757



22,036


INCOME BEFORE INCOME TAX EXPENSE

30,943



29,140



32,696


INCOME TAX EXPENSE

6,560



7,751



860


NET INCOME

$

24,383



$

21,389



$

31,836


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


For the Three Months Ended


December 31,


September 30,


December 31,


2018


2018


2017


(Dollars in thousands, except per share amounts)

Net income

$

24,383



$

21,389



$

31,836


Income allocated to participating securities

(9)



(8)



(13)


Net income available to common stockholders

$

24,374



$

21,381



$

31,823








Average common shares outstanding

137,550,471



135,375,386



134,372,531


Average committed ESOP shares outstanding

449



124,346



449


Total basic average common shares outstanding

137,550,920



135,499,732



134,372,980








Effect of dilutive stock options

41,459



55,928



94,329








Total diluted average common shares outstanding

137,592,379



135,555,660



134,467,309








Net earnings per share:






Basic

$

0.18



$

0.16



$

0.24


Diluted

$

0.18



$

0.16



$

0.24








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

550,021



529,195


498,900


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.


December 31, 2018


September 30, 2018


December 31, 2017






% of






% of






% of


Amount


Rate


Total


Amount


Rate


Total


Amount


Rate


Total


(Dollars in thousands)

One- to four-family:


















Originated

$

3,955,975



3.77%



52.6%



$

3,965,692



3.74%



52.8%



$

3,940,288



3.69%



54.9%


Correspondent purchased

2,491,692



3.61



33.2



2,505,987



3.59



33.4



2,453,625



3.54



34.2


Bulk purchased

279,719



2.67



3.7



293,607



2.60



3.9



338,084



2.31



4.7


Construction

33,443



4.08



0.4



33,149



4.03



0.4



33,063



3.47



0.4


Total

6,760,829



3.67



89.9



6,798,435



3.64



90.5



6,765,060



3.57



94.2


Commercial:


















Commercial real estate

463,317



4.36



6.2



426,243



4.33



5.7



205,020



4.22



2.9


Commercial and industrial

61,221



5.19



0.8



62,869



5.00



0.9








Construction

93,244



4.74



1.2



80,498



4.59



1.1



80,062



3.89



1.1


Total

617,782



4.50



8.2



569,610



4.44



7.7



285,082



4.13



4.0


Consumer loans:


















Home equity

129,795



6.20



1.8



129,588



5.97



1.7



123,124



5.40



1.7


Other

10,481



4.51



0.1



10,012



4.59



0.1



4,238



4.04



0.1


Total

140,276



6.07



1.9



139,600



5.87



1.8



127,362



5.36



1.8


Total loans receivable

7,518,887



3.78



100.0%



7,507,645



3.74



100.0%



7,177,504



3.62



100.0%




















Less:


















ACL

8,558







8,463







8,370






Discounts/unearned loan fees

33,139







33,933







25,110






Premiums/deferred costs

(48,590)







(49,236)







(45,720)






Total loans receivable, net

$

7,525,780







$

7,514,485







$

7,189,744






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


December 31, 2018


September 30, 2018


June 30, 2018


March 31, 2018


Amount


Rate


Amount


Rate


Amount


Rate


Amount


Rate


(Dollars in thousands)

Beginning balance

$

7,507,645



3.74%



$

7,226,169



3.66%



$

7,187,742



3.63%



$

7,177,504



3.62%


Originations and refinances:
















Fixed

116,032



4.59



117,904



4.44



143,059



4.21



77,825



3.80


Adjustable

73,711



4.98



56,996



4.55



54,385



4.42



36,612



4.28


Purchases and participations:
















Fixed

72,140



4.60



80,138



4.40



78,650



4.04



120,155



3.85


Adjustable

42,651



4.88



20,105



3.92



30,017



3.49



48,062



3.61


Acquisition of CCB loans, net





299,659



4.77










Change in undisbursed loan funds

(25,315)





(8,104)





19,808





(25,002)




Repayments

(267,469)





(284,927)





(286,923)





(246,894)




Principal recoveries (charge-offs), net

95





119





(46)





20




Other

(603)





(414)





(523)





(540)




Ending balance

$

7,518,887



3.78



$

7,507,645



3.74



$

7,226,169



3.66



$

7,187,742



3.63


The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement and commercial renewal activity, along with associated weighted average rates and percent of total.  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


December 31, 2018


December 31, 2017


Amount


Rate


% of Total


Amount


Rate


% of Total

Fixed-Rate:

(Dollars in thousands)

One- to four-family:












