Annual Reports

 
Quarterly Reports

  • 10-Q (Feb 8, 2018)
  • 10-Q (Aug 9, 2017)
  • 10-Q (May 10, 2017)
  • 10-Q (Feb 9, 2017)
  • 10-Q (Aug 9, 2016)
  • 10-Q (May 10, 2016)

 
8-K

 
Other

Capitol Federal Financial 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-10.10
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32
CFFN-063015-10Q



UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Form 10-Q
_________________
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Maryland    
27-2631712
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
700 Kansas Avenue, Topeka, Kansas
66603
(Address of principal executive offices)
(Zip Code)
 
 
 
(785) 235-1341
Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller Reporting Company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of July 24, 2015, there were 138,421,120 shares of Capitol Federal Financial, Inc. common stock outstanding.





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




PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
 
 
 
 
 
June 30,
 
September 30,
 
2015
 
2014
ASSETS:
 
 
 
Cash and cash equivalents (includes interest-earning deposits of $40,408 and $799,340)
$
46,668

 
$
810,840

Securities:
 
 
 
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $833,832 and $829,558)
847,059

 
840,790

Held-to-maturity ("HTM"), at amortized cost (estimated fair value of $1,378,612 and $1,571,524)
1,359,657

 
1,552,699

Loans receivable, net (allowance for credit losses ("ACL") of $9,601 and $9,227)
6,496,468

 
6,233,170

Federal Home Loan Bank Topeka ("FHLB") stock, at cost
166,257

 
213,054

Premises and equipment, net
73,066

 
70,530

Income taxes receivable, net
417

 

Other assets
141,589

 
143,945

TOTAL ASSETS
$
9,131,181

 
$
9,865,028

 
 
 
 
LIABILITIES:
 
 
 
Deposits
$
4,813,188

 
$
4,655,272

FHLB borrowings
2,572,898

 
3,369,677

Repurchase agreements
220,000

 
220,000

Advance payments by borrowers for taxes and insurance
37,431

 
58,105

Income taxes payable, net

 
368

Deferred income tax liabilities, net
25,671

 
22,367

Accounts payable and accrued expenses
35,270

 
46,357

Total liabilities
7,704,458

 
8,372,146

 
 
 
 
STOCKHOLDERS' EQUITY:
 
 
 
Preferred stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding

 

Common stock, $.01 par value; 1,400,000,000 shares authorized, 138,699,031 and 140,951,203
 
 
 
 shares issued and outstanding as of June 30, 2015 and September 30, 2014, respectively
1,387

 
1,410

Additional paid-in capital
1,163,824

 
1,180,732

Unearned compensation, Employee Stock Ownership Plan ("ESOP")
(41,712
)
 
(42,951
)
Retained earnings
294,997

 
346,705

Accumulated other comprehensive income ("AOCI"), net of tax
8,227

 
6,986

Total stockholders' equity
1,426,723

 
1,492,882

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,131,181

 
$
9,865,028

 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 


3


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
INTEREST AND DIVIDEND INCOME:
 
 
 
 
 
 
 
Loans receivable
$
58,922

 
$
57,474

 
$
175,739

 
$
171,539

Mortgage-backed securities ("MBS")
8,849

 
11,206

 
28,387

 
34,765

Investment securities
1,914

 
1,739

 
5,262

 
5,674

FHLB stock
3,132

 
1,452

 
9,389

 
3,877

Cash and cash equivalents
1,357

 
50

 
4,174

 
157

Total interest and dividend income
74,174

 
71,921

 
222,951

 
216,012

INTEREST EXPENSE:
 
 
 
 
 
 
 
FHLB borrowings
17,072

 
14,826

 
51,258

 
47,000

Deposits
8,377

 
8,124

 
24,729

 
24,523

Repurchase agreements
1,712

 
2,773

 
5,136

 
8,319

Total interest expense
27,161

 
25,723

 
81,123

 
79,842

NET INTEREST INCOME
47,013

 
46,198

 
141,828

 
136,170

PROVISION FOR CREDIT LOSSES
323

 
307

 
771

 
982

NET INTEREST INCOME AFTER
 
 
 
 
 
 
 
PROVISION FOR CREDIT LOSSES
46,690

 
45,891

 
141,057

 
135,188

NON-INTEREST INCOME:
 
 
 
 
 
 
 
Retail fees and charges
3,798

 
3,792

 
11,052

 
11,056

Insurance commissions
537

 
827

 
2,059

 
2,589

Loan fees
340

 
367

 
1,071

 
1,221

Income from bank-owned life insurance ("BOLI")
251

 
333

 
819

 
1,001

Other non-interest income
219

 
300

 
678

 
979

Total non-interest income
5,145

 
5,619

 
15,679

 
16,846

NON-INTEREST EXPENSE:
 
 
 
 
 
 
 
Salaries and employee benefits
11,038

 
10,929

 
31,927

 
32,379

Information technology and communications
2,573

 
2,373

 
7,726

 
6,985

Occupancy, net
2,557

 
2,479

 
7,437

 
7,662

Federal insurance premium
1,342

 
1,078

 
4,092

 
3,264

Deposit and loan transaction costs
1,435

 
1,326

 
4,065

 
3,976

Regulatory and outside services
1,365

 
1,437

 
3,867

 
3,990

Low income housing partnerships
492

 
547

 
3,404

 
1,966

Advertising and promotional
1,069

 
942

 
2,707

 
2,825

Other non-interest expense
1,235

 
1,269

 
3,882

 
3,948

Total non-interest expense
23,106

 
22,380

 
69,107

 
66,995

INCOME BEFORE INCOME TAX EXPENSE
28,729

 
29,130

 
87,629

 
85,039

INCOME TAX EXPENSE
9,127

 
9,147

 
28,321

 
27,555

NET INCOME
$
19,602

 
$
19,983

 
$
59,308

 
$
57,484

 
 
 
 
 
 
 
 
Basic earnings per share ("EPS")
$
0.14

 
$
0.14

 
$
0.43

 
$
0.41

Diluted EPS
$
0.14

 
$
0.14

 
$
0.43

 
$
0.41

Dividends declared per share
$
0.34

 
$
0.33

 
$
0.76

 
$
0.91


 
 
 
 

 

Basic weighted average common shares
135,745,753

 
138,331,681

 
136,013,448

 
140,246,658

Diluted weighted average common shares
135,763,353

 
138,334,404

 
136,040,702

 
140,247,794

 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 

4


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
19,602

 
$
19,983

 
$
59,308

 
$
57,484

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Changes in unrealized holding gains/(losses) on AFS securities,
 
 
 
 
 
 
 
net of deferred income tax (benefits) expenses of $919 and
 
 
 
 
 
 
 
$(1,260) for the three months ended June 30, 2015 and 2014,
 
 
 
 
 
 
 
respectively, and $(754) and $103 for the nine months ended
 
 
 
 
 
 
 
June 30, 2015 and 2014, respectively
(1,513
)
 
2,074

 
1,241

 
(167
)
Comprehensive income
$
18,089

 
$
22,057

 
$
60,549

 
$
57,317

 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 


5


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
Unearned
 
 
 
 
 
Total
 
Common
 
Paid-In
 
Compensation
 
Retained
 
 
 
Stockholders'
 
Stock
 
Capital
 
ESOP
 
Earnings
 
AOCI
 
Equity
Balance at October 1, 2014
$
1,410

 
$
1,180,732

 
$
(42,951
)
 
$
346,705

 
$
6,986

 
$
1,492,882

Net income
 
 
 
 
 
 
59,308

 
 
 
59,308

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
1,241

 
1,241

ESOP activity, net
 
 
300

 
1,239

 
 
 
 
 
1,539

Restricted stock activity, net
 
 
80

 
 
 
 
 
 
 
80

Stock-based compensation
 
 
1,566

 
 
 
 
 
 
 
1,566

Repurchase of common stock
(23
)
 
(19,121
)
 
 
 
(8,239
)
 
 
 
(27,383
)
Stock options exercised

 
267

 
 
 
 
 
 
 
267

Dividends on common stock to
 
 
 
 
 
 
 
 
 
 
 
stockholders ($0.76 per share)
 
 
 
 
 
 
(102,777
)
 
 
 
(102,777
)
Balance at June 30, 2015
$
1,387

 
$
1,163,824

 
$
(41,712
)
 
$
294,997

 
$
8,227

 
$
1,426,723

 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 
 


6


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
 
 
 
For the Nine Months Ended
 
June 30,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
59,308

 
$
57,484

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
FHLB stock dividends
(9,389
)
 
(3,877
)
Provision for credit losses
771

 
982

Originations of loans receivable held-for-sale ("LHFS")

 
(1,325
)
Proceeds from sales of LHFS

 
1,998

Amortization and accretion of premiums and discounts on securities
4,217

 
4,502

Depreciation and amortization of premises and equipment
5,054

 
4,704

Amortization of deferred amounts related to FHLB advances, net
3,270

 
4,882

Common stock committed to be released for allocation - ESOP
1,539

 
1,516

Stock-based compensation
1,566

 
1,617

Changes in:
 
 
 
Other assets, net
2,869

 
2,375

Income taxes payable/receivable
1,845

 
3,766

Accounts payable and accrued expenses
(8,847
)
 
(11,983
)
Net cash provided by operating activities
62,203

 
66,641

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of AFS securities
(149,937
)
 
(120,817
)
Purchase of HTM securities
(54,133
)
 
(164,128
)
Proceeds from calls, maturities and principal reductions of AFS securities
145,663

 
332,841

Proceeds from calls, maturities and principal reductions of HTM securities
242,958

 
240,907

Proceeds from the redemption of FHLB stock
202,929

 
22,387

Purchase of FHLB stock
(146,743
)
 
(2,856
)
Net increase in loans receivable
(268,769
)
 
(177,483
)
Purchase of premises and equipment
(7,396
)
 
(5,036
)
Proceeds from sale of other real estate owned ("OREO")
4,212

 
3,888

Net cash (used in) provided by investing activities
(31,216
)
 
129,703

 
 
 
 
 
 
 
(Continued)


7


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
 
 
 
For the Nine Months Ended
 
June 30,
 
2015
 
2014
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Dividends paid
(102,777
)
 
(127,854
)
Deposits, net of withdrawals
157,916

 
43,416

Proceeds from borrowings
5,400,000

 
644,477

Repayments on borrowings
(6,200,000
)
 
(694,477
)
Change in advance payments by borrowers for taxes and insurance
(20,674
)
 
(21,956
)
Repurchase of common stock
(29,842
)
 
(65,823
)
Other, net
218

 
411

Net cash used in financing activities
(795,159
)
 
(221,806
)
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(764,172
)
 
(25,462
)
 
 
 
 
CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
810,840

 
113,886

End of period
$
46,668

 
$
88,424

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
Income tax payments
$
26,476

 
$
23,790

Interest payments
$
77,861

 
$
75,705

 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
(Concluded)


8


Notes to Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal® Financial, Inc. (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has a wholly-owned subsidiary, Capitol Funds, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2014, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.

Recent Accounting Pronouncements - In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The ASU provides recognition, measurement, and disclosure guidance for certain obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. ASU 2013-04 is effective for fiscal years beginning after December 15, 2013, which was October 1, 2014 for the Company, and should be applied retrospectively. The adoption of this ASU did not have a material impact on the Company's consolidated financial condition or result of operations.

In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The ASU revised the conditions that an entity must meet to elect to use the effective yield method when accounting for qualified affordable housing project investments. Per current accounting guidance, an entity that invests in a qualified affordable housing project may elect to account for that investment using the effective yield method if all required conditions are met. For those investments that are not accounted for using the effective yield method, current accounting guidance requires that the investments be accounted for under either the equity method or the cost method. Certain existing conditions required to be met to use the effective yield method are restrictive and thus prevent many such investments from qualifying for the use of the effective yield method. The ASU replaces the effective yield method with the proportional amortization method and modifies the conditions that an entity must meet to be eligible to use a method other than the equity or cost methods to account for qualified affordable housing project investments. If the modified conditions are met, the ASU permits an entity to use the proportional amortization method to amortize the initial cost of the investment in proportion to the amount of tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense. Additionally, the ASU requires new disclosures about all investments in qualified affordable housing projects irrespective of the method used to account for the investments. ASU 2014-01 is effective for fiscal years beginning after December 15, 2014, which is October 1, 2015 for the Company, and should be applied retrospectively. The ASU is not expected to have a material impact on the Company's consolidated financial condition or result of operations when adopted.

In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The ASU clarifies when an in-substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU also requires disclosure of both (1) the amount of foreclosed residential real estate property held by a creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for fiscal years beginning after December 15, 2014, which is October 1, 2015 for the Company, and can be applied using either a modified retrospective transition method or a prospective transition method. The ASU is not expected to have a material impact on the Company's consolidated financial condition or result of operations when adopted.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The ASU clarifies principles for recognizing revenue and provides a common revenue standard for GAAP and International Financial Reporting Standards. Additionally, the ASU provides implementation guidance on several topics and requires entities to disclose both quantitative and qualitative information regarding contracts with customers. ASU 2014-09 is effective for fiscal years beginning after December 15, 2016, which is October 1, 2017 for the Company, and can be applied using either a retrospective or cumulative-effect transition method. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard, making the ASU effective for fiscal years beginning after December 15, 2017, which is October 1, 2018 for the Company. Early adoption is permitted but not before the original effective date, which is October 1, 2017 for the Company. The Company has not yet completed its evaluation of this ASU.


9


In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The ASU makes limited amendments to the current guidance on accounting for certain repurchase agreements. The ASU also expands disclosure requirements for certain transfers of financial assets accounted for as sales or as secured borrowings. The accounting changes in ASU 2014-11 are effective for the first quarterly period or fiscal year beginning after December 15, 2014, which was January 1, 2015 for the Company, and should be applied using a cumulative-effect transition method. The adoption of this ASU did not have an impact on the Company's financial condition or results of operations. The expanded disclosure requirements for ASU 2014-11 are effective for fiscal years beginning after December 15, 2014, and for quarterly periods beginning after March 15, 2015, which was April 1, 2015 for the Company. The expanded disclosures required by the adoption of the ASU are included in the Repurchase Agreements Note.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. The ASU amends the consolidation requirements in Accounting Standards Codification ("ASC") 810 and significantly changes the consolidation analysis required under GAAP. The ASU is expected to result in the deconsolidation of many entities; therefore, companies will need to reevaluate all of their previous consolidation conclusions. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, which is October 1, 2016 for the Company. Early adoption is allowed for all entities, but the guidance must be applied as of the beginning of the annual period containing the adoption date. The Company has not yet completed its evaluation of this ASU.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, which is October 1, 2016 for the Company, and should be applied retrospectively. Early adoption is allowed for all entities, including adoption in an interim period. The Company has not yet completed its evaluation of this ASU.

In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides explicit guidance related to a customer's accounting for fees paid in a cloud computing arrangement. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, which is October 1, 2016 for the Company, and can be applied either prospectively or retrospectively upon adoption. Early adoption is allowed for all entities. The Company has not yet completed its evaluation of this ASU.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in the ASU represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Amendments in the ASU that require transition guidance are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, which is October 1, 2016 for the Company. Early adoption is allowed for all entities, including adoption in an interim period. All other amendments in the ASU were effective upon the issuance of the ASU. The Company has not yet completed its evaluation of the transition guidance associated with this ASU. All other amendments in the ASU did not have an impact on the Company's financial condition or results of operations.


10


2. EARNINGS PER SHARE
Shares acquired by the ESOP are not considered in the basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
(Dollars in thousands, except per share amounts)
Net income
$
19,602

 
$
19,983

 
$
59,308

 
$
57,484

Income allocated to participating securities
(24
)
 
(41
)
 
(93
)
 
(135
)
Net income available to common stockholders
$
19,578

 
$
19,942

 
$
59,215

 
$
57,349

 
 
 
 
 
 
 
 
Average common shares outstanding
135,662,701

 
138,248,629

 
135,971,846

 
140,205,057

Average committed ESOP shares outstanding
83,052

 
83,052

 
41,602

 
41,601

Total basic average common shares outstanding
135,745,753

 
138,331,681

 
136,013,448

 
140,246,658

 
 
 
 
 
 
 
 
Effect of dilutive stock options
17,600

 
2,723

 
27,254

 
1,136

 
 
 
 
 
 
 
 
Total diluted average common shares outstanding
135,763,353

 
138,334,404

 
136,040,702

 
140,247,794

 
 
 
 
 
 
 
 
Net EPS:
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.14

 
$
0.43

 
$
0.41

Diluted
$
0.14

 
$
0.14

 
$
0.43

 
$
0.41

 
 
 
 
 
 
 
 
Antidilutive stock options, excluded
 
 
 
 
 
 
 
from the diluted average common shares
 
 
 
 
 
 
 
outstanding calculation
1,240,309

 
2,052,485

 
1,253,057

 
2,064,175



11


3. SECURITIES
The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS and HTM securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States Government-Sponsored Enterprises ("GSEs").
 
June 30, 2015
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
GSE debentures
$
600,376

 
$
656

 
$
1,076

 
$
599,956

MBS
230,615

 
13,932

 
5

 
244,542

Trust preferred securities
2,351

 

 
287

 
2,064

Municipal bonds
490

 
7

 

 
497

 
833,832

 
14,595

 
1,368

 
847,059

HTM:
 
 
 
 
 
 
 
MBS
1,320,642

 
26,521

 
7,827

 
1,339,336

Municipal bonds
39,015

 
354

 
93

 
39,276

 
1,359,657

 
26,875

 
7,920

 
1,378,612

 
$
2,193,489

 
$
41,470

 
$
9,288

 
$
2,225,671


 
September 30, 2014
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
GSE debentures
$
554,811

 
$
413

 
$
5,469

 
$
549,755

MBS
271,138

 
16,640

 
172

 
287,606

Trust preferred securities
2,493

 

 
197

 
2,296

Municipal bonds
1,116

 
17

 

 
1,133

 
829,558

 
17,070

 
5,838

 
840,790

HTM:
 
 
 
 
 
 
 
MBS
1,514,941

 
31,130

 
12,935

 
1,533,136

Municipal bonds
37,758

 
654

 
24

 
38,388

 
1,552,699

 
31,784

 
12,959

 
1,571,524

 
$
2,382,257

 
$
48,854

 
$
18,797

 
$
2,412,314




12


The following tables summarize the estimated fair value and gross unrealized losses of those securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.
 
June 30, 2015
 
Less Than 12 Months
 
Equal to or Greater Than 12 Months
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
GSE debentures
$
278,414

 
$
731

 
$
74,655

 
$
345

MBS

 

 
875

 
5

Trust preferred securities

 

 
2,064

 
287

 
$
278,414

 
$
731

 
$
77,594

 
$
637

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HTM:
 
 
 
 
 
 
 
MBS
$
130,703

 
$
571

 
$
315,011

 
$
7,256

Municipal bonds
14,761

 
81

 
1,126

 
12

 
$
145,464

 
$
652

 
$
316,137

 
$
7,268


 
September 30, 2014
 
Less Than 12 Months
 
Equal to or Greater Than 12 Months
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
(Dollars in thousands)
AFS:
 
 
 
 
 
 
 
GSE debentures
$
70,666

 
$
209

 
$
403,389

 
$
5,260

MBS
18,571

 
172

 

 

Trust preferred securities

 

 
2,296

 
197

 
$
89,237

 
$
381

 
$
405,685

 
$
5,457

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HTM:
 
 
 
 
 
 
 
MBS
$
353,344

 
$
2,194

 
$
409,275

 
$
10,741

Municipal bonds
4,688

 
19

 
739

 
5

 
$
358,032

 
$
2,213

 
$
410,014

 
$
10,746


The unrealized losses at June 30, 2015 were primarily a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. The impairment is also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity. As a result of the analysis, management has concluded that no other-than-temporary impairments existed at June 30, 2015.

13


The amortized cost and estimated fair value of debt securities as of June 30, 2015, by contractual maturity, are shown below.  Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer.
 
AFS
 
HTM
 
Amortized
 
Estimated
 
Amortized
 
Estimated
 
Cost
 
Fair Value
 
Cost
 
Fair Value
 
(Dollars in thousands)
One year or less
$

 
$

 
$
3,135

 
$
3,166

One year through five years
600,866

 
600,453

 
25,002

 
25,289

Five years through ten years

 

 
10,878

 
10,821

Ten years and thereafter
2,351

 
2,064

 

 

 
603,217

 
602,517

 
39,015

 
39,276

MBS
230,615

 
244,542

 
1,320,642

 
1,339,336

 
$
833,832

 
$
847,059

 
$
1,359,657

 
$
1,378,612



The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
(Dollars in thousands)
Taxable
$
1,730

 
$
1,508

 
$
4,696

 
$
4,947

Non-taxable
184

 
231

 
566

 
727

 
$
1,914

 
$
1,739

 
$
5,262

 
$
5,674



The following table summarizes the amortized cost and estimated fair value of securities pledged as collateral as of the dates presented.
 
June 30, 2015
 
September 30, 2014
 
Amortized
 
Estimated
 
Amortized
 
Estimated
 
Cost
 
Fair Value
 
Cost
 
Fair Value
 
(Dollars in thousands)
FHLB borrowings
$
231,663

 
$
232,568

 
$
487,736

 
$
488,368

Public unit deposits
345,537

 
348,023

 
282,464

 
284,251

Repurchase agreements
238,010

 
246,666

 
239,922

 
247,306

Federal Reserve Bank
21,377

 
22,260

 
25,969

 
27,067

 
$
836,587

 
$
849,517

 
$
1,036,091

 
$
1,046,992


14


4. LOANS RECEIVABLE and ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
 
June 30, 2015
 
September 30, 2014
 
(Dollars in thousands)
Real estate loans:
 
 
 
One- to four-family
$
6,222,818

 
$
5,972,031

Multi-family and commercial
108,576

 
75,677

Construction
86,168

 
106,790

Total real estate loans
6,417,562

 
6,154,498

 
 
 
 
Consumer loans:
 
 
 
Home equity
125,907

 
130,484

Other
4,233

 
4,537

Total consumer loans
130,140

 
135,021

 
 
 
 
Total loans receivable
6,547,702

 
6,289,519

 
 
 
 
Less:
 
 
 
Undisbursed loan funds
51,523

 
52,001

ACL
9,601

 
9,227

Discounts/unearned loan fees
23,850

 
23,687

Premiums/deferred costs
(33,740
)
 
(28,566
)
 
$
6,496,468

 
$
6,233,170


Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business, resulting in a loan concentration in residential first mortgage loans. The Bank purchases one- to four-family loans, on a loan-by-loan basis, from a select group of correspondent lenders, and also originates consumer loans, commercial and multi-family real estate loans, and construction loans secured by residential, multi-family or commercial real estate. As a result of our one- to four-family lending activities, the Bank has a concentration of loans secured by real property located in Kansas and Missouri.

One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Loans are underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function and approved by our Board of Directors.