<= 15 years

$

23,055



4.19%



7.6%



$

35,734



3.16%



12.1%


> 15 years

106,134



4.58



34.9



143,949



3.82



48.5


One- to four-family construction

16,478



4.51



5.4



9,139



3.70



3.1


Commercial:












Commercial real estate

7,802



4.78



2.5



4,792



4.13



1.6


Commercial and industrial

2,402



5.34



0.8








Commercial construction

29,919



4.78



9.8








Home equity

1,194



6.50



0.4



950



5.94



0.3


Other

1,188



4.69



0.4



103



9.36




Total fixed-rate

188,172



4.59



61.8



194,667



3.71



65.6














Adjustable-Rate:












One- to four-family:












<= 36 months

5,228



3.72



1.7



767



2.75



0.3


> 36 months

33,079



4.04



10.9



31,935



3.12



10.7


One- to four-family construction

8,245



4.38



2.7



4,035



3.30



1.4


Commercial:












Commercial real estate

20,704



5.16



6.8








Commercial and industrial

2,335



5.98



0.8








Commercial construction

28,650



5.35



9.4



45,650



4.20



15.4


Home equity

17,426



6.32



5.7



18,826



5.31



6.3


Other

695



2.94



0.2



978



3.79



0.3


Total adjustable-rate

116,362



4.95



38.2



102,191



4.02



34.4














Total originated, refinanced and purchased

$

304,534



4.73



100.0%



$

296,858



3.82



100.0%














Purchased and participation loans included above:












Fixed-rate:












Correspondent - one- to four-family

$

38,939



4.53





$

80,773



3.71




Participations - commercial

33,201



4.68





4,792



4.13




Total fixed-rate purchased/participations

72,140



4.60





85,565



3.73
















Adjustable-rate:












Correspondent - one- to four-family

14,001



3.93





19,039



3.10




Participations - commercial

28,650



5.35





45,650



4.20




Total adjustable-rate purchased/participations

42,651



4.88





64,689



3.87
















Total purchased/participation loans

$

114,791



4.70





$

150,254



3.79




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 September 2018, 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.


December 31, 2018


September 30, 2018


December 31, 2017




% of


Credit




Average




% of


Credit




Average




% of


Credit




Average


Amount


Total


Score


LTV


Balance


Amount


Total


Score


LTV


Balance


Amount


Total


Score


LTV


Balance


(Dollars in thousands)

Originated

$

3,955,975



58.8%



767



62%



$

139



$

3,965,692



58.6%



767



62%



$

138



$

3,940,288



58.5%



767



63%



$

135


Correspondent purchased

2,491,692



37.0



764



66



377



2,505,987



37.1



764



67



378



2,453,625



36.5



764



68



377


Bulk purchased

279,719



4.2



758



62



304



293,607



4.3



758



62



304



338,084



5.0



757



62



304



$

6,727,386



100.0%



765



64



186



$

6,765,286



100.0%



765



64



186



$

6,731,997



100.0%



765



64



183


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, $15.4 million were refinanced from other lenders.


For the Three Months Ended


December 31, 2018


December 31, 2017






Credit






Credit


Amount


LTV


Score


Amount


LTV


Score


(Dollars in thousands)

Originated

$

126,325



77%



754



$

101,420



77%



763


Refinanced by Bank customers

12,954



67



743



24,327



66



754


Correspondent purchased

52,940



74



763



99,812



75



766



$

192,219



75



756



$

225,559



75



764


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 quarter ended December 31, 2018.



For the Three Months Ended



December 31, 2018

State


Amount


% of Total


Rate



(Dollars in thousands)

Kansas


$

121,760



63.3%



4.43%


Missouri


32,208



16.8



4.44


Texas


17,521



9.1



4.22


Other states


20,730



10.8



4.35




$

192,219



100.0%



4.40


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 December 31, 2018, 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

$

5,186



$

28,271



$

11,413



$

44,870



4.47%


Correspondent

2,002



56,991



10,167



69,160



4.43



$

7,188



$

85,262



$

21,580



$

114,030



4.45












Rate

4.19%



4.57%



4.05%






Commercial Loans:  During the current quarter, the Bank entered into commercial real estate loan participations totaling $61.9 million, which included $58.6 million of commercial real estate construction loans.  The majority of the $58.6 million of commercial real estate construction loans had not yet been funded as of December 31, 2018.  During the current quarter, the Bank funded $35.4 million of commercial real estate construction participation loans.  The Bank also originated $30.0 million of commercial loans during the current quarter.