The underwriting standards for loans purchased from correspondent and nationwide lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters. For the tables within this Note, correspondent loans purchased on a loan-by-loan basis are included with originated loans and loans purchased in loan packages ("bulk loans") are reported as purchased loans. The Bank also originates construction-to-permanent loans secured by one- to four-family residential real estate. Construction loans are obtained by homeowners who will occupy the property when construction is complete. Construction loans to builders for speculative purposes are not permitted. All construction loans are manually underwritten using the Bank's internal underwriting standards. Construction draw requests and the supporting documentation are reviewed and approved by management. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided.

Multi-family and commercial loans - The Bank's multi-family, commercial real estate, and related construction loans are originated by the Bank or are in participation with a lead bank. These loans are granted based on the income producing potential of the property and the financial strength of the borrower and/or guarantor. At the time of origination, loan-to-value ("LTV") ratios on multi-family, commercial real estate, and related construction loans generally cannot exceed 80% of the appraised value of the property securing the loans. The net operating income, which is the income derived from the operation of the property less all operating expenses, must generally be in excess of the required payments related to the outstanding debt at the time of origination. The Bank generally requires

15


personal guarantees from the borrowers covering a portion of the debt in addition to the security property as collateral for these loans. Appraisals on properties securing these loans are performed by independent state certified fee appraisers.

Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, auto loans, and loans secured by savings deposits. The Bank also originates a very limited amount of unsecured loans. The Bank does not originate any consumer loans on an indirect basis, such as contracts purchased from retailers of goods or services which have extended credit to their customers. The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount.

Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family loans; (2) consumer loans; and (3) multi-family and commercial loans. The one- to four-family and consumer segments are further segmented into classes for purposes of providing disaggregated information about the credit quality of the loan portfolio. The classes are: one- to four-family loans - originated, one- to four-family loans - purchased, consumer loans - home equity, and consumer loans - other.

The Bank's primary credit quality indicators for the one- to four-family loan and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores. The Bank's primary credit quality indicators for the multi-family and commercial loan and consumer - other loan portfolios are delinquency status and asset classifications.

The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented. The recorded investment in loans is defined as the unpaid principal balance of a loan (net of unadvanced funds related to loans in process), less charge-offs and inclusive of unearned loan fees and deferred costs. At June 30, 2015 and September 30, 2014, all loans 90 or more days delinquent were on nonaccrual status.
 
June 30, 2015
 
 
 
90 or More Days
 
Total
 
 
 
Total
 
30 to 89 Days
 
Delinquent or
 
Delinquent
 
Current
 
Recorded
 
Delinquent
 
in Foreclosure
 
Loans
 
Loans
 
Investment
 
(Dollars in thousands)
One- to four-family loans - originated
$
21,057

 
$
6,223

 
$
27,280

 
$
5,727,919

 
$
5,755,199

One- to four-family loans - purchased
6,274

 
7,655

 
13,929

 
492,676

 
506,605

Multi-family and commercial loans

 

 

 
114,125

 
114,125

Consumer - home equity
646

 
443

 
1,089

 
124,818

 
125,907

Consumer - other
80

 
16

 
96

 
4,137

 
4,233

 
$
28,057

 
$
14,337

 
$
42,394

 
$
6,463,675

 
$
6,506,069

 
September 30, 2014
 
 
 
90 or More Days
 
Total
 
 
 
Total
 
30 to 89 Days
 
Delinquent or
 
Delinquent
 
Current
 
Recorded
 
Delinquent
 
in Foreclosure
 
Loans
 
Loans
 
Investment
 
(Dollars in thousands)
One- to four-family loans - originated
$
15,396

 
$
8,566

 
$
23,962

 
$
5,421,112

 
$
5,445,074

One- to four-family loans - purchased
7,937

 
7,190

 
15,127

 
550,229

 
565,356

Multi-family and commercial loans

 

 

 
96,946

 
96,946

Consumer - home equity
770

 
397

 
1,167

 
129,317

 
130,484

Consumer - other
69

 
13

 
82

 
4,455

 
4,537

 
$
24,172

 
$
16,166

 
$
40,338

 
$
6,202,059

 
$
6,242,397



16


The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented.
 
June 30, 2015
 
September 30, 2014
 
(Dollars in thousands)
One- to four-family loans - originated
$
15,806

 
$
16,546

One- to four-family loans - purchased
8,625

 
7,940

Multi-family and commercial loans

 

Consumer - home equity
662

 
442

Consumer - other
16

 
13

 
$
25,109

 
$
24,941


In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification. Loan classifications are defined as follows:

Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the non-performing loan categories.
Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at the dates presented. Special mention and substandard loans are included in the formula analysis model if the loans are not individually evaluated for loss. Loans classified as doubtful or loss are individually evaluated for loss. At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.
 
June 30, 2015
 
September 30, 2014
 
Special Mention
 
Substandard
 
Special Mention
 
Substandard
 
(Dollars in thousands)
One- to four-family - originated
$
17,549

 
$
29,025

 
$
20,068

 
$
29,151

One- to four-family - purchased
1,103

 
12,662

 
2,738

 
11,470

Multi-family and commercial

 

 

 

Consumer - home equity
148

 
1,206

 
146

 
887

Consumer - other

 
26

 
5

 
13

 
$
18,800

 
$
42,919

 
$
22,957

 
$
41,521


The following table shows the weighted average credit score and weighted average LTV for originated and purchased one- to four-family loans and originated consumer home equity loans at the dates presented. Borrower credit scores are intended to provide an indication as to the likelihood that a borrower will repay their debts. Credit scores are updated at least semiannually, with the last update in March 2015, from a nationally recognized consumer rating agency. The LTV ratios provide an estimate of the extent to which the Bank may incur a loss on any given loan that may go into foreclosure. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
 
June 30, 2015
 
September 30, 2014
 
Credit Score
 
LTV
 
Credit Score
 
LTV
One- to four-family - originated
765
 
65
%
 
764
 
65
%
One- to four-family - purchased
752
 
66

 
749
 
66

Consumer - home equity
751
 
18

 
751
 
18

 
764
 
64

 
762
 
64


17


Troubled Debt Restructurings ("TDRs") - The following tables present the recorded investment prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the recorded investment at the end of the periods indicated. Any increase in the recorded investment at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30, 2015
 
June 30, 2015
 
Number
 
Pre-
 
Post-
 
Number
 
Pre-
 
Post-
 
of
 
Restructured
 
Restructured
 
of
 
Restructured
 
Restructured
 
Contracts
 
Outstanding
 
Outstanding
 
Contracts
 
Outstanding
 
Outstanding
 
(Dollars in thousands)
One- to four-family loans - originated
30

 
$
4,125

 
$
4,190

 
104

 
$
13,862

 
$
14,007

One- to four-family loans - purchased
2

 
874

 
876

 
4

 
1,140

 
1,144

Multi-family and commercial loans

 

 

 

 

 

Consumer - home equity
7

 
171

 
172

 
13

 
255

 
261

Consumer - other

 

 

 
3

 
12

 
12

 
39

 
$
5,170

 
$
5,238

 
124

 
$
15,269

 
$
15,424

 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30, 2014
 
June 30, 2014
 
Number
 
Pre-
 
Post-
 
Number
 
Pre-
 
Post-
 
of
 
Restructured
 
Restructured
 
of
 
Restructured
 
Restructured
 
Contracts
 
Outstanding
 
Outstanding
 
Contracts
 
Outstanding
 
Outstanding
 
(Dollars in thousands)
One- to four-family loans - originated
36

 
$
5,438

 
$
5,461

 
105

 
$
13,510

 
$
13,534

One- to four-family loans - purchased
3

 
642

 
644

 
5

 
840

 
842

Multi-family and commercial loans

 

 

 

 

 

Consumer - home equity
1

 
20

 
20

 
6

 
100

 
101

Consumer - other

 

 

 

 

 

 
40

 
$
6,100

 
$
6,125

 
116

 
$
14,450

 
$
14,477


The following table provides information on TDRs restructured within the last 12 months that became delinquent during the periods presented.
 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
Number of