The following table presents the Bank's commercial real estate loans and outstanding loan commitments by industry classification, as defined by the North American Industry Classification System, as of December 31, 2018.  Based on the terms of the construction loans as of December 31, 2018, of the $182.9 million of undisbursed amounts in the table, which does not include outstanding commitments, $44.7 million is projected to be disbursed by March 31, 2019, and an additional $99.1 million is projected to be disbursed by December 31, 2019.  It is possible that not all of the funds will be disbursed due to the nature of the funding of construction projects.  Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $434.1 million at a weighted average rate of 4.26% and adjustable-rate loans totaling $305.4 million at a weighted average rate of 4.95%.  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 December 31, 2018 having shorter terms to maturity.  Additionally, the credit risk for most of the Bank's commercial real estate borrowing relationships is mitigated due to the amount of borrower equity injected into the projects, strong debt service coverage ratios, and the liquidity, personal cash flow and net worth of the guarantors.  Several of these borrowing relationships have a preference for fixed-rate loans and the market interest rates are typically lower for these types of borrowers.


Unpaid


Undisbursed


Gross Loan


Outstanding




% of


Principal


Amount


Amount


Commitments


Total


Total


(Dollars in thousands)

Health care and social assistance

$

117,621



$

65,002



$

182,623



$

71,069



$

253,692



30.9%


Accommodation and food services

150,446



29,565



180,011





180,011



21.9


Real estate rental and leasing

130,905



22,521



153,426



435



153,861



18.7


Retail trade

45,208



25,478



70,686



9,186



79,872



9.7


Multi-family

33,208



37,141



70,349





70,349



8.6


Arts, entertainment, and recreation

36,934



597



37,531





37,531



4.6


Other

42,239



2,625



44,864



900



45,764



5.6



$

556,561



$

182,929



$

739,490



$

81,590



$

821,080



100.0%














Weighted average rate

4.42%



4.92%



4.54%



4.72%



4.56%




The following table summarizes the Bank's commercial real estate loans and outstanding loan commitments by state as of December 31, 2018.


Unpaid


Undisbursed


Gross Loan


Outstanding




% of


Principal


Amount


Amount


Commitments


Total


Total


(Dollars in thousands)

Kansas

$

211,272



$

17,692



$

228,964



$

72,404



$

301,368



36.7%


Missouri

171,458



65,447



236,905



3,286



240,191



29.2


Texas

137,594



61,902



199,496



5,900



205,396



25.0


Kentucky

4,317



21,242



25,559





25,559



3.1


Nebraska

6,995



15,146



22,141





22,141



2.7


Colorado

9,130





9,130





9,130



1.1


Other

15,795



1,500



17,295





17,295



2.2



$

556,561



$

182,929



$

739,490



$

81,590



$

821,080



100.0%


The following table presents the Bank's commercial and industrial loans and outstanding loan commitments by business purpose, as of December 31, 2018.


Unpaid


Undisbursed


Gross Loan


Outstanding




% of


Principal


Amount


Amount


Commitments


Total


Total


(Dollars in thousands)

Working capital

$

35,487



$

18,212



$

53,699



$



$

53,699



63.1%


Equipment

16,420



577



16,997





16,997



20.0


Auto lease

3,983



234



4,217



1,139



5,356



6.3


Small Business Administration

4,226



391



4,617





4,617



5.4


Other

1,105



406



1,511



2,932



4,443



5.2



$

61,221



$

19,820



$

81,041



$

4,071



$

85,112



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 December 31, 2018.


Amount


(Dollars in thousands)

Greater than $30 million

$

257,944


>$15 to $30 million

242,259


>$10 to $15 million

36,925


>$5 to $10 million

43,775


$1 to $5 million

178,411


Less than $1 million

146,878



$

906,192


Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO as of the dates indicated.  Of the loans 30 to 89 days delinquent at December 31, 2018, approximately 78% 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 Office of the Comptroller of the Currency ("OCC") 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:


December 31, 2018


September 30, 2018


June 30, 2018


March 31, 2018


December 31, 2017


Number


Amount


Number


Amount


Number


Amount


Number


Amount


Number


Amount


(Dollars in thousands)

One- to four-family:




















Originated

118



$

9,765



129



$

10,647



104



$

7,639



106



$

8,476



129



$

11,435


Correspondent purchased

10



1,969



18



3,803



6



1,757



5



744



4



1,118


Bulk purchased

15



2,780



15



3,502



16



3,773



17



4,182



21



4,691


Commercial

2



64



6



322



1



40










Consumer

42



744



38



533



30



363



24



356



38



637



187



$

15,322



206



$

18,807



157



$

13,572



152



$

13,758



192



$

17,881


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



0.20%





0.25%





0.19%





0.19%





0.25%


 

...

Non-Performing Loans and OREO at:


December 31, 2018


September 30, 2018


June 30, 2018


March 31, 2018


December 31, 2017


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: