The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.
The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. Excluded from this table is a $3.0 million FHLB advance that had an original contractual term of less than one year. FHLB advances are presented at par. The effective rate is shown as a weighted average effective rateand includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.
The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retailretail/business and public unit amounts, and term borrowings for the next four quarters as of September 30, 2017.2020.
Stockholders' Equity. Stockholders' equity was $1.37$1.28 billion at September 30, 20172020 compared to $1.39$1.34 billion at September 30, 2016.2019. The $24.7$51.5 million decrease was due primarily to the payment of $118.0cash dividends totaling $93.9 million in cash dividends,and the repurchase of common stock totaling $23.8 million, partially offset by net income of $84.1 million.$64.5 million during the current year. The cash dividends paid during the current fiscal year totaled $0.88$0.68 per share and consisted of a $0.29$0.34 per share cash true-up dividend related to fiscal year 20162019 earnings, paid in December 2019, per the Company's dividend policy, a $0.25 per share True Blue Capitol dividend, and four regular quarterly cash dividends of $0.085 per share, totaling $0.34 per share. In the long run, management considers the Bank's equity to total assets ratio of at least 10% an appropriate level of capital. At September 30, 2020, this ratio was 12.3%.
On October 18, 2017,20, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.4$11.5 million, payable on November 17, 201720, 2020 to stockholders of record as of the close of business on November 3, 2017.6, 2020. On October 27, 2017,28, 2020, the Company announced a fiscal year 20172020 cash true-up dividend of $0.29$0.13 per share, or approximately $39.0$17.6 million, related to fiscal year 20172020 earnings. The $0.29$0.13 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 20172020 and total regular quarterly cash dividends paid during fiscal year 2017,2020, divided by the number of shares outstanding as of October 24, 2017.16, 2020. The cash true-up dividend is payable on December 1, 20174, 2020 to stockholders of record as of the close of business on November 17, 2017,20, 2020, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of Capitol Federal Financial, Inc.the Company for fiscal year 2017.2020.
During the current fiscal year, the Company repurchased $23.8 million, or 2,558,100 shares, of common stock. Subsequent to September 30, 2020, through November 24, 2020, the Company repurchased an additional $1.5 million, or 164,400 shares, of common stock. As of November 24, 2020, there was still $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the Federal Reserve Bank's approval for the Company to repurchase shares extends through August 2021.
At September 30, 2017,2020, Capitol Federal Financial, Inc., at the holding company level, had $120.8$82.5 million on deposit at the Bank. For fiscal year 2018,2021, it is currently the intentintention of the Board of Directors and management to continue with the payout of 100% of the Company's earnings to itsthe Company's stockholders. The payout is expected to be in the form of regular quarterly cash dividends of $0.085 per share, totaling $0.34 for the year, and a cash true-up dividend equal to fiscal year 20182021 earnings in excess of the amount paid as regular quarterly cash dividends during fiscal year 2018.2021. It is anticipated that the fiscal year 20182021 cash true-up dividend will be paid in December 2018.2021. 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.
Capitol Federal Financial, Inc.The Company works to find multiple ways to provide stockholder value. Primarily thisThis has primarily been through stock buybacks and the payment of cash dividends.dividends and stock buybacks. The Company has maintained a dividend policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In addition, dueorder to the excess capital levels at the Company and the Bank,provide additional stockholder value, the Company has paid out a True Blue Capitol cash dividend of $0.25 cash per share in June of each of the past four yearssix years. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and in December prior to that.Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory considerations, including capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend. Given the state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection at that time to move capital from the Bank to the Company to pay that dividend. It is management's intention to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intention to pay out 100% of its earnings.
The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2017, 2016,2020, 2019, and 2015.2018. The amounts represent cash dividends paid during each period. The 20172020 true-up dividend amount presented represents the dividend payable on December 1, 20176, 2020 to stockholders of record as of November 17, 2017.22, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Calendar Year |
| 2020 | | 2019 | | 2018 |
| Amount | | Per Share | | Amount | | Per Share | | Amount | | Per Share |
| (Dollars in thousands, except per share amounts) |
Regular quarterly dividends paid | | | | | | | | | | |
Quarter ended March 31 | $ | 11,733 | | | $ | 0.085 | | | $ | 11,700 | | | $ | 0.085 | | | $ | 11,427 | | | $ | 0.085 | |
Quarter ended June 30 | 11,733 | | | 0.085 | | | 11,708 | | | 0.085 | | | 11,429 | | | 0.085 | |
Quarter ended September 30 | 11,733 | | | 0.085 | | | 11,713 | | | 0.085 | | | 11,430 | | | 0.085 | |
Quarter ended December 31 | 11,517 | | | 0.085 | | | 11,731 | | | 0.085 | | | 11,696 | | | 0.085 | |
True-up dividends paid | 17,614 | | | 0.130 | | | 46,932 | | | 0.340 | | | 53,666 | | | 0.390 | |
True Blue dividends paid | — | | | — | | | 34,446 | | | 0.250 | | | 33,614 | | | 0.250 | |
Calendar year-to-date dividends paid | $ | 64,330 | | | $ | 0.470 | | | $ | 128,230 | | | $ | 0.930 | | | $ | 133,262 | | | $ | 0.980 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Calendar Year |
| 2017 | | 2016 | | 2015 |
| Amount | | Per Share | | Amount | | Per Share | | Amount | | Per Share |
| (Dollars in thousands, except per share amounts) |
Regular quarterly dividends paid | | | | | | | | | | | |
Quarter ended March 31 | $ | 11,386 |
| | $ | 0.085 |
| | $ | 11,305 |
| | $ | 0.085 |
| | $ | 11,592 |
| | $ | 0.085 |
|
Quarter ended June 30 | 11,409 |
| | 0.085 |
| | 11,314 |
| | 0.085 |
| | 11,585 |
| | 0.085 |
|
Quarter ended September 30 | 11,411 |
| | 0.085 |
| | 11,323 |
| | 0.085 |
| | 11,385 |
| | 0.085 |
|
Quarter ended December 31 | 11,427 |
| | 0.085 |
| | 11,363 |
| | 0.085 |
| | 11,303 |
| | 0.085 |
|
True-up dividends paid | 38,985 |
| | 0.290 |
| | 38,835 |
| | 0.290 |
| | 33,248 |
| | 0.250 |
|
True Blue dividends paid | 33,559 |
| | 0.250 |
| | 33,274 |
| | 0.250 |
| | 33,924 |
| | 0.250 |
|
Calendar year-to-date dividends paid | $ | 118,177 |
| | $ | 0.880 |
| | $ | 117,414 |
| | $ | 0.880 |
| | $ | 113,037 |
| | $ | 0.840 |
|
In October 2015, the Company announced a stock repurchase plan for up to $70.0 million of common stock. It is anticipated that shares will be purchased from time to time based upon market conditions and available liquidity. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.
Weighted Average Yields and Rates. The following table presents the weighted average yields on interest-earning assets, the weighted average rates paid on interest-bearing liabilities, and the resultant interest rate spreads at the dates indicated. As previously discussed, the leverage strategy was not in place at September 30, 2017 and 2016, so the end of period yields/rates presented at September 30, 2017 and 2016 in the table below do not reflect the effects of this strategy. At September 30, 2015, $700.0 million of the leverage strategy was in place. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. The weighted average rate on FHLB borrowings includes the impact of interest rate swaps. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
| | | | | | | | | | | | | | | | | |
| At September 30, |
| 2020 | | 2019 | | 2018 |
Yield on: | | | | | |
Loans receivable | 3.57 | % | | 3.81 | % | | 3.74 | % |
MBS | 1.94 | | | 2.67 | | | 2.57 | |
Investment securities | 0.65 | | | 2.11 | | | 2.05 | |
FHLB stock | 4.64 | | | 7.47 | | | 7.22 | |
Cash and cash equivalents | 0.09 | | | 1.80 | | | 2.19 | |
Combined yield on interest-earning assets | 3.18 | | | 3.64 | | | 3.57 | |
| | | | | |
Rate paid on: | | | | | |
Checking | 0.07 | | | 0.06 | | | 0.05 | |
Savings | 0.06 | | | 0.05 | | | 0.07 | |
Money market | 0.37 | | | 0.70 | | | 0.47 | |
Retail/business certificates | 1.83 | | | 2.08 | | | 1.79 | |
Wholesale certificates | 0.74 | | | 2.29 | | | 1.89 | |
Total deposits | 0.95 | | | 1.29 | | | 1.06 | |
Total borrowings | 2.31 | | | 2.37 | | | 2.18 | |
Combined rate paid on interest-bearing liabilities | 1.26 | | | 1.60 | | | 1.39 | |
| | | | | |
Net interest rate spread | 1.92 | | | 2.04 | | | 2.18 | |
|
| | | | | | | | |
| At September 30, |
| 2017 |
| | 2016 |
| | 2015 |
|
Yield on: | | | | | |
Loans receivable | 3.59 | % | | 3.58 | % | | 3.65 | % |
MBS | 2.28 |
| | 2.19 |
| | 2.24 |
|
Investment securities | 1.33 |
| | 1.20 |
| | 1.19 |
|
FHLB stock | 6.47 |
| | 5.98 |
| | 5.98 |
|
Cash and cash equivalents | 1.25 |
| | 0.49 |
| | 0.25 |
|
Combined yield on interest-earning assets | 3.32 |
| | 3.22 |
| | 3.06 |
|
| | | | | |
Rate paid on: | | | | | |
Checking deposits | 0.04 |
| | 0.04 |
| | 0.04 |
|
Savings deposits | 0.24 |
| | 0.17 |
| | 0.16 |
|
Money market deposits | 0.24 |
| | 0.24 |
| | 0.23 |
|
Retail certificates | 1.52 |
| | 1.43 |
| | 1.29 |
|
Wholesale certificates | 1.28 |
| | 0.70 |
| | 0.40 |
|
Total deposits | 0.89 |
| | 0.80 |
| | 0.72 |
|
FHLB borrowings | 2.09 |
| | 2.24 |
| | 1.82 |
|
Repurchase agreements | 2.94 |
| | 2.94 |
| | 2.94 |
|
Total borrowings | 2.16 |
| | 2.29 |
| | 1.89 |
|
Combined rate paid on interest-bearing liabilities | 1.28 |
| | 1.30 |
| | 1.21 |
|
| | | | | |
Net interest rate spread | 2.04 |
| | 1.92 |
| | 1.85 |
|
Rate/Volume Analysis. The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing fiscal years 2020 to 2019. For the comparison of fiscal years 2019 to 2018, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, | | | | | | |
| 2020 vs. 2019 | | |
| Increase (Decrease) Due to | | |
| Volume | | Rate | | Total | | | | | | |
| (Dollars in thousands) | | | | | | |
Interest-earning assets: | | | | | | | | | | | |
Loans receivable | $ | (2,074) | | | $ | (11,661) | | | $ | (13,735) | | | | | | | |
MBS | (612) | | | (2,109) | | | (2,721) | | | | | | | |
Investment securities | (236) | | | (1,663) | | | (1,899) | | | | | | | |
FHLB stock | (406) | | | (1,590) | | | (1,996) | | | | | | | |
Cash and cash equivalents | (1,322) | | | (3,303) | | | (4,625) | | | | | | | |
Total interest-earning assets | (4,650) | | | (20,326) | | | (24,976) | | | | | | | |
| | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Checking | 65 | | | 82 | | | 147 | | | | | | | |
Savings | 29 | | | 66 | | | 95 | | | | | | | |
Money market | (14) | | | (2,200) | | | (2,214) | | | | | | | |
Certificates of deposit | 2,048 | | | 1,321 | | | 3,369 | | | | | | | |
Borrowings | (8,876) | | | (442) | | | (9,318) | | | | | | | |
Total interest-bearing liabilities | (6,748) | | | (1,173) | | | (7,921) | | | | | | | |
| | | | | | | | | | | |
Net change in net interest income | $ | 2,098 | | | $ | (19,153) | | | $ | (17,055) | | | | | | | |
Average Balance Sheets. The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated. For fiscal year 2018 information, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Weighted average yields are derived by dividing annual income by the average balance of the related assets, and weighted average rates are derived by dividing annual expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, | | | | | | |
| 2020 | | 2019 | | |
| Average | | Interest | | | | Average | | Interest | | | | | | | | |
| Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ | | | | | | |
| Amount | | Paid | | Rate | | Amount | | Paid | | Rate | | | | | | |
Assets: | (Dollars in thousands) | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | |
One- to four-family loans | $ | 6,529,265 | | | $ | 226,703 | | | 3.47 | % | | $ | 6,681,441 | | | $ | 240,919 | | | 3.61 | % | | | | | | |
Commercial loans | 785,127 | | | 37,320 | | | 4.68 | | | 701,771 | | | 34,810 | | | 4.90 | | | | | | | |
Consumer loans | 123,334 | | | 6,471 | | | 5.25 | | | 135,683 | | | 8,500 | | | 6.26 | | | | | | | |
Total loans receivable(1) | 7,437,726 | | | 270,494 | | | 3.63 | | | 7,518,895 | | | 284,229 | | | 3.77 | | | | | | | |
MBS(2) | 954,197 | | | 23,009 | | | 2.41 | | | 977,925 | | | 25,730 | | | 2.63 | | | | | | | |
Investment securities(2)(3) | 270,683 | | | 4,467 | | | 1.65 | | | 281,490 | | | 6,366 | | | 2.26 | | | | | | | |
FHLB stock | 100,251 | | | 5,827 | | | 5.81 | | | 106,057 | | | 7,823 | | | 7.38 | | | | | | | |
Cash and cash equivalents(4) | 179,142 | | | 1,181 | | | 0.65 | | | 251,015 | | | 5,806 | | | 2.28 | | | | | | | |
Total interest-earning assets(1)(2) | 8,941,999 | | | 304,978 | | | 3.40 | | | 9,135,382 | | | 329,954 | | | 3.61 | | | | | | | |
Other non-interest-earning assets | 461,614 | | | | | | | 385,803 | | | | | | | | | | | |
Total assets | $ | 9,403,613 | | | | | | | $ | 9,521,185 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
Checking | $ | 1,180,110 | | | 762 | | | 0.06 | | | $ | 1,073,825 | | | 615 | | | 0.06 | | | | | | | |
Savings | 388,662 | | | 292 | | | 0.08 | | | 342,617 | | | 197 | | | 0.06 | | | | | | | |
Money market | 1,252,992 | | | 6,647 | | | 0.53 | | | 1,255,001 | | | 8,861 | | | 0.71 | | | | | | | |
Retail/business certificates | 2,716,945 | | | 55,238 | | | 2.03 | | | 2,531,923 | | | 48,496 | | | 1.92 | | | | | | | |
Wholesale certificates | 282,947 | | | 4,659 | | | 1.65 | | | 369,282 | | | 8,032 | | | 2.18 | | | | | | | |
Total deposits | 5,821,656 | | | 67,598 | | | 1.16 | | | 5,572,648 | | | 66,201 | | | 1.19 | | | | | | | |
Borrowings(5) | 2,065,966 | | | 48,045 | | | 2.31 | | | 2,441,002 | | | 57,363 | | | 2.34 | | | | | | | |
Total interest-bearing liabilities | 7,887,622 | | | 115,643 | | | 1.46 | | | 8,013,650 | | | 123,564 | | | 1.54 | | | | | | | |
Other non-interest-bearing liabilities | 203,990 | | | | | | | 149,156 | | | | | | | | | | | |
Stockholders' equity | 1,312,001 | | | | | | | 1,358,379 | | | | | | | | | | | |
Total liabilities and stockholders' equity | $ | 9,403,613 | | | | | | | $ | 9,521,185 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net interest income(6) | | | $ | 189,335 | | | | | | | $ | 206,390 | | | | | | | | | |
Net interest rate spread(7)(8) | | | | | 1.94 | | | | | | | 2.07 | | | | | | | |
Net interest-earning assets | $ | 1,054,377 | | | | | | | $ | 1,121,732 | | | | | | | | | | | |
Net interest margin(8)(9) | | | | | 2.12 | | | | | | | 2.26 | | | | | | | |
Ratio of interest-earning assets to interest-bearing liabilities | | 1.13x | | | | | | 1.14x | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, |
| 2017 | | 2016 | | 2015 |
| Average | | Interest | | | | Average | | Interest | | | | Average | | Interest | | |
| Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ |
| Amount | | Paid | | Rate | | Amount | | Paid | | Rate | | Amount | | Paid | | Rate |
Assets: | (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | | | | | | | |
Loans receivable(1) | $ | 7,150,686 |
| | $ | 253,393 |
| | 3.54 | % | | $ | 6,766,317 |
| | $ | 243,311 |
| | 3.60 | % | | $ | 6,389,964 |
| | $ | 235,500 |
| | 3.69 | % |
MBS(2) | 1,088,495 |
| | 23,809 |
| | 2.19 |
| | 1,366,605 |
| | 29,794 |
| | 2.18 |
| | 1,632,117 |
| | 36,647 |
| | 2.25 |
|
Investment securities(2)(3) | 341,149 |
| | 4,362 |
| | 1.28 |
| | 481,223 |
| | 5,925 |
| | 1.23 |
| | 604,999 |
| | 7,182 |
| | 1.19 |
|
FHLB stock | 192,896 |
| | 12,233 |
| | 6.34 |
| | 204,894 |
| | 12,252 |
| | 5.98 |
| | 209,743 |
| | 12,556 |
| | 5.99 |
|
Cash and cash equivalents(4) | 2,114,722 |
| | 19,389 |
| | 0.90 |
| | 2,168,896 |
| | 9,831 |
| | 0.45 |
| | 2,125,693 |
| | 5,477 |
| | 0.25 |
|
Total interest-earning assets(1)(2) | 10,887,948 |
| | 313,186 |
| | 2.87 |
| | 10,987,935 |
| | 301,113 |
| | 2.74 |
| | 10,962,516 |
| | 297,362 |
| | 2.71 |
|
Other non-interest-earning assets | 299,338 |
| | | | | | 293,692 |
| | | | | | 232,234 |
| | | | |
Total assets | $ | 11,187,286 |
| | | | | | $ | 11,281,627 |
| | | | | | $ | 11,194,750 |
| | | | |
| | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
Checking | $ | 827,677 |
| | 302 |
| | 0.04 |
| | $ | 784,303 |
| | 291 |
| | 0.04 |
| | $ | 727,533 |
| | 274 |
| | 0.04 |
|
Savings | 346,495 |
| | 783 |
| | 0.23 |
| | 326,744 |
| | 603 |
| | 0.18 |
| | 306,456 |
| | 462 |
| | 0.15 |
|
Money market | 1,210,644 |
| | 2,868 |
| | 0.24 |
| | 1,173,983 |
| | 2,762 |
| | 0.24 |
| | 1,149,203 |
| | 2,679 |
| | 0.23 |
|
Retail certificates | 2,434,470 |
| | 35,449 |
| | 1.46 |
| | 2,370,286 |
| | 32,181 |
| | 1.36 |
| | 2,259,645 |
| | 28,085 |
| | 1.24 |
|
Wholesale certificates | 391,902 |
| | 3,566 |
| | 0.91 |
| | 370,707 |
| | 2,022 |
| | 0.55 |
| | 312,857 |
| | 1,619 |
| | 0.52 |
|
Total deposits | 5,211,188 |
| | 42,968 |
| | 0.82 |
| | 5,026,023 |
| | 37,859 |
| | 0.75 |
| | 4,755,694 |
| | 33,119 |
| | 0.70 |
|
FHLB borrowings(5) | 4,269,494 |
| | 68,871 |
| | 1.61 |
| | 4,530,835 |
| | 65,091 |
| | 1.43 |
| | 4,646,782 |
| | 67,797 |
| | 1.46 |
|
Repurchase agreements | 200,000 |
| | 5,965 |
| | 2.94 |
| | 200,000 |
| | 5,981 |
| | 2.94 |
| | 215,835 |
| | 6,678 |
| | 3.05 |
|
Total borrowings | 4,469,494 |
| | 74,836 |
| | 1.67 |
| | 4,730,835 |
| | 71,072 |
| | 1.50 |
| | 4,862,617 |
| | 74,475 |
| | 1.53 |
|
Total interest-bearing liabilities | 9,680,682 |
| | 117,804 |
| | 1.21 |
| | 9,756,858 |
| | 108,931 |
| | 1.11 |
| | 9,618,311 |
| | 107,594 |
| | 1.12 |
|
Other non-interest-bearing liabilities | 124,443 |
| | | | | | 120,636 |
| | | | | | 108,522 |
| | | | |
Stockholders' equity | 1,382,161 |
| | | | | | 1,404,133 |
| | | | | | 1,467,917 |
| | | | |
Total liabilities and stockholders' equity | $ | 11,187,286 |
| | | | | | $ | 11,281,627 |
| | | | | | $ | 11,194,750 |
| | | | |
| | | | | | | | | | | | | | | | | |
Net interest income(6) | | | $ | 195,382 |
| | | | | | $ | 192,182 |
| | | | | | $ | 189,768 |
| | |
Net interest rate spread(7)(8) | | | | | 1.66 |
| | | | | | 1.63 |
| | | | | | 1.59 |
|
Net interest-earning assets | $ | 1,207,266 |
| | | | | | $ | 1,231,077 |
| | | | | | $ | 1,344,205 |
| | | | |
Net interest margin(8)(9) | | | | | 1.79 |
| | | | | | 1.75 |
| | | | | | 1.73 |
|
Ratio of interest-earning assets to interest-bearing liabilities | | 1.12x |
| | | | | | 1.13x |
| | | | | | 1.14x |
|
(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
| |
(1) | Calculated net of unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. Balances include loans receivable held-for-sale. |
| |
(2) | MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts. |
| |
(3) | The average balance of investment securities includes an average balance of nontaxable securities of $30.7 million, $37.0 million, and $37.2 million for the years ended September 30, 2017, 2016, and 2015, respectively. |
| |
(4) | The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.93 billion, $1.97 billion, and $1.98 billion for the years ended September 30, 2017, 2016, and 2015, respectively. |
| |
(5) | Included in this line are FHLB borrowings related to the leverage strategy with an average outstanding amount of $2.02 billion, $2.06 billion, and $2.08 billion, interest paid of $18.5 million, $10.1 million, and $5.4 million, at a rate of 0.91%, 0.48%, and 0.25% for the years ended September 30, 2017, 2016, and 2015, respectively. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties. |
| |
(6) | Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. |
| |
(7) | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
| |
(8) | The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income. |
(3)The average balance of investment securities includes an average balance of nontaxable securities of $13.8 million, and $21.6 million, for the years ended September 30, 2020 and 2019, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| | Actual | | Leverage | | Adjusted | | Actual | | Leverage | | Adjusted | | Actual | | Leverage | | Adjusted |
| | (GAAP) | | Strategy | | (Non-GAAP) | | (GAAP) | | Strategy | | (Non-GAAP) | | (GAAP) | | Strategy | | (Non-GAAP) |
Net interest margin | | 1.79 | % | | (0.36 | )% | | 2.15 | % | | 1.75 | % | | (0.35 | )% | | 2.10 | % | | 1.73 | % | | (0.34 | )% | | 2.07 | % |
Net interest rate spread | | 1.66 |
| | (0.32 | ) | | 1.98 |
| | 1.63 |
| | (0.30 | ) | | 1.93 |
| | 1.59 |
| | (0.28 | ) | | 1.87 |
|
| |
(9) | Net interest margin represents net interest income as a percentage of average interest-earning assets. |
(4)There were no cash and cash equivalents related to the leverage strategy during the year ended September 30, 2020. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $150.7 million for the year ended September 30, 2019.
Rate/Volume Analysis. (5)There were no borrowings related to the leverage strategy during the year ended September 30, 2020. Included in this line item, for the year ended September 30, 2019, are borrowings related to the leverage strategy with an average outstanding balance of $157.8 million and interest paid of $3.9 million, at a weighted average rate of 2.46%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.28 billion and interest paid of $53.4 million, at a weighted average rate of 2.33%. The table below presentsFHLB advance amounts and rates included in this line item include the amounteffect of changes ininterest rate swaps and are net of deferred prepayment penalties.
(6)Net interest income represents the difference between interest income earned on interest-earning assets and interest expense for major componentspaid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, comparing fiscal years 2017 to 2016 and fiscal years 2016 to 2015. For each category ofthe interest rates earned or paid on them.
(7)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, information is provided on changes attributable to (1) changesliabilities.
(8)The table below provides a reconciliation between certain performance ratios presented in volume,accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are changesnot presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the average balance multiplied byperformance ratios without the previous year's average rate, and (2) changes in rate, which are changes inleverage strategy because of the average rate multiplied byunique nature of the average balance from the previous year.leverage strategy. The net changes attributableleverage strategy reduces some of our performance ratios due to the combined impactsmall amount of both rate and volume have been allocated proportionatelyearnings associated with the transaction in comparison to the changes due to volume andsize of the changes due to rate.transaction, while increasing our net income. The leverage strategy was not in place during fiscal year 2020. The pre-tax yield on the leverage strategy was 0.03% for the year ended September 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | For the Year Ended September 30, | | | | | | |
| | | | 2019 | | |
| | | | | | | | Actual | | Leverage | | Adjusted | | | | | | |
| | | | | | | | (GAAP) | | Strategy | | (Non-GAAP) | | | | | | |
Net interest margin | | | | | | | | 2.26 | % | | (0.04) | % | | 2.30 | % | | | | | | |
Net interest rate spread | | | | | | | | 2.07 | | | (0.03) | | | 2.10 | | | | | | | |
(9)Net interest margin represents net interest income as a percentage of average interest-earning assets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, |
| 2017 vs. 2016 | | 2016 vs. 2015 |
| Increase (Decrease) Due to | | Increase (Decrease) Due to |
| Volume | | Rate | | Total | | Volume | | Rate | | Total |
| (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | |
Loans receivable | $ | 13,480 |
| | $ | (3,398 | ) | | $ | 10,082 |
| | $ | 13,496 |
| | $ | (5,685 | ) | | $ | 7,811 |
|
MBS | (6,083 | ) | | 98 |
| | (5,985 | ) | | (5,815 | ) | | (1,038 | ) | | (6,853 | ) |
Investment securities | (1,783 | ) | | 220 |
| | (1,563 | ) | | (1,515 | ) | | 258 |
| | (1,257 | ) |
FHLB stock | (753 | ) | | 734 |
| | (19 | ) | | (261 | ) | | (43 | ) | | (304 | ) |
Cash and cash equivalents | (252 | ) | | 9,810 |
| | 9,558 |
| | 114 |
| | 4,240 |
| | 4,354 |
|
Total interest-earning assets | 4,609 |
| | 7,464 |
| | 12,073 |
| | 6,019 |
| | (2,268 | ) | | 3,751 |
|
| | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Checking | 15 |
| | (5 | ) | | 10 |
| | 22 |
| | (4 | ) | | 18 |
|
Savings | 38 |
| | 143 |
| | 181 |
| | 33 |
| | 108 |
| | 141 |
|
Money market | 81 |
| | 25 |
| | 106 |
| | 64 |
| | 18 |
| | 82 |
|
Certificates of deposit | 1,067 |
| | 3,745 |
| | 4,812 |
| | 2,057 |
| | 2,442 |
| | 4,499 |
|
FHLB borrowings | (5,262 | ) | | 9,042 |
| | 3,780 |
| | (2,280 | ) | | (426 | ) | | (2,706 | ) |
Repurchase agreements | (8 | ) | | (8 | ) | | (16 | ) | | (467 | ) | | (230 | ) | | (697 | ) |
Total interest-bearing liabilities | (4,069 | ) | | 12,942 |
| | 8,873 |
| | (571 | ) | | 1,908 |
| | 1,337 |
|
| | | | | | | | | | | |
Net change in net interest income | $ | 8,678 |
| | $ | (5,478 | ) | | $ | 3,200 |
| | $ | 6,590 |
| | $ | (4,176 | ) | | $ | 2,414 |
|
Comparison of Operating Results for the Years Ended September 30, 20172020 and 20162019
For fiscal year 2017, theThe Company recognized net income of $84.1$64.5 million, or $0.63$0.47 per share, for the year ended September 30, 2020 compared to net income of $83.5$94.2 million, or $0.63$0.68 per share, for fiscalthe year 2016.ended September 30, 2019. The increasedecrease in net income was due primarily to a $3.2$21.6 million increase in provision for credit losses and a $17.1 million decrease in net interest income, partially offset by a $1.1 million decrease in non-interest income. Partially offsetting this increase, no provisionincome tax expense.
Net interest income decreased $17.1 million, or 8.3%, from the prior year to $189.3 million for credit losses was recorded in fiscal year 2017, compared to a negative provision for credit losses of $750 thousand in fiscal year 2016.
the current year. The net interest margin increased fourdecreased 14 basis points, from 1.75%2.26% for the prior fiscal year to 1.79%2.12% for the current fiscal year. The leverage strategy was suspended at certain times during the prior year and during all of the current year 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. When the leverage strategy is in place, it increases our net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have increased fivedecreased 18 basis points, from 2.10%2.30% for the prior fiscal year to 2.15%2.12% for the current fiscal year. The increasedecrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to a shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans, partially offset by a decrease in the weighted averageloan portfolio yield, specifically the yield on loans. the correspondent one- to four-family loan portfolio.
The positive impactleverage strategy involves 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 are repaid at quarter end, or earlier if the strategy is suspended. The proceeds from the borrowings, net of the decrease inrequired FHLB stock holdings, are 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 expenserate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, not relatedless applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was offset by an increase$14 thousand during the prior year. The leverage strategy was not in place during the current year. Management continues to monitor the net interest expense on deposits.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.
Interest and Dividend Income
The weighted average yield on total interest-earning assets increased 13decreased 21 basis points, from 2.74%3.61% for the prior fiscal year to 2.87%3.40% for the current fiscal year, whileand the average balance of interest-earning assets decreased $100.0 million from the prior fiscal year.$193.4 million. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased sixdecreased 22 basis points, from 3.21%3.62% for the prior fiscal year to 3.27%3.40% for the current fiscal year, whileand the average balance of interest-earning assets would have decreased $59.6$35.6 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield. 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 Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 270,494 | | | $ | 284,229 | | | $ | (13,735) | | | (4.8) | % |
MBS | 23,009 | | | 25,730 | | | (2,721) | | | (10.6) | |
FHLB stock | 5,827 | | | 7,823 | | | (1,996) | | | (25.5) | |
Investment securities | 4,467 | | | 6,366 | | | (1,899) | | | (29.8) | |
Cash and cash equivalents | 1,181 | | | 5,806 | | | (4,625) | | | (79.7) | |
Total interest and dividend income | $ | 304,978 | | | $ | 329,954 | | | $ | (24,976) | | | (7.6) | |
|
| | | | | | | | | | | | | | |
| For the Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2017 |
| | 2016 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 253,393 |
| | $ | 243,311 |
| | $ | 10,082 |
| | 4.1 | % |
MBS | 23,809 |
| | 29,794 |
| | (5,985 | ) | | (20.1 | ) |
Cash and cash equivalents | 19,389 |
| | 9,831 |
| | 9,558 |
| | 97.2 |
|
FHLB Stock | 12,233 |
| | 12,252 |
| | (19 | ) | | (0.2 | ) |
Investment securities | 4,362 |
| | 5,925 |
| | (1,563 | ) | | (26.4 | ) |
Total interest and dividend income | $ | 313,186 |
| | $ | 301,113 |
| | $ | 12,073 |
| | 4.0 |
|
The increasedecrease in interest income on loans receivable was due mainly to a $384.4 million increase in the average balance of the portfolio, partially offset by a six basis point decrease in the weighted average yield on the portfolio to 3.54% for the current fiscal year. Loan growth was funded through cash flows from the securities portfolio. The decrease in the weighted average yield was due primarily to endorsements and refinances repricingcorrespondent loans, to lower market rates, the origination and purchase of loans at rates lower than the overall loan portfolio rate at certain points during each year, and anincluding a $5.8 million increase in the amortization of premiums related to correspondentincreases in payoff and endorsement activity. This was partially offset by a shift in the mix of the loan portfolio, as the average balance of lower-yielding one- to four-family loans decreased $152.2 million, or 2.3%, partially offset by a $64.9 million, or 9.2%, increase in the average balance of higher-yielding commercial loans, excluding PPP loans. The weighted average yield on the loans receivable portfolio decreased 14 basis points, from 3.77% for the prior year to 3.63% for the current year.
The decrease in interest income on the MBS portfolio was due primarily to a $278.1 million22 basis point decrease in the average balance of the portfolio as cash flows not reinvested were used primarily to fund loan growth and pay off maturing FHLB borrowings. The weighted average yield on the MBS portfolio increased one basis point, from 2.18% during the prior fiscal year to 2.19% for the current fiscal year. Net premium amortization of $4.2 million during the current fiscal year decreased the weighted average yield to 2.41% in the current year as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields. The decrease in dividend income on FHLB stock was due mainly to a decrease in the portfoliodividend rate paid by 39FHLB, as well as to the leverage strategy not being in place during the current year. The decrease in interest income on investment securities was due mainly to a 61 basis points. During the prior fiscal year, $5.0 million of net premiums were amortized, which decreasedpoint decrease in the weighted average yield onto 1.65% in the portfolio by 37 basis points. Ascurrent year as a result of September 30, 2017, the remaining net balance of premiums on our portfolio of MBS was $9.0 million.
calls and maturities either being replaced at lower market rates or not being replaced. The increasedecrease in interest income on cash and cash equivalents was due primarily to the leverage strategy being in place for a 45 basis point increaseportion of the prior year and not being in place during the weighted average yield resulting from an increasecurrent year, along with a decrease in the yield earned on balancescash held at the FRB of Kansas City.
The decrease in interest income on investment securities was due to a $140.1 million decrease in the average balance. Cash flows not reinvested in the portfolio were used primarily to fund loan growth and pay off maturing FHLB borrowings.
Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 10decreased eight basis points, from 1.11%1.54% for the prior fiscal year to 1.21%1.46% for the current fiscal year, whileand the average balance of interest-bearing liabilities decreased $76.2 million from the prior year fiscal year.$126.0 million. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased onedecreased six basis point,points, from 1.28%1.52% for the prior fiscal year to 1.29%1.46% for the current fiscal year, while the average balance of interest-bearing liabilities would have decreased $35.8increased $31.8 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 Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | | |
Deposits | $ | 67,598 | | | $ | 66,201 | | | $ | 1,397 | | | 2.1 | % |
Borrowings | 48,045 | | | 57,363 | | | (9,318) | | | (16.2) | |
Total interest expense | $ | 115,643 | | | $ | 123,564 | | | $ | (7,921) | | | (6.4) | |
|
| | | | | | | | | | | | | | |
| For the Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2017 |
| | 2016 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | | |
FHLB borrowings | $ | 68,871 |
| | $ | 65,091 |
| | $ | 3,780 |
| | 5.8 | % |
Deposits | 42,968 |
| | 37,859 |
| | 5,109 |
| | 13.5 |
|
Repurchase agreements | 5,965 |
| | 5,981 |
| | (16 | ) | | (0.3 | ) |
Total interest expense | $ | 117,804 |
| | $ | 108,931 |
| | $ | 8,873 |
| | 8.1 |
|
The increase in interest expense on deposits was due to an increase in the cost of the retail/business certificate of deposit portfolio, partially offset by decreases in the cost of wholesale certificates of deposit and money market accounts. The weighted average rate of the retail/business certificate of deposit portfolio increased 11 basis points, to 2.03% for the current year, and the average balance increased $185.0 million, or approximately 7%. In the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms. During the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign with above-market rates, resulting in growth in the short-term and certain intermediate-term certificates of deposit. Since the onset of the COVID-19 pandemic, the retail/business certificate of deposit portfolio has been gradually repricing down as certificates renew to lower offered rates.
The borrowings line item in the table above includes interest expense on FHLB borrowings both associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $4.6$5.4 million from the prior fiscal year due primarily to a $221.0 million decrease in the average balance of such borrowings, as certain maturing FHLB advances and repurchase agreements were not replaced and the portfolio as a resultBank paid down its FHLB line of not replacing all of the advances that matured between periods. Fundscredit with funds generated from deposit growth were primarily used to pay off the maturing advances, along with some cash flows from the securities portfolio. The weighted average rate paid on FHLB borrowings not related to the leverage strategy increased one basis point, to 2.24% for the current fiscal year.increase in deposits. Interest expense on FHLB borrowings associated with the leverage strategy increased $8.4decreased $3.9 million from the prior fiscal year due to the leverage strategy being in place for a 43 basis point increase in the weighted average rate paid as a result of an increase in interest rates between periods.
The increase in interest expense on deposits was due primarily to a seven basis point increase in the weighted average rate, to 0.82% for the current fiscal year, along with growth in the portfolio. The increase in the weighted average rate was primarily related to the retail certificate of deposit portfolio, which increased 10 basis points to 1.46% for the current fiscal year. The average balanceportion of the deposit portfolio increased $185.2 millionprior year and not being in place at all during the current fiscal year, with the majority of the increase in retail deposits.year.
Provision for Credit Losses
The Bank did not recordrecorded a provision for credit losses during the current fiscal year of $22.3 million, compared to a negative provision for credit losses of $750 thousand during the prior fiscal year. Based on management's assessment of the ACL formula analysis model and several other factors, it was determined that noThe $22.3 million provision for credit losses was necessary forin the current fiscal year. Net loan charge-offs were $142 thousand duringyear was primarily related to the current fiscal year compared to $153 thousand indeterioration of economic conditions as a result of COVID-19. See "Part I, Item 1. Business – Asset Quality – Allowance for credit losses and Provision for credit losses" for additional discussion regarding management's evaluation of the prior fiscal year. Atadequacy of the Bank's ACL at September 30, 2017, loans 30 to 89 days delinquent were 0.26% of total loans and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans.2020.
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 Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | $ | 11,285 | | | $ | 12,740 | | | $ | (1,455) | | | (11.4) | % |
Insurance commissions | 2,487 | | | 2,821 | | | (334) | | | (11.8) | |
Other non-interest income | 5,827 | | | 6,397 | | | (570) | | | (8.9) | |
Total non-interest income | $ | 19,599 | | | $ | 21,958 | | | $ | (2,359) | | | (10.7) | |
|
| | | | | | | | | | | | | | |
| For the Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2017 |
| | 2016 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Retail fees and charges | $ | 15,053 |
| | $ | 14,835 |
| | $ | 218 |
| | 1.5 | % |
Income from bank-owned life insurance ("BOLI") | 2,233 |
| | 3,420 |
| | (1,187 | ) | | (34.7 | ) |
Other non-interest income | 4,910 |
| | 5,057 |
| | (147 | ) | | (2.9 | ) |
Total non-interest income | $ | 22,196 |
| | $ | 23,312 |
| | $ | (1,116 | ) | | (4.8 | ) |
The decrease in income from BOLIdeposit service fees was due mainly to a decrease in service charge income, primarily resulting from a decrease in consumer activity related to the receiptCOVID-19 pandemic, along with the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019. The decrease in insurance commissions was due primarily to a death benefit duringdecrease in the amount of annual contingent insurance commissions. The decrease in other non-interest income was due mainly to a decrease in loan-related fees, primarily prepayment fees and late charges, compared to the prior fiscal year with no such death benefit in the current fiscal year.
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 Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 52,996 | | | $ | 53,145 | | | $ | (149) | | | (0.3) | % |
Information technology and related expense | 16,974 | | | 17,615 | | | (641) | | | (3.6) | |
Occupancy, net | 13,870 | | | 13,032 | | | 838 | | | 6.4 | |
Regulatory and outside services | 5,762 | | | 5,813 | | | (51) | | | (0.9) | |
Advertising and promotional | 4,889 | | | 5,244 | | | (355) | | | (6.8) | |
Deposit and loan transaction costs | 2,890 | | | 2,478 | | | 412 | | | 16.6 | |
Office supplies and related expense | 2,195 | | | 2,439 | | | (244) | | | (10.0) | |
Federal insurance premium | 914 | | | 1,172 | | | (258) | | | (22.0) | |
| | | | | | | |
Other non-interest expense | 5,514 | | | 6,006 | | | (492) | | | (8.2) | |
Total non-interest expense | $ | 106,004 | | | $ | 106,944 | | | $ | (940) | | | (0.9) | |
|
| | | | | | | | | | | | | | |
| For the Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2017 |
| | 2016 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 43,437 |
| | $ | 42,378 |
| | $ | 1,059 |
| | 2.5 | % |
Information technology and communications | 11,282 |
| | 10,540 |
| | 742 |
| | 7.0 |
|
Occupancy, net | 10,814 |
| | 10,576 |
| | 238 |
| | 2.3 |
|
Regulatory and outside services | 5,821 |
| | 5,645 |
| | 176 |
| | 3.1 |
|
Deposit and loan transaction costs | 5,284 |
| | 5,585 |
| | (301 | ) | | (5.4 | ) |
Advertising and promotional | 4,673 |
| | 4,609 |
| | 64 |
| | 1.4 |
|
Federal insurance premium | 3,539 |
| | 5,076 |
| | (1,537 | ) | | (30.3 | ) |
Office supplies and related expense | 1,981 |
| | 2,640 |
| | (659 | ) | | (25.0 | ) |
Low income housing partnerships | — |
| | 3,872 |
| | (3,872 | ) | | (100.0 | ) |
Other non-interest expense | 2,827 |
| | 3,384 |
| | (557 | ) | | (16.5 | ) |
Total non-interest expense | $ | 89,658 |
| | $ | 94,305 |
| | $ | (4,647 | ) | | (4.9 | ) |
The decrease in information technology and related expense was due mainly to the prior year including costs related to the integration of the operations of CCB. The increase in salaries and employee benefitsoccupancy, net was due primarily to an increase in employee health care costs.facility-related costs resulting from the impact of the COVID-19 pandemic, along with an increase in depreciation expense. The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules, postponements of campaigns, and cancellations of certain sponsorships as a result of the COVID-19 pandemic. The increase in information technologydeposit and communicationsloan transaction costs was due largelymainly to software licensing expenses, website hosting expenses, and communication network expenses.the timing of loan origination-related costs. The decrease in the federal insurance premiumspremium was due primarilymainly to a decrease inthe Bank utilizing an assessment credit from the FDIC base assessment rate effective July 1, 2016. The decrease in office supplies and related expense was due primarily to lower debit card expenses compared toduring the prior fiscal year, during which time the Bank began issuing debit cards enabled with chip card technology. The decrease in low income housing partnerships expense was due to a change in the Bank's method of accounting for those investments. The Bank had been accounting for these partnerships using the equity method of accounting as twomajority of the Bank's officers were involved in the operational management of the low income housing partnership investment group. Effective September 30, 2016, those two Bank officers discontinued their involvement in the operational management of the investment group. On October 1, 2016, the Bank began using the proportional method of accounting for those investments rather than the equity method. As a result, the Bank no longer reports low income housing partnership expenses in non-interest expense; rather, the pretax operating losses and related tax benefits from the investments
are reported as a component of income tax expense.current year. The decrease in other non-interest expense was due mainlyprimarily to a decrease in OREO operations expense, along with loweramortization of deposit account charge-offs related tointangibles, as well as a decrease in debit card fraud in the current fiscal year.losses.
The Company's efficiency ratio was 41.21%50.74% for the current fiscal year compared to 43.76%46.83% for the prior fiscal year. The improvementchange in the efficiency ratio was due primarily to lower non-interest expensenet interest income in the current year compared to the prior year period.year. 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 lowerhigher value indicates that the financial institution is generating revenue with a proportionally lowerhigher level of expense.expense, relative to the net interest margin.
Income Tax Expense
Income tax expense was $43.8 million for the current fiscal year compared to $38.4 million for the prior year fiscal year. The effective tax rate for the current fiscal year was 34.2% compared to 31.5% for the prior year fiscal year. The increase in effective tax rate was due mainly to the change in accounting method for low income housing partnerships as previously discussed. Management anticipates the effective tax rate for fiscal year 2018 will be approximately 34%. Congress is considering legislation that would reduce the effective corporate tax rate. No prediction can be made as to whether or when any such legislation may be enacted or the estimated impact on the Company.
Comparison of Operating Results for the Years Ended September 30, 2016 and 2015
For fiscal year 2016, the Company recognized net income of $83.5 million, or $0.63 per share, compared to net income of $78.1 million, or $0.58 per share, for fiscal year 2015. The $5.4 million, or 6.9%, increase in net income was due primarily to a $2.4 million increase in net interest income and a $2.2 million increase in non-interest income. The $2.4 million, or 1.3%, increase in net interest income from fiscal year 2015 was due primarily to an $8.2 million decrease in interest expense on term borrowings, partially offset by a $4.7 million increase in interest expense on deposits.
Net income attributable to the leverage strategy was $2.3 million during fiscal year 2016, compared to $2.8 million for fiscal year 2015. The decrease was due to the average borrowings rate on the FHLB line of credit increasing more than the average yield earned on the cash balances held at the Federal Reserve Bank.
The net interest margin increased two basis points, from 1.73% for fiscal year 2015 to 1.75% for fiscal year 2016. Excluding the effects of the leverage strategy, the net interest margin would have increased three basis points, from 2.07% for fiscal year 2015 to 2.10% for fiscal year 2016. The increase in the net interest margin was due mainly to a decrease in interest expense on term borrowings, partially offset by an increase in interest expense on deposits. The positive impact on the net interest margin resulting from the shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans was offset by a decrease in the loan portfolio yield.
The Company's efficiency ratio was 43.76% for fiscal year 2016 compared to 44.74% for fiscal year 2015. The change in the efficiency ratio was due primarily to an increase in both net interest income and non-interest income.
Interest and Dividend Income
The weighted average yield on total interest-earning assets increased three basis points, from 2.71% for fiscal year 2015 to 2.74% for fiscal year 2016, and the average balance of interest-earning assets increased $25.4 million from fiscal year 2015. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased one basis point, from 3.22% for fiscal year 2015 to 3.21% for fiscal year 2016, while the average balance would have increased $40.5 million. The following table presents the components of interestpretax income, income tax expense, and dividendnet income for the time periods presented, along with the change measured in dollars and percent.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
Income before income tax expense | $ | 80,630 | | | $ | 120,654 | | | $ | (40,024) | | | (33.2) | % |
Income tax expense | 16,090 | | | 26,411 | | | (10,321) | | | (39.1) | |
Net income | $ | 64,540 | | | $ | 94,243 | | | $ | (29,703) | | | (31.5) | |
| | | | | | | |
Effective Tax Rate | 20.0 | % | | 21.9 | % | | | | |
|
| | | | | | | | | | | | | | |
| For the Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2016 |
| | 2015 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 243,311 |
| | $ | 235,500 |
| | $ | 7,811 |
| | 3.3 | % |
MBS | 29,794 |
| | 36,647 |
| | (6,853 | ) | | (18.7 | ) |
FHLB stock | 12,252 |
| | 12,556 |
| | (304 | ) | | (2.4 | ) |
Cash and cash equivalents | 9,831 |
| | 5,477 |
| | 4,354 |
| | 79.5 |
|
Investment securities | 5,925 |
| | 7,182 |
| | (1,257 | ) | | (17.5 | ) |
Total interest and dividend income | $ | 301,113 |
| | $ | 297,362 |
| | $ | 3,751 |
| | 1.3 |
|
The increase in interest income on loans receivable was due to a $376.4 million increase in the average balance of the portfolio, partially offset by a nine basis point decrease in the weighted average yield on the portfolio, to 3.60% for fiscal year 2016. Loan growth was primarily funded through cash flows from the MBS and investment securities portfolios. The decrease in the weighted average yield was due primarily to loans repricing to lower market rates and the origination and purchase of loans between periods at rates less than the existing portfolio rate, along with an increase in the amortization of premiums paid for correspondent loans.
The decrease in interest income on the MBS portfolio was due primarily to a $265.5 million decrease in the average balance of the portfolio as cash flows not reinvested were used to fund loan growth. Additionally, the weighted average yield on the MBS portfolio decreased seven basis points, from 2.25% during fiscal year 2015 to 2.18% for fiscal year 2016. The decrease in the weighted average yield was due primarily to an increase in the impact of net premium amortization. Net premium amortization of $5.0 million during fiscal year 2016 decreased the weighted average yield on the portfolio by 37 basis points. During fiscal year 2015, $5.4 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 32 basis points. As of September 30, 2016, the remaining net balance of premiums on our portfolio of MBS was $13.0 million.
The increase in interest income on cash and cash equivalents was due primarily to a 20 basis point increase in the weighted average yield resulting from an increase in the yield earned on balances held at the Federal Reserve Bank.
The decrease in interest income on investment securities was due primarily to a $123.8 million decrease in the average balance, partially offset by a four basis point increase in the weighted average yield on the portfolio. Cash flows not reinvested in the portfolio were used to fund loan growth.
Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased one basis point, from 1.12% for fiscal year 2015 to 1.11% for fiscal year 2016, while the average balance of interest-bearing liabilities increased $138.5 million from fiscal year 2015. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have decreased seven basis points from fiscal year 2015, to 1.28% for fiscal year 2016, due primarily to a decrease in the cost of term borrowings, while the average balance of interest-bearing liabilities would have increased $154.1 million due primarily to growth in deposits. 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 Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2016 |
| | 2015 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | | |
FHLB borrowings | $ | 65,091 |
| | $ | 67,797 |
| | $ | (2,706 | ) | | (4.0 | )% |
Deposits | 37,859 |
| | 33,119 |
| | 4,740 |
| | 14.3 |
|
Repurchase agreements | 5,981 |
| | 6,678 |
| | (697 | ) | | (10.4 | ) |
Total interest expense | $ | 108,931 |
| | $ | 107,594 |
| | $ | 1,337 |
| | 1.2 |
|
The table above includes interest expense on FHLB borrowings both associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $7.5 million from fiscal year 2015 due mainly to a 20 basis point decrease in the weighted average rate paid on the portfolio, to 2.23% for fiscal year 2016, along with a $102.4 million decrease in the average balance due to not replacing all of the FHLB advances that matured during fiscal year 2016 as a result of growth in the deposit portfolio. The decrease in the weighted average rate paid was due primarily to the prepayment of a $175.0 million advance late in fiscal year 2015 with an effective rate of 5.08%, which was replaced with a $175.0 million advance with an effective rate of 2.18%. Interest expense on FHLB borrowings associated with the leverage strategy increased $4.8 million from fiscal year 2015 due primarily to a 23 basis point increase in the weighted average rate paid on the borrowings.
The increase in interest expense on deposits was due primarily to a five basis point increase in the weighted average rate, to 0.75% for fiscal year 2016, along with growth in the portfolio. The increase in weighted average rate was primarily in the retail certificate of deposit portfolio. The average balance of the deposit portfolio increased $270.3 million for fiscal year 2016, with the majority of the increase in the retail deposit portfolio, specifically the certificate of deposit and checking portfolios. The decrease in interest expense on repurchase agreements was due to the maturity late in fiscal year 2015 of a $20.0 million repurchase agreement at a rate of 4.45% that was not replaced.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during fiscal year 2016 of $750 thousand, compared to a provision for credit losses during the prior year fiscal year of $771 thousand. The negative provision for credit losses during fiscal year 2016 was due to the continued low level of net loan charge-offs, due partially to improving real estate values, along with improving delinquent loan ratios. The collateral value and historical loss factors within our ACL formula analysis model decreased during fiscal year 2016 due to the improvement in real estate values and reduction in net loan charge-offs. Net loan charge-offs were $153 thousand for fiscal year 2016, composed of charge-offs totaling $630 thousand, partially offset by recoveries of $477 thousand. Net loan charge-offs were $555 thousand for fiscal year 2015. At September 30, 2016, loans 30 to 89 days delinquent were 0.33% of total loans and loans 90 or more days delinquent or in foreclosure were 0.24% of total loans. At September 30, 2015, loans 30 to 89 days delinquent were 0.41% of total loans and loans 90 or more days delinquent or in foreclosure were 0.25% of total loans.
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 Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2016 |
| | 2015 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Retail fees and charges | $ | 14,835 |
| | $ | 14,897 |
| | $ | (62 | ) | | (0.4 | )% |
Income from BOLI | 3,420 |
| | 1,150 |
| | 2,270 |
| | 197.4 |
|
Other non-interest income | 5,057 |
| | 5,093 |
| | (36 | ) | | (0.7 | ) |
Total non-interest income | $ | 23,312 |
| | $ | 21,140 |
| | $ | 2,172 |
| | 10.3 |
|
The increase in income from BOLI was due mainly to the purchase of a new BOLI investment late in fiscal year 2015, as well as to the receipt of death benefits in fiscal year 2016 and no such proceeds in fiscal year 2015.
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 Year Ended | | | | |
| September 30, | | Change Expressed in: |
| 2016 |
| | 2015 |
| | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 42,378 |
| | $ | 43,309 |
| | $ | (931 | ) | | (2.1 | )% |
Occupancy, net | 10,576 |
| | 9,944 |
| | 632 |
| | 6.4 |
|
Information technology and communications | 10,540 |
| | 10,360 |
| | 180 |
| | 1.7 |
|
Federal insurance premium | 5,076 |
| | 5,495 |
| | (419 | ) | | (7.6 | ) |
Deposit and loan transaction costs | 5,585 |
| | 5,417 |
| | 168 |
| | 3.1 |
|
Regulatory and outside services | 5,645 |
| | 5,347 |
| | 298 |
| | 5.6 |
|
Advertising and promotional | 4,609 |
| | 4,547 |
| | 62 |
| | 1.4 |
|
Low income housing partnerships | 3,872 |
| | 4,572 |
| | (700 | ) | | (15.3 | ) |
Office supplies and related expense | 2,640 |
| | 2,088 |
| | 552 |
| | 26.4 |
|
Other non-interest expense | 3,384 |
| | 3,290 |
| | 94 |
| | 2.9 |
|
Total non-interest expense | $ | 94,305 |
| | $ | 94,369 |
| | $ | (64 | ) | | (0.1 | ) |
The decrease in salaries and employee benefits was due primarily to a decrease in stock compensation resulting from the final vesting of a large stock grant in the second quarter of fiscal year 2016 and a decrease in employee benefit expenses. The increase in occupancy, net expense was due mainly to non-capitalizable costs and depreciation associated with the remodel of the Bank's Kansas City market area operations center. The decrease in federal insurance premiums was due primarily to a decrease in the FDIC base assessment rate. The decrease in the FDIC base assessment rate was effective July 1, 2016 and was the result of the FDIC DIF reaching 1.15% of total estimated insured deposits of the banking system on June 30, 2016. The decrease in low income housing partnershipstax expense was due primarily to lower impairmentspretax income in fiscalthe current year. The lower effective tax rate in the current year 2016 as compared to fiscalthe prior year 2015. The increase in office supplies and related expense was due primarilymainly to the purchase of cards enabled with chip card technology.
Income Tax Expense
IncomeCompany's permanent differences, such as low income housing partnership tax credits, which generally reduce our tax expense, having a proportionately larger impact given the lower pretax income in the current year period. Additionally, an income tax benefit was $38.4 million for fiscalrecognized during the current year 2016 comparedas a result of favorable federal tax guidance issued during the current year related to $37.7 million for fiscal year 2015. Thecertain bank-owned life insurance policies added in the CCB acquisition. Management anticipates the effective income tax rate for fiscal year 2016 was 31.5% compared2021 will be approximately 21% to 32.5%22%.
Comparison of Operating Results for the Years Ended September 30, 2019 and 2018
For this discussion, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Operating Results for the Years Ended September 30, 2019 and 2018" in the Company's Annual Report on Form 10-K for the fiscal year 2015. The decrease in the effective tax rate was due primarily to an increase in nontaxable income related to BOLI and higher low income housing tax credits in fiscal year 2016.ended September 30, 2019.
Liquidity and Capital Resources
Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repurchase agreements, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intentintention to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings.
We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios. See the "Executive Summary" above for information regarding the impact of the COVID-19 pandemic on our liquidity.
In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40%See "Part I, Item 1. Business - Sources of regulatory total assets without the pre-approval of FHLB senior management. In July 2017, the president of FHLB approved an increase, through July 2018, inFunds" for information regarding limits on the Bank's borrowing limit to 55% of Bank Call Report total assets. When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs.borrowings. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities, and is used only when other sources of short-term liquidity are unavailable.securities. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing.
If management observes a trend in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At September 30, 2017,2020, the Bank had total borrowings, at par, of $2.38$1.79 billion, or approximately 26%19% of total assets.assets, all of which were FHLB advances.
The amount of FHLB advancesborrowings outstanding at September 30, 20172020 was $2.18$1.79 billion, of which $475.0$843.0 million waswere advances scheduled to mature in the next 12 months.months, including $640.0 million of one-year floating-rate FHLB advances tied to interest rate swaps. All FHLB borrowings are secured bycertain qualifying loans pursuant to a blanket collateral agreement with FHLB. At September 30, 2017,2020, the Bank's ratio of the par value of the Bank's FHLB borrowings to Call Report total assets was 24%19%. When the full leverage strategy is in place, FHLB borrowings are in excess of 40% of the Bank's Call Report total assets, and are expected to be in excess of 40% as long as the Bank continues its leverage strategy and FHLB senior management continue to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets. All or a portion of the FHLB borrowings in conjunction with the leverage strategy could be repaid at any point in time while the strategy is in effect, if necessary.
At September 30, 2017,2020, the Bank had no repurchase agreements of $200.0 million, or approximately 2% of total assets, of which $100.0 million was scheduled to mature in the next 12 months.agreements. The Bank may enter into additional repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above. The Bank had pledged securities with an estimated fair value of $218.5 million as collateral for repurchase agreements as of September 30, 2017. The securities pledged for the repurchase agreements will be delivered back to the Bank when the repurchase agreements mature.
The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At September 30, 2017,2020, the Bank had $430.7 million$1.22 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs.
The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit deposits.certificates of deposit. As of September 30, 2017,2020, the Bank's policy allowed for combined brokered and public unit depositscertificates of deposit up to 15% of total deposits. At September 30, 2017,2020, the Bank haddid not have any brokered certificates of deposit and public unit deposits totaling $460.0 million, which had an average remaining term to maturitycertificates of 10 months, ordeposit were approximately 9%4% of total deposits, and no brokered deposits. Management continuously monitors the wholesale deposit market for opportunities to obtain funds at attractive rates. The Bank had pledged securities with an estimated fair value of $500.7$331.0 million as collateral for public unit depositscertificates of deposit at September 30, 2017.2020. The securities pledged as collateral for public unit depositscertificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.
At September 30, 2017, $1.122020, $1.51 billion of the Bank's certificate of deposit portfolio was scheduled to mature within one year,the next 12 months, including $288.5$237.5 million of public unit deposits.certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at the prevailing rate,rates, although no assurance can be given in this regard. We also anticipate the majority of the maturing public unit depositscertificates of deposit will be replaced with similar wholesale funding products.products, depending on availability and pricing.
While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers.
The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at September 30, 2017,2020, along with associated weighted average yields. Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. As of September 30, 2017,2020, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $126.6$228.0 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans(1) | | MBS | | Investment Securities | | Total |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| (Dollars in thousands) |
Amounts due: | | | | | | | | | | | | | | | |
Within one year | $ | 261,605 | | | 4.17 | % | | $ | 3,664 | | | 2.63 | % | | $ | 4,009 | | | 1.47 | % | | $ | 269,278 | | | 4.11 | % |
| | | | | | | | | | | | | | | |
After one year: | | | | | | | | | | | | | | | |
Over one to two years | 110,991 | | | 3.11 | | | 1,715 | | | 3.08 | | | 5,583 | | | 1.84 | | | 118,289 | | | 3.05 | |
Over two to three years | 62,534 | | | 4.46 | | | 32,457 | | | 1.61 | | | 75,269 | | | 0.41 | | | 170,260 | | | 2.13 | |
Over three to five years | 128,088 | | | 4.46 | | | 24,752 | | | 2.19 | | | 295,286 | | | 0.68 | | | 448,126 | | | 1.84 | |
Over five to ten years | 777,216 | | | 3.70 | | | 272,681 | | | 2.34 | | | — | | | — | | | 1,049,897 | | | 3.35 | |
Over ten to fifteen years | 1,424,450 | | | 3.23 | | | 570,142 | | | 1.70 | | | — | | | — | | | 1,994,592 | | | 2.79 | |
After fifteen years | 4,460,112 | | | 3.59 | | | 275,392 | | | 2.06 | | | — | | | — | | | 4,735,504 | | | 3.50 | |
Total due after one year | 6,963,391 | | | 3.54 | | | 1,177,139 | | | 1.94 | | | 376,138 | | | 0.64 | | | 8,516,668 | | | 3.19 | |
| | | | | | | | | | | | | | | |
| $ | 7,224,996 | | | 3.57 | | | $ | 1,180,803 | | | 1.94 | | | $ | 380,147 | | | 0.65 | | | $ | 8,785,946 | | | 3.22 | |
(1)The maturity date for home equity loans, including those that do not have a stated maturity date, assumes the customer always makes the required minimum payment. All other loans that do not have a stated maturity date and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans(1) | | MBS | | Investment Securities | | Total |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| (Dollars in thousands) |
Amounts due: | | | | | | | | | | | | | | | |
Within one year | $ | 58,591 |
| | 3.71 | % | | $ | 2,884 |
| | 3.92 | % | | $ | 127,394 |
| | 1.18 | % | | $ | 188,869 |
| | 2.01 | % |
| | | | | | | | | | | | | | | |
After one year: | | | | | | | | | | | | | | | |
Over one to two years | 82,750 |
| | 4.04 |
| | 6,156 |
| | 4.29 |
| | 54,123 |
| | 1.24 |
| | 143,029 |
| | 2.99 |
|
Over two to three years | 14,348 |
| | 4.10 |
| | 3,168 |
| | 4.69 |
| | 57,196 |
| | 1.52 |
| | 74,712 |
| | 2.15 |
|
Over three to five years | 40,267 |
| | 4.25 |
| | 49,444 |
| | 2.85 |
| | 60,140 |
| | 1.50 |
| | 149,851 |
| | 2.68 |
|
Over five to ten years | 560,361 |
| | 3.73 |
| | 447,420 |
| | 2.07 |
| | 218 |
| | 2.00 |
| | 1,007,999 |
| | 2.99 |
|
Over ten to fifteen years | 1,385,085 |
| | 3.28 |
| | 124,498 |
| | 1.83 |
| | — |
| | — |
| | 1,509,583 |
| | 3.16 |
|
After fifteen years | 5,041,349 |
| | 3.64 |
| | 308,877 |
| | 2.59 |
| | 2,051 |
| | 2.58 |
| | 5,352,277 |
| | 3.58 |
|
Total due after one year | 7,124,160 |
| | 3.59 |
| | 939,563 |
| | 2.27 |
| | 173,728 |
| | 1.44 |
| | 8,237,451 |
| | 3.39 |
|
| | | | | | | | | | | | | | | |
| $ | 7,182,751 |
| | 3.59 |
| | $ | 942,447 |
| | 2.28 |
| | $ | 301,122 |
| | 1.33 |
| | $ | 8,426,320 |
| | 3.36 |
|
| |
(1) | Demand loans, loans having no stated maturity, and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction. The maturity date for home equity loans assumes the customer always makes the required minimum payment. |
Limitations on Dividends and Other Capital Distributions
OCC regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings. Savings institutions must also maintain an applicable capital conservation buffer above minimum risk-based capital requirements in order to avoid restrictions on capital distributions, including dividends. A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution.
The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company. So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a CBLR greater than the required percentage), and operates in a safe and sound manner, and maintains an applicable capital conservation buffer above its minimum risk-based capital requirements, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.
Capital
Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action.action ("PCA"). Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain a the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework. As of September 30, 2017,2020, the BankBank's CBLR was 12.4% and Companythe Company's CBLR was 13.7%, which exceeded all regulatory capitalthe minimum requirements. See "Part II,I, Item 8. Financial Statements1. Business – Regulation and Supplementary DataSupervision – Notes to Consolidated Financial Statements – Note 12. Regulatory Capital Requirements" for additional information related to regulatory capital.
The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of September 30, 2017,2020, for the Bank and the Company (dollars in thousands):
| | | | | | | | | | | |
| Bank | | Company |
Total equity as reported under GAAP | $ | 1,165,813 | | | $ | 1,284,859 | |
AOCI | 16,505 | | | 16,505 | |
Goodwill and other intangibles, net of associated deferred taxes | (13,510) | | | (13,510) | |
| | | |
Total tier 1 capital | $ | 1,168,808 | | | $ | 1,287,854 | |
| | | |
| | | |
|
| | | | | | | |
| Bank | | Company |
Total equity as reported under GAAP | $ | 1,204,781 |
| | $ | 1,368,313 |
|
AOCI-related adjustments | (2,918 | ) | | (2,918 | ) |
Total tier 1 capital | 1,201,863 |
| | 1,365,395 |
|
ACL | 8,398 |
| | 8,398 |
|
Total capital | $ | 1,210,261 |
| | $ | 1,373,793 |
|
Off-Balance Sheet Arrangements, Commitments and Contractual Obligations
The Company, in the normal course of business, makes commitments to buy or sell assets, extend credit, or to incur or fund liabilities. Such commitments may include, but are not limited to:
the origination, purchase, participation, or sale of loans;
the purchase or sale of securities;
extensions of credit on home equity loans, construction loans, and commercial loans;
terms and conditions of operating leases; and
funding withdrawals of deposit accounts at maturity.
The following table summarizes our contractual obligations and other material commitments, along with associated weighted average contractual rates as of September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | |
| | | Maturity Range |
| | | Less than | | 1 to 3 | | 3 to 5 | | More than |
| Total | | 1 year | | years | | years | | 5 years |
| (Dollars in thousands) |
Operating leases | $ | 6,272 |
| | $ | 1,170 |
| | $ | 1,870 |
| | $ | 1,326 |
| | $ | 1,906 |
|
| | | | | | | | | |
Certificates of deposit | $ | 2,910,421 |
| | $ | 1,116,415 |
| | $ | 1,340,503 |
| | $ | 452,113 |
| | $ | 1,390 |
|
Rate | 1.48 | % | | 1.08 | % | | 1.67 | % | | 1.93 | % | | 1.98 | % |
| | | | | | | | | |
FHLB advances | $ | 2,175,000 |
| | $ | 475,000 |
| | $ | 850,000 |
| | $ | 750,000 |
| | $ | 100,000 |
|
Rate | 1.96 | % | | 1.91 | % | | 1.73 | % | | 2.26 | % | | 1.82 | % |
| | | | | | | | | |
Repurchase agreements | $ | 200,000 |
| | $ | 100,000 |
| | $ | 100,000 |
| | $ | — |
| | $ | — |
|
Rate | 2.94 | % | | 3.35 | % | | 2.53 | % | | — | % | | — | % |
| | | | | | | | | |
Commitments to originate and | | | | | | | | | |
purchase/participate in loans | $ | 169,946 |
| | $ | 169,946 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Rate | 3.92 | % | | 3.92 | % | | — | % | | — | % | | — | % |
| | | | | | | | | |
Commitments to fund unused | | | | | | | | | |
home equity lines of credit | $ | 239,950 |
| | $ | 239,950 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Rate | 5.05 | % | | 5.05 | % | | — | % | | — | % | | — | % |
It is expected that some of the commitments to originate and purchase/participate in loans will expire unfunded; therefore, the amounts reflected in the table above are not necessarily indicative of future liquidity requirements. Additionally, the Bank is not obligated to honor commitments to fund unused home equity lines of credit if a customer is delinquent or otherwise in violation of the loan agreement.
We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.
Contingencies
In the normal course of business, the Company and its subsidiarythe Bank are named defendants in various lawsuits and counter claims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits are expected to have a materially adverse effect on the Company's consolidated financial statements for the year ended September 30, 2017,2020, or future periods.
Off-Balance Sheet Arrangements, Commitments and Contractual Obligations
The following table summarizes our contractual obligations, along with associated weighted average contractual rates, as of September 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Maturity Range |
| | | Less than | | 1 to 3 | | 3 to 5 | | More than |
| Total | | 1 year | | years | | years | | 5 years |
| (Dollars in thousands) |
Operating leases | $ | 20,842 | | | $ | 1,192 | | | $ | 2,512 | | | $ | 1,830 | | | $ | 15,308 | |
| | | | | | | | | |
Certificates of deposit | $ | 3,021,244 | | | $ | 1,505,501 | | | $ | 1,199,798 | | | $ | 315,041 | | | $ | 904 | |
Rate | 1.74 | % | | 1.46 | % | | 2.05 | % | | 1.88 | % | | 1.53 | % |
| | | | | | | | | |
Borrowings | $ | 1,793,000 | | | $ | 843,000 | | | $ | 500,000 | | | $ | 350,000 | | | $ | 100,000 | |
Rate | 1.41 | % | | 0.76 | % | | 1.91 | % | | 2.27 | % | | 1.28 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments consist primarily of commitments to originate, purchase, or participate in loans or fund lines of credit, along with standby letters of credit. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with these off-balance-sheet commitments are essentially the same as those involved with extending loans to customers and these commitments are subject to normal credit policies. The contractual amounts of these off-balance sheet financial instruments as of September 30, 2020 were as follows (dollars in thousands):
| | | | | |
Commitments to originate and purchase/participate in loans | $ | 248,607 | |
Commitments to fund unused lines of credit | 283,199 | |
Standby letters of credit | 1,372 | |
Total | $ | 533,178 | |
It is expected that some of the commitments will expire unfunded; therefore, the amounts reflected in the table above are not necessarily indicative of future liquidity requirements. Additionally, the Bank is not obligated to honor commitments to fund unused lines of credit if a customer is delinquent or otherwise in violation of the loan agreement.
The Company has investments in several low income housing partnerships. These partnerships supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income. If these developments successfully attract a specified percentage of residents falling in that lower income range, federal income tax credits are made available to the partners. The tax credits are normally recognized over ten years, and they play an important part in the anticipated yield from these investments. In order to continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be maintained. Under the terms of the partnership agreements, the Company has a commitment to fund a specified amount that will be due in installments over the life of the agreements. The majority of the commitments at September 30, 2020 are projected to be funded through the end of calendar year 2022. At September 30, 2020, the investments totaled $89.7 million and are included in other assets in the consolidated balance sheet. Unfunded commitments, which are recorded as liabilities, totaled $44.5 million at September 30, 2020.
We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Asset and Liability Management and Market Risk
Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. The rates of interest the Bank earns on its assets and pays on its liabilities are generally established contractually for a period of time. Fluctuations in interest rates have a significant impact not only upon our net income, but also upon the cash flows and market values of our assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management.
On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market rates to assess all pricing strategies. The Bank's pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and competitor pricing for our local and correspondent lending markets. Pricing for commercial loans is generally based on competitor pricing and the credit risk of the borrower with consideration given to the overall relationship of the borrower. Generally, deposit pricing is based upon a survey of competitors in the Bank's market areas, and the need to attract funding and retain maturing deposits. The majority of our loans are fixed-rate products with maturities up to 30 years, while the majority of our retail deposits have stated maturities or repricing dates of less than two years.
The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income to changes in market interest rates. The Board of Directors and ALCO regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates. The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments. The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments, providing potential changes in the MVPE under those alternative interest rate environments. Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and management strategies considered. The MVPE and net interest income analysisanalyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis. In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis. These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank. This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.
The ability to maximize net interest income is dependent largely upon the achievement of a positive interest rate spread that can be sustained despite fluctuations in prevailing interest rates. The asset and liability repricing gap is a measure of the difference between the amount of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-earning assets exceeds the amount of interest-bearing liabilities maturing or repricing during the same period. A gap is considered negative when the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period. Generally, during a period of rising interest rates, a negative gap within shorter repricing periods adversely affects net interest income, while a positive gap within shorter repricing periods positively affects net interest income. During a period of falling interest rates, the opposite would generally be true.
The shape of the yield curve also has an impact on our net interest income and, therefore, the Bank's net interest margin. Historically, the Bank has benefited from a steeper yield curve as the Bank's mortgage loans are generally priced off of long-term rates while deposits are priced off of short-term rates. A steeper yield curve (one with a greater difference between short-term rates and long-term rates) allows the Bank to receive a higher rate of interest on its new mortgage-related assets relative to the rate paid for the funding of those assets, which generally results in a higher net interest margin. As the yield curve flattens or becomes inverted, the spread between rates received on assets and paid on liabilities becomes compressed, which generally leads to a decrease in net interest margin.
General assumptions used by management to evaluate the sensitivity of our financial performance to changes in interest rates presented in the tables below are utilized in, and set forth under, the gap table and related notes. Although management finds these assumptions reasonable, the interest rate sensitivity of our assets and liabilities and the estimated effects of changes in interest rates on our net interest income and MVPE indicated in the below tables could vary substantially if different assumptions were used or actual experience differs from these assumptions. To illustrate this point, the projected cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities within the next 12 months as a percent of total assets ("one-year gap") is also provided for an up 200 basis point scenario, as of September 30, 2017.2020.
Qualitative Disclosure about Market Risk
At September 30, 2017,2020, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $641.6$435.0 million, or 6.98%4.58% of total assets, compared to $1.07 billion,$487.4 million, or 11.54%5.22% of total assets, at September 30, 2016.2019. The decrease in the one-year gap amount fromwas due to a shift in the cash flow projections on the Bank's non-maturity deposits compared to the prior year, related to the implementation of a new interest rate risk model. This change shortened the life of these liabilities and thus increased the amount of projected cash flows in the 12-month horizon compared to the previous model. This change was largely offset by lower interest rates as of September 30, 20162020 compared to September 30, 2017 was due2019, which increased the cash flow projections related to lower projected cash flows onthe Bank's mortgage-related assets. Market rates of interest increased between September 30, 2016 and September 30, 2017. As interest rates rise,fall, borrowers have lessmore economic incentive to refinance their mortgages and agency debt issuers have lessmore economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates. This increaserates, resulting in interest rates resulted in lowerhigher projected cash flows on these assets over the next year compared to September 30, 2016.assets.
The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on mortgageone- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates, because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of September 30, 2017,2020, the Bank's one-year gap is projected to be $81.3$(611.0) million, or 0.88%(6.44)% of total assets. The decrease in the gap compared to when there is no change in rates is due to lower anticipated cash flows in the higher rate environment. This compares to a one-year gap of $208.7$(361.8) million, or 2.25%(3.87)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2016.2019.
During the current fiscal year, loan repayments totaled $1.17$1.89 billion and cash flows from the securities portfolio totaled $413.3$668.0 million. The assetmajority of these cash flows of $1.58 billion were reinvested into new assetsloans and securities at current market interest rates. Total cash flows from fixed-rateterm liabilities that matured and/or repriced into current market interest rates during the current fiscal year were approximately $2.19$2.97 billion, including $500.0$1.16 billion in term borrowings, of which $640.0 million of FHLB advances that were renewed.was tied to interest rate swaps. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.
Other strategies include managing the Bank's wholesale assets and liabilities. The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of September 30, 20172020 was 2.31.9 years. However, including the impact of interest rate swaps related to $200.0$640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of September 30, 20172020 was 2.73.0 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.
The Bank uses the securities portfolio to shorten the average life of the Bank's assets. Purchases in the securities portfolio over the past couple of years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS. These securities have a shorter average life and provide a steady source of cash flow that can be reinvested as interest rates rise or used to purchase higher-yielding assets. The WAL of the Bank's securities portfolio as of September 30, 2017 was 2.5 years.
In addition to thethese wholesale strategies, the Bank has sought tobenefited from an increase corein non-maturity deposits. Rates paid on non-maturity deposits and long-term certificates of deposit. Core deposits are expected to reduce the risk of higher interest rates because their interest rates are not expected to increase significantly as market interest rates rise and because customers with these accounts tend to be less sensitive to changes in rates, maintaining their accounts for long periods of time.rise. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances. At September 30, 2017Additionally, as we expand the WALcommercial banking business, we expect to have the ability to obtain lower-costing commercial deposits, which could be used to reduce the cost of funds by replacing FHLB borrowings and wholesale deposits.
With the Bank's non-maturity deposits was 13.5 years, compared to 8.3 years at September 30, 2016. The increasesignificant decrease in the WAL of the Bank's non-maturity deposits was due to a change in the deposit modelinterest rates during the fourth quarter of fiscalcurrent year, 2017. The Bank uses a deposit model that was developed from the results of a Bank-specific deposit study. The deposit study analyzed the historical behavior of the Bank's non-maturity deposits to predict the future balances of these accounts. The change was made due to model validation testing which indicated that the model was not predicting deposit behavior as well as management expected. The change resulted in
an increase in the WAL of these liabilities, which resulted in our MVPE measure of interest rate risk sensitivity not being materially lower than results with the previous model.
Over the last couple years, the Bank has priced long-termdecreased the rates on certificates of deposit more aggressively than short-term certificates of depositand money market accounts on pace with the goal of giving customers incentivecompetitors in its market areas. The Bank will continue to move funds into longer-term certificates of deposit when interestadjust rates were lower. The balance of our retail certificates of deposit with terms of 36 months or longer increased $288.6 million, or 20%, since September 30, 2015. Long-term certificates of deposit reduce the amount of liabilities repricing as interest rates rise in a given time period.market conditions allow.
Because of the on-balance sheet strategies implemented over the past several years, management believes the Bank is well-positioned to move into a market rate environment where interest rates are higher.
Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as ARMadjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below. A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase. A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease. For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | More Than | | More Than | | | | |
| Within | | One Year to | | Three Years | | Over | | |
| One Year | | Three Years | | to Five Years | | Five Years | | Total |
Interest-earning assets: | (Dollars in thousands) |
Loans receivable(1) | $ | 2,180,950 | | | $ | 2,209,189 | | | $ | 1,087,823 | | | $ | 1,745,032 | | | $ | 7,222,994 | |
Securities(2) | 618,869 | | | 513,172 | | | 178,157 | | | 219,407 | | | 1,529,605 | |
Other interest-earning assets | 172,286 | | | — | | | — | | | — | | | 172,286 | |
Total interest-earning assets | 2,972,105 | | | 2,722,361 | | | 1,265,980 | | | 1,964,439 | | | 8,924,885 | |
| | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | |
Non-maturity deposits(3) | 752,147 | | | 379,065 | | | 410,930 | | | 1,710,488 | | | 3,252,630 | |
Certificates of deposit | 1,505,599 | | | 1,199,700 | | | 315,477 | | | 468 | | | 3,021,244 | |
Borrowings(4) | 279,401 | | | 702,940 | | | 618,134 | | | 231,139 | | | 1,831,614 | |
Total interest-bearing liabilities | 2,537,147 | | | 2,281,705 | | | 1,344,541 | | | 1,942,095 | | | 8,105,488 | |
| | | | | | | | | |
Excess (deficiency) of interest-earning assets over | | | | | | | | |
interest-bearing liabilities | $ | 434,958 | | | $ | 440,656 | | | $ | (78,561) | | | $ | 22,344 | | | $ | 819,397 | |
| | | | | | | | | |
Cumulative excess of interest-earning assets over | | | | | | |
interest-bearing liabilities | $ | 434,958 | | | $ | 875,614 | | | $ | 797,053 | | | $ | 819,397 | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | More Than | | More Than | | | | |
| Within | | One Year to | | Three Years | | Over | | |
| One Year | | Three Years | | to Five Years | | Five Years | | Total |
Interest-earning assets: | (Dollars in thousands) |
Loans receivable(1) | $ | 1,800,294 |
| | $ | 1,883,720 |
| | $ | 1,110,248 |
| | $ | 2,379,102 |
| | $ | 7,173,364 |
|
Securities(2) | 576,389 |
| | 379,421 |
| | 174,270 |
| | 108,199 |
| | 1,238,279 |
|
Other interest-earning assets | 334,985 |
| | — |
| | — |
| | — |
| | 334,985 |
|
Total interest-earning assets | 2,711,668 |
| | 2,263,141 |
| | 1,284,518 |
| | 2,487,301 |
| | 8,746,628 |
|
| | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | |
Non-maturity deposits(3) | 265,483 |
| | 309,445 |
| | 241,396 |
| | 1,703,908 |
| | 2,520,232 |
|
Certificates of deposit | 1,129,543 |
| | 1,328,294 |
| | 451,238 |
| | 1,346 |
| | 2,910,421 |
|
Borrowings(4) | 675,000 |
| | 850,000 |
| | 750,000 |
| | 142,557 |
| | 2,417,557 |
|
Total interest-bearing liabilities | 2,070,026 |
| | 2,487,739 |
| | 1,442,634 |
| | 1,847,811 |
| | 7,848,210 |
|
| | | | | | | | | |
Excess (deficiency) of interest-earning assets over | | | | | | | | |
interest-bearing liabilities | $ | 641,642 |
| | $ | (224,598 | ) | | $ | (158,116 | ) | | $ | 639,490 |
| | $ | 898,418 |
|
| | | | | | | | | |
Cumulative excess of interest-earning assets over | | | | | | | | |
interest-bearing liabilities | $ | 641,642 |
| | $ | 417,044 |
| | $ | 258,928 |
| | $ | 898,418 |
| | |
| | | | | | | | | |
Cumulative excess of interest-earning assets over interest-bearing | | | | | | |
liabilities as a percent of total Bank assets at: | | | | | | | | |
September 30, 2017 | 6.98 | % | | 4.54 | % | | 2.82 | % | | 9.77 | % | | |
September 30, 2016 | 11.54 |
| | | | | | | | |
| | | | | | | | | |
Cumulative one-year gap - interest rates +200 bps at: | | | | | | | | |
September 30, 2017 | 0.88 |
| | | | | | | | |
September 30, 2016 | 2.25 |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | More Than | | More Than | | | | |
| Within | | One Year to | | Three Years | | Over | | |
| One Year | | Three Years | | to Five Years | | Five Years | | Total |
Cumulative excess of interest-earning assets over interest-bearing | | | | |
liabilities as a percent of total Bank assets at: | | | | | | | | |
September 30, 2020 | 4.58 | % | | 9.23 | % | | 8.40 | % | | 8.64 | % | | |
| | | | | | | | | |
September 30, 2019 | 5.21 | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Cumulative one-year gap - interest rates +200 bps at: | | | | | | | | |
September 30, 2020 | (6.44) | | | | | | | | | |
| | | | | | | | | |
September 30, 2019 | (3.88) | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| |
(1) | ARM loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure. |
| |
(2) | MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of September 30, 2017, at amortized cost. |
| |
(3) | Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $1.61 billion, for a cumulative one-year gap of (17.5)% of total assets. |
| |
(4) | Borrowings exclude deferred prepayment penalty costs. |
(1)Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2)MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of September 30, 2020, at amortized cost.
(3)Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $2.07 billion, for a cumulative one-year gap of (21.8)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $640.0 million of FHLB adjustable-rate advances with interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.
Change in Net Interest Income. The Bank's net interest income projections are a reflection of the response to interest rates of the assets and liabilities that are expected to mature or reprice over the next year. Repricing occurs as a result of cash flows that are received or paid on assets or due on liabilities which would be replaced at then current market interest rates.rates or on adjustable-rate products that reset during the next year. The Bank's borrowings and certificate of deposit portfolios have stated maturities and the cash flows related to the Bank's liabilities do not generally fluctuate as a result of changes in interest rates. Cash flows from mortgage-related assets and callable agency debentures can vary significantly as a result of changes in interest rates. As interest rates decrease, borrowers have an economic incentive to lower their cost of debt by refinancing or endorsing their mortgage to a lower interest rate. Similarly, agency debt issuers are more likely to exercise embedded call options for agency securities and issue new securities at a lower interest rate.
For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates is presented.rates. The change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. At all dates presented,For the three-month Treasury billcurrent year, multiple yields along the yield wascurve were less than one percent, so the -100 basis points scenario was not applicable. Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change | | Net Interest Income At September 30, |
(in Basis Points) | | 2020 | | 2019 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
| | | | | | | | | | | | |
000 bp | | $ | 183,596 | | | $ | — | | | — | % | | $ | 193,329 | | | $ | — | | | — | % |
+100 bp | | 188,084 | | | 4,488 | | | 2.44 | | | 194,093 | | | 764 | | | 0.40 | |
+200 bp | | 188,417 | | | 4,821 | | | 2.63 | | | 192,111 | | | (1,218) | | | (0.63) | |
+300 bp | | 186,441 | | | 2,845 | | | 1.55 | | | 188,752 | | | (4,577) | | | (2.37) | |
|
| | | | | | | | | | | | | | | | | | | | | | |
Change | | Net Interest Income At September 30, |
(in Basis Points) | | 2017 | | 2016 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
-100 bp | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
|
000 bp | | $ | 187,823 |
| | $ | — |
| | — | % | | $ | 188,696 |
| | $ | — |
| | — | % |
+100 bp | | 189,259 |
| | 1,436 |
| | 0.76 |
| | 192,921 |
| | 4,225 |
| | 2.24 |
|
+200 bp | | 188,508 |
| | 685 |
| | 0.36 |
| | 194,919 |
| | 6,223 |
| | 3.30 |
|
+300 bp | | 186,299 |
| | (1,524 | ) | | (0.81 | ) | | 195,187 |
| | 6,491 |
| | 3.44 |
|
| |
(1) | Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities. |
(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
The Bank's projected net interest income isprojection was lower in the base case scenario at September 30, 2020 compared to September 30, 2019 due to lower interest rates at September 30, 2020 compared to September 30, 2019. Because the Bank's gap was positive during the current year, assets have repriced downward at a faster pace than liabilities, resulting in a lower base case net interest income projection at September 30, 2020.
The net interest income projections increase from the base case in all rising interest rate scenarios at September 30, 2020. The net interest income projection was more adversely impacted in the rising interest rate scenarios at September 30, 2017 than at2019 compared to September 30, 2016. The Bank's one-year gap amount was positive for both periods. Therefore, as market interest rates rise, the Bank's assets are projected to reprice higher at a faster pace than liabilities. The net interest income projections were negative in the +300 basis point scenario at September 30, 2017 compared to being positive at September 30, 2016. This change was2020, due primarily to higher market interest rates at September 30, 2017, which resulted in a decrease in the Bank's one-year gap. As2019. The positive impact of rising interest rates rise,is diminished as interest rates increase. Higher interest rates decreased the one-year gap eventually becomes negative due to a reduction inprojected cash flows from the Bank's mortgage-related assets, and callable agency debentures. See below for additional discussionthus decreasing the positive impact of the reasons for this result. At September 30, 2017, modeled in the +300 basis point scenario, liabilities would reprice to higherrising interest rates at a faster pace than assets and have a negative impact oncompared to the Bank's net interest income projection.base case.
Change in MVPE. Changes in the estimated market values of our financial assets and liabilities drive changes in estimates of MVPE. The market value of an asset or liability reflects the present value of all the projected cash flows over its remaining life, discounted at current market interest rates. As interest rates rise, generally the market value for both financial assets and liabilities decrease. The opposite is generally true as interest rates fall. The MVPE represents the theoretical market value of capital that is calculated by netting the market value of assets, liabilities, and off-balance sheet instruments. If the market values of financial assets increase at a faster pace than the market values of financial liabilities, or if the market values of financial liabilities decrease at a faster pace than the market values of financial assets, the MVPE will increase. The market value of shorter term-to-maturity financial instruments is less sensitive to changes in interest rates than are longer term-to-maturity financial instruments. Because of this, the market values of our certificates of deposit (which generally have relatively shorter average lives) tend to display less sensitivity to changes in interest rates than do our mortgage-related assets (which generally have relatively longer average lives). The average life expected on our mortgage-related assets varies under different interest rate environments because borrowers have the ability to prepay their mortgage loans. Therefore, as interest rates decrease, the WAL of mortgage-related assets decrease as well. As interest rates increase, the WAL would be expected to increase, as well as increasing the sensitivity of these assets in higher rate environments.
The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). At the dates presented, the three-month Treasury bill yield was less than one percent, so the -100 basis points scenario was not applicable. Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. For the current year, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable. The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.
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Change | | Market Value of Portfolio Equity At September 30, |
(in Basis Points) | | 2020 | | 2019 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
| | | | | | | | | | | | |
000 bp | | $ | 1,301,409 | | | $ | — | | | — | % | | $ | 1,283,429 | | | $ | — | | | — | % |
+100 bp | | 1,290,877 | | | (10,532) | | | (0.81) | | | 1,286,446 | | | 3,017 | | | 0.24 | |
+200 bp | | 1,157,368 | | | (144,041) | | | (11.07) | | | 1,162,151 | | | (121,278) | | | (9.45) | |
+300 bp | | 967,997 | | | (333,412) | | | (25.62) | | | 992,060 | | | (291,369) | | | (22.70) | |
|
| | | | | | | | | | | | | | | | | | | | | | |
Change | | Market Value of Portfolio Equity At September 30, |
(in Basis Points) | | 2017 | | 2016 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
-100 bp | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
|
000 bp | | $ | 1,460,428 |
| | $ | — |
| | — | % | | $ | 1,448,758 |
| | $ | — |
| | — | % |
+100 bp | | 1,352,558 |
| | (107,870 | ) | | (7.39 | ) | | 1,364,879 |
| | (83,879 | ) | | (5.79 | ) |
+200 bp | | 1,173,891 |
| | (286,537 | ) | | (19.62 | ) | | 1,208,130 |
| | (240,628 | ) | | (16.61 | ) |
+300 bp | | 969,747 |
| | (490,681 | ) | | (33.60 | ) | | 1,014,446 |
| | (434,312 | ) | | (29.98 | ) |
(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
| |
(1) | Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities. |
The percentage change in the Bank's MVPE at September 30, 20172020 was more adversely impactednegative in all scenarios. At September 30, 2019 the percentage change in the increasingBank's MVPE was negative in the +200 and +300 basis point scenarios. This change was due primarily to a change in the Bank's interest rate risk model, of which the most significant impact was on the valuation of the Bank's non-maturity deposit portfolio. The model changes resulted in a shorter duration for these liabilities than was modeled at September 30, 2019, which reduced their sensitivity to changes in interest rates. The Bank's MVPE decreases as interest rates rise, as the market value for assets decreases at a faster pace than these liabilities. The negative impact to the MVPE in the rising interest rate scenarios than at September 30, 2016is due primarily to market interest rates being higher at September 30, 2017.slower prepayment projections on the Bank's mortgage-related assets and investments. As interest rates increase, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. As interest rates increase in the rising rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt. This resultsdebt, resulting in an increase in the average life of mortgage-related assets. Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The higher expected average lives of these assets, relative to the assumptions in the base case interest rate environment, increases the sensitivity of their market value to changes in interest rates. As a result, the projected decrease in the market value of the Bank's financial assets was more significant than the projected decrease in the market value of its financial liabilities, which resulted in a projected decrease in MVPE in all of the rising interest rate scenarios presented. The impact of higher interest rates at September 30, 2017 was partially offset by the changes in the deposit model discussed above.
The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of September 30, 2017.2020. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | | Yield/Rate | | WAL | | % of Category | | % of Total |
| (Dollars in thousands) |
Investment securities | $ | 380,147 | | | 0.65 | % | | 1.0 | | | 24.3 | % | | 4.2 | % |
MBS - fixed | 970,369 | | | 1.82 | | | 3.3 | | | 62.2 | | | 10.7 | |
MBS - adjustable | 210,434 | | | 2.49 | | | 3.1 | | | 13.5 | | | 2.3 | |
Total securities | 1,560,950 | | | 1.62 | | | 2.7 | | | 100.0 | % | | 17.2 | |
Loans receivable: | | | | | | | | | |
Fixed-rate one- to four-family: | | | | | | | | | |
<= 15 years | 1,130,538 | | | 2.98 | | | 3.1 | | | 15.6 | % | | 12.5 | |
> 15 years | 4,287,229 | | | 3.67 | | | 4.2 | | | 59.3 | | | 47.3 | |
Fixed-rate commercial | 556,195 | | | 4.14 | | | 3.5 | | | 7.7 | | | 6.1 | |
All other fixed-rate loans | 47,855 | | | 4.53 | | | 4.9 | | | 0.7 | | | 0.5 | |
Total fixed-rate loans | 6,021,817 | | | 3.59 | | | 3.9 | | | 83.3 | | | 66.4 | |
Adjustable-rate one- to four-family: | | | | | | | | |
<= 36 months | 189,591 | | | 2.25 | | | 4.8 | | | 2.6 | | | 2.1 | |
> 36 months | 639,461 | | | 3.09 | | | 3.2 | | | 8.9 | | | 7.1 | |
Adjustable-rate commercial | 273,465 | | | 4.75 | | | 6.6 | | | 3.8 | | | 3.0 | |
All other adjustable-rate loans | 100,662 | | | 4.23 | | | 2.5 | | | 1.4 | | | 1.1 | |
Total adjustable-rate loans | 1,203,179 | | | 3.43 | | | 4.2 | | | 16.7 | | | 13.3 | |
Total loans receivable | 7,224,996 | | | 3.57 | | | 4.0 | | | 100.0 | % | | 79.7 | |
FHLB stock | 93,862 | | | 4.64 | | | 1.9 | | | | | 1.0 | |
Cash and cash equivalents | 185,148 | | | 0.09 | | | — | | | | | 2.1 | |
Total interest-earning assets | $ | 9,064,956 | | | 3.18 | | | 3.6 | | | | | 100.0 | % |
| | | | | | | | | |
Non-maturity deposits | $ | 3,170,164 | | | 0.20 | | | 6.1 | | | 51.2 | % | | 39.7 | % |
Retail/business certificates of deposit | 2,766,461 | | | 1.83 | | | 1.5 | | | 44.7 | | | 34.6 | |
Public unit certificates of deposit | 254,783 | | | 0.74 | | | 0.5 | | | 4.1 | | | 3.2 | |
Total deposits | 6,191,408 | | | 0.95 | | | 3.8 | | | 100.0 | % | | 77.5 | |
Term borrowings | 1,793,000 | | | 2.31 | | | 3.0 | | | | | 22.5 | |
| | | | | | | | | |
| | | | | | | | | |
Total interest-bearing liabilities | $ | 7,984,408 | | | 1.26 | | | 3.6 | | | | | 100.0 | % |
|
| | | | | | | | | | | | | | | |
| Amount | | Yield/Rate | | WAL | | % of Category | | % of Total |
| (Dollars in thousands) |
Investment securities | $ | 301,122 |
| | 1.33 | % | | 1.5 |
| | 24.2 | % | | 3.4 | % |
MBS - fixed | 633,874 |
| | 2.14 |
| | 2.9 |
| | 51.0 |
| | 7.1 |
|
MBS - adjustable | 308,573 |
| | 2.55 |
| | 4.6 |
| | 24.8 |
| | 3.5 |
|
Total securities | 1,243,569 |
| | 2.05 |
| | 3.0 |
| | 100.0 | % | | 14.0 |
|
Loans receivable: | | | | | | | | | |
Fixed-rate one- to four-family: | | | | | | | | | |
<= 15 years | 1,211,167 |
| | 3.09 |
| | 4.0 |
| | 16.9 | % | | 13.6 |
|
> 15 years | 4,428,085 |
| | 3.85 |
| | 6.0 |
| | 61.6 |
| | 49.9 |
|
All other fixed-rate loans | 268,472 |
| | 4.20 |
| | 4.0 |
| | 3.7 |
| | 3.0 |
|
Total fixed-rate loans | 5,907,724 |
| | 3.71 |
| | 5.5 |
| | 82.2 |
| | 66.5 |
|
Adjustable-rate one- to four-family: | | | | | | | | | |
<= 36 months | 264,387 |
| | 1.77 |
| | 3.2 |
| | 3.7 |
| | 3.0 |
|
> 36 months | 852,609 |
| | 3.09 |
| | 2.7 |
| | 11.9 |
| | 9.6 |
|
All other adjustable-rate loans | 158,031 |
| | 4.92 |
| | 3.1 |
| | 2.2 |
| | 1.8 |
|
Total adjustable-rate loans | 1,275,027 |
| | 3.04 |
| | 2.8 |
| | 17.8 |
| | 14.4 |
|
Total loans receivable | 7,182,751 |
| | 3.59 |
| | 5.0 |
| | 100.0 | % | | 80.9 |
|
FHLB stock | 100,954 |
| | 6.47 |
| | 2.3 |
| | | | 1.1 |
|
Cash and cash equivalents | 351,659 |
| | 1.25 |
| | — |
| | | | 4.0 |
|
Total interest-earning assets | $ | 8,878,933 |
| | 3.32 |
| | 4.5 |
| | | | 100.0 | % |
| | | | | | | | | |
Non-maturity deposits | $ | 2,399,447 |
| | 0.17 |
| | 13.5 |
| | 45.2 | % | | 31.2 | % |
Retail certificates of deposit | 2,450,418 |
| | 1.52 |
| | 1.8 |
| | 46.1 |
| | 31.9 |
|
Public units | 460,003 |
| | 1.28 |
| | 0.8 |
| | 8.7 |
| | 6.0 |
|
Total deposits | 5,309,868 |
| | 0.89 |
| | 7.0 |
| | 100.0 | % | | 69.1 |
|
Term borrowings | 2,375,000 |
| | 2.16 |
| | 2.7 |
| | | | 30.9 |
|
Total interest-bearing liabilities | $ | 7,684,868 |
| | 1.28 |
| | 5.7 |
| | | | 100.0 | % |
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Capitol Federal Financial, Inc. and subsidiary
Topeka, Kansas
We have audited the internal control over financial reporting of Capitol Federal Financial, Inc. and subsidiary (the "Company") as of September 30, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended September 30, 2017 of the Company and our report dated November 29, 2017 expressed an unqualified opinion on those consolidated financial statements.
Kansas City, Missouri
November 29, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors and Stockholders of
Capitol Federal Financial, Inc. and subsidiary
Topeka, Kansas
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Capitol Federal Financial, Inc. and subsidiary (the "Company") as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2020, of the Company and our report dated November 25, 2020, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
November 25, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Capitol Federal Financial, Inc. and subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capitol Federal Financial, Inc. and subsidiary (the "Company") as of September 30, 20172020 and 2016, and2019, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended September 30, 2017. 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 25, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidatedCritical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements present fairly, in allthat was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material respects,to the financial positionstatements and (2) involved our especially challenging, subjective, or complex judgments. The communication of Capitol Federal Financial, Inc. and subsidiary as of September 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three yearscritical audit matters does not alter in the period ended September 30, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of September 30, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, andany way our report dated November 29, 2017 expressed an unqualified opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses - Refer to Notes 1 and 5 to the financial statements
Critical Audit Matter Description
Management's methodology for assessing the appropriateness of the allowance for credit losses (ACL) consists of a formula analysis model, along with analyzing and considering several other relevant internal and external factors. In the formula analysis model, historical loss factors, as adjusted, are applied to each loan category and qualitative factors are applied to reflect risks inherent in each loan category that are not captured by the historical loss factors. Management reviews the factors quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. Management also analyzes and considers several other relevant internal and external factors, including the national and state unemployment rates, national and state unemployment benefit claim levels, the amount of and timing of financial assistance provided by the government and the Bank's COVID-19 loan modification program, residential real estate value trends, credit score trends, delinquent loan trends, consumer spending levels and trends, industries significantly impacted by the COVID-19 pandemic, commercial lending's review of the Bank's largest commercial loan relationships, historical peer ACL to loan
ratios and industry and peer charge-off percentages, among other considerations. Based on management's review of these data elements, they evaluate the reasonableness of the ACL on an ongoing basis and whether any changes need to be made to the Bank's ACL methodology, including the consideration of the economic conditions. During the current fiscal year, management increased the historical loss and qualitative factors applied in the formula analysis model for all loan categories and added a COVID-19 qualitative loss factor to the Bank's commercial loan portfolio.
Considering the estimation and judgment required by management in determining adjustments for qualitative factors, our audit of the ACL and the related disclosures required a high degree of auditor judgment with regard to the qualitative adjustments specifically to the commercial loan portfolio.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the ACL formula analysis model included the following, among others:
•We tested the effectiveness of controls over the Company's ACL formula analysis model inclusive of the controls over loan charge-off activity and including additional considerations with respect to current economic conditions and management's review of the adequacy of the ACL.
•We tested the classification and appropriate segregation of loan categories based on certain risk characteristics in order to evaluate the application of the relevant economic and qualitative assumptions.
•We evaluated the appropriateness and relevance of the data elements by comparing to relevant internal control over financial reporting.and external sources.
•We tested the mathematical accuracy of (i) the historical charge-off activity, (ii) the quantitative measures of the qualitative loss factors, and (iii) the formula analysis model calculations.•We assessed the reasonableness of, and evaluated support for, key qualitative adjustments based on market and economic conditions and/or portfolio performance metrics.
•We assessed the reasonableness of, and evaluated support for, the COVID-19 qualitative factor applied to the commercial portfolio including (i) industries significantly impacted by the COVID-19 pandemic, (ii) commercial lending's review of commercial loan relationships, and (iii) COVID-19 loan modifications.
•We evaluated analytics, trends, and peer analysis of the overall ACL formula analysis model to assess for reasonableness.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
November 29, 201725, 2020
We have served as the Company's auditor since 1974.
|
| | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED BALANCE SHEETS |
SEPTEMBER 30, 2017 and 2016 (Dollars in thousands, except per share amounts) |
| | | |
| 2017 |
| | 2016 |
|
ASSETS: | | | |
Cash and cash equivalents (includes interest-earning deposits of $340,748 and $267,829) | $ | 351,659 |
| | $ | 281,764 |
|
Securities: | | | |
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $410,541 and $517,791) | 415,831 |
| | 527,301 |
|
Held-to-maturity ("HTM"), at amortized cost (estimated fair value of $833,009 | | | |
and $1,122,867) | 827,738 |
| | 1,100,874 |
|
Loans receivable, net (allowance for credit losses ("ACL") of $8,398 and $8,540) | 7,195,071 |
| | 6,958,024 |
|
Federal Home Loan Bank Topeka ("FHLB") stock, at cost | 100,954 |
| | 109,970 |
|
Premises and equipment, net | 84,818 |
| | 83,221 |
|
Other assets | 216,845 |
| | 206,093 |
|
TOTAL ASSETS | $ | 9,192,916 |
| | $ | 9,267,247 |
|
| | | |
LIABILITIES: | | | |
Deposits | $ | 5,309,868 |
| | $ | 5,164,018 |
|
FHLB borrowings | 2,173,808 |
| | 2,372,389 |
|
Repurchase agreements | 200,000 |
| | 200,000 |
|
Advance payments by borrowers for taxes and insurance | 63,749 |
| | 62,643 |
|
Income taxes payable, net | 530 |
| | 310 |
|
Deferred income tax liabilities, net | 24,458 |
| | 25,374 |
|
Accounts payable and accrued expenses | 52,190 |
| | 49,549 |
|
Total liabilities | 7,824,603 |
| | 7,874,283 |
|
| | | |
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, 138,223,835 and 137,486,172 | | | |
shares issued and outstanding as of September 30, 2017 and 2016, respectively | 1,382 |
| | 1,375 |
|
Additional paid-in capital | 1,167,368 |
| | 1,156,855 |
|
Unearned compensation, Employee Stock Ownership Plan ("ESOP") | (37,995 | ) | | (39,647 | ) |
Retained earnings | 234,640 |
| | 268,466 |
|
Accumulated other comprehensive income ("AOCI"), net of tax | 2,918 |
| | 5,915 |
|
Total stockholders' equity | 1,368,313 |
| | 1,392,964 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 9,192,916 |
| | $ | 9,267,247 |
|
| | | |
| | | |
See accompanying notes to consolidated financial statements. | | | |
| | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED BALANCE SHEETS |
SEPTEMBER 30, 2020 and 2019 (Dollars in thousands, except per share amounts) |
| | | |
| 2020 | | 2019 |
ASSETS: | | | |
Cash and cash equivalents (includes interest-earning deposits of $172,430 and $198,809) | $ | 185,148 | | | $ | 220,370 | |
Available-for-sale ("AFS") securities, at estimated fair value | 1,560,950 | | | 1,204,863 | |
| | | |
Loans receivable, net (allowance for credit losses ("ACL") of $31,527 and $9,226) | 7,202,851 | | | 7,416,747 | |
Federal Home Loan Bank Topeka ("FHLB") stock, at cost | 93,862 | | | 98,456 | |
Premises and equipment, net | 101,875 | | | 96,784 | |
Income taxes receivable, net | 0 | | | 2 | |
| | | |
Other assets | 342,532 | | | 302,796 | |
TOTAL ASSETS | $ | 9,487,218 | | | $ | 9,340,018 | |
| | | |
LIABILITIES: | | | |
Deposits | $ | 6,191,408 | | | $ | 5,581,867 | |
Borrowings | 1,789,313 | | | 2,239,989 | |
| | | |
Advance payments by borrowers for taxes and insurance | 65,721 | | | 65,686 | |
Income taxes payable, net | 795 | | | 0 | |
Deferred income tax liabilities, net | 8,180 | | | 14,282 | |
Accounts payable and accrued expenses | 146,942 | | | 101,868 | |
Total liabilities | 8,202,359 | | | 8,003,692 | |
| | | |
STOCKHOLDERS' EQUITY: | | | |
Preferred stock, $.01 par value; 100,000,000 shares authorized, 0 shares issued or outstanding | 0 | | | 0 | |
Common stock, $.01 par value; 1,400,000,000 shares authorized, 138,956,296 and 141,440,030 shares issued and outstanding as of September 30, 2020 and 2019, respectively | 1,389 | | | 1,414 | |
Additional paid-in capital | 1,189,853 | | | 1,210,226 | |
Unearned compensation, Employee Stock Ownership Plan ("ESOP") | (33,040) | | | (34,692) | |
Retained earnings | 143,162 | | | 174,277 | |
Accumulated other comprehensive (loss) income ("AOCI"), net of tax | (16,505) | | | (14,899) | |
Total stockholders' equity | 1,284,859 | | | 1,336,326 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 9,487,218 | | | $ | 9,340,018 | |
| | | |
| | | |
See accompanying notes to consolidated financial statements. | | | |
|
| | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF INCOME |
YEARS ENDED SEPTEMBER 30, 2017, 2016, and 2015 (Dollars in thousands, except per share amounts) |
| | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
INTEREST AND DIVIDEND INCOME: | | | | | |
Loans receivable | $ | 253,393 |
| | $ | 243,311 |
| | $ | 235,500 |
|
Mortgage-backed securities ("MBS") | 23,809 |
| | 29,794 |
| | 36,647 |
|
Cash and cash equivalents | 19,389 |
| | 9,831 |
| | 5,477 |
|
FHLB stock | 12,233 |
| | 12,252 |
| | 12,556 |
|
Investment securities | 4,362 |
| | 5,925 |
| | 7,182 |
|
Total interest and dividend income | 313,186 |
| | 301,113 |
| | 297,362 |
|
INTEREST EXPENSE: | | | | | |
FHLB borrowings | 68,871 |
| | 65,091 |
| | 67,797 |
|
Deposits | 42,968 |
| | 37,859 |
| | 33,119 |
|
Repurchase agreements | 5,965 |
| | 5,981 |
| | 6,678 |
|
Total interest expense | 117,804 |
| | 108,931 |
| | 107,594 |
|
NET INTEREST INCOME | 195,382 |
| | 192,182 |
| | 189,768 |
|
PROVISION FOR CREDIT LOSSES | — |
| | (750 | ) | | 771 |
|
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | 195,382 |
| | 192,932 |
| | 188,997 |
|
NON-INTEREST INCOME: | | | | | |
Retail fees and charges | 15,053 |
| | 14,835 |
| | 14,897 |
|
Income from bank-owned life insurance ("BOLI") | 2,233 |
| | 3,420 |
| | 1,150 |
|
Other non-interest income | 4,910 |
| | 5,057 |
| | 5,093 |
|
Total non-interest income | 22,196 |
| | 23,312 |
| | 21,140 |
|
NON-INTEREST EXPENSE: | | | | | |
Salaries and employee benefits | 43,437 |
| | 42,378 |
| | 43,309 |
|
Information technology and communications | 11,282 |
| | 10,540 |
| | 10,360 |
|
Occupancy, net | 10,814 |
| | 10,576 |
| | 9,944 |
|
Regulatory and outside services | 5,821 |
| | 5,645 |
| | 5,347 |
|
Deposit and loan transaction costs | 5,284 |
| | 5,585 |
| | 5,417 |
|
Advertising and promotional | 4,673 |
| | 4,609 |
| | 4,547 |
|
Federal insurance premium | 3,539 |
| | 5,076 |
| | 5,495 |
|
Office supplies and related expense | 1,981 |
| | 2,640 |
| | 2,088 |
|
Low income housing partnerships | — |
| | 3,872 |
| | 4,572 |
|
Other non-interest expense | 2,827 |
| | 3,384 |
| | 3,290 |
|
Total non-interest expense | 89,658 |
| | 94,305 |
| | 94,369 |
|
INCOME BEFORE INCOME TAX EXPENSE | 127,920 |
| | 121,939 |
| | 115,768 |
|
INCOME TAX EXPENSE | 43,783 |
| | 38,445 |
| | 37,675 |
|
NET INCOME | $ | 84,137 |
| | $ | 83,494 |
| | $ | 78,093 |
|
| | | | | |
Basic earnings per share ("EPS") | $ | 0.63 |
| | $ | 0.63 |
| | $ | 0.58 |
|
Diluted EPS | $ | 0.63 |
| | $ | 0.63 |
| | $ | 0.58 |
|
Dividends declared per share | $ | 0.88 |
| | $ | 0.84 |
| | $ | 0.84 |
|
| | | | | |
See accompanying notes to consolidated financial statements. | | | | | |
| | | | | | | | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF INCOME |
YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands, except per share amounts) |
| | | | | |
| 2020 | | 2019 | | 2018 |
INTEREST AND DIVIDEND INCOME: | | | | | |
Loans receivable | $ | 270,494 | | | $ | 284,229 | | | $ | 260,198 | |
Mortgage-backed securities ("MBS") | 23,009 | | | 25,730 | | | 22,619 | |
FHLB stock | 5,827 | | | 7,823 | | | 10,962 | |
Investment securities | 4,467 | | | 6,366 | | | 4,670 | |
Cash and cash equivalents | 1,181 | | | 5,806 | | | 23,443 | |
Total interest and dividend income | 304,978 | | | 329,954 | | | 321,892 | |
INTEREST EXPENSE: | | | | | |
Deposits | 67,598 | | | 66,201 | | | 52,625 | |
Borrowings | 48,045 | | | 57,363 | | | 70,494 | |
| | | | | |
Total interest expense | 115,643 | | | 123,564 | | | 123,119 | |
NET INTEREST INCOME | 189,335 | | | 206,390 | | | 198,773 | |
PROVISION FOR CREDIT LOSSES | 22,300 | | | 750 | | | 0 | |
| | | | | |
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | 167,035 | | | 205,640 | | | 198,773 | |
NON-INTEREST INCOME: | | | | | |
Deposit service fees | 11,285 | | | 12,740 | | | 15,636 | |
Insurance commissions | 2,487 | | | 2,821 | | | 2,469 | |
Other non-interest income | 5,827 | | | 6,397 | | | 3,930 | |
Total non-interest income | 19,599 | | | 21,958 | | | 22,035 | |
NON-INTEREST EXPENSE: | | | | | |
Salaries and employee benefits | 52,996 | | | 53,145 | | | 46,563 | |
Information technology and related expense | 16,974 | | | 17,615 | | | 13,999 | |
Occupancy, net | 13,870 | | | 13,032 | | | 11,455 | |
Regulatory and outside services | 5,762 | | | 5,813 | | | 5,709 | |
Advertising and promotional | 4,889 | | | 5,244 | | | 5,034 | |
Deposit and loan transaction costs | 2,890 | | | 2,478 | | | 5,621 | |
Office supplies and related expense | 2,195 | | | 2,439 | | | 1,888 | |
Federal insurance premium | 914 | | | 1,172 | | | 3,277 | |
| | | | | |
Other non-interest expense | 5,514 | | | 6,006 | | | 3,356 | |
Total non-interest expense | 106,004 | | | 106,944 | | | 96,902 | |
INCOME BEFORE INCOME TAX EXPENSE | 80,630 | | | 120,654 | | | 123,906 | |
INCOME TAX EXPENSE | 16,090 | | | 26,411 | | | 24,979 | |
NET INCOME | $ | 64,540 | | | $ | 94,243 | | | $ | 98,927 | |
| | | | | |
Basic earnings per share ("EPS") | $ | 0.47 | | | $ | 0.68 | | | $ | 0.73 | |
Diluted EPS | $ | 0.47 | | | $ | 0.68 | | | $ | 0.73 | |
| | | | | |
| | | | | |
See accompanying notes to consolidated financial statements. | | | | | |
|
| | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
YEARS ENDED SEPTEMBER 30, 2017, 2016, and 2015 (Dollars in thousands) |
| | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
Net income | $ | 84,137 |
| | $ | 83,494 |
| | $ | 78,093 |
|
Other comprehensive income (loss), net of tax: | | | | | |
Changes in unrealized gains (losses) on AFS securities, | | | | | |
net of taxes of $1,595, $1,494, and $(843) | (2,625 | ) | | (2,459 | ) | | 1,388 |
|
Changes in unrealized losses on cash flow hedges, | | | | | |
net of taxes of $226, $0, and $0 | (372 | ) | | — |
| | — |
|
Comprehensive income | $ | 81,140 |
| | $ | 81,035 |
| | $ | 79,481 |
|
| | | | | |
See accompanying notes to consolidated financial statements. | | | | | |
| | | | | | | | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands) |
| | | | | |
| 2020 | | 2019 | | 2018 |
Net income | $ | 64,540 | | | $ | 94,243 | | | $ | 98,927 | |
Other comprehensive income (loss), net of tax: | | | | | |
Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $(4,359), $(3,468), and $2,499 | 13,578 | | | 10,804 | | | (6,741) | |
Unrealized gains on securities reclassified from held-to-maturity ("HTM") to AFS during the period, net of taxes of $0, $(750), and $0 | 0 | | | 2,336 | | | 0 | |
Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $4,875, $10,394, and $(2,785) | (15,184) | | | (32,379) | | | 7,496 | |
Comprehensive income | $ | 62,934 | | | $ | 75,004 | | | $ | 99,682 | |
| | | | | |
See accompanying notes to consolidated financial statements. | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
YEARS ENDED SEPTEMBER 30, 2017, 2016, and 2015 (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, fiscal year 2015 | | | | | | | 78,093 |
| | | | 78,093 |
|
Other comprehensive income, net of tax | | | | | | | | | 1,388 |
| | 1,388 |
|
ESOP activity, net | | | 384 |
| | 1,652 |
| | | | | | 2,036 |
|
Restricted stock activity, net | | | 85 |
| | | | | | | | 85 |
|
Stock-based compensation | | | 2,086 |
| | | | | | | | 2,086 |
|
Repurchase of common stock | (39 | ) | | (32,513 | ) | | | | (13,897 | ) | | | | (46,449 | ) |
Stock options exercised |
| | 267 |
| | | | | | | | 267 |
|
Cash dividends to stockholders ($0.84 per share) | | | | | | (114,162 | ) | | | | (114,162 | ) |
Balance at September 30, 2015 | 1,371 |
| | 1,151,041 |
| | (41,299 | ) | | 296,739 |
| | 8,374 |
| | 1,416,226 |
|
| | | | | | | | | | | |
Net income, fiscal year 2016 | | | | | | | 83,494 |
| | | | 83,494 |
|
Other comprehensive loss, net of tax | | | | | | | | | (2,459 | ) | | (2,459 | ) |
ESOP activity, net | | | 522 |
| | 1,652 |
| | | | | | 2,174 |
|
Restricted stock activity, net | 1 |
| | 48 |
| | | | | | | | 49 |
|
Stock-based compensation | | | 1,121 |
| | | | | | | | 1,121 |
|
Stock options exercised | 3 |
| | 4,123 |
| | | | | | | | 4,126 |
|
Cash dividends to stockholders ($0.84 per share) | | | | | | (111,767 | ) | | | | (111,767 | ) |
Balance at September 30, 2016 | 1,375 |
| | 1,156,855 |
| | (39,647 | ) | | 268,466 |
| | 5,915 |
| | 1,392,964 |
|
| | | | | | | | | | | |
Net income, fiscal year 2017 | | | | | | | 84,137 |
| | | | 84,137 |
|
Other comprehensive loss, net of tax | | | | | | | | | (2,997 | ) | | (2,997 | ) |
ESOP activity, net | | | 784 |
| | 1,652 |
| | | | | | 2,436 |
|
Restricted stock activity, net | | | 57 |
| | | | | | | | 57 |
|
Stock-based compensation | | | 506 |
| | | | | | | | 506 |
|
Stock options exercised | 7 |
| | 9,166 |
| | | | | | | | 9,173 |
|
Cash dividends to stockholders ($0.88 per share) | | | | | | (117,963 | ) | | | | (117,963 | ) |
Balance at September 30, 2017 | $ | 1,382 |
| | $ | 1,167,368 |
| | $ | (37,995 | ) | | $ | 234,640 |
| | $ | 2,918 |
| | $ | 1,368,313 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
See accompanying notes to consolidated financial statements. | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands, except per share amounts) |
| | | | | | | | | | | |
| | | Additional | | Unearned | | | | | | Total |
| Common | | Paid-In | | Compensation | | Retained | | | | Stockholders' |
| Stock | | Capital | | ESOP | | Earnings | | AOCI | | Equity |
Balance at September 30, 2017 | $ | 1,382 | | | $ | 1,167,368 | | | $ | (37,995) | | | $ | 234,640 | | | $ | 2,918 | | | $ | 1,368,313 | |
| | | | | | | | | | | |
Net income, fiscal year 2018 | | | | | | | 98,927 | | | | | 98,927 | |
Other comprehensive income, net of tax | | | | | | | | | 755 | | | 755 | |
Reclassification of certain tax effects related to adopting Accounting Standards Update ("ASU") 2018-02 | | | | | | | (667) | | | 667 | | | 0 | |
Cumulative effect of adopting ASU 2016-09 | | | 19 | | | | | (19) | | | | | 0 | |
Capital City Bancshares, Inc. ("CCB") acquisition | 30 | | | 39,083 | | | | | | | | | 39,113 | |
ESOP activity | | | 541 | | | 1,652 | | | | | | | 2,193 | |
| | | | | | | | | | | |
Stock-based compensation | | | 372 | | | | | | | | | 372 | |
| | | | | | | | | | | |
Stock options exercised | | | 261 | | | | | | | | | 261 | |
Cash dividends to stockholders ($0.88 per share) | | | | | | (118,312) | | | | | (118,312) | |
Balance at September 30, 2018 | 1,412 | | | 1,207,644 | | | (36,343) | | | 214,569 | | | 4,340 | | | 1,391,622 | |
| | | | | | | | | | | |
Net income, fiscal year 2019 | | | | | | | 94,243 | | | | | 94,243 | |
Other comprehensive loss, net of tax | | | | | | | | | (19,239) | | | (19,239) | |
Cumulative effect of adopting ASU 2014-09 | | | | | | | 394 | | | | | 394 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
ESOP activity | | | 549 | | | 1,651 | | | | | | | 2,200 | |
Restricted stock activity, net | 1 | | | (3) | | | | | | | | | (2) | |
Stock-based compensation | | | 552 | | | | | | | | | 552 | |
| | | | | | | | | | | |
Stock options exercised | 1 | | | 1,484 | | | | | | | | | 1,485 | |
Cash dividends to stockholders ($0.98 per share) | | | | | | (134,929) | | | | | (134,929) | |
Balance at September 30, 2019 | 1,414 | | | 1,210,226 | | | (34,692) | | | 174,277 | | | (14,899) | | | 1,336,326 | |
| | | | | | | | | | | |
Net income, fiscal year 2020 | | | | | | | 64,540 | | | | | 64,540 | |
Other comprehensive loss, net of tax | | | | | | | | | (1,606) | | | (1,606) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Cumulative effect of adopting ASU 2016-02 | | | | | | | 88 | | | | | 88 | |
| | | | | | | | | | | |
ESOP activity | | | 336 | | | 1,652 | | | | | | | 1,988 | |
Restricted stock activity, net | | | (19) | | | | | | | | | (19) | |
Stock-based compensation | | | 570 | | | | | | | | | 570 | |
Repurchase of common stock | (26) | | | (21,897) | | | | | (1,881) | | | | | (23,804) | |
Stock options exercised | 1 | | | 637 | | | | | | | | | 638 | |
Cash dividends to stockholders ($0.68 per share) | | | | | | (93,862) | | | | | (93,862) | |
Balance at September 30, 2020 | $ | 1,389 | | | $ | 1,189,853 | | | $ | (33,040) | | | $ | 143,162 | | | $ | (16,505) | | | $ | 1,284,859 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See accompanying notes to consolidated financial statements. | | | | | | | | |
|
| | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
YEARS ENDED SEPTEMBER 30, 2017, 2016, and 2015 (Dollars in thousands) |
| | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 84,137 |
| | $ | 83,494 |
| | $ | 78,093 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
FHLB stock dividends | (12,233 | ) | | (12,252 | ) | | (12,556 | ) |
Provision for credit losses | — |
| | (750 | ) | | 771 |
|
Proceeds from sales of loans receivable held-for-sale | 6,816 |
| | — |
| | — |
|
Amortization and accretion of premiums and discounts on securities | 4,479 |
| | 5,342 |
| | 5,649 |
|
Depreciation and amortization of premises and equipment | 7,796 |
| | 7,141 |
| | 6,844 |
|
Amortization of deferred amounts related to FHLB advances, net | 1,419 |
| | 1,868 |
| | 4,196 |
|
Common stock committed to be released for allocation - ESOP | 2,436 |
| | 2,174 |
| | 2,036 |
|
Stock-based compensation | 506 |
| | 1,121 |
| | 2,086 |
|
Provision for deferred income taxes | 922 |
| | 470 |
| | 3,201 |
|
Changes in: | | | | | |
Other assets, net | (680 | ) | | 1,807 |
| | 3,878 |
|
Income taxes payable/receivable | 590 |
| | 1,381 |
| | (1,374 | ) |
Accounts payable and accrued expenses | (10,743 | ) | | (6,840 | ) | | (6,215 | ) |
Net cash provided by operating activities | 85,445 |
| | 84,956 |
| | 86,609 |
|
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Purchase of AFS securities | (37,425 | ) | | (99,927 | ) | | (149,937 | ) |
Purchase of HTM securities | — |
| | (144,392 | ) | | (54,133 | ) |
Proceeds from calls, maturities and principal reductions of AFS securities | 144,643 |
| | 326,814 |
| | 234,794 |
|
Proceeds from calls, maturities and principal reductions of HTM securities | 268,689 |
| | 309,328 |
| | 330,054 |
|
Proceeds from the redemption of FHLB stock | 386,900 |
| | 382,450 |
| | 265,929 |
|
Purchase of FHLB stock | (365,651 | ) | | (329,625 | ) | | (190,862 | ) |
Net increase in loans receivable | (246,882 | ) | | (336,056 | ) | | (398,307 | ) |
Purchase of premises and equipment | (9,128 | ) | | (14,854 | ) | | (12,022 | ) |
Proceeds from sale of other real estate owned ("OREO") | 5,138 |
| | 4,973 |
| | 5,987 |
|
Purchase of BOLI | — |
| | — |
| | (50,000 | ) |
Proceeds from BOLI death benefit | — |
| | 783 |
| | — |
|
Net cash provided by (used in) investing activities | 146,284 |
| | 99,494 |
| | (18,497 | ) |
| | | | | |
| | | | | |
| | | | | (Continued) |
|
| | | | | | | | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands) |
| | | | | |
| 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 64,540 | | | $ | 94,243 | | | $ | 98,927 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
FHLB stock dividends | (5,827) | | | (7,823) | | | (10,962) | |
Provision for credit losses | 22,300 | | | 750 | | | 0 | |
Originations of loans receivable held-for-sale ("LHFS") | 0 | | | 0 | | | (777) | |
Proceeds from sales of LHFS | 0 | | | 0 | | | 16,423 | |
Amortization and accretion of premiums and discounts on securities | 1,661 | | | 1,242 | | | 3,150 | |
Depreciation and amortization of premises and equipment | 9,133 | | | 9,143 | | | 8,458 | |
Amortization of intangible assets | 1,964 | | | 2,316 | | | 234 | |
Amortization of deferred amounts related to FHLB advances, net | 539 | | | 8 | | | 1,173 | |
Common stock committed to be released for allocation - ESOP | 1,988 | | | 2,200 | | | 2,193 | |
Stock-based compensation | 570 | | | 552 | | | 372 | |
Provision for deferred income taxes | (5,588) | | | (361) | | | (4,540) | |
Changes in: | | | | | |
Unrestricted cash collateral (provided to)/received from derivative counterparties, net | 0 | | | (9,970) | | | 10,701 | |
Other assets, net | 9,105 | | | 6,220 | | | 1,712 | |
Income taxes payable/receivable, net | 774 | | | 2,173 | | | (2,262) | |
| | | | | |
Accounts payable and accrued expenses | (8,231) | | | (19,746) | | | (639) | |
Net cash provided by operating activities | 92,928 | | | 80,947 | | | 124,163 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Purchase of AFS securities | (1,007,763) | | | (386,702) | | | (411,459) | |
| | | | | |
Proceeds from calls, maturities and principal reductions of AFS securities | 667,952 | | | 359,551 | | | 192,966 | |
Proceeds from calls, maturities and principal reductions of HTM securities | 0 | | | 165,336 | | | 212,267 | |
Proceeds from sale of AFS securities | 0 | | | 0 | | | 2,078 | |
Proceeds from the redemption of FHLB stock | 10,421 | | | 197,054 | | | 291,506 | |
Purchase of FHLB stock | 0 | | | (187,961) | | | (277,552) | |
Net change in loans receivable | 191,359 | | | 95,358 | | | (37,537) | |
Purchase of premises and equipment | (14,742) | | | (11,732) | | | (11,761) | |
Proceeds from sale of other real estate owned ("OREO") | 993 | | | 2,053 | | | 2,240 | |
Cash acquired from acquisition | 0 | | | 0 | | | 15,685 | |
Proceeds from the redemption of common equity securities related to the redemption of junior subordinated debentures | 0 | | | 302 | | | 0 | |
| | | | | |
Proceeds from bank-owned life insurance ("BOLI") death benefit | 490 | | | 0 | | | 0 | |
Net cash (used in) provided by investing activities | (151,290) | | | 233,259 | | | (21,567) | |
| | | | | |
| | | | | (Continued) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY | CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY | CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS |
YEARS ENDED SEPTEMBER 30, 2017, 2016, and 2015 (Dollars in thousands) | |
YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands) | | YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands) |
| | | | | | |
| 2017 |
| | 2016 |
| | 2015 |
| | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
Cash dividends paid | (117,963 | ) | | (111,767 | ) | | (114,162 | ) | Cash dividends paid | (93,862) | | | (134,929) | | | (118,312) | |
Net change in deposits | 145,850 |
| | 331,498 |
| | 177,248 |
| Net change in deposits | 609,541 | | | (21,487) | | | (58,988) | |
Proceeds from borrowings | 2,700,100 |
| | 8,000,100 |
| | 7,575,100 |
| Proceeds from borrowings | 1,665,600 | | | 5,518,700 | | | 17,275,100 | |
Repayments on borrowings | (2,900,100 | ) | | (8,900,100 | ) | | (7,695,100 | ) | Repayments on borrowings | (2,112,600) | | | (5,563,752) | | | (17,414,200) | |
| Change in advance payments by borrowers for taxes and insurance | 1,106 |
| | 825 |
| | 3,713 |
| Change in advance payments by borrowers for taxes and insurance | 35 | | | 422 | | | 939 | |
Payment of FHLB prepayment penalties | — |
| | — |
| | (3,352 | ) | Payment of FHLB prepayment penalties | (4,215) | | | 0 | | | 0 | |
Repurchase of common stock | — |
| | — |
| | (50,034 | ) | Repurchase of common stock | (20,767) | | | 0 | | | 0 | |
Stock options exercised | 8,843 |
| | 4,070 |
| | 267 |
| Stock options exercised | 638 | | | 1,485 | | | 261 | |
Excess tax benefits from stock options | 330 |
| | 56 |
| | — |
| |
Net cash used in financing activities | (161,834 | ) | | (675,318 | ) | | (106,320 | ) | |
| | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 69,895 |
| | (490,868 | ) | | (38,208 | ) | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 44,370 | | | (199,561) | | | (315,200) | |
| | | | | | | | | | | |
CASH AND CASH EQUIVALENTS: | | | | | | |
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS | | NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS | (13,992) | | | 114,645 | | | (212,604) | |
| CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS: | | CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS: |
Beginning of year | 281,764 |
| | 772,632 |
| | 810,840 |
| Beginning of year | 253,700 | | | 139,055 | | | 351,659 | |
End of year | $ | 351,659 |
| | $ | 281,764 |
| | $ | 772,632 |
| End of year | $ | 239,708 | | | $ | 253,700 | | | $ | 139,055 | |
| | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
Income tax payments | $ | 37,875 |
| | $ | 36,483 |
| | $ | 35,849 |
| Income tax payments | $ | 13,045 | | | $ | 17,779 | | | $ | 24,785 | |
Interest payments | $ | 117,308 |
| | $ | 106,182 |
| | $ | 103,784 |
| Interest payments | $ | 118,610 | | | $ | 123,508 | | | $ | 119,699 | |
| | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | |
Loans transferred to LHFS | | Loans transferred to LHFS | $ | 0 | | | $ | 0 | | | $ | 15,814 | |
Operating lease right-of-use assets obtained | | Operating lease right-of-use assets obtained | $ | 16,841 | | | $ | 0 | | | $ | 0 | |
Operating lease liabilities obtained | | Operating lease liabilities obtained | $ | 16,726 | | | $ | 0 | | | $ | 0 | |
Acquisition: | | Acquisition: | | | | | |
Common stock issued | | Common stock issued | $ | 0 | | | $ | 0 | | | $ | 39,113 | |
Fair value of assets acquired, excluding acquired cash and intangibles | | Fair value of assets acquired, excluding acquired cash and intangibles | $ | 0 | | | $ | 0 | | | $ | 418,062 | |
Fair value of liabilities assumed | | Fair value of liabilities assumed | $ | 0 | | | $ | 0 | | | $ | 412,675 | |
Transfer of HTM securities, at amortized cost, to AFS securities | | Transfer of HTM securities, at amortized cost, to AFS securities | $ | 0 | | | $ | 444,732 | | | $ | 0 | |
| | | | | | | | | | | |
See accompanying notes to consolidated financial statements. | | | | | (Concluded) |
| See accompanying notes to consolidated financial statements. | | (Concluded) |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2017, 2016,2020, 2019, and 20152018
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Capitol Federal Financial, Inc. (the "Company") provides a full range of retail banking services through its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"), a federal savings bank, which has 3745 traditional and 109 in-store banking offices serving primarily the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and portions of the Kansas City metropolitan area of greater Kansas City.area. The Bank emphasizes mortgage lending, primarily originating and purchasing one- to four-family loans, and providing personal retail financial services.services, along with offering commercial banking and lending products. The Bank is subject to competition from other financial institutions and other companies that provide financial services.
Basis of Presentation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank. The Bank has atwo wholly owned subsidiary,subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company ("CFMRC").Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. TheseThe consolidated financial statements have been prepared in conformityaccordance with accounting principles generally accepted in the United States of America ("GAAP"), and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates and assumptions.
The Bank has an expense sharing agreement with the Company that covers the reimbursement of certain expenses that are allocable to the Company. These expenses include compensation, rent for leased office space, and general overhead expenses.
The Company, the Bank, Capitol Funds, Inc. and CFMRC have a tax allocation agreement. The Bank is the paying agent to the taxing authorities for the group for all periods presented. Each entity is liable for taxes as if separate tax returns were filed and reimburses the Bank for its pro rata share of the tax liability. If any entity has a tax benefit, the Bank reimburses the entity for its tax benefit.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents includeof $185.1 million and $220.4 million at September 30, 2020 and 2019, respectively, and restricted cash and cash equivalents of $54.6 million and $33.3 million at September 30, 2020 and 2019, respectively, which was included in other assets on handthe consolidated balance sheet. The restricted cash and amounts due cash equivalents relate to the collateral postings to/from banks. the Bank's derivative counterparties associated with the Bank's interest rate swaps. See additional discussion regarding the interest rate swaps in Note 9. Deposits and Borrowed Funds.
Regulations of the Board of Governors of the Federal Reserve System ("FRB") require federally chartered savings banks to maintain cash reserves against their transaction accounts. Required reserves must be maintained in the form of vault cash, an account at a Federal Reserve Bank, or a pass-through account as defined by the FRB. The amount of interest-earning deposits held at the Federal Reserve Bank of Kansas City ("FRB of Kansas City") as of September 30, 20172020 and 20162019 was $337.5$172.2 million and $264.4$198.6 million, respectively. The Bank is in compliance with the FRB requirements. For the years ended September 30, 20172020 and 2016,2019, the average daily balance of required reserves at the FRB of Kansas City was $9.1$6.6 million and $8.8$21.5 million, respectively.
Net Presentation of Cash Flows Related to Borrowings - During the current fiscal year,At times, the Bank enteredenters into certain FHLB advances with contractual maturities of 90 days or less. Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows.
Securities - Securities include MBS and agency debentures issued primarily by United States Government-Sponsored Enterprises ("GSE"), including Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks, United States Government agencies, including Government National Mortgage Association, and municipal bonds. Securities are classified as HTM, AFS, or trading based on management's intention for holding the securities on the date of purchase. Generally, classifications are made in response to liquidity needs, asset/liability management strategies, and the market interest rate environment at the time of purchase.
Securities that management has the intentintention and ability to hold to maturity are classified as HTM and reported at amortized cost. Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to interest income over the life of the securities using the level-yield method. At September 30, 2020 and 2019, the portfolio did not contain any securities classified as HTM.
Securities that management may sell if necessary for liquidity or asset management purposes are classified as AFS and reported at fair value, with unrealized gains and losses reported as a component of AOCI within stockholders' equity, net of deferred income taxes. The amortization of premiums and discounts are recognized as adjustments to interest income over the life of the securities using the level-yield method. Gains or losses on the disposition of AFS securities are recognized using the specific identification method. The Company primarily uses prices obtained from third partythird-party pricing services to determine the fair value of securities. See additional discussion of fair value of AFS securities in "Note 13.15. Fair Value of Financial Instruments."
Securities that are purchased and held principally for resale in the near future are classified as trading securities and are reported at fair value, with unrealized gains and losses included in non-interest income in the consolidated statements of income. During the fiscal years ended September 30, 20172020 and 2016,2019, neither the Company nor the Bank maintained a trading securities portfolio.
Management monitors securities in the investment portfolio for impairment on an ongoing basis and performs a formal review quarterly. The process involves monitoring market events and other items that could impact issuers. The evaluation includes, but is not limited to, such factors as: the nature of the investment, the length of time the security has had a fair value less than the amortized cost basis, the cause(s) and severity of the loss, expectation of an anticipated recovery period, recent events specific to the issuer or industry including the issuer's financial condition and current ability to make future payments in a timely manner, external credit ratings and recent downgrades in such ratings, management's intentintention to sell and whether it is more likely than not management would be required to sell prior to recovery for debt securities. Management determines whether other-than-temporary losses should be recognized for impaired securities by assessing all known facts and circumstances surrounding the securities. If management intends to sell an impaired security or if it is more likely than not that management will be required to sell an impaired security before recovery of its amortized cost basis, an other-than-temporary impairment has occurred and the difference between amortized cost and fair value will be recognized as a loss in earnings and the security will be written down to fair value.
Loans Receivable - Loans receivable that management has the intentintention and ability to hold for the foreseeable future are carried at the amount of unpaid principal, net of ACL, undisbursed loan funds, unamortized premiums and discounts, and deferred loan origination fees and costs. Net loan origination fees and costs, and premiums and discounts are amortized as yield adjustments to interest income using the level-yield method. Interest on loans is credited to income as earned and accrued only if deemed collectible.
Loan endorsements - Certain existing one- to four- family loan customers, including customers whose loans were purchased from a correspondent lender, have the opportunity, for a fee, to endorse their original loan terms to current loan terms being offered by the Bank. The fee received for each endorsement is deferred and amortized as an adjustment to interest income over the life of the loan. If the change in loan terms resulting from the endorsement is deemed to be more than minor, the loan is treated as a new loan and all existing unamortized deferred loan origination fees and costs are recognized at the time of endorsement. If the change in loan terms is deemed to be minor, the fee received for the endorsement is added to the net remaining unamortized deferred fee or deferred cost balance.
Coronavirus Disease 2019 ("COVID-19") loan modification programs -In March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance of principal, interest, and in some cases, escrow. COVID-19 loan modifications of commercial loans mainly consist of up to a six-month interest-only payment period, but an option for a three- to six-month forbearance of principal and interest was also available to our borrowers. The Company has followed the loan modification criteria within the Coronavirus Aid, Relief, and Economic Security ("CARES") Act or Interagency guidance when determining if a borrower's modification is subject to troubled debt restructuring ("TDR") classification. If it is determined that the modification does not meet the criteria under the CARES Act or Interagency guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework. Loans subject to forbearance under the COVID-19 loan modification program are not reported as past due or placed on nonaccrual status during the forbearance time period, and interest income continues to be recognized over the contractual life of the loans.
Troubled debt restructurings ("TDRs") - For borrowers experiencing financial difficulties, the Bank may grant a concession to the borrower, resulting in a TDR.borrower. Such concessions generally involve extensions of loan maturity dates, the granting of periods during which the
reduced payment of only interest and escrow isamounts are required, and/or reductions in interest rates, and loans that have been discharged under Chapter 7 bankruptcy proceedings where the borrower has not reaffirmed the debt.rates. The Bank does not forgive principal or interest, nor does it commit to lend additional funds to these borrowers, except for situations generally involving the capitalization of delinquent interest and/or escrow on one- to four-family loans and consumer loans, not to exceed the original loan balance,amount. In the case of commercial loans, the Bank does not forgive principal or interest or commit to these borrowers.lend additional funds unless the borrower provides additional collateral or other enhancements to improve the credit quality.
Delinquent loans - A loan is considered delinquent when payment has not been received within 30 days of its contractual due date. The number of days delinquent is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment.
Nonaccrual loans - The accrual of income on loans is generally discontinued when interest or principal payments are 90 days in arrears. We also report certain TDR loans as nonaccrual loans that are required to be reported as such pursuant to regulatory reporting requirements. Loans on which the accrual of income has been discontinued are designated as nonaccrual and outstanding interest previously credited beyond 90 days delinquent is reversed, except in the case of commercial loans in which all delinquent accrued interest is reversed. A nonaccrual one- to four-family or consumer loan is returned to accrual status once the contractual payments have been made to bring the loan less than 90 days past due or, in the case of a TDR loan, the borrower has made the required consecutive loan payments. A nonaccrual commercial loan is returned to accrual status once the loan has been current for a minimum of six months, all fees and interest are paid current, the loan has a sufficient debt service coverage ratio, and the loan is well secured and within policy.
Impaired loans - A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the original contractual terms of the loan agreement. Interest income on impaired loans is recognized in the period collected unless the ultimate collection of principal is considered doubtful. Loans reporteddoubtful, in which case interest income is no longer recognized.
Acquired loans - Acquired loans are initially recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, interest rates, projected prepayments, projected default rates, loss given default and recovery rates, with no carryover of any existing ACL. Acquired loans with evidence of credit quality deterioration at acquisition are reviewed to determine if it is probable that the Company will not be able to collect all contractual amounts due, including both principal and interest. When both conditions exist, such loans are categorized and accounted for as purchased credit impaired ("PCI") loans. When these conditions do not exist, the loans includeare categorized as non-PCI loans.
For PCI loans partially charged-off and TDRs.with cash flows that the Company has determined can be reasonably estimated, which is the majority of the PCI loans, interest income is recognized on a level-yield basis over the life of the loan based upon the excess of expected cash flows over the original investment in the loan.
Allowance for Credit Losses - The ACL represents management's best estimate of the amount of inherent losses in the loan portfolio as of the balance sheet date. It involves a high degree of complexity and requires management to make difficult and subjective judgments and assumptions about highly uncertain matters. Management's methodology for assessing the appropriateness of the ACL consists of a formula analysis model, along with analyzing and considering several other relevant internal and external data elements.factors. The use of different judgments and assumptions could cause reported results to differ significantly. Management maintains the ACL through provisions for credit losses that are either charged or credited to income.
One- to four-family loans, including home equity loans, are individually evaluated for loss when the loan is generally 180 days delinquent and any losses are charged-off. Losses are based on new collateral values obtained through appraisals, less estimated costs to sell. Anticipated private mortgage insurance proceeds are taken into consideration when calculating the loss amount. An updated appraisal is requested, at a minimum, every 12 months thereafter if the loan is 180 days or more delinquent or in foreclosure. If the Bank holds the first and second mortgage, both loans are combined when evaluating whether there is a potential loss on the loan. For commercial real estate loans, losses are charged-off when the collection of such amounts is determined to be unlikely. When a non-real estate secured loan, which includes consumer loans - other,loan is 120 days delinquent, any identified losses are charged-off. For commercial loans, generally losses are charged-off prior to a loan becoming 120 days delinquent when it is determined, through the analysis of any available current financial information with regards to the borrower, that the borrower is not able to service the debt and there is little or no prospect for near term improvement, or, in the case of secured loans, it is determined, through the analysis of current information with regards to the Bank's collateral position, that the amounts due from the borrower are in excess of the calculated current fair value of the collateral after
consideration of estimated costs to sell. Charge-offs for any loan type may also occur at any time if the Bank has knowledge of the existence of a potentialprobable loss.
The primary risk characteristics inherent in the one- to four-family and consumer loan portfolios are a decline in economic conditions, elevated levels of unemployment or underemployment, and declines in residential real estate values. Any one or a combination of these events may adversely affect borrowers'the ability of borrowers to repay their loans, resulting in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions. Although the commercial real estate loan portfolio is subject to the same risk of declines in economic conditions, the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations, the ability to control operational or business expenses to satisfy their contractual debt payments, and/orand the ability to utilize personal and/or business resources to pay their contractual debt payments if the cash flows are not sufficient. Additionally, if the Bank were to repossess the secured collateral of a commercial real estate loan, the pool of potential buyers is typicallymore limited more than that for a residential property. This increases the risk thatTherefore, the Bank could hold the property for an extended period of time, and/or potentially be forced to sell at a discounted price, resulting in additional losses. Our commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment, which may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.
EachAs of each quarter end, a formula analysis is prepared which segregates the loan portfolio into categories based on certain risk characteristics. The categories include the following: one- to four-family loans; commercial real estate loans; consumer home equity loans; and other consumer loans. Home equity loans with the same underlying collateral as a one- to four-family loan are combined with the one- to four-family loan in the formula analysis model to calculate a combined loan-to-value ("LTV") ratio. The one- to four-family loan portfolio and related home equity loans are segregated into additional categories based on the following risk characteristics: loan source (originated, correspondent purchased, or bulk purchased), interest payments (fixed-rate and adjustable-rate), LTV ratios, borrower's credit scores, and certain geographic locations.location. The categories were derived by management based on reviewing the historical performance of the one- to four-family loan portfolio and taking into consideration current economic conditions, such as trends in residential real estate values in certain areas of the U.S. and unemployment rates. The commercial loan portfolio is segregated into additional categories based on the type of loan (real estate loan, construction loan or commercial and industrial). Impaired loans are not included in the formula analysis as they are individually evaluated for loss.
Historical loss factors are applied to each loan category in the formula analysis model. EachAs of each quarter end, management reviews historical losses over a look-back time period and utilizes the historical loss time periods believed to be the most appropriate considering the currentthen-current economic conditions. The historical loss time period is then adjusted for a loss emergence time period, which represents the estimated time period from the date of a loss event to the date we recognize a charge-off/loss. Qualitative loss factors are utilized in the formula analysis model to reflect risks inherent in each loan category that are not captured by the historical loss factors. The qualitative loss factors for one- to four-family and consumer loan portfolios take into consideration such items as: unemployment rate trends, residential real estate value trends, credit score trends, and delinquent loan trends, and industry and peer charge-off information.trends. The qualitative loss factors for the commercial real estate loan portfolio take into consideration the composition of the portfolio along with industry and peer charge-off information and certain ACL ratios. As loans are classified or become delinquent, the qualitative loss factors increase for each respective loan category. The qualitative loss factors were derived by management based on a review of the historical performance of the respective loan portfolios and industry and peer information for those loan portfolios with no or limited historical loss experience, along with consideration of current economic conditions and the likely impact such conditions might have toon the performance of the loan portfolio.
Management utilizesincreased the historical loss and qualitative factors for the one- to four-family and consumer loan portfolios during the current fiscal year to account for a higher level of estimated inherent losses in the loan portfolio as a result of the deterioration of economic conditions due to the COVID-19 pandemic. When determining the appropriate historical loss and qualitative factors for the one- to four-family and consumer loan portfolios, management took into consideration such factors as the national and state unemployment rates and related trends, national and state unemployment benefit claim levels and related trends, the amount of and timing of financial assistance provided by the government, and the Bank's COVID-19 loan modification program. Unemployed individuals benefited from additional unemployment benefits afforded under the CARES Act; however, the majority of the financial assistance provided by the federal government, which may be masking the Bank's actual credit exposure, tapered off significantly by September 30, 2020. In late March 2020, the Bank began offering a COVID-19 loan modification program for one- to four-family and consumer loans. While the intention of the COVID-19 loan modification program was to keep customers current on their payments and therefore in their homes during
the worst of the economic downturn, the program could be masking the Bank's actual credit exposure on these loans. After considering the factors noted above, management evaluated the Bank's historical ACL to loans ratios compared to historical unemployment rates and housing price index trends and the Bank's historical charge-off percentages. After reviewing historical information and considering the economic conditions at September 30, 2020, management selected the worst historical time periods and used those historical loss and qualitative factors in the ACL formula analysis model at September 30, 2020. Management then compared the ACL (calculated by the formula analysis model,model) to loans ratio to the Bank's historical ACL to loan ratios to determine the appropriate amount of ACL at September 30, 2020 considering the economic conditions at that point in time.
Management also increased the qualitative factors and applied a COVID-19 qualitative factor to the Bank's commercial loan portfolio at September 30, 2020. To determine the appropriate qualitative factors for the Bank's commercial loan portfolio at September 30, 2020, management considered the factors noted above, along with analyzingsuch factors as consumer spending levels and considering several other relevant internal and external data elements when evaluatingtrends, industries significantly impacted by the adequacyCOVID-19 pandemic, the commercial lending team's review of the ACL. Such data elements includeBank's largest commercial loan relationships, and the trendBank's COVID-19 loan modification program. The Bank's commercial lending team's loan analysis through September 30, 2020 primarily focused on the lending relationships considered most at risk of short-term operational cash flow issues and/or collateral concerns. Those considered most at risk were among the categories with the highest usage of the Bank's COVID-19 loan modification program. We believe the Bank's COVID-19 loan modification program has been very beneficial to the majority of the Bank's borrowers that took advantage of the program; however, as is the case with one- to four-family loans, the modifications may be masking the Bank's actual credit exposure. The commercial lending team also considered the largest credits and composition of delinquentLTVs for loans and non-performing loans, trends in foreclosed property and short sale transactions and charge-off activity, the current status and trends of local and national employment levels, trends and current conditions in the housing markets,industries most impacted by the COVID-19 pandemic. After considering the factors noted above and the very limited historical loan growth and concentrations, industryloss experience for the Bank's commercial loan portfolio, management reviewed historical peer ACL to loan ratios and peer charge-off percentages and ACLthe economic conditions during those time periods. After reviewing peer historical information and certainconsidering the economic conditions at September 30, 2020, management increased the commercial loan qualitative factors and applied a COVID-19 qualitative factor. Management then compared the ACL ratios such as(calculated by the formula analysis model) to loans ratio to peer historical ACL to loan ratios to determine the appropriate amount of ACL at September 30, 2020 considering the economic conditions at that point in time.
For non-PCI loans, receivable, netthe Company estimates a hypothetical amount of ACL using the same historical loss and annualized historical losses. Sincequalitative factors as the Bank's formula analysis model to establish the hypothetical amount of ACL. This amount is compared with the remaining net purchase discount for the non-PCI loans to test for credit quality deterioration and the possible need for an additional loan portfolioloss provision. To the extent the remaining net purchase discount of the pool is primarily concentratedgreater than the hypothetical ACL, no additional ACL is necessary. If the remaining net purchase discount of the pool is less than the hypothetical ACL, the difference results in one-an increase to four-family real estate, management monitors residential real estate market value trendsthe ACL recorded through a provision for credit losses.
Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the Bank's local market areasnear term, and geographic sections of the U.S. by reference to various industry and market reports, economic releases and surveys, and management's general and specific knowledge of the real estate markets in which the Bank lends, in order to determine what impact,if future government programs, if any, such trends may have on the level of ACL. Reviewing these data elements assists management in evaluating the overall credit quality of the loan portfolio and the reasonableness of the ACL on an ongoing basis, and whether changes needdo not provide adequate relief to be made toborrowers, it is possible the Bank's ACL methodology.will need to increase in future periods. Management seeks to apply the ACL methodology in a consistent manner; however, the methodology canmay be modified in response to changing conditions.conditions, such as was the case during the current fiscal year. Although management believes the ACL was at a level adequate to absorb inherent losses in the loan portfolio at September 30, 2017,2020, the level of the ACL remains an estimate that is subject to significant judgment and short-term changes.
Federal Home Loan Bank Stock - As a member of FHLB, Topeka, the Bank is required to acquire and hold shares of FHLB stock. The Bank's holding requirement varies based on the Bank's activities, primarily the Bank's outstanding borrowings, with FHLB. FHLB stock is carried at cost and is considered a restricted asset because it cannot be pledged as collateral or bought or sold on the open market and it also has certain redemption restrictions. Management conducts a quarterly evaluation to determine if any FHLB stock impairment exists. The quarterly impairment evaluation focuses primarily on the capital adequacy and liquidity of FHLB, while also considering the impact that legislative and regulatory developments may have on FHLB. Stock and cash dividends received on FHLB stock are reflected as dividend income in the consolidated statements of income.
Premises and Equipment - Land is carried at cost. Buildings, leasehold improvements, and furniture, fixtures and equipment are carried at cost less accumulated depreciation and leasehold amortization. Buildings, furniture, fixtures and equipment are depreciated over their estimated useful lives using the straight-line method. Buildings have an estimated useful life of 39 years. Structural components of the buildings generally have an estimated life of 15 years. Furniture, fixtures and equipment have an estimated useful life of three to seven years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the respective leases, which is generally three to 15 years.leases. The costs for major improvements and renovations are capitalized, while maintenance, repairs and minor improvements are charged to operating expenses as incurred. Gains and losses on dispositions are recorded as non-interest income or non-interest expense as incurred.
Revenue Recognition - Non-interest income within the scope of Accounting Standards Codification ("ASC") Topic 606 is recognized by the Company when performance obligations, under the terms of the contract, are satisfied. This income is measured as the amount of consideration expected to be received in exchange for the providing of services. The majority of the Company's applicable non-interest income continues to be recognized at the time when services are provided to its customers. See Note 17. Revenue Recognition for additional information.
Leases - The Company leases real estate property for branches, ATMs, and certain equipment. All of the leases in which the Company is the lessee are classified as operating leases. The Company determines if an arrangement is a lease at inception and if the lease is an operating lease or a finance lease.
Operating lease right-of-use assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. The right-of-use assets associated with operating leases are recorded in other assets in the Company's consolidated balance sheets. The lease liabilities associated with operating leases are included in accounts payable and accrued expenses on the consolidated balance sheets. The period over which the right-of-use asset is amortized is generally the lesser of the expected remaining term or the remaining useful life of the leased asset. The lease liability is decreased as periodic lease payments are made. The Company performs impairment assessments for right-of-use assets when events or changes in circumstances indicate that their carrying values may not be recoverable.
The calculated amounts of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum remaining lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company includes the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company cannot practically determine the interest rate implicit in the lease so the Company's incremental borrowing rate is used as the discount rate for the lease. The Company uses FHLB advance interest rates, which have been deemed as the Company's incremental borrowing rate, at lease inception based upon the term of the lease. For operating leases existing prior to October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was applied. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease expense, variable lease expense and short-term lease expense are included in occupancy expense in the Company's consolidated statements of income. For facility-related leases, the Company elected, by lease class, to not separate lease and non-lease components. Lease expense is recognized on a straight-line basis over the lease term. Variable lease expense primarily represents payments such as common area maintenance, real estate taxes, and utilities and are recognized as expense in the period when those payments are incurred. Short-term lease expense relates to leases with an initial term of 12 months or less. The Company has elected to not record a right-of-use asset or lease liability for short-term leases.
Other Assets - Included in other assets on the consolidated balance sheet are the Company's intangible assets, recognized as a result of the acquisition of CCB, which consist of goodwill, deposit intangibles and other intangibles.
Goodwill is assessed for impairment on an annual basis, or more frequently in certain circumstances. The test for impairment is performed by comparing the fair value of the reporting unit with its carrying amount. If the fair value is determined to be less than the carrying amount, an impairment is recorded.
The Company's intangible assets primarily relate to core deposits. These intangible assets are amortized based upon the expected economic benefit over an estimated life of approximately 8 years and are tested for impairment whenever events or circumstances change.
Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred income tax expense
(benefit) represents the change in deferred income tax assets and liabilities excluding the tax effects of the change in net unrealized gain (loss) on AFS securities and interest rate swaps and changes in the market value of restricted stock awards between the grant date and vesting date. Income tax related penalties and interest, if any, are included in income tax expense in the consolidated statements of income.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Certain tax benefits attributable to stock options and restricted stock are credited to additional paid-in capital. To the extent that management considers it more likely than not that a deferred tax asset will not be recovered, a valuation allowance is recorded. All positive and negative evidence is reviewed in determining how much of a valuation allowance is recognized on a quarterly basis.
Certain accounting literature prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken, or expected to be taken, in a tax return. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense in the consolidated statements of income. Accrued interest and penalties related to unrecognized tax benefits are included within the related tax liabilities line in the consolidated balance sheet.
Employee Stock Ownership Plan - The funds borrowed by the ESOP from the Company to purchase the Company's common stock are being repaid from dividends paid on unallocated ESOP shares and, if necessary, contributions by the Bank. The ESOP shares pledged as collateral are reported as a reduction of stockholders' equity at cost. As ESOP shares are committed to be released from collateral each quarter, the Company records compensation expense based on the average market price of the Company's stock during the quarter. Additionally, the ESOP shares become outstanding for EPS computations once they are committed to be released. The eligibility criteria for participation in the Company's ESOP is a minimum of one year of service, at least age 21, and at least 1,000 hours of employment in each plan year.
Stock-based Compensation - The Company has share-based plans under which stock options and restricted stock awards have been granted. Compensation expense is recognized over the service period of the share-based payment award. The Company utilizes a fair-value-based measurement method in accounting for the share-based payment transactions with employees, except for equity instruments held by the ESOP.transactions. The Company applies the modified prospective method in which compensation cost is recognized over the service period for all awards granted.
Borrowed Funds - The Bank has entered into repurchase agreements, which are sales of securities under agreements to repurchase, with approved counterparties. These agreements are recorded as financing transactions, and thereby reported as liabilities on the consolidated balance sheet, with the related expense reported as interest expense on the consolidated statements of income, as the Bank maintains effective control over the transferred securities and the securities continue to be carried in the Bank's securities portfolio.
The Bank has obtained borrowings from FHLB in the form of advances and a line of credit. Total FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB and certain securities, as necessary. Additionally, the Bank is authorized to borrow from the Federal Reserve Bank's "discount window."
The Company uses interest rate swaps as part of its interest rate risk management strategy to hedge the variable cash outflows associated with certain borrowings. Interest rate swaps are carried at fair value in the Company's consolidated financial statements. For interest rate swaps that are designated and qualify as cash flow hedges, the effective portion of changes in the fair value of such agreements are recorded in AOCI and are subsequently reclassified into interest expense in the period that interest on the borrowings affects earnings. The ineffective portion of the change in fair value of the interest rate swap is recognized directly in earnings. Effectiveness is assessed using regression analysis. At the inception of a hedge, the Company documents certain items, including the relationship between the hedging instrument and the hedged item, the risk management objective and the nature of the risk being hedged, a description of how effectiveness will be measured and an evaluation of hedged transaction effectiveness.
Segment Information - As a community-oriented financial institution, substantially all of the Bank's operations involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of these community banking operations, which constitute the Company's only operating segment for financial reporting purposes.
Low Income Housing Partnerships - As part of the Bank's community reinvestment initiatives, the Bank invests in affordable housing limited partnerships ("low income housing partnerships") that make equity investments in affordable housing properties. The Bank is a limited partner in each partnership in which it invests. A separate, unrelated third party is the general partner. The Bank receives affordable housing tax credits and other tax benefits for these investments. Previously, the Bank accounted for low income housing partnerships using the equity method of accounting as two of the Bank's officers were involved in the operational management of the low income housing partnership investment group. Effective September 30, 2016, those two Bank officers discontinued their involvement in the operational management of the investment group. The Bank started using the proportional method of accounting for its low income housing partnership investments on October 1, 2016. See "Note 6. Low Income Housing Partnerships" for additional information.
Earnings Per Share - Basic EPS is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or resulted in the issuance of common stock. These potentially dilutive shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. Shares issued and shares reacquired during any period are weighted for the portion of the period that they were outstanding.
In computing both basic and diluted EPS, the weighted average number of common shares outstanding includes the ESOP shares previously allocated to participants and shares committed to be released for allocation to participants and shares of restricted stock shares which have vested or have been allocated to participants.vested. ESOP shares that have not been committed to be released are excluded from the computation of basic and diluted EPS. Unvested restricted stock awards contain nonforfeitable rights to dividends and are treated as participating securities in the computation of EPS pursuant to the two-class method.
Comprehensive IncomeTrust Asset Management - Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on AFS securities and changesAssets (other than cash deposits with the Bank) held in fiduciary or agency capacities for customers are not included in the accumulated gains/losses on effective cash flow hedging instruments, netaccompanying consolidated balance sheets, since such items are not assets of taxes.the Company or its subsidiaries.
Recent Accounting Pronouncements - In May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with CustomersASU 2016-02, Leases. The ASU, as amended, implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of the amended guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the amended guidance identifies specific steps an entity should apply in order to achieve this principle. The amended guidance requires entities to disclose both quantitative and qualitative information regarding contracts with customers. ASU 2014-09 will become effective for the Company on October 1, 2018. The majority of the Company's revenue is composed of interest income from loans and securities which are explicitly excluded from the amended ASU; therefore the amended ASU will likely not have a material impact to the Company's consolidated financial condition and results of operations, but it will likely result in expanded disclosures. The Company's evaluation of the amended ASU and its impact on components of non-interest income is ongoing.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments, Recognition and Measurement of Financial Assets and Liabilities. The ASU supersedes certain accounting guidance related to equity securities with readily determinable fair values and the related impairment assessment. An entity's equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this ASU. The ASU requires public business entities to utilize the exit price notation in determining fair value for financial instruments measured at amortized cost on the balance sheet. The ASU requires additional reporting in other comprehensive income for financial liabilities measured at fair value in accordance with the fair value option. The ASU also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balances or in the notes to the financial statements. ASU 2016-01 will become effective for the Company on October 1, 2018. The Company is currently evaluating the impact that this ASU may have on the Company's consolidated financial condition, results of operations and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. The ASU amendsrevises lease accounting guidance by requiring that lessees recognize the assets and liabilities arising from leases on the balance sheet. Additionally, the ASU requires entities to disclose both quantitative and qualitative information regarding their leasing activities. The accounting applied by a lessor is largely unchanged from that applied under the previous guidance. In July 2018, the FASB issued ASU 2016-02 will become2018-11, Leases, which provides entities with relief from the costs of implementation by allowing the option to not restate comparative periods as part of the transition. The ASU, as amended, became effective for the Company on October 1, 2019. Upon adoption, the Company elected the modified retrospective approach and the optional transition method under which the Company used the effective date as the date of initial application of the amendments. The optional practical expedients the Company is currently inelected include: (1) not reassessing whether any expired or existing contracts are or contain leases, (2) not reassessing the processclassification of accumulatingany expired or existing contracts, (3) not reassessing initial direct costs for existing leases, and (4) using hindsight for leases existing at adoption date. For leases with an initial term of 12 months or less, the Company elected the short-term lease data and developing an inventory of leases. The Company expects to recognizeoption, which entails not recognizing right-of-use assets and lease liabilities for substantially allthese leases. Additionally, the Company elected, for facility-related leases, the practical expedient that allows an entity to elect, by lease class, the ability to not separate lease and non-lease components. Upon adoption, the Company recognized a right-of-use asset of its$15.7 million and a lease liability of $15.5 million, related to the Company's non-cancellable operating lease commitments based on the present value of unpaidthe expected remaining lease payments as of the date of adoption. The Company is continuing to evaluate the impact this ASU may have on the Company's consolidated financial condition, results of operations and disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, along with simplifying the classification in the statement of cash flows. The ASU became effective for the Company on October 1, 2017. Upon2019. The cumulative-effect adjustment to retained earnings at the time of adoption the Company elected to account for forfeitures of stock-based compensation awards when they occur. The Company will recognize excess tax benefits and tax deficiencies in income tax expense on the consolidated statements of income and present them within operating activities on the consolidated statements of cash flows. This ASUtotaled $88 thousand. These ASUs did not have a material impact on the Company's consolidated financial condition or results of operations and cash flows at the time of adoption. However,The disclosures required by the impact of tax benefits and the timing of their recognition within income tax expense is unpredictable, as these benefitsASU are recognized primarily as a result of stock options being exercised.included in Note 18. Leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU, as amended, replaces the incurred loss impairment methodology in current GAAP, which requires credit losses to be recognized when it is probable that a loss has been incurred, with a new impairment methodology. The new impairment methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans HTM debt securities, and loan commitments, over their contractual lives. Under the new impairment methodology, expected credit losses will be measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amends the current credit loss measurements for AFS debt securities. Credit losses related to AFS debt securities will be recorded through the ACL rather than as a direct write-down as per current GAAP. The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses. The ASU will become effective for the Company on October 1, 2020. The Company intends to apply a modified retrospective approach when adopting the ASU. Upon adoption, a cumulative-effect adjustment for the change in the allowance for credit losses and reserves on unfunded commitments will be recognized in retained earnings, net of tax. The Company worked with a software provider on the
application and implementation of the new accounting guidance. The Company has determined its loan segmentation and the methodologies that will be utilized for each loan segment, and has also developed an implementation planseveral assumptions including a reasonable and supportable forecast time period, a reversion methodology, and prepayment and curtailment speeds, among others. Management is in the process of reviewingfinalizing supporting documentation and assessing its processesinternal controls, policies, and systemsprocedures. Based on analysis performed by the Company with consideration given to the loan portfolio at September 30, 2020 and identifyingcurrent expectation of future economic conditions, our ACL and reserves on unfunded commitments upon adoption will be $26.8 million and $7.8 million, respectively, which would result in a cumulative effect adjustment to retained earnings, net of tax, of $2.3 million. However, management continues to evaluate the necessary dataimpact of adoption. The preliminary results may change as the model is finalized and the remaining implementation steps are completed. The enhanced disclosures required by this ASU will be presented beginning with the Company's December 31, 2020 Quarterly Report on Form 10-Q. Under this new accounting standard, the Company's ACL may fluctuate more significantly from period to implementperiod than it has historically as a result of changes in forecasted economic conditions and changes in the ASU.composition of the Company's loan portfolio.
In August 2017,2018, the FASB issued ASU 2017-12, Derivatives2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosures Requirements for Fair Value Measurement. This ASU eliminates, modifies and Hedging: Target Improvementsadds certain disclosure requirements for fair value measurements. The ASU adds disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The effective date of this ASU for the Company is October 1, 2020, with early adoption permitted. Entities are allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. Since this ASU only requires disclosure changes, it is not expected to have a significant impact on the Company's consolidated financial condition and results of operations.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Hedging ActivitiesImplementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU amendsaligns the hedge accounting recognition and presentation requirements for capitalizing implementation costs incurred in current GAAP.a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). The purposeeffective date of thethis ASU was to improve transparency of hedging relationships in the financial statements and to reduce the complexity of applying hedge accounting for preparers. The ASU will become effective for the Company onis October 1, 2019. The Company2020, with early adoption permitted. This ASU is currently evaluating the effect of the ASUnot expected to have a significant impact on the Company's consolidated financial condition, results of operations and disclosures.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU makes clarifications and corrections to the application of the guidance contained in each of the amended topics. According to the provisions of the ASU, entities that have not adopted ASU 2017-12 prior to the issuance of ASU 2019-04 shall adopt the provisions of both ASUs at the same time. The effective date of the non-hedging amendments contained in ASU 2019-04 for the Company is October 1, 2020. The non-hedging amendments contained in this ASU are not expected to have a significant impact on the Company's consolidated financial condition, results of operations and disclosures.
2.ACQUISITION
On August 31, 2018, the Company completed the acquisition of CCB and its wholly-owned subsidiary, Capital City Bank. Capital City Bank was headquartered in Topeka, Kansas and owned and leased banking locations in Topeka, Lawrence, and Overland Park, Kansas.The acquisition was not considered material to the Company's financial statements; therefore, pro-forma financial data and related disclosures are not included.
The Company acquired loans and deposits with fair values of $299.7 million and $352.5 million, respectively, at the date of acquisition. Included in the loans acquired from CCB at August 31, 2018 were PCI loans with contractually required cash flows totaling $2.6 million. Of that amount, the Company expected to collect $1.9 million, which was also the fair value at the date of acquisition. Under the terms of the acquisition agreement, the Company issued 3.0 million shares of common stock for all outstanding shares of CCB capital stock, for a total merger consideration of $39.1 million, based on the Company's closing stock price of $13.21 on August 31, 2018. See "Note 8. Intangible Assets" for additional information regarding the acquisition of CCB.
There were 0 merger-related expenses incurred during fiscal year 2020. During fiscal years 2019 and 2018, the Company incurred $30 thousand and $872 thousand, respectively, of pre-tax merger-related expenses attributable to the CCB acquisition. The merger-related expenses were reflected on the Company's consolidated statement of income and were reported primarily in regulatory and outside services.
3.EARNINGS PER SHARE
Shares acquired by the ESOP are not consideredincluded 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 Year Ended September 30, |
| 2020 | | 2019 | | 2018 |
| (Dollars in thousands, except per share amounts) |
Net income | $ | 64,540 | | | $ | 94,243 | | | $ | 98,927 | |
Income allocated to participating securities | (52) | | | (55) | | | (40) | |
Net income available to common stockholders | $ | 64,488 | | | $ | 94,188 | | | $ | 98,887 | |
| | | | | |
Average common shares outstanding | 137,834,304 | | | 137,614,465 | | | 134,635,886 | |
Average committed ESOP shares outstanding | 62,400 | | | 62,458 | | | 62,458 | |
Total basic average common shares outstanding | 137,896,704 | | | 137,676,923 | | | 134,698,344 | |
| | | | | |
Effect of dilutive stock options | 4,484 | | | 58,478 | | | 60,647 | |
| | | | | |
Total diluted average common shares outstanding | 137,901,188 | | | 137,735,401 | | | 134,758,991 | |
| | | | | |
Net EPS: | | | | | |
Basic | $ | 0.47 | | | $ | 0.68 | | | $ | 0.73 | |
Diluted | $ | 0.47 | | | $ | 0.68 | | | $ | 0.73 | |
| | | | | |
Antidilutive stock options, excluded from the diluted average | | |
common shares outstanding calculation | 437,731 | | | 470,938 | | | 541,418 | |
|
| | | | | | | | | | | |
| For the Year Ended September 30, |
| 2017 |
| | 2016 |
| | 2015 |
|
| (Dollars in thousands, except per share amounts) |
Net income | $ | 84,137 |
| | $ | 83,494 |
| | $ | 78,093 |
|
Income allocated to participating securities | (44 | ) | | (66 | ) | | (116 | ) |
Net income available to common stockholders | $ | 84,093 |
| | $ | 83,428 |
| | $ | 77,977 |
|
| | | | | |
Average common shares outstanding | 134,019,962 |
| | 132,982,815 |
| | 135,321,235 |
|
Average committed ESOP shares outstanding | 62,458 |
| | 62,400 |
| | 62,458 |
|
Total basic average common shares outstanding | 134,082,420 |
| | 133,045,215 |
| | 135,383,693 |
|
| | | | | |
Effect of dilutive stock options | 161,442 |
| | 131,161 |
| | 24,810 |
|
| | | | | |
Total diluted average common shares outstanding | 134,243,862 |
| | 133,176,376 |
| | 135,408,503 |
|
| | | | | |
Net EPS: | | | | | |
Basic | $ | 0.63 |
| | $ | 0.63 |
| | $ | 0.58 |
|
Diluted | $ | 0.63 |
| | $ | 0.63 |
| | $ | 0.58 |
|
| | | | | |
Antidilutive stock options, excluded from the diluted average | | |
common shares outstanding calculation | 200,800 |
| | 886,417 |
| | 1,248,744 |
|
4.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 GSEs.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 1,149,922 | | | $ | 31,212 | | | $ | 331 | | | $ | 1,180,803 | |
GSE debentures | 369,967 | | | 414 | | | 41 | | | 370,340 | |
| | | | | | | |
Municipal bonds | 9,716 | | | 91 | | | 0 | | | 9,807 | |
| $ | 1,529,605 | | | $ | 31,717 | | | $ | 372 | | | $ | 1,560,950 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
AFS: | | | | | | | |
GSE debentures | $ | 271,300 |
| | $ | 16 |
| | $ | 587 |
| | $ | 270,729 |
|
MBS | 135,644 |
| | 5,923 |
| | 51 |
| | 141,516 |
|
Trust preferred securities | 2,067 |
| | — |
| | 16 |
| | 2,051 |
|
Municipal bonds | 1,530 |
| | 5 |
| | — |
| | 1,535 |
|
| $ | 410,541 |
| | $ | 5,944 |
| | $ | 654 |
| | $ | 415,831 |
|
HTM: | | | | | | | |
MBS | $ | 800,931 |
| | $ | 10,460 |
| | $ | 5,295 |
| | $ | 806,096 |
|
Municipal bonds | 26,807 |
| | 119 |
| | 13 |
| | 26,913 |
|
| $ | 827,738 |
| | $ | 10,579 |
| | $ | 5,308 |
| | $ | 833,009 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 923,256 | | | $ | 15,571 | | | $ | 2,340 | | | $ | 936,487 | |
GSE debentures | 249,828 | | | 304 | | | 178 | | | 249,954 | |
| | | | | | | |
Municipal bonds | 18,371 | | | 52 | | | 1 | | | 18,422 | |
| $ | 1,191,455 | | | $ | 15,927 | | | $ | 2,519 | | | $ | 1,204,863 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| September 30, 2016 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
AFS: | | | | | | | |
GSE debentures | $ | 346,226 |
| | $ | 815 |
| | $ | 3 |
| | $ | 347,038 |
|
MBS | 169,442 |
| | 9,069 |
| | 4 |
| | 178,507 |
|
Trust preferred securities | 2,123 |
| | — |
| | 367 |
| | 1,756 |
|
| $ | 517,791 |
| | $ | 9,884 |
| | $ | 374 |
| | $ | 527,301 |
|
HTM: | | | | | | | |
MBS | $ | 1,067,571 |
| | $ | 22,862 |
| | $ | 1,219 |
| | $ | 1,089,214 |
|
Municipal bonds | 33,303 |
| | 357 |
| | 7 |
| | 33,653 |
|
| $ | 1,100,874 |
| | $ | 23,219 |
| | $ | 1,226 |
| | $ | 1,122,867 |
|
The following tables summarize the estimated fair value and gross unrealized losses of those AFS 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Less Than 12 Months | | Equal to or Greater Than 12 Months |
| Estimated | | Unrealized | | Estimated | | Unrealized |
| Fair Value | | Losses | | Fair Value | | Losses |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 207,071 | | | $ | 330 | | | $ | 118 | | | $ | 1 | |
GSE debentures | 74,959 | | | 41 | | | 0 | | | 0 | |
| | | | | | | |
Municipal bonds | 0 | | | 0 | | | 0 | | | 0 | |
| $ | 282,030 | | | $ | 371 | | | $ | 118 | | | $ | 1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| 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 | $ | 224,421 |
| | $ | 539 |
| | $ | 24,952 |
| | $ | 48 |
|
MBS | 9,648 |
| | 46 |
| | 673 |
| | 5 |
|
Trust preferred securities | — |
| | — |
| | 2,051 |
| | 16 |
|
| $ | 234,069 |
| | $ | 585 |
| | $ | 27,676 |
| | $ | 69 |
|
| | | | | | | |
| | | | | | | |
HTM: | | | | | | | |
MBS | $ | 259,200 |
| | $ | 1,582 |
| | $ | 201,094 |
| | $ | 3,713 |
|
Municipal bonds | 5,638 |
| | 8 |
| | 1,460 |
| | 5 |
|
| $ | 264,838 |
| | $ | 1,590 |
| | $ | 202,554 |
| | $ | 3,718 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| Less Than 12 Months | | Equal to or Greater Than 12 Months |
| Estimated | | Unrealized | | Estimated | | Unrealized |
| Fair Value | | Losses | | Fair Value | | Losses |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 111,368 | | | $ | 126 | | | $ | 199,442 | | | $ | 2,214 | |
GSE debentures | 0 | | | 0 | | | 74,812 | | | 178 | |
| | | | | | | |
Municipal bonds | 1,755 | | | 1 | | | 0 | | | 0 | |
| $ | 113,123 | | | $ | 127 | | | $ | 274,254 | | | $ | 2,392 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| September 30, 2016 |
| 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 | $ | 24,997 |
| | $ | 3 |
| | $ | — |
| | $ | — |
|
MBS | — |
| | — |
| | 654 |
| | 4 |
|
Trust preferred securities | — |
| | — |
| | 1,756 |
| | 367 |
|
| $ | 24,997 |
| | $ | 3 |
| | $ | 2,410 |
| | $ | 371 |
|
| | | | | | | |
| | | | | | | |
HTM: | | | | | | | |
MBS | $ | 147,930 |
| | $ | 538 |
| | $ | 66,646 |
| | $ | 681 |
|
Municipal bonds | 4,771 |
| | 6 |
| | 391 |
| | 1 |
|
| $ | 152,701 |
| | $ | 544 |
| | $ | 67,037 |
| | $ | 682 |
|
The unrealized losses at September 30, 20172020 and 20162019 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 ratesmarket yields as temporary; therefore,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 no0 other-than-temporary impairments existed at September 30, 20172020 or 2016.2019. See "Note 1. Summary of Significant Accounting Policies - Securities" for additional information regarding our impairment review and classification process for securities.
The amortized cost and estimated fair value of AFS debt securities as of September 30, 2017,2020, by contractual maturity, are shown below. Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without prepayment penalty. For this reason, MBS are not included in the maturity categories.
| | | | | | | | | | | | | | | |
| | | |
| Amortized | | Estimated | | | | |
| Cost | | Fair Value | | | | |
| (Dollars in thousands) | | | | |
One year or less | $ | 3,987 | | | $ | 4,009 | | | | | |
One year through five years | 375,696 | | | 376,138 | | | | | |
| | | | | | | |
| | | | | | | |
| 379,683 | | | 380,147 | | | | | |
MBS | 1,149,922 | | | 1,180,803 | | | | | |
| $ | 1,529,605 | | | $ | 1,560,950 | | | | | |
|
| | | | | | | | | | | | | | | |
| AFS | | HTM |
| Amortized | | Estimated | | Amortized | | Estimated |
| Cost | | Fair Value | | Cost | | Fair Value |
| (Dollars in thousands) |
One year or less | $ | 121,340 |
| | $ | 121,253 |
| | $ | 6,141 |
| | $ | 6,156 |
|
One year through five years | 151,490 |
| | 151,011 |
| | 20,448 |
| | 20,534 |
|
Five years through ten years | — |
| | — |
| | 218 |
| | 223 |
|
Ten years and thereafter | 2,067 |
| | 2,051 |
| | — |
| | — |
|
| 274,897 |
| | 274,315 |
| | 26,807 |
| | 26,913 |
|
MBS | 135,644 |
| | 141,516 |
| | 800,931 |
| | 806,096 |
|
| $ | 410,541 |
| | $ | 415,831 |
| | $ | 827,738 |
| | $ | 833,009 |
|
The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
| | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, |
| 2020 | | 2019 | | 2018 |
| (Dollars in thousands) |
Taxable | $ | 4,242 | | | $ | 6,020 | | | $ | 4,275 | |
Non-taxable | 225 | | | 346 | | | 395 | |
| $ | 4,467 | | | $ | 6,366 | | | $ | 4,670 | |
|
| | | | | | | | | | | |
| For the Year Ended September 30, |
| 2017 |
| | 2016 |
| | 2015 |
|
| (Dollars in thousands) |
Taxable | $ | 3,847 |
| | $ | 5,255 |
| | $ | 6,431 |
|
Non-taxable | 515 |
| | 670 |
| | 751 |
|
| $ | 4,362 |
| | $ | 5,925 |
| | $ | 7,182 |
|
The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (Dollars in thousands) |
Public unit deposits | $ | 330,986 | | | $ | 381,143 | |
FRB of Kansas City | 259,851 | | | 6,636 | |
Repurchase agreements | 0 | | | 108,271 | |
| | | |
| $ | 590,837 | | | $ | 496,050 | |
|
| | | | | | | |
| September 30, |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
Public unit deposits | $ | 499,993 |
| | $ | 419,282 |
|
Repurchase agreements | 214,298 |
| | 217,374 |
|
FRB of Kansas City | 11,769 |
| | 15,938 |
|
| $ | 726,060 |
| | $ | 652,594 |
|
During fiscal year 2018, the Company sold trust preferred securities and received proceeds of $2.1 million. The Company recognized a gain of $9 thousand on the sale. All other dispositions of securities during fiscal years 2017, 2016,2020, 2019, and 20152018 were the result of principal repayments, calls, or maturities.
4.
5. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at September 30, 20172020 and 20162019 is summarized as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| (Dollars in thousands) |
One- to four-family: | | | |
Originated | $ | 3,937,310 | | | $ | 3,873,851 | |
Correspondent purchased | 2,101,082 | | | 2,349,877 | |
Bulk purchased | 208,427 | | | 252,347 | |
Construction | 34,593 | | | 36,758 | |
Total | 6,281,412 | | | 6,512,833 | |
Commercial: | | | |
Commercial real estate | 626,588 | | | 583,617 | |
Commercial and industrial | 97,614 | | | 61,094 | |
Construction | 105,458 | | | 123,159 | |
Total | 829,660 | | | 767,870 | |
| | | |
| | | |
Consumer: | | | |
Home equity | 103,838 | | | 120,587 | |
Other | 10,086 | | | 11,183 | |
Total | 113,924 | | | 131,770 | |
| | | |
Total loans receivable | 7,224,996 | | | 7,412,473 | |
| | | |
Less: | | | |
ACL | 31,527 | | | 9,226 | |
Discounts/unearned loan fees | 29,190 | | | 31,058 | |
Premiums/deferred costs | (38,572) | | | (44,558) | |
| $ | 7,202,851 | | | $ | 7,416,747 | |
|
| | | | | | | |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
Real estate loans: | | | |
One- to four-family: | | | |
Originated | $ | 3,959,232 |
| | $ | 4,005,615 |
|
Correspondent purchased | 2,445,311 |
| | 2,206,072 |
|
Bulk purchased | 351,705 |
| | 416,653 |
|
Construction | 30,647 |
| | 39,430 |
|
Total | 6,786,895 |
| | 6,667,770 |
|
Commercial: | | | |
Permanent | 183,030 |
| | 110,768 |
|
Construction | 86,952 |
| | 43,375 |
|
Total | 269,982 |
| | 154,143 |
|
Total real estate loans | 7,056,877 |
| | 6,821,913 |
|
| | | |
Consumer loans: | | | |
Home equity | 122,066 |
| | 123,345 |
|
Other | 3,808 |
| | 4,264 |
|
Total consumer loans | 125,874 |
| | 127,609 |
|
| | | |
Total loans receivable | 7,182,751 |
| | 6,949,522 |
|
| | | |
Less: | | | |
ACL | 8,398 |
| | 8,540 |
|
Discounts/unearned loan fees | 24,962 |
| | 24,933 |
|
Premiums/deferred costs | (45,680 | ) | | (41,975 | ) |
| $ | 7,195,071 |
| | $ | 6,958,024 |
|
Included in the loan portfolio at September 30, 2020 were $139.6 million of non-PCI loans and $5 thousand of PCI loans associated with the acquisition of CCB during fiscal year 2018. At September 30, 2020, the Company had $2.4 million of net purchase discounts related to non-PCI loans and $5 thousand related to PCI loans.
As of September 30, 20172020 and 2016,2019, the Bank serviced loans for others aggregating approximately $101.2$87.2 million and $120.0$117.3 million, respectively. Such loans are not included in the accompanying consolidated balance sheets. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. Loan servicing income includes servicing fees withheld from investors and certain charges collected from borrowers, such as late payment fees. The Bank held borrowers' escrow balances on loans serviced for others of $2.1$1.7 million and $2.4$2.2 million as of September 30, 20172020 and 2016,2019, respectively.
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.business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial real estate loans. AsThe Bank has a result of ourloan concentration in one- to four-family lending activities, the Bank hasloans and a geographic concentration of these 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. Generally, loans are currently underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau. 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.function.
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.
The Bank also originates owner-occupied 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. The Bank does not originate construction loans to builders for speculative purposes. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. 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.
Commercial real estate loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or are in participation with a lead bank. When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate and commercial construction participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. At the time of origination, LTV ratios on commercial real estate loans generally do not exceed 80%85% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.25.1.15. For commercial construction loans, LTV ratios generally do not exceed 80% of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15, but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property. Appraisals on properties securing these loans are performed by independent state certified fee appraisers.
The Bank's commercial and industrial loans are generally made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income. With the exception of Paycheck Protection Program loans, working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing these loans. As a result of these additional complexities, variables and risks, these loans require more thorough underwriting and servicing than other types of loans.
Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, autovehicle 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; (2) consumer; and (3) commercial real estate. The one- to four-family and consumer loan portfolioscommercial. These segments are further segmenteddivided into classes for purposes of providing disaggregated information about the credit quality of the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, and consumer - other. The one-other, commercial - commercial real estate, and commercial - commercial and industrial. One- to four-family -construction loans are included in either the originated class or correspondent purchased class, was segregated from the one- to four-family originated classand commercial construction loans are included in the current fiscal year due to the size of the portfolio along with the loan product composition, geographic locations and inherent credit risks within the portfolio. The prior period information presented within this note has been conformed to the new loan class presentation.commercial real estate class.
The Bank's primary credit quality indicators for the one- to four-family 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 commercial real estate 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, less charge-offs and inclusive of unearned loan fees and deferred costs. At September 30, 20172020 and 2016,2019, all loans 90 or more days delinquent were on nonaccrual status.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| | | 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: | | | | | | | | | |
Originated | $ | 3,001 | | | $ | 4,347 | | | $ | 7,348 | | | $ | 3,950,387 | | | $ | 3,957,735 | |
Correspondent purchased | 3,170 | | | 2,433 | | | 5,603 | | | 2,122,085 | | | 2,127,688 | |
Bulk purchased | 2,558 | | | 2,938 | | | 5,496 | | | 203,844 | | | 209,340 | |
Commercial: | | | | | | | | | |
Commercial real estate | 40 | | | 1,206 | | | 1,246 | | | 728,191 | | | 729,437 | |
Commercial and industrial | 5 | | | 157 | | | 162 | | | 96,124 | | | 96,286 | |
Consumer: | | | | | | | | | |
Home equity | 323 | | | 296 | | | 619 | | | 103,210 | | | 103,829 | |
Other | 75 | | | 8 | | | 83 | | | 9,980 | | | 10,063 | |
| $ | 9,172 | | | $ | 11,385 | | | $ | 20,557 | | | $ | 7,213,821 | | | $ | 7,234,378 | |
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| | | 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 - originated | $ | 13,216 |
| | $ | 5,500 |
| | $ | 18,716 |
| | $ | 3,956,598 |
| | $ | 3,975,314 |
|
One- to four-family - correspondent | 1,855 |
| | 92 |
| | 1,947 |
| | 2,477,916 |
| | 2,479,863 |
|
One- to four-family - bulk purchased | 3,233 |
| | 3,399 |
| | 6,632 |
| | 346,807 |
| | 353,439 |
|
Commercial real estate | — |
| | — |
| | — |
| | 268,979 |
| | 268,979 |
|
Consumer - home equity | 467 |
| | 406 |
| | 873 |
| | 121,193 |
| | 122,066 |
|
Consumer - other | 33 |
| | 4 |
| | 37 |
| | 3,771 |
| | 3,808 |
|
| $ | 18,804 |
| | $ | 9,401 |
| | $ | 28,205 |
| | $ | 7,175,264 |
| | $ | 7,203,469 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | 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: | | | | | | | | | |
Originated | $ | 7,187 | | | $ | 3,261 | | | $ | 10,448 | | | $ | 3,885,335 | | | $ | 3,895,783 | |
Correspondent purchased | 2,762 | | | 1,023 | | | 3,785 | | | 2,377,629 | | | 2,381,414 | |
Bulk purchased | 3,624 | | | 1,484 | | | 5,108 | | | 248,376 | | | 253,484 | |
Commercial: | | | | | | | | | |
Commercial real estate | 762 | | | 0 | | | 762 | | | 702,377 | | | 703,139 | |
Commercial and industrial | 70 | | | 173 | | | 243 | | | 60,340 | | | 60,583 | |
Consumer: | | | | | | | | | |
Home equity | 446 | | | 302 | | | 748 | | | 119,688 | | | 120,436 | |
Other | 78 | | | 21 | | | 99 | | | 11,035 | | | 11,134 | |
| $ | 14,929 | | | $ | 6,264 | | | $ | 21,193 | | | $ | 7,404,780 | | | $ | 7,425,973 | |
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2016 |
| | | 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 - originated | $ | 13,545 |
| | $ | 8,153 |
| | $ | 21,698 |
| | $ | 4,007,012 |
| | $ | 4,028,710 |
|
One- to four-family - correspondent | 3,389 |
| | 992 |
| | 4,381 |
| | 2,233,941 |
| | 2,238,322 |
|
One- to four-family - bulk purchased | 5,082 |
| | 7,380 |
| | 12,462 |
| | 406,379 |
| | 418,841 |
|
Commercial real estate | — |
| | — |
| | — |
| | 153,082 |
| | 153,082 |
|
Consumer - home equity | 635 |
| | 520 |
| | 1,155 |
| | 122,190 |
| | 123,345 |
|
Consumer - other | 62 |
| | 9 |
| | 71 |
| | 4,193 |
| | 4,264 |
|
| $ | 22,713 |
| | $ | 17,054 |
| | $ | 39,767 |
| | $ | 6,926,797 |
| | $ | 6,966,564 |
|
The recorded investment ofin mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of both September 30, 20172020 and 20162019 was $4.3$1.5 million, and $5.7 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $1.4 million$183 thousand at September 30, 20172020 and $2.5 million$745 thousand at September 30, 2016.2019.
The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented. The decrease in nonaccrual loans at September 30, 2017 compared to the prior year was due mainly to a decrease in loans 90 or more days delinquent, along with a decrease in loans reported as nonaccrual pursuant to regulatory reporting requirements.
| | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| (Dollars in thousands) |
One- to four-family: | | | |
Originated | $ | 5,037 | | | $ | 4,436 | |
Correspondent purchased | 2,433 | | | 1,023 | |
Bulk purchased | 2,938 | | | 1,551 | |
Commercial: | | | |
Commercial real estate | 1,663 | | | 0 | |
Commercial and industrial | 157 | | | 173 | |
Consumer: | | | |
Home equity | 305 | | | 337 | |
Other | 8 | | | 21 | |
| $ | 12,541 | | | $ | 7,541 | |
|
| | | | | | | |
| September 30, |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
One- to four-family - originated | $ | 10,054 |
| | $ | 17,086 |
|
One- to four-family - correspondent | 1,804 |
| | 3,788 |
|
One- to four-family - bulk purchased | 4,264 |
| | 7,411 |
|
Commercial real estate | — |
| | — |
|
Consumer - home equity | 519 |
| | 848 |
|
Consumer - other | 4 |
| | 10 |
|
| $ | 16,645 |
| | $ | 29,143 |
|
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 ACL 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 no0 loans classified as doubtful, and all loans classified as loss were fully charged-off.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| Special Mention | | Substandard | | Special Mention | | Substandard |
| (Dollars in thousands) |
One- to four-family: | | | | | | | |
Originated | $ | 9,249 | | | $ | 15,729 | | | $ | 12,941 | | | $ | 15,628 | |
Correspondent purchased | 2,076 | | | 4,512 | | | 2,349 | | | 2,785 | |
Bulk purchased | 0 | | | 5,319 | | | 102 | | | 5,294 | |
Commercial: | | | | | | | |
Commercial real estate | 50,957 | | | 3,541 | | | 52,891 | | | 2,472 | |
Commercial and industrial | 1,040 | | | 1,368 | | | 1,215 | | | 3,057 | |
Consumer: | | | | | | | |
Home equity | 331 | | | 581 | | | 280 | | | 696 | |
Other | 0 | | | 8 | | | 2 | | | 24 | |
| $ | 63,653 | | | $ | 31,058 | | | $ | 69,780 | | | $ | 29,956 | |
|
| | | | | | | | | | | | | | | |
| September 30, |
| 2017 | | 2016 |
| Special Mention | | Substandard | | Special Mention | | Substandard |
| (Dollars in thousands) |
One- to four-family - originated | $ | 7,031 |
| | $ | 30,059 |
| | $ | 10,242 |
| | $ | 27,818 |
|
One- to four-family - correspondent | 261 |
| | 3,800 |
| | 2,496 |
| | 5,168 |
|
One- to four-family - bulk purchased | — |
| | 8,005 |
| | 1,156 |
| | 11,480 |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | 9 |
| | 1,032 |
| | 54 |
| | 1,431 |
|
Consumer - other | — |
| | 4 |
| | 8 |
| | 16 |
|
| $ | 7,301 |
| | $ | 42,900 |
| | $ | 13,956 |
| | $ | 45,913 |
|
The following table shows the weighted average credit score and weighted average LTV for one- to four-family loans and 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,annually, with the last update in September 2017,2020, 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 consumer - home equity LTV does not take into account the first lien position, if applicable. 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, |
| 2020 | | 2019 |
| Credit Score | | LTV | | Credit Score | | LTV |
One- to four-family - originated | 771 | | 62 | % | | 768 | | 62 | % |
One- to four-family - correspondent | 765 | | 64 | | | 765 | | 65 | |
One- to four-family - bulk purchased | 767 | | 60 | | | 762 | | 61 | |
Consumer - home equity | 756 | | 19 | | | 754 | | 19 | |
| 769 | | 62 | | | 766 | | 62 | |
|
| | | | | | | | | |
| September 30, |
| 2017 | | 2016 |
| Credit Score | | LTV | | Credit Score | | LTV |
One- to four-family - originated | 767 | | 63 | % | | 766 | | 63 | % |
One- to four-family - correspondent | 764 | | 68 |
| | 764 | | 68 |
|
One- to four-family - bulk purchased | 757 | | 63 |
| | 753 | | 64 |
|
Consumer - home equity | 755 | | 19 |
| | 755 | | 20 |
|
| 765 | | 64 |
| | 764 | | 64 |
|
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. During the fourth quarter of fiscal year 2017, management refined its methodology for assessing whether a loan modification qualifies as a TDR which, though not being material, resulted in fewer loans being classified as TDRs.
| | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2020 |
| Number | | Pre- | | Post- |
| of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family: | | | | | |
Originated | 5 | | | $ | 241 | | | $ | 242 | |
Correspondent purchased | 1 | | | 192 | | | 191 | |
Bulk purchased | 1 | | | 75 | | | 134 | |
Commercial: | | | | | |
Commercial real estate | 1 | | | 837 | | | 837 | |
Commercial and industrial | 1 | | | 1,683 | | | 1,709 | |
Consumer: | | | | | |
Home equity | 2 | | | 45 | | | 44 | |
Other | 0 | | | 0 | | | 0 | |
| 11 | | | $ | 3,073 | | | $ | 3,157 | |
|
| | | | | | | | | | |
| For the Year Ended September 30, 2017 |
| Number | | Pre- | | Post- |
| of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family - originated | 112 |
| | $ | 11,940 |
| | $ | 12,402 |
|
One- to four-family - correspondent | 12 |
| | 2,443 |
| | 2,459 |
|
One- to four-family - bulk purchased | 3 |
| | 1,031 |
| | 1,048 |
|
Commercial real estate | — |
| | — |
| | — |
|
Consumer - home equity | 17 |
| | 368 |
| | 380 |
|
Consumer - other | — |
| | — |
| | — |
|
| 144 |
| | $ | 15,782 |
| | $ | 16,289 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2019 |
| Number | | Pre- | | Post- |
| of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family: | | | | | |
Originated | 3 | | | $ | 385 | | | $ | 386 | |
Correspondent purchased | 0 | | | 0 | | | 0 | |
Bulk purchased | 2 | | | 377 | | | 377 | |
Commercial: | | | | | |
Commercial real estate | 0 | | | 0 | | | 0 | |
Commercial and industrial | 0 | | | 0 | | | 0 | |
Consumer: | | | | | |
Home equity | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | |
| 5 | | | $ | 762 | | | $ | 763 | |
|
| | | | | | | | | | |
| For the Year Ended September 30, 2016 |
| Number | | Pre- | | Post- |
| of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family - originated | 122 |
| | $ | 17,201 |
| | $ | 17,557 |
|
One- to four-family - correspondent | 12 |
| | 2,592 |
| | 2,619 |
|
One- to four-family - bulk purchased | 3 |
| | 596 |
| | 594 |
|
Commercial real estate | — |
| | — |
| | — |
|
Consumer - home equity | 19 |
| | 427 |
| | 433 |
|
Consumer - other | 1 |
| | 8 |
| | 8 |
|
| 157 |
| | $ | 20,824 |
| | $ | 21,211 |
|
|
| | | | | | | | | | |
| For the Year Ended September 30, 2015 |
| Number | | Pre- | | Post- |
| of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family - originated | 141 |
| | $ | 17,265 |
| | $ | 17,468 |
|
One- to four-family - correspondent | 2 |
| | 546 |
| | 542 |
|
One- to four-family - bulk purchased | 4 |
| | 1,140 |
| | 1,144 |
|
Commercial real estate | — |
| | — |
| | — |
|
Consumer - home equity | 22 |
| | 479 |
| | 485 |
|
Consumer - other | 3 |
| | 12 |
| | 12 |
|
| 172 |
| | $ | 19,442 |
| | $ | 19,651 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2018 |
| Number | | Pre- | | Post- |
| of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family: | | | | | |
Originated | 5 | | | $ | 264 | | | $ | 281 | |
Correspondent purchased | 2 | | | 406 | | | 406 | |
Bulk purchased | 0 | | | 0 | | | 0 | |
Commercial: | | | | | |
Commercial real estate | 0 | | | 0 | | | 0 | |
Commercial and industrial | 0 | | | 0 | | | 0 | |
Consumer: | | | | | |
Home equity | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | |
| 7 | | | $ | 670 | | | $ | 687 | |
The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2018 |
| Number of | | Recorded | | Number of | | Recorded | | Number of | | Recorded |
| Contracts | | Investment | | Contracts | | Investment | | Contracts | | Investment |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | 1 | | | $ | 38 | | | 1 | | | $ | 45 | | | 22 | | | $ | 1,416 | |
Correspondent purchased | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 124 | |
Bulk purchased | 1 | | | 134 | | | 0 | | | 0 | | | 3 | | | 1,040 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | — | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial and industrial | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consumer: | | | | | | | | | | | |
Home equity | 1 | | | 9 | | | 0 | | | 0 | | | 4 | | | 133 | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| 3 | | | $ | 181 | | | 1 | | | $ | 45 | | | 30 | | | $ | 2,713 | |
|
| | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| September 30, 2017 | | September 30, 2016 | | September 30, 2015 |
| Number of | | Recorded | | Number of | | Recorded | | Number of | | Recorded |
| Contracts | | Investment | | Contracts | | Investment | | Contracts | | Investment |
| (Dollars in thousands) |
One- to four-family - originated | 46 |
| | $ | 4,561 |
| | 48 |
| | $ | 5,330 |
| | 49 |
| | $ | 5,311 |
|
One- to four-family - correspondent | 2 |
| | 148 |
| | 3 |
| | 548 |
| | 3 |
| | 432 |
|
One- to four-family - bulk purchased | 2 |
| | 698 |
| | — |
| | — |
| | 4 |
| | 890 |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | 16 |
| | 440 |
| | 6 |
| | 174 |
| | 4 |
| | 33 |
|
Consumer - other | — |
| | — |
| | — |
| | — |
| | 1 |
| | 5 |
|
| 66 |
| | $ | 5,847 |
| | 57 |
| | $ | 6,052 |
| | 61 |
| | $ | 6,671 |
|
Impaired loans - The following information pertains to impaired loans, by class, as of the dates presented. During the fourth quarter of fiscal year 2017, management refined its methodology for classifying loans as impaired.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | September 30, 2019 |
| | | Unpaid | | | | | | Unpaid | | |
| Recorded | | Principal | | Related | | Recorded | | Principal | | Related |
| Investment | | Balance | | ACL | | Investment | | Balance | | ACL |
| (Dollars in thousands) |
With no related allowance recorded | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | $ | 12,385 | | | $ | 12,813 | | | $ | — | | | $ | 14,683 | | | $ | 15,241 | | | $ | — | |
Correspondent purchased | 1,955 | | | 2,058 | | | — | | | 1,763 | | | 1,868 | | | — | |
Bulk purchased | 3,843 | | | 4,302 | | | — | | | 4,943 | | | 5,661 | | | — | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 1,052 | | | 1,379 | | | — | | | 0 | | | 0 | | | — | |
Commercial and industrial | 99 | | | 244 | | | — | | | 60 | | | 184 | | | — | |
Consumer: | | | | | | | | | | | |
Home equity | 280 | | | 360 | | | — | | | 345 | | | 462 | | | — | |
Other | 0 | | | 45 | | | — | | | 0 | | | 29 | | | — | |
| 19,614 | | | 21,201 | | | — | | | 21,794 | | | 23,445 | | | — | |
With an allowance recorded | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Correspondent purchased | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Bulk purchased | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 660 | | | 660 | | | 83 | | | 0 | | | 0 | | | 0 | |
Commercial and industrial | 1,269 | | | 1,268 | | | 240 | | | 0 | | | 0 | | | 0 | |
Consumer: | | | | | | | | | | | |
Home equity | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| 1,929 | | | 1,928 | | | 323 | | | 0 | | | 0 | | | 0 | |
Total | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | $ | 12,385 | | | $ | 12,813 | | | 0 | | | $ | 14,683 | | | $ | 15,241 | | | 0 | |
Correspondent purchased | 1,955 | | | 2,058 | | | 0 | | | 1,763 | | | 1,868 | | | 0 | |
Bulk purchased | 3,843 | | | 4,302 | | | 0 | | | 4,943 | | | 5,661 | | | 0 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 1,712 | | | 2,039 | | | 83 | | | 0 | | | 0 | | | 0 | |
Commercial and industrial | 1,368 | | | 1,512 | | | 240 | | | 60 | | | 184 | | | 0 | |
Consumer: | | | | | | | | | | | |
Home equity | 280 | | | 360 | | | 0 | | | 345 | | | 462 | | | 0 | |
Other | 0 | | | 45 | | | 0 | | | 0 | | | 29 | | | 0 | |
| $ | 21,543 | | | $ | 23,129 | | | $ | 323 | | | $ | 21,794 | | | $ | 23,445 | | | $ | 0 | |
The change resulting from this refinement was immaterial. Impaired loans include loans partially charged-off and TDRs. Allfollowing information pertains to impaired loans, are individually evaluatedby class, for loss and all losses are charged-off, resulting in no related ACL for these loans.the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2018 |
| Average | | Interest | | Average | | Interest | | Average | | Interest |
| Recorded | | Income | | Recorded | | Income | | Recorded | | Income |
| Investment | | Recognized | | Investment | | Recognized | | Investment | | Recognized |
| (Dollars in thousands) |
With no related allowance recorded | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | $ | 13,918 | | | $ | 606 | | | $ | 16,030 | | | $ | 671 | | | $ | 23,847 | | | $ | 990 | |
Correspondent purchased | 1,878 | | | 73 | | | 2,071 | | | 82 | | | 3,204 | | | 112 | |
Bulk purchased | 4,720 | | | 179 | | | 5,257 | | | 180 | | | 6,438 | | | 191 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 725 | | | 15 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial and industrial | 41 | | | 0 | | | 5 | | | 0 | | | 0 | | | 0 | |
Consumer: | | | | | | | | | | | |
Home equity | 318 | | | 20 | | | 417 | | | 28 | | | 588 | | | 39 | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| 21,600 | | | 893 | | | 23,780 | | | 961 | | | 34,077 | | | 1,332 | |
With an allowance recorded | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Correspondent purchased | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Bulk purchased | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 51 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial and industrial | 1,413 | | | 91 | | | 0 | | | 0 | | | 0 | | | 0 | |
Consumer: | | | | | | | | | | | |
Home equity | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| 1,464 | | | 91 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | 13,918 | | | 606 | | | 16,030 | | | 671 | | | 23,847 | | | 990 | |
Correspondent purchased | 1,878 | | | 73 | | | 2,071 | | | 82 | | | 3,204 | | | 112 | |
Bulk purchased | 4,720 | | | 179 | | | 5,257 | | | 180 | | | 6,438 | | | 191 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 776 | | | 15 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial and industrial | 1,454 | | | 91 | | | 5 | | | 0 | | | 0 | | | 0 | |
Consumer: | | | | | | | | | | | |
Home equity | 318 | | | 20 | | | 417 | | | 28 | | | 588 | | | 39 | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| $ | 23,064 | | | $ | 984 | | | $ | 23,780 | | | $ | 961 | | | $ | 34,077 | | | $ | 1,332 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | September 30, 2016 |
| | | Unpaid | | | | | | Unpaid | | |
| Recorded | | Principal | | Related | | Recorded | | Principal | | Related |
| Investment | | Balance | | ACL | | Investment | | Balance | | ACL |
| (Dollars in thousands) |
With no related allowance recorded | | | | | | | | | | | |
One- to four-family - originated | $ | 30,251 |
| | $ | 30,953 |
| | $ | — |
| | $ | 22,982 |
| | $ | 23,640 |
| | $ | — |
|
One- to four-family - correspondent | 3,800 |
| | 3,771 |
| | — |
| | 2,963 |
| | 2,950 |
| | — |
|
One- to four-family - bulk purchased | 7,403 |
| | 8,606 |
| | — |
| | 10,985 |
| | 12,684 |
| | — |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | 775 |
| | 997 |
| | — |
| | 1,014 |
| | 1,230 |
| | — |
|
Consumer - other | — |
| | 24 |
| | — |
| | 10 |
| | 42 |
| | — |
|
| 42,229 |
| | 44,351 |
| | — |
| | 37,954 |
| | 40,546 |
| | — |
|
With an allowance recorded | | | | | | | | | | | |
One- to four-family - originated | — |
| | — |
| | — |
| | 13,430 |
| | 13,476 |
| | 125 |
|
One- to four-family - correspondent | — |
| | — |
| | — |
| | 2,662 |
| | 2,664 |
| | 4 |
|
One- to four-family - bulk purchased | — |
| | — |
| | — |
| | 1,650 |
| | 1,627 |
| | 49 |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | — |
| | — |
| | — |
| | 548 |
| | 548 |
| | 38 |
|
Consumer - other | — |
| | — |
| | — |
| | 6 |
| | 6 |
| | 1 |
|
| — |
| | — |
| | — |
| | 18,296 |
| | 18,321 |
| | 217 |
|
Total | | | | | | | | | | | |
One- to four-family - originated | 30,251 |
| | 30,953 |
| | — |
| | 36,412 |
| | 37,116 |
| | 125 |
|
One- to four-family - correspondent | 3,800 |
| | 3,771 |
| | — |
| | 5,625 |
| | 5,614 |
| | 4 |
|
One- to four-family - bulk purchased | 7,403 |
| | 8,606 |
| | — |
| | 12,635 |
| | 14,311 |
| | 49 |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | 775 |
| | 997 |
| | — |
| | 1,562 |
| | 1,778 |
| | 38 |
|
Consumer - other | — |
| | 24 |
| | — |
| | 16 |
| | 48 |
| | 1 |
|
| $ | 42,229 |
| | $ | 44,351 |
| | $ | — |
| | $ | 56,250 |
| | $ | 58,867 |
| | $ | 217 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| September 30, 2017 | | September 30, 2016 | | September 30, 2015 |
| Average | | Interest | | Average | | Interest | | Average | | Interest |
| Recorded | | Income | | Recorded | | Income | | Recorded | | Income |
| Investment | | Recognized | | Investment | | Recognized | | Investment | | Recognized |
| (Dollars in thousands) |
With no related allowance recorded | | | | | | | | | | | |
One- to four-family - originated | $ | 24,122 |
| | $ | 917 |
| | $ | 12,063 |
| | $ | 470 |
| | $ | 11,744 |
| | $ | 451 |
|
One- to four-family - correspondent | 3,346 |
| | 118 |
| | 495 |
| | 18 |
| | 471 |
| | 10 |
|
One- to four-family - bulk purchased | 9,852 |
| | 194 |
| | 11,022 |
| | 196 |
| | 11,153 |
| | 196 |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | 988 |
| | 86 |
| | 628 |
| | 93 |
| | 485 |
| | 29 |
|
Consumer - other | 7 |
| | — |
| | 13 |
| | 1 |
| | 12 |
| | — |
|
| 38,315 |
| | 1,315 |
| | 24,221 |
| | 778 |
| | 23,865 |
| | 686 |
|
With an allowance recorded | | | | | | | | | | | |
One- to four-family - originated | 11,469 |
| | 434 |
| | 24,199 |
| | 983 |
| | 25,465 |
| | 1,026 |
|
One- to four-family - correspondent | 2,018 |
| | 65 |
| | 2,669 |
| | 50 |
| | 1,759 |
| | 53 |
|
One- to four-family - bulk purchased | 1,160 |
| | 20 |
| | 2,219 |
| | 27 |
| | 2,960 |
| | 40 |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | 457 |
| | 36 |
| | 895 |
| | 64 |
| | 795 |
| | 34 |
|
Consumer - other | 10 |
| | 1 |
| | 13 |
| | 1 |
| | 15 |
| | 2 |
|
| 15,114 |
| | 556 |
| | 29,995 |
| | 1,125 |
| | 30,994 |
| | 1,155 |
|
Total | | | | | | | | | | | |
One- to four-family - originated | 35,591 |
| | 1,351 |
| | 36,262 |
| | 1,453 |
| | 37,209 |
| | 1,477 |
|
One- to four-family - correspondent | 5,364 |
| | 183 |
| | 3,164 |
| | 68 |
| | 2,230 |
| | 63 |
|
One- to four-family - bulk purchased | 11,012 |
| | 214 |
| | 13,241 |
| | 223 |
| | 14,113 |
| | 236 |
|
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer - home equity | 1,445 |
| | 122 |
| | 1,523 |
| | 157 |
| | 1,280 |
| | 63 |
|
Consumer - other | 17 |
| | 1 |
| | 26 |
| | 2 |
| | 27 |
| | 2 |
|
| $ | 53,429 |
| | $ | 1,871 |
| | $ | 54,216 |
| | $ | 1,903 |
| | $ | 54,859 |
| | $ | 1,841 |
|
Allowance for Credit Losses - The Bank maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics. Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model. The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. As noted in Note 1. Summary of Significant Accounting Policies, Allowance for Credit Losses, management increased the historical loss factors and qualitative factors for all loan categories at September 30, 2020 and applied a COVID-19 qualitative factor to the Bank's commercial loan portfolio, due to deterioration of economic conditions as a result of the COVD-19 pandemic. The increase in the factors and the new COVID-19 pandemic qualitative factor resulted in an increase in the ACL during the current fiscal year. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.
The following is a summary of ACL activity, by loan portfolio segment, for the periods presented, and the ending balance of ACL based on the Company's impairment methodology.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2020 |
| One- to Four-Family | | | | | | |
| | | Correspondent | | Bulk | | | | | | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 2,000 | | | $ | 1,203 | | | $ | 687 | | | $ | 3,890 | | | $ | 5,171 | | | $ | 165 | | | $ | 9,226 | |
Charge-offs | (64) | | | 0 | | | 0 | | | (64) | | | (349) | | | (30) | | | (443) | |
Recoveries | 41 | | | 0 | | | 265 | | | 306 | | | 110 | | | 28 | | | 444 | |
Provision for credit losses | 4,108 | | | 1,488 | | | (485) | | | 5,111 | | | 16,868 | | | 321 | | | 22,300 | |
Ending balance | $ | 6,085 | | | $ | 2,691 | | | $ | 467 | | | $ | 9,243 | | | $ | 21,800 | | | $ | 484 | | | $ | 31,527 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2019 |
| One- to Four-Family | | | | | | |
| | | Correspondent | | Bulk | | | | | | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 2,953 | | | $ | 1,861 | | | $ | 925 | | | $ | 5,739 | | | $ | 2,556 | | | $ | 168 | | | $ | 8,463 | |
Charge-offs | (75) | | | 0 | | | (26) | | | (101) | | | (124) | | | (37) | | | (262) | |
Recoveries | 22 | | | 0 | | | 106 | | | 128 | | | 49 | | | 98 | | | 275 | |
Provision for credit losses | (900) | | | (658) | | | (318) | | | (1,876) | | | 2,690 | | | (64) | | | 750 | |
Ending balance | $ | 2,000 | | | $ | 1,203 | | | $ | 687 | | | $ | 3,890 | | | $ | 5,171 | | | $ | 165 | | | $ | 9,226 | |
| | | For the Year Ended September 30, 2017 | | For the Year Ended September 30, 2018 |
| One- to Four-Family | | | | | | | | One- to Four-Family | |
| | | Correspondent | | Bulk | | | | Commercial | | | | | | | Correspondent | | Bulk | | |
| Originated | | Purchased | | Purchased | | Total | | Real Estate | | Consumer | | Total | | Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) | | (Dollars in thousands) |
Beginning balance | $ | 3,928 |
| | $ | 2,102 |
| | $ | 1,065 |
| | $ | 7,095 |
| | $ | 1,208 |
| | $ | 237 |
| | $ | 8,540 |
| Beginning balance | $ | 3,173 | | | $ | 1,922 | | | $ | 1,000 | | | $ | 6,095 | | | $ | 2,112 | | | $ | 191 | | | $ | 8,398 | |
Charge-offs | (72 | ) | | — |
| | (216 | ) | | (288 | ) | | — |
| | (60 | ) | | (348 | ) | Charge-offs | (136) | | | (128) | | | 0 | | | (264) | | | 0 | | | (38) | | | (302) | |
Recoveries | 4 |
| | — |
| | 165 |
| | 169 |
| | — |
| | 37 |
| | 206 |
| Recoveries | 144 | | | 0 | | | 196 | | | 340 | | | 0 | | | 27 | | | 367 | |
Provision for credit losses | (687 | ) | | (180 | ) | | (14 | ) | | (881 | ) | | 904 |
| | (23 | ) | | — |
| Provision for credit losses | (228) | | | 67 | | | (271) | | | (432) | | | 444 | | | (12) | | | 0 | |
Ending balance | $ | 3,173 |
| | $ | 1,922 |
| | $ | 1,000 |
| | $ | 6,095 |
| | $ | 2,112 |
| | $ | 191 |
| | $ | 8,398 |
| Ending balance | $ | 2,953 | | | $ | 1,861 | | | $ | 925 | | | $ | 5,739 | | | $ | 2,556 | | | $ | 168 | | | $ | 8,463 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2016 |
| One- to Four-Family | | | | | | |
|
| | Correspondent | | Bulk | |
| | Commercial | | | | |
| Originated | | Purchased | | Purchased | | Total | | Real Estate | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 4,865 |
| | $ | 2,115 |
| | $ | 1,434 |
| | $ | 8,414 |
| | $ | 742 |
| | $ | 287 |
| | $ | 9,443 |
|
Charge-offs | (200 | ) | | — |
| | (342 | ) | | (542 | ) | | — |
| | (88 | ) | | (630 | ) |
Recoveries | 77 |
| | — |
| | 374 |
| | 451 |
| | — |
| | 26 |
| | 477 |
|
Provision for credit losses | (814 | ) | | (13 | ) | | (401 | ) | | (1,228 | ) | | 466 |
| | 12 |
| | (750 | ) |
Ending balance | $ | 3,928 |
| | $ | 2,102 |
| | $ | 1,065 |
| | $ | 7,095 |
| | $ | 1,208 |
| | $ | 237 |
| | $ | 8,540 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2015 |
| One- to Four-Family | | | | | | |
|
| | Correspondent | | Bulk | |
| | Commercial | | | | |
| Originated | | Purchased | | Purchased | | Total | | Real Estate | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 4,460 |
| | $ | 1,803 |
| | $ | 2,323 |
| | $ | 8,586 |
| | $ | 400 |
| | $ | 241 |
| | $ | 9,227 |
|
Charge-offs | (424 | ) | | (11 | ) | | (228 | ) | | (663 | ) | | — |
| | (72 | ) | | (735 | ) |
Recoveries | 56 |
| | — |
| | 58 |
| | 114 |
| | — |
| | 66 |
| | 180 |
|
Provision for credit losses | 773 |
| | 323 |
| | (719 | ) | | 377 |
| | 342 |
| | 52 |
| | 771 |
|
Ending balance | $ | 4,865 |
| | $ | 2,115 |
| | $ | 1,434 |
| | $ | 8,414 |
| | $ | 742 |
| | $ | 287 |
| | $ | 9,443 |
|
The following is a summary of the loan portfolio and related ACL balances, at the dates presented, by loan portfolio segment disaggregated by the Company's impairment method. There was no ACL for loans individually evaluated for impairment at either date as all losses were charged-off.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| One- to Four-Family | | | | | | |
| | | Correspondent | | Bulk | | | | | | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Recorded investment in loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 3,945,350 | | | $ | 2,125,733 | | | $ | 205,497 | | | $ | 6,276,580 | | | $ | 822,643 | | | $ | 113,612 | | | $ | 7,212,835 | |
Individually evaluated for impairment | 12,385 | | | 1,955 | | | 3,843 | | | 18,183 | | | 3,080 | | | 280 | | | 21,543 | |
| $ | 3,957,735 | | | $ | 2,127,688 | | | $ | 209,340 | | | $ | 6,294,763 | | | $ | 825,723 | | | $ | 113,892 | | | $ | 7,234,378 | |
| | | | | | | | | | | | | |
ACL for loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 6,085 | | | $ | 2,691 | | | $ | 467 | | | $ | 9,243 | | | $ | 21,477 | | | $ | 484 | | | $ | 31,204 | |
Individually evaluated for impairment | 0 | | | 0 | | | 0 | | | 0 | | | 323 | | | 0 | | | 323 | |
| $ | 6,085 | | | $ | 2,691 | | | $ | 467 | | | $ | 9,243 | | | $ | 21,800 | | | $ | 484 | | | $ | 31,527 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| One- to Four-Family | | | | | | |
|
| | Correspondent | | Bulk | |
| | Commercial | | | | |
| Originated | | Purchased | | Purchased | | Total | | Real Estate | | Consumer | | Total |
| (Dollars in thousands) |
Recorded investment in loans | | | | | | | | | | | | | |
collectively evaluated for impairment | $ | 3,945,063 |
| | $ | 2,476,063 |
| | $ | 346,035 |
| | $ | 6,767,161 |
| | $ | 268,979 |
| | $ | 125,100 |
| | $ | 7,161,240 |
|
| | |
| | | | | | | | | | |
Recorded investment in loans | | |
| | | | | | | | | | |
individually evaluated for impairment | 30,251 |
| | 3,800 |
| | 7,404 |
| | 41,455 |
| | — |
| | 774 |
| | 42,229 |
|
| $ | 3,975,314 |
| | $ | 2,479,863 |
| | $ | 353,439 |
| | $ | 6,808,616 |
| | $ | 268,979 |
| | $ | 125,874 |
| | $ | 7,203,469 |
|
| | | | | | | | | | | | | |
ACL for loans collectively | | | | | | | | | | | | | |
evaluated for impairment | $ | 3,173 |
| | $ | 1,922 |
| | $ | 1,000 |
| | $ | 6,095 |
| | $ | 2,112 |
| | $ | 191 |
| | $ | 8,398 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| One- to Four-Family | | | | | | |
| | | Correspondent | | Bulk | | | | | | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Recorded investment in loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 3,881,100 | | | $ | 2,379,651 | | | $ | 248,541 | | | $ | 6,509,292 | | | $ | 763,662 | | | $ | 131,225 | | | $ | 7,404,179 | |
Individually evaluated for impairment | 14,683 | | | 1,763 | | | 4,943 | | | 21,389 | | | 60 | | | 345 | | | 21,794 | |
| $ | 3,895,783 | | | $ | 2,381,414 | | | $ | 253,484 | | | $ | 6,530,681 | | | $ | 763,722 | | | $ | 131,570 | | | $ | 7,425,973 | |
| | | | | | | | | | | | | |
ACL for loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 2,000 | | | $ | 1,203 | | | $ | 687 | | | $ | 3,890 | | | $ | 5,171 | | | $ | 165 | | | $ | 9,226 | |
Individually evaluated for impairment | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| $ | 2,000 | | | $ | 1,203 | | | $ | 687 | | | $ | 3,890 | | | $ | 5,171 | | | $ | 165 | | | $ | 9,226 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 |
| One- to Four-Family | | | | | | |
|
| | Correspondent | | Bulk | |
| | Commercial | | | | |
| Originated | | Purchased | | Purchased | | Total | | Real Estate | | Consumer | | Total |
| (Dollars in thousands) |
Recorded investment in loans | | | | | | | | | | | | | |
collectively evaluated for impairment | $ | 4,003,750 |
| | $ | 2,233,347 |
| | $ | 407,833 |
| | $ | 6,644,930 |
| | $ | 153,082 |
| | $ | 126,504 |
| | $ | 6,924,516 |
|
| | | | | | | | | | | | | |
Recorded investment in loans | | |
| | | | | | | | | | |
individually evaluated for impairment | 24,960 |
| | 4,975 |
| | 11,008 |
| | 40,943 |
| | — |
| | 1,105 |
| | 42,048 |
|
| $ | 4,028,710 |
| | $ | 2,238,322 |
| | $ | 418,841 |
| | $ | 6,685,873 |
| | $ | 153,082 |
| | $ | 127,609 |
| | $ | 6,966,564 |
|
| | | | | | | | | | | | | |
ACL for loans collectively | | | | | | | | | | | | | |
evaluated for impairment | $ | 3,928 |
| | $ | 2,102 |
| | $ | 1,065 |
| | $ | 7,095 |
| | $ | 1,208 |
| | $ | 237 |
| | $ | 8,540 |
|
5.6.PREMISES AND EQUIPMENT
A summary of the net carrying value of premises and equipment at September 30, 20172020 and 20162019 was as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| (Dollars in thousands) |
Land | $ | 16,566 | | | $ | 14,313 | |
Building and improvements | 116,595 | | | 110,262 | |
Furniture, fixtures and equipment | 57,504 | | | 52,270 | |
| 190,665 | | | 176,845 | |
Less accumulated depreciation | 88,790 | | | 80,061 | |
| $ | 101,875 | | | $ | 96,784 | |
|
| | | | | | | |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
Land | $ | 11,670 |
| | $ | 11,065 |
|
Building and improvements | 96,401 |
| | 91,700 |
|
Furniture, fixtures and equipment | 43,410 |
| | 42,590 |
|
| 151,481 |
| | 145,355 |
|
Less accumulated depreciation | 66,663 |
| | 62,134 |
|
| $ | 84,818 |
| | $ | 83,221 |
|
The Bank has entered into non-cancelable operating lease agreements with respect to banking premises and equipment. It is expected that many agreements will be renewed at expiration in the normal course of business. Rental expense was $1.1 million, $1.2 million, and $1.1 million for the years ended September 30, 2017, 2016, and 2015, respectively.
As of September 30, 2017, future minimum rental commitments, rounded to the nearest thousand, required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year were as follows:
|
| | | |
2018 | $ | 1,170 |
|
2019 | 1,057 |
|
2020 | 813 |
|
2021 | 703 |
|
2022 | 623 |
|
Thereafter | 1,906 |
|
| $ | 6,272 |
|
6.7. LOW INCOME HOUSING PARTNERSHIPS
The Bank's investment in low income housing partnerships, which is included in other assets in the consolidated balance sheets, was $66.1$89.7 million and $58.0$82.6 million at September 30, 20172020 and 2016,2019, respectively. The Bank's obligations related to unfunded commitments, which are included in accounts payable and accrued expenses in the consolidated balance sheets, were $29.4$44.5 million and $27.2$40.0 million at September 30, 20172020 and 2016,2019, respectively. The majority of the commitments at September 30, 20172020 are projected to be funded through the end of calendar year 2020.2022.
For fiscal year 2017,2020, the net income tax benefit associated with these investments, which consists of proportional amortization expense and affordable housing tax credits and other related tax benefits, was reported in income tax expense in the consolidated statements of income. The amount of proportional amortization expense recognized during fiscal year 2017years 2020, 2019 and 2018 was $4.4$7.9 million, $6.8 million and $7.0 million, respectively, and the amount of affordable housing tax credits and other related tax benefits was $6.9$9.8 million, $8.6 million and $7.5 million, respectively, resulting in a net income tax benefit of $2.5 million. For fiscal years 2016 and 2015, the expenses were reported in the low income housing partnerships line of the consolidated statements of income, and the amount of affordable housing tax credits and other related tax benefits was $6.0$1.9 million, $1.8 million and $5.3 million,$500 thousand, respectively. There were no0 impairment losses during fiscal years 2017, 2016,2020, 2019, or 20152018 resulting from the forfeiture or ineligibility of tax credits or other circumstances.
8.INTANGIBLE ASSETS
With the acquisition of CCB in fiscal year 2018, the Company recognized goodwill of $8.0 million, which is calculated as the consideration exchanged in excess of the fair value of assets, net of the fair value of liabilities assumed. Certain purchase accounting adjustments were applied during the measurement period in fiscal year 2019, resulting in a $1.3 million increase in goodwill associated with the acquisition of CCB. The Company also recognized $10.1 million of other intangible assets in conjunction with the acquisition which is largely composed of core deposit intangibles. These other intangible assets are being amortized over their estimated lives, which management determined to be 8.0 years at the time of acquisition.
Changes in the carrying amount of the Company's intangible assets, which are included in other assets on the consolidated balance sheet, are presented in the following table.
| | | | | | | | | | | |
| | | Core Deposit and |
| Goodwill | | Other Intangibles |
| (Dollars in thousands) |
Balance at September 30, 2017 | $ | 0 | | | $ | 0 | |
Acquisition of CCB | 7,989 | | | 10,052 | |
Less: Amortization | 0 | | | (234) | |
Balance at September 30, 2018 | 7,989 | | | 9,819 | |
Purchase accounting adjustments | 1,335 | | | 0 | |
Less: Amortization | 0 | | | (2,316) | |
Balance at September 30, 2019 | 9,324 | | | 7,503 | |
Purchase accounting adjustments | 0 | | | 0 | |
Less: Amortization | 0 | | | (1,964) | |
Balance at September 30, 2020 | $ | 9,324 | | | $ | 5,539 | |
As of September 30, 2020, there was 0 impairment recorded on goodwill or other intangible assets.
The estimated amortization expense for the next five years related to the core deposit and other intangible assets as of September 30, 2020 is presented in the following table (dollars in thousands):
| | | | | |
2021 | $ | 1,659 | |
2022 | 1,358 | |
2023 | 1,056 | |
2024 | 761 | |
2025 | 509 | |
9. DEPOSITS AND BORROWED FUNDS
Deposits - Non-interest-bearing deposits totaled $243.7$451.4 million and $217.0$357.3 million as of September 30, 20172020 and 2016,2019, respectively. Certificates of deposit with a minimum denomination of $250 thousand were $676.1$643.0 million and $576.4$610.0 million as of September 30, 20172020 and 2016,2019, respectively. Deposits in excess of $250 thousand may not be fully insured by the Federal Deposit Insurance Corporation.
FHLB Borrowings - FHLB borrowings at September 30, 20172020 consisted of $2.17$1.79 billion in FHLB advances, of which $1.98$1.15 billion were fixed-rate advances and $200.0$640.0 million were variable-rate advances. FHLB borrowings at September 30, 2016 consisted of $2.37 billion in fixed-rate FHLB advances. There were noadvances, and 0 borrowings against the variable-rate FHLB line of creditcredit. FHLB borrowings at September 30, 20172019 consisted of $2.04 billion in FHLB advances, of which $1.40 billion were fixed-rate advances and 2016.$640.0 million were variable-rate advances, and $100.0 million against the variable-rate FHLB line of credit. The line of credit is set to expire on November 16, 2018,12, 2021, at which time it is expected to be renewed automatically by FHLB for a one yearone-year period.
FHLB advances at September 30, 20172020 and 20162019 were comprised of the following:
| | | | | | | | | | | |
| 2020 | | 2019 |
| (Dollars in thousands) |
FHLB advances | $ | 1,793,000 | | | $ | 2,040,000 | |
Deferred prepayment penalty | (3,687) | | | (11) | |
| $ | 1,789,313 | | | $ | 2,039,989 | |
| | | |
Weighted average contractual interest rate on FHLB advances | 1.41 | % | | 2.23 | % |
Weighted average effective interest rate on FHLB advances(1) | 2.31 | | | 2.37 | |
|
| | | | | | | |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
FHLB advances | $ | 2,175,000 |
| | $ | 2,375,000 |
|
Deferred prepayment penalty | (1,192 | ) | | (2,611 | ) |
| $ | 2,173,808 |
| | $ | 2,372,389 |
|
| | | |
Weighted average contractual interest rate on FHLB advances | 1.96 | % | | 2.17 | % |
Weighted average effective interest rate on FHLB advances(1) | 2.09 |
| | 2.24 |
|
(1)The effective interest rate includes the net impact of deferred amounts and interest rate swaps related to the adjustable-rate FHLB advances.
| |
(1) | The effective interest rate includes the net impact of deferred amounts and interest rate swaps related to the variable-rate FHLB advances. |
During fiscal years 2017, 20162019 and 2015,2018, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings. The leverage strategy involves 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, with all of the balance being paid down at each quarter end.end, or earlier if the strategy it is not profitable. The proceeds of the borrowings, net of the required FHLB stock holdings, are deposited at the FRB of Kansas City. Management can discontinue the use of theThe leverage strategy was not utilized during the current year due to the negative interest rate spreads between the related FHLB borrowings and cash held at any point in time.the FRB of Kansas City making the transaction unprofitable.
During fiscal year 2017,At both September 30, 2020 and 2019, the Bank had entered into interest rate swap agreements with a total notional amount of $200.0$640.0 million in order to hedge the variable cash flows associated with the $200.0$640.0 million of variable-rateadjustable-rate FHLB advances. At September 30, 2017,2020 and 2019, the interest rate swap agreements had an average remaining term to maturity of 5.9 years.3.5 years and 4.5 years, respectively. The interest rate swaps were designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At September 30, 2017,2020 and September 30, 2019, the interest rate swaps were in a loss position with a total fair value of the interest rate swaps was $598 thousand$53.1 million and $33.1 million, respectively, which was reported in accounts payable and accrued expenses on the consolidated balance sheet. During fiscal year 2017, $134years 2020 and 2019, $6.3 million and $438 thousand, wasrespectively, were reclassified from AOCI to interest expense and no hedge ineffectiveness was recognized in the consolidated statements of income. During the next 12 months, the Company estimates that $1.1 million will be reclassified as an increase to interest expense. At September 30, 2020, the Company estimated that $15.6 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterpartycounterparties and posts collateral on a daily basis. The Bank posted cash collateral of $731 thousand$54.6 million at September 30, 2017.2020 and $33.3 million at September 30, 2019.
During the current fiscal year, 2015, the Bank prepaid $325.0fixed-rate FHLB advances totaling $350.0 million with a weighted average contractual interest rate of 2.42% and a weighted average remaining term of 1.0 years, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average contractual interest rate of 2.61% and a weighted average remaining term to maturity of approximately four months. The prepaid FHLB advances were replaced with $325.0 million of fixed-rate FHLB advances with a weighted average contractual interest rate of 1.66%1.43% and a weighted average term of 53 months.4.7 years. The Bank paid $3.4penalties totaling $4.2 million in prepayment penalties to FHLB as a result of prepaying the FHLB advances. The present value of the cash flows under the terms of the new FHLB advances was not more than 10% different from the present value of the cash flow under the terms of the prepaid FHLB advances (including the prepayment penalties) and there were no embedded conversion options in the prepaid advances or in the new FHLB advances. The prepayment penalties effectively increased the weighted average interest rate on the new advances by 42 basis points at the time of the transactions. The deferred prepayment penalties are being recognized in interest expense over the liveslife of the new FHLB advances.
FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB and certain securities, when necessary. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of a borrowing institution's regulatory total assets without the pre-approval of FHLB senior management. In July 2017,2020, the president of FHLB approved an increase, through July 2018,2021, in the Bank's borrowing limit to 55%50% of Bank Call Report total assets. At September 30, 2017,2020, the ratio of the par value of the Bank's FHLB borrowings to the Bank's Call Report total assets was 24%19%. During fiscal year 2017,At times, the Bank's FHLB borrowings to the Bank's Call Report total assets wasmay be in excess of 40% due to the leverage strategy.
Repurchase Agreements -At September 30, 2017 and 2016,2020, the Company had 0 repurchase agreements outstanding. At September 30, 2019, the Company had repurchase agreements outstanding in the amount of $200.0$100.0 million, with a weighted average contractual rate of 2.94%2.53%. The repurchase agreements were included in other borrowings on the consolidated balance sheet. All of the Company's repurchase agreements at September 30, 2017 and 20162019 were fixed-rate. See Note 34 for information regarding the amount of securities pledged as collateral in conjunction with repurchase agreements. Securities are delivered to the party with whom each transaction is executed and the party agrees to resell the same securities to the Bank at the maturity of the agreement. The Bank retains the right to substitute similar or like securities throughout the terms of the agreements. The repurchase agreements and collateral are subject to valuation at current market levels and the Bank may ask for the return of excess collateral or be required to post additional collateral due to changes in the market values of these items. The Bank may also be required to post additional collateral as a result of principal payments received on the securities pledged.
Maturity of Borrowed Funds and Certificates of Deposit - The following table presents the scheduled maturity of FHLB advances, at par, repurchase agreements, and certificates of deposit as of September 30, 2017:2020:
| | | | | | | | | | | | | |
| FHLB | | | | Certificates |
| Advances | | | | of Deposit |
| Amount | | | | Amount |
| (Dollars in thousands) |
2021 | $ | 843,000 | | | | | $ | 1,505,501 | |
2022 | 200,000 | | | | | 773,278 | |
2023 | 300,000 | | | | | 426,520 | |
2024 | 100,000 | | | | | 239,650 | |
2025 | 250,000 | | | | | 75,391 | |
Thereafter | 100,000 | | | | | 904 | |
| $ | 1,793,000 | | | | | $ | 3,021,244 | |
Junior Subordinated Debentures and Trust-Preferred Securities - In conjunction with the CCB acquisition, the Company assumed $10.1 million of junior subordinated debentures relating to mandatorily redeemable capital trust preferred securities that were previously issued by CCB-sponsored trusts to third-party investors. The proceeds from the sale of the trust preferred securities to investors were invested by the trusts in the related junior subordinated debentures issued by CCB. The junior subordinated debentures were redeemed by the Company during fiscal year 2019, which resulted in the concurrent redemption by the trusts of the related trust preferred securities.
|
| | | | | | | | | | | |
| FHLB | | Repurchase | | Certificates |
| Advances | | Agreements | | of Deposit |
| Amount | | Amount | | Amount |
| (Dollars in thousands) |
2018 | $ | 475,000 |
| | $ | 100,000 |
| | $ | 1,116,415 |
|
2019 | 500,000 |
| | — |
| | 748,537 |
|
2020 | 350,000 |
| | 100,000 |
| | 591,966 |
|
2021 | 550,000 |
| | — |
| | 274,805 |
|
2022 | 200,000 |
| | — |
| | 177,308 |
|
Thereafter | 100,000 |
| | — |
| | 1,390 |
|
| $ | 2,175,000 |
| | $ | 200,000 |
| | $ | 2,910,421 |
|
8.10. INCOME TAXES
Income tax expense for the years ended September 30, 2017, 2016,2020, 2019, and 20152018 consisted of the following:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| (Dollars in thousands) |
Current: | | | | | |
Federal | $ | 17,610 | | | $ | 22,030 | | | $ | 26,007 | |
State | 4,068 | | | 4,742 | | | 3,512 | |
| 21,678 | | | 26,772 | | | 29,519 | |
Deferred: | | | | | |
Federal | (4,857) | | | (456) | | | (5,956) | |
State | (731) | | | 95 | | | 1,416 | |
| (5,588) | | | (361) | | | (4,540) | |
| $ | 16,090 | | | $ | 26,411 | | | $ | 24,979 | |
|
| | | | | | | | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
| (Dollars in thousands) |
Current: | | | | | |
Federal | $ | 38,127 |
| | $ | 33,298 |
| | $ | 30,079 |
|
State | 4,734 |
| | 4,677 |
| | 4,395 |
|
| 42,861 |
| | 37,975 |
| | 34,474 |
|
Deferred: | | | | | |
Federal | 712 |
| | 286 |
| | 2,869 |
|
State | 210 |
| | 184 |
| | 332 |
|
| 922 |
| | 470 |
| | 3,201 |
|
| $ | 43,783 |
| | $ | 38,445 |
| | $ | 37,675 |
|
The Tax Cuts and Jobs Act, enacted in December 2017, made significant changes to the U.S. corporate income tax laws, such as a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Company had a blended statutory federal income tax rate of 24.5% for the year ended September 30, 2018, which was based on the applicable income tax rates prior to and subsequent to January 1, 2018 and the number of days in the fiscal year. The Company revalued its deferred tax assets and liabilities as of the enactment date to account for the future impact of a lower federal income tax rate. The revaluation of the Company's deferred tax assets and liabilities resulted in a $7.5 million reduction in income tax expense during the December 31, 2017 quarter and a corresponding reduction in the Company's net deferred tax liability, as reflected in the table below.
The Company's effective tax rates were 34.2%20.0%, 31.5%21.9%, and 32.5%20.2% for the years ended September 30, 2017, 2016,2020, 2019, and 2015,2018, respectively. The increase in the effective tax rate for the year ended September 30, 2017 was due primarily to the accounting method change for low income housing partnership investments. See "Note 1. Summary of Significant Accounting Policies" for further discussion regarding the accounting method change and "Note 6. Low Income Housing Partnerships" for additional information regarding the income tax expense components of the low income housing partnership investments. The differences between such effective rates and the statutory Federal income tax rate computed on income before income tax expense resulted from the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (Dollars in thousands) |
Federal income tax expense | | | | | | | | | | | |
computed at statutory Federal rate | $ | 16,932 | | | 21.0 | % | | $ | 25,337 | | | 21.0 | % | | $ | 30,392 | | | 24.5 | % |
Increases (decreases) in taxes resulting from: | | | | | | | | | | | |
State taxes, net of Federal tax effect | 2,626 | | | 3.3 | | | 4,024 | | | 3.3 | | | 3,986 | | | 3.2 | |
Deferred tax liability remeasurement, net | 0 | | | 0 | | | 0 | | | 0 | | | (7,498) | | | (6.0) | |
Low income housing tax credits, net | (1,897) | | | (2.4) | | | (1,745) | | | (1.4) | | | (500) | | | (0.4) | |
ESOP related expenses, net | (525) | | | (0.6) | | | (757) | | | (0.6) | | | (790) | | | (0.6) | |
Acquired BOLI policies | (636) | | | (0.8) | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | (410) | | | (0.5) | | | (448) | | | (0.4) | | | (611) | | | (0.5) | |
| $ | 16,090 | | | 20.0 | % | | $ | 26,411 | | | 21.9 | % | | $ | 24,979 | | | 20.2 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (Dollars in thousands) |
Federal income tax expense | | | | | | | | | | | |
computed at statutory Federal rate | $ | 44,772 |
| | 35.0 | % | | $ | 42,679 |
| | 35.0 | % | | $ | 40,519 |
| | 35.0 | % |
Increases (decreases) in taxes resulting from: | | | | | | | | | | | |
State taxes, net of Federal tax effect | 3,452 |
| | 2.7 |
| | 3,308 |
| | 2.7 |
| | 3,257 |
| | 2.8 |
|
Low income housing tax credits, presented net of proportional amortization in 2017 | (2,468 | ) | | (2.0 | ) | | (4,815 | ) | | (4.0 | ) | | (4,316 | ) | | (3.7 | ) |
ESOP related expenses, net | (1,052 | ) | | (0.8 | ) | | (1,127 | ) | | (0.9 | ) | | (1,222 | ) | | (1.1 | ) |
Other | (921 | ) | | (0.7 | ) | | (1,600 | ) | | (1.3 | ) | | (563 | ) | | (0.5 | ) |
| $ | 43,783 |
| | 34.2 | % | | $ | 38,445 |
| | 31.5 | % | | $ | 37,675 |
| | 32.5 | % |
Deferred income tax expense represents the change in deferred income tax assets and liabilities excluding the tax effects of the change in net unrealized gain (loss) on AFS securities, interest rate swaps and changes in the market value of restricted stock between the grant date and vesting date. The sources of these differences and the tax effect of each as of September 30, 2017, 2016, and 2015 were as follows:
|
| | | | | | | | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
| (Dollars in thousands) |
Salaries, deferred compensation and employee benefits | $ | 437 |
| | $ | (143 | ) | | $ | (12 | ) |
Low income housing partnerships | 285 |
| | (318 | ) | | (763 | ) |
ACL | 185 |
| | 480 |
| | (75 | ) |
Premises and equipment | 14 |
| | 1,593 |
| | (129 | ) |
FHLB stock dividends | 4 |
| | (1,357 | ) | | 4,083 |
|
Capitol Federal Foundation contribution | — |
| | — |
| | 418 |
|
Other, net | (3 | ) | | 215 |
| | (321 | ) |
| $ | 922 |
| | $ | 470 |
| | $ | 3,201 |
|
The components of the net deferred income tax liabilities as of September 30, 20172020 and 20162019 were as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| (Dollars in thousands) |
Deferred income tax assets: | | | |
Unrealized loss on interest rate swaps | $ | 12,916 | | | $ | 8,041 | |
ACL | 6,553 | | | 1,938 | |
Lease liabilities | 3,590 | | | 0 | |
Salaries, deferred compensation and employee benefits | 1,622 | | | 1,579 | |
ESOP compensation | 1,360 | | | 1,288 | |
Low income housing partnerships | 655 | | | 792 | |
Net purchase discounts related to acquired loans | 577 | | | 991 | |
| | | |
Other | 2,717 | | | 2,918 | |
Gross deferred income tax assets | 29,990 | | | 17,547 | |
| | | |
Valuation allowance | (1,808) | | | (1,823) | |
Gross deferred income tax asset, net of valuation allowance | 28,182 | | | 15,724 | |
| | | |
Deferred income tax liabilities: | | | |
FHLB stock dividends | 15,699 | | | 16,009 | |
Unrealized gain on AFS securities | 7,617 | | | 3,258 | |
Premises and equipment | 4,625 | | | 3,546 | |
Lease right-of-use assets | 3,588 | | | 0 | |
Deposit intangible | 1,475 | | | 1,978 | |
ACL | 2,388 | | | 3,018 | |
| | | |
Other | 970 | | | 2,197 | |
Gross deferred income tax liabilities | 36,362 | | | 30,006 | |
| | | |
Net deferred tax liabilities | $ | 8,180 | | | $ | 14,282 | |
|
| | | | | | | |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
Deferred income tax assets: | | | |
Salaries, deferred compensation and employee benefits | $ | 2,583 |
| | $ | 3,020 |
|
Low income housing partnerships | 1,478 |
| | 1,763 |
|
ESOP compensation | 1,724 |
| | 1,566 |
|
ACL | 711 |
| | 896 |
|
Other | 2,621 |
| | 2,528 |
|
Gross deferred income tax assets | 9,117 |
| | 9,773 |
|
| | | |
Valuation allowance | (1,795 | ) | | (1,804 | ) |
Gross deferred income tax asset, net of valuation allowance | 7,322 |
| | 7,969 |
|
| | | |
Deferred income tax liabilities: | | | |
FHLB stock dividends | 23,242 |
| | 23,238 |
|
Premises and equipment | 6,105 |
| | 6,091 |
|
Unrealized gain on AFS securities | 2,000 |
| | 3,595 |
|
Other | 433 |
| | 419 |
|
Gross deferred income tax liabilities | 31,780 |
| | 33,343 |
|
| | | |
Net deferred tax liabilities | $ | 24,458 |
| | $ | 25,374 |
|
The State of Kansas allows for a bad debt deduction on savings and loan institutions' privilege tax returns of up to 5% of Kansas taxable income. Due to the low level of net loan charge-offs experienced by the Bank historically, at times, the Bank's bad debt deduction on the Kansas privilege tax return has been in excess of actual net charge-offs, resulting in a state deferred tax liability, which is presented separately from the federal deferred tax asset related to ACL.
The Company assesses the available positive and negative evidence surrounding the recoverability of its deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary under the circumstances. At both September 30, 20172020 and 2016,2019, the Company had a valuation allowance of $1.8 million related to the net operating losses generated by the Company's consolidated Kansas corporate income tax return. The companies included in the consolidated Kansas corporate income tax return are the holding company, and Capitol Funds, Inc. and Capital City Investments, Inc., as the Bank files a Kansas privilege tax return. Based on the nature of the operations of the holding company, and Capitol Funds, Inc. and Capital City Investments, Inc., management believes there will not be sufficient taxable income to fully utilize the deferred tax assets noted above; therefore, a valuation allowance has been recorded for the related amounts at September 30, 20172020 and 2016.2019.
Accounting Standard Codification ("ASC")ASC 740 Income Taxes prescribes a process by which a tax position taken, or expected to be taken, on an income tax return is determined based upon the technical merits of the position, along with whether the tax position meets a more-likely-than-not-recognition threshold, to determine the amount, if any, of unrecognized tax benefits to recognize in the financial statements. Estimated penalties and interest related to unrecognized tax benefits are included in income tax expense in the consolidated
statements of income. For the yearyears ended September 30, 20172020, 2019, and 2016,2018 the Company had no0 unrecognized tax benefits. For the year ended September 30, 2015, the Company's unrecognized tax benefits, estimated penalties and interest, and related activities were insignificant.
The Company files income tax returns in the U.S. federal jurisdiction and the state of Kansas, as well as other states where it has either established nexus under an economic nexus theory or has exceeded enumerated nexus thresholds based on the amount of interest income derived from sources within a given state. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by tax authorities for fiscal years before 2014.2017.
9.
11. EMPLOYEE STOCK OWNERSHIP PLAN
The ESOP trust acquired 3,024,574 shares (6,846,728 shares post-corporate reorganization) of common stock in the Company's initial public offering and 4,726,000 shares of common stock in the Company's corporate reorganization in December of 2010. Both acquisitions of common stock were made with proceeds from loans from the Company, secured by shares of the Company's stock purchased in each offering. The Bank has agreed to make cash contributions to the ESOP trust on an annual basis sufficient to enable the ESOP trust to make the required annual loan payments to the Company on September 30 of each year. The loan for the shares acquired in the initial public offering matured on September 30, 2013. The loan for the shares acquired in the corporate reorganization matures on September 30, 2040.
As annual loan payments are made on each September 30,30th, shares are released from collateral and allocated to qualified employees based on the proportion of their qualifying compensation to total qualifying compensation. On September 30, 2017,2020, 165,198 shares were released from collateral. On September 30, 2018,2021, 165,198 shares will be released from collateral. As ESOP shares are committed to be released from collateral, the Company records compensation expense. Dividends on unallocated ESOP shares are applied to the debt service payments of the loan secured by the unallocated shares. Dividends on unallocated ESOP shares in excess of the debt service payment are recorded as compensation expense and distributed to participants or participants' ESOP accounts. Compensation expense related to the ESOP was $3.3$2.0 million for the year ended September 30, 2017, $3.02020, $3.1 million for the year ended September 30, 2016,2019, and $3.0$2.9 million for the year ended September 30, 2015.2018. Of these amounts, $784$336 thousand, $522$549 thousand, and $384$541 thousand related to the difference between the market price of the Company's stock when the shares were acquired by the ESOP trust and the average market price of the Company's stock during the years ended September 30, 2017, 2016,2020, 2019, and 2015,2018, respectively. The amount included in compensation expense for dividends on unallocated ESOP shares in excess of the debt service payments was $833 thousand, $8130 for the year ended September 30, 2020, and $906 thousand and $952$688 thousand for the years ended September 30, 2017, 2016,2019 and 2015,2018, respectively.
Shares may be withdrawn from the ESOP trust due to retirement, termination, or death of the participant. Additionally, adiversification (a participant may begin to diversify at least 25% of their ESOP shares at age 50.50), retirement, termination, or death of the participant. The following is a summary of shares held in the ESOP trust as of September 30, 20172020 and 2016:2019:
| | | | | | | | | | | |
| 2020 | | 2019 |
| (Dollars in thousands) |
Allocated ESOP shares | 4,200,964 | | | 4,207,520 | |
Unreleased ESOP shares | 3,303,960 | | | 3,469,158 | |
Total ESOP shares | 7,504,924 | | | 7,676,678 | |
| | | |
Fair value of unreleased ESOP shares | $ | 30,628 | | | $ | 47,805 | |
|
| | | | | | | |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
Allocated ESOP shares | 4,369,840 |
| | 4,392,371 |
|
Unreleased ESOP shares | 3,799,554 |
| | 3,964,752 |
|
Total ESOP shares | 8,169,394 |
| | 8,357,123 |
|
| | | |
Fair value of unreleased ESOP shares | $ | 55,853 |
| | $ | 55,784 |
|
10.12. STOCK-BASED COMPENSATION
The Company has a Stock Option Plan, a Restricted Stock Plan, and an Equity Incentive Plan, all of which are considered share-based plans. The Stock Option Plan and Restricted Stock Plan expired in April 2015. No additional grants can be made from these two plans; however, awards granted under these two plans remain outstanding until they are individually vested, forfeited or expire. The objectives of the Equity Incentive Plan are to provide additional compensation to certain officers, directors and key employees by facilitating their acquisition of stockan equity interest in the Company and enable the Company to retain personnel of experience and ability in key positions of responsibility.
Stock Option Plans – There are currently 508,719287,935 stock options outstanding as a result of grants awarded from the Stock Option Plan. The Equity Incentive Plan had 5,907,500 stock options originally eligible to be granted and, as of September 30, 2017,2020, the Company had 4,184,3164,199,316 stock options still available for future grants under this plan. This plan will expire inon January 24, 2027 and no additional grants may be made after expiration, but awards granted under this plan remain outstanding until they are individually vested, forfeited, or expire.
The Company may issue incentive and nonqualified stock options under the Equity Incentive Plan. The Company may also award stock appreciation rights, although no stock appreciation rights have been awarded to date. The incentive stock options expire no later than 10 years from the date of grant, and the nonqualified stock options expire no later than 15 years from the date of grant. The vesting period of the stock options under the Equity Incentive Plan generally has ranged from three3 years to five5 years. The stock option exercise price cannot be less than the market value at the date of the grant as defined by each plan. The fair value of stock option grants is estimated on the date of the grant using the Black-Scholes option pricing model.
At September 30, 2017,2020, the Company had 1,236,798813,645 stock options outstanding with a weighted average exercise price of $13.31$12.86 per option and a weighted average contractual life of 5.33.2 years, and 1,144,798812,645 options exercisable with a weighted average exercise price of $13.38$12.86 per option and a weighted average contractual life of 5.13.2 years. The exercise price may be paid in cash, shares of common stock, or a combination of both. New shares are issued by the Company upon the exercise of stock options.
Compensation expense attributable to stock option awards during the years ended September 30, 2017, 2016,2020, 2019, and 20152018 totaled $118$12 thousand, $335$49 thousand, and $618$71 thousand, respectively. The fair value of stock options vested during the years ended September 30, 2017, 2016,2020, 2019, and 20152018 was $174$24 thousand, $652$64 thousand, and $615$77 thousand, respectively. As of September 30, 2017, the total future compensation cost related to non-vested stock options not yet recognized in the consolidated statements of income was $128 thousand, net of estimated forfeitures, and the weighted average period over which these awards are expected to be recognized was 2.0 years.
Restricted Stock Plans – The Equity Incentive Plan had 2,363,000 shares originally eligible to be granted as restricted stock and, as of September 30, 2017,2020, the Company had 1,757,6501,625,519 shares available for future grants of restricted stock under this plan. This plan will expire inon January 24, 2027 and no additional grants may be made after expiration, but awards granted under this plan remain outstanding until they are individually vested or forfeited. The vesting period of the restricted stock awards under the Equity Incentive Plan has generally ranged from three3 years to five5 years. At September 30, 2017,2020, the Company had 56,600104,850 unvested shares of restricted stock shares with a weighted average grant date fair value of $13.38$13.65 per share.
Compensation expense is calculated based on the fair market value of the common stock at the date of the grant, as defined by the plan, and is recognized over the vesting time period. Compensation expense attributable to restricted stock awards during the years ended September 30, 2017, 2016,2020, 2019, and 20152018 totaled $388$540 thousand, $787$501 thousand, and $1.5 million,$301 thousand, respectively. The fair value of restricted stock that vested during the years ended September 30, 2017, 2016,2020, 2019, and 20152018 totaled $563$535 thousand, $1.6 million,$294 thousand, and $1.5 million,$294 thousand, respectively. As of September 30, 20172020, there was $635 thousand$1.1 million of unrecognized compensation cost related to unvested restricted stock to be recognized over a weighted average period of 2.7 years.
13. COMMITMENTS AND CONTINGENCIES
The following table summarizes the Bank's loan commitments as of September 30, 20172020 and 2016:2019:
| | | | | | | | | | | |
| 2020 | | 2019 |
| (Dollars in thousands) |
Originate fixed-rate | $ | 96,126 | | | $ | 55,249 | |
Originate adjustable-rate | 21,801 | | | 32,206 | |
Purchase/participate fixed-rate | 65,600 | | | 94,400 | |
Purchase/participate adjustable-rate | 65,080 | | | 49,141 | |
| $ | 248,607 | | | $ | 230,996 | |
|
| | | | | | | |
| 2017 |
| | 2016 |
|
| (Dollars in thousands) |
Originate fixed-rate | $ | 33,528 |
| | $ | 68,047 |
|
Originate adjustable-rate | 9,861 |
| | 12,257 |
|
Purchase/participate fixed-rate | 74,104 |
| | 138,792 |
|
Purchase/participate adjustable-rate | 52,453 |
| | 18,653 |
|
| $ | 169,946 |
| | $ | 237,749 |
|
Commitments to originate loans are commitments to lend to a customer. Commitments to purchase/participate in loans represent commitments to purchase loans from correspondent lenders on a loan-by-loan basis or participate in commercial real estate loans with a lead bank. The Bank evaluates each borrower's creditworthiness on a case-by-case basis. Commitments generally have expiration dates or other termination clauses and one-toone- to four-family loan commitments may require the payment of a rate lock fee. Some of the commitments are expected to expire without being fully drawn upon; therefore, the amount of total commitments disclosed in the table above does not necessarily represent future cash requirements. As of September 30, 20172020 and 2016,2019, there were no significant loan-related commitments that met the definition of derivatives or commitments to sell mortgage loans. As of September 30, 20172020 and 2016,2019, the Bank had approved but unadvanced home equity lines of credit of $240.0$283.2 million and $262.8$265.2 million, respectively.
The Company also has standby letters of credit, which are conditional commitments to guarantee the performance of a customer to a third party. Most guarantees have one-year terms. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At September 30, 2020 and 2019, the Company had $1.4 million and $1.2 million, respectively, in outstanding standby letters of credit, and no amounts had been recorded as liabilities for the Company's potential obligations under these agreements at either date.
In the normal course of business, the Company and its subsidiarythe Bank are named defendants in various lawsuits and counterclaims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits are expected to have a materially adverse effect on the Company's consolidated financial statements for the year ended September 30, 2017,2020, or future periods.
12.
14. REGULATORY CAPITAL REQUIREMENTS
The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly additional discretionary, actions by regulators that, if undertaken, could have a material adverse effect on the Company's financial statements. Under regulatory capital adequacy guidelines, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Additionally, the Bank must meet specific capital guidelines to be considered well capitalized per the regulatory framework for prompt corrective action. The Company's and Bank's capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.
The Bank and the Company must maintain certain minimum capital ratios as set forth in the table below for capital adequacy purposes. In September 2019, the regulatory agencies, including the Office of the Comptroller of the Currency and FRB, adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio ("CBLR") for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria. Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules and to have met the well-capitalized ratio requirements. In April 2020, as directed by Section 4012 of the CARES Act, the regulatory agencies introduced temporary changes to the CBLR. These changes, which subsequently were adopted as a final rule, temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020. Beginning in calendar year 2021, the CBLR
requirement will increase to 8.5% for the calendar year before returning to 9% in calendar year 2022. Management has elected to use the CBLR framework for the Bank and Company.
Before electing to use the CBLR framework, the Company and Bank were required to maintain a capital conservation buffer above certain minimum risk-based capital ratios for capital adequacy purposes in order to avoid certain restrictions on capital distributions and other payments including dividends, share repurchases, and certain compensation. The capital conservation buffer was 2.5% at September 30, 2019, and the Bank and Company exceeded the capital conservation buffer requirement at that time.
Management believes, as of September 30, 2020, that the Bank and Company meet all capital adequacy requirements to which they are subject and there were no conditions or events subsequent to September 30, 2020 that would change the Bank's or Company's category.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | To Be Well |
| | | | | | | | | Capitalized |
| | | | | | | | | Under Prompt |
| | | | | For Capital | | Corrective Action |
| Actual | | Adequacy Purposes | | Provisions |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| (Dollars in thousands) |
Bank | | | | | | | | | | | |
As of September 30, 2020 | | | | | | | | | | | |
CBLR | $ | 1,168,808 | | | 12.4 | % | | $ | 754,884 | | | 8.0 | % | | N/A | | N/A |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
As of September 30, 2019 | | | | | | | | | | | |
Tier 1 leverage | 1,169,037 | | | 12.1 | | | 387,427 | | | 4.0 | | | 484,284 | | | 5.0 | |
Common Equity Tier 1 ("CET1") capital | 1,169,037 | | | 24.1 | | | 218,042 | | | 4.5 | | | 314,949 | | | 6.5 | |
Tier 1 capital | 1,169,037 | | | 24.1 | | | 290,722 | | | 6.0 | | | 387,630 | | | 8.0 | |
Total capital | 1,178,263 | | | 24.3 | | | 387,630 | | | 8.0 | | | 484,537 | | | 10.0 | |
| | | | | | | | | | | |
Company | | | | | | | | | | | |
As of September 30, 2020 | | | | | | | | | | | |
CBLR | 1,287,854 | | | 13.7 | | | 754,767 | | | 8.0 | | | N/A | | N/A |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
As of September 30, 2019 | | | | | | | | | | | |
Tier 1 leverage | 1,336,377 | | | 13.8 | | | 387,346 | | | 4.0 | | | N/A | | N/A |
CET1 capital | 1,336,377 | | | 27.6 | | | 218,070 | | | 4.5 | | | N/A | | N/A |
Tier 1 capital | 1,336,377 | | | 27.6 | | | 290,759 | | | 6.0 | | | N/A | | N/A |
Total capital | 1,345,603 | | | 27.8 | | | 387,679 | | | 8.0 | | | N/A | | N/A |
Generally, savings institutions, such as the Bank, may make capital distributions during any calendar year equal to the earnings of the previous two calendar years and current year-to-date earnings. It is generally required that the Bank remain well capitalized before and after the proposed distribution. The Company's ability to pay dividends is dependent, in part, upon its ability to obtain capital distributions from the Bank. So long as the Bank continues to remain well capitalized after each capital distribution and operates in a safe and sound manner, it is management's belief that the regulators will continue to allow the Bank to distribute its net income to the Company, although no assurance can be given in this regard.
In conjunction with the Company's corporate reorganization in December 2010, a "liquidation account" was established for the benefit of certain depositors of the Bank in an amount equal to Capitol Federal Savings Bank MHC's ownership interest in the retained earnings of Capitol Federal Financial as of June 30, 2010. As of September 30, 2017,2020, the balance of this liquidation account was $167.2$115.4 million. Under applicable federal banking regulations, neither the Company nor the Bank is permitted to pay dividends on its capital stock to its stockholders if stockholders' equity would be reduced below the amount of the liquidation account at that time.
The Bank and the Company must maintain certain minimum capital ratios as set forth in the table below for capital adequacy purposes. Effective January 1, 2016, the Company and Bank were required to maintain a capital conservation buffer above certain minimum capital ratios for capital adequacy purposes in order to avoid certain restrictions on capital distributions and other payments including dividends, share repurchases, and certain compensation. The required capital conservation buffer is being phased in over a four year period by increasing the required buffer amount by 0.625% each year. The capital conservation buffer was 0.625% at September 30, 2016 and 1.25% at September 30, 2017. At September 30, 2017 and 2016, the Bank and Company exceeded the capital conservation buffer requirement. Once fully phased-in, which will be on January 1, 2019 for the Company and Bank, the organization must maintain a balance of capital that exceeds by more than 2.5% each of the minimum risk-based capital ratios in order to satisfy the requirement. Management believes, as of September 30, 2017, that the Bank and Company meet all capital adequacy requirements to which they are subject and there were no conditions or events subsequent to September 30, 2017 that would change the Bank's or Company's category.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | To Be Well |
| | | | | | | | | Capitalized |
| | | | | | | | | Under Prompt |
| | | | | For Capital | | Corrective Action |
| Actual | | Adequacy Purposes | | Provisions |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| (Dollars in thousands) |
Bank | | | | | | | | | | | |
As of September 30, 2017 | | | | | | | | | | | |
Tier 1 leverage ratio | $ | 1,201,863 |
| | 10.8 | % | | $ | 444,877 |
| | 4.0 | % | | $ | 556,097 |
| | 5.0 | % |
Common Equity Tier 1 ("CET1") capital ratio | 1,201,863 |
| | 27.2 |
| | 199,181 |
| | 4.5 |
| | 287,706 |
| | 6.5 |
|
Tier 1 capital ratio | 1,201,863 |
| | 27.2 |
| | 265,575 |
| | 6.0 |
| | 354,100 |
| | 8.0 |
|
Total capital ratio | 1,210,261 |
| | 27.3 |
| | 354,100 |
| | 8.0 |
| | 442,625 |
| | 10.0 |
|
| | | | | | | | | | | |
As of September 30, 2016 | | | | | | | | | | | |
Tier 1 leverage ratio | 1,234,912 |
| | 10.9 |
| | 452,339 |
| | 4.0 |
| | 565,424 |
| | 5.0 |
|
CET1 capital ratio | 1,234,912 |
| | 28.5 |
| | 195,080 |
| | 4.5 |
| | 281,783 |
| | 6.5 |
|
Tier 1 capital ratio | 1,234,912 |
| | 28.5 |
| | 260,107 |
| | 6.0 |
| | 346,809 |
| | 8.0 |
|
Total capital ratio | 1,243,452 |
| | 28.7 |
| | 346,809 |
| | 8.0 |
| | 433,512 |
| | 10.0 |
|
| | | | | | | | | | | |
Company | | | | | | | | | | | |
As of September 30, 2017 | | | | | | | | | | | |
Tier 1 leverage ratio | 1,365,395 |
| | 12.3 |
| | 444,785 |
| | 4.0 |
| | N/A |
| | N/A |
|
CET1 capital ratio | 1,365,395 |
| | 30.8 |
| | 199,195 |
| | 4.5 |
| | N/A |
| | N/A |
|
Tier 1 capital ratio | 1,365,395 |
| | 30.8 |
| | 265,594 |
| | 6.0 |
| | N/A |
| | N/A |
|
Total capital ratio | 1,373,793 |
| | 31.0 |
| | 354,125 |
| | 8.0 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | |
As of September 30, 2016 | | | | | | | | | | | |
Tier 1 leverage ratio | 1,387,049 |
| | 12.3 |
| | 452,248 |
| | 4.0 |
| | N/A |
| | N/A |
|
CET1 capital ratio | 1,387,049 |
| | 32.0 |
| | 195,094 |
| | 4.5 |
| | N/A |
| | N/A |
|
Tier 1 capital ratio | 1,387,049 |
| | 32.0 |
| | 260,126 |
| | 6.0 |
| | N/A |
| | N/A |
|
Total capital ratio | 1,395,589 |
| | 32.2 |
| | 346,835 |
| | 8.0 |
| | N/A |
| | N/A |
|
13.15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements – The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with ASC 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments.
The Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are:
•Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.
•Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument.
The Company bases its fair values on the price that would be received from the sale of a financial instrument in an orderly transaction between market participants at the measurement date under current market conditions. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis.
AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity.value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third partythird-party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third partythird-party pricing service for Level 2 securities by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third partythird-party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third partythird-party pricing service when determining the fair value of its securities during the years ended September 30, 20172020 and 2016.2019. The Company's major security types, based on the nature and risks of the securities, are:
•GSE Debentures - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities. (Level 2)
•MBS - Estimated fair values are based on a discounted cash flow method. Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities. (Level 2)
•Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2)
Trust Preferred Securities - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking prepayment and underlying credit considerations into account. The discount rates are derived from secondary trades and bid/offer prices. (Level 3)
Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in accounts payable and accrued expenses on the consolidated balance sheet,if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. See "Note 7.9. Deposits and Borrowed Funds" for additional information. The estimated fair valuevalues of the interest rates swaps are obtained from a third partythe counterparty and are determined usingby a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values obtained from the third party by internally calculating the estimated fair value using a discounted
cash flow analysis usingwith independent observable market-based inputs. The Company did not make anyinputs from a third party. No adjustments were made to the estimated fair value received from the third partyvalues during the yearyears ended September 30, 2017.2020 and 2019. (Level 2)
The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented. The Company did not0t have any liabilities that wereLevel 3 financial instruments measured at fair value on a recurring basis at September 30, 2016.2020 or 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
MBS | $ | 1,180,803 | | | $ | 0 | | | $ | 1,180,803 | | | $ | 0 | |
GSE debentures | 370,340 | | | 0 | | | 370,340 | | | 0 | |
Municipal bonds | 9,807 | | | 0 | | | 9,807 | | | 0 | |
| | | | | | | |
| $ | 1,560,950 | | | $ | 0 | | | $ | 1,560,950 | | | $ | 0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Interest rate swaps | $ | 53,149 | | | $ | 0 | | | $ | 53,149 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
MBS | $ | 936,487 | | | $ | 0 | | | $ | 936,487 | | | $ | 0 | |
GSE debentures | 249,954 | | | 0 | | | 249,954 | | | 0 | |
Municipal bonds | 18,422 | | | 0 | | | 18,422 | | | 0 | |
| | | | | | | |
| $ | 1,204,863 | | | $ | 0 | | | $ | 1,204,863 | | | $ | 0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Interest rate swaps | $ | 33,090 | | | $ | 0 | | | $ | 33,090 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
GSE debentures | $ | 270,729 |
| | $ | — |
| | $ | 270,729 |
| | $ | — |
|
MBS | 141,516 |
| | — |
| | 141,516 |
| | — |
|
Municipal bonds | 1,535 |
| | — |
| | 1,535 |
| | — |
|
Trust preferred securities | 2,051 |
| | — |
| | — |
| | 2,051 |
|
| $ | 415,831 |
| | $ | — |
| | $ | 413,780 |
| | $ | 2,051 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Interest Rate Swaps | $ | 598 |
| | $ | — |
| | $ | 598 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2016 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
GSE debentures | $ | 347,038 |
| | $ | — |
| | $ | 347,038 |
| | $ | — |
|
MBS | 178,507 |
| | — |
| | 178,507 |
| | — |
|
Trust preferred securities | 1,756 |
| | — |
| | — |
| | 1,756 |
|
| $ | 527,301 |
| | $ | — |
| | $ | 525,545 |
| | $ | 1,756 |
|
The Company's Level 3 AFS securities had no activity during fiscal years 2017, 2016, and 2015 except for principal repayments of $88 thousand, $97 thousand, and $400 thousand, respectively, and (decreases)/increases in net unrealized losses included in other comprehensive income of $(218) thousand, $61 thousand, and $45 thousand, respectively.
The following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis.
Loans Receivable – The balancefair value of impaired loans individually evaluated for impairment aton a non-recurring basis during fiscal years 2020 and 2019 that were still held in the portfolio as of September 30, 20172020 and 20162019 was $18.4$5.7 million and $42.0$6.8 million, respectively. All of theseThe one- to four-family loans were secured by residential real estate andincluded in this amount were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10%. Fair values were estimated through current appraisals or current Federal Housing Finance Agency ("FHFA") housing price indices, which is a broad based measure of the movement of single-family house prices and is a weighted, repeat-sales index.appraisals. Management does not adjust or apply a discount to the appraised value or FHFA housing price indices,of one- to four-family loans, except for the estimated sales cost noted above.above, and the primary unobservable input for these loans was the appraisal.
For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputinputs for impaired commercial loans individually evaluated for impairment using appraisalsduring the year ended September 30, 2020 were downward adjustments to determine the estimated fairbook value wasof the appraisal. collateral for lack of marketability. The adjustments ranged from 4% to 50%, with a weighted average of 18%. There were no impaired commercial loans individually evaluated during the year ended September 30, 2019.
Fair values of impaired loans individually evaluated for impairment cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3. Based on this evaluation, the Bank charged-off all loss amounts as of September 30, 2017 and 2016; therefore, the fair value was equal to the carrying value and there was no ACL related to these loans.
OREO – OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. FairThe fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10%. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. The fair value of OREO measured on a non-recurring basis during fiscal years 2020 and 2019 that was equal tostill held in the portfolio as of September 30, 2020 and 2019 was $183 thousand and $678 thousand, respectively. The carrying value of the properties equaled the fair value of the properties at September 30, 20172020 and 2016 and was $1.4 million and $3.7 million, respectively.2019.
Fair Value Disclosures – The Company determined estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company would realize from a current market exchange at subsequent dates.
The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 185,148 | | | $ | 185,148 | | | $ | 185,148 | | | $ | 0 | | | $ | 0 | |
AFS securities | 1,560,950 | | | 1,560,950 | | | 0 | | | 1,560,950 | | | 0 | |
| | | | | | | | | |
Loans receivable | 7,202,851 | | | 7,663,000 | | | 0 | | | 0 | | | 7,663,000 | |
| | | | | | | | | |
FHLB stock | 93,862 | | | 93,862 | | | 93,862 | | | 0 | | | 0 | |
| | | | | | | | | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Deposits | 6,191,408 | | | 6,259,080 | | | 3,170,164 | | | 3,088,916 | | | 0 | |
Borrowings | 1,789,313 | | | 1,840,605 | | | 0 | | | 1,840,605 | | | 0 | |
Interest rate swaps | 53,149 | | | 53,149 | | | 0 | | | 53,149 | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 220,370 | | | $ | 220,370 | | | $ | 220,370 | | | $ | 0 | | | $ | 0 | |
AFS securities | 1,204,863 | | | 1,204,863 | | | 0 | | | 1,204,863 | | | 0 | |
| | | | | | | | | |
Loans receivable | 7,416,747 | | | 7,654,586 | | | 0 | | | 0 | | | 7,654,586 | |
| | | | | | | | | |
FHLB stock | 98,456 | | | 98,456 | | | 98,456 | | | 0 | | | 0 | |
| | | | | | | | | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Deposits | 5,581,867 | | | 5,614,895 | | | 2,594,242 | | | 3,020,653 | | | 0 | |
Borrowings | 2,239,989 | | | 2,253,353 | | | 100,001 | | | 2,153,352 | | | 0 | |
Interest rate swaps | 33,090 | | | 33,090 | | | 0 | | | 33,090 | | | 0 | |
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| | | Estimated | | | | Estimated |
| Carrying | | Fair | | Carrying | | Fair |
| Amount | | Value | | Amount | | Value |
| (Dollars in thousands) |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 351,659 |
| | $ | 351,659 |
| | $ | 281,764 |
| | $ | 281,764 |
|
AFS securities | 415,831 |
| | 415,831 |
| | 527,301 |
| | 527,301 |
|
HTM securities | 827,738 |
| | 833,009 |
| | 1,100,874 |
| | 1,122,867 |
|
Loans receivable | 7,195,071 |
| | 7,354,100 |
| | 6,958,024 |
| | 7,292,971 |
|
FHLB stock | 100,954 |
| | 100,954 |
| | 109,970 |
| | 109,970 |
|
Liabilities: | | | | | | | |
Deposits | 5,309,868 |
| | 5,318,249 |
| | 5,164,018 |
| | 5,204,251 |
|
FHLB borrowings | 2,173,808 |
| | 2,182,841 |
| | 2,372,389 |
| | 2,434,151 |
|
Repurchase agreements | 200,000 |
| | 202,004 |
| | 200,000 |
| | 207,303 |
|
Interest rate swaps | 598 |
| | 598 |
| | — |
| | — |
|
The following methods and assumptions were used to estimate the fair value of the financial instruments:
Cash and cash equivalents - The carrying amounts of cash and cash equivalents are considered to approximate their fair value due to the nature of the financial assets. (Level 1)
HTM securities - Estimated fair values of securities are based on one of three methods: (1) quoted market prices where available; (2) quoted market prices for similar instruments if quoted market prices are not available; (3) unobservable data that represents the Bank's assumptions about items that market participants would consider in determining fair value where no market data is available. HTM securities are carried at amortized cost. (Level 2)
Loans receivable - The fair value of one- to four-family loans and home equity loans are generally estimated using the present value of expected future cash flows, assuming future prepayments and using discount factors determined by prices obtained from securitization markets, less a discount for the cost of servicing and lack of liquidity. The estimated fair value of the Bank's commercial and consumer loans are based on the expected future cash flows assuming future prepayments and discount factors based on current offering rates. (Level 3)
FHLB stock - The carrying value and estimated fair value of FHLB stock equals cost, which is based on redemption at par value. (Level 1)
Deposits - The estimated fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date. The estimated fair value of these deposits at September 30, 2017 and 2016 was $2.40 billion and $2.34 billion, respectively. (Level 1) The fair value of certificates of deposit is estimated by discounting future cash flows using current London Interbank Offered Rates ("LIBOR"). The estimated fair value of certificates of deposit at September 30, 2017 and 2016 was $2.92 billion and $2.87 billion, respectively. (Level 2)
FHLB borrowings and repurchase agreements - The fair value of fixed-maturity borrowed funds is estimated by discounting estimated future cash flows using current offer rates. (Level 2)
Interest rate swaps - The fair value of the interest rate swaps was determined using discounted cash flow analysis using observable market-based inputs. (Level 2)
14.16. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presentstables present the changes in the components of AOCI, net of tax, for the years presented.
| | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2020 |
| Unrealized | | Unrealized | | |
| Gains (Losses) | | Gains (Losses) | | |
| on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI |
| (Dollars in thousands) |
Beginning balance | $ | 10,150 | | | $ | (25,049) | | | $ | (14,899) | |
| | | | | |
Other comprehensive income (loss), before reclassifications | 13,578 | | | (21,458) | | | (7,880) | |
Amount reclassified from AOCI, net of taxes of $(2,014) | 0 | | | 6,274 | | | 6,274 | |
Other comprehensive income (loss) | 13,578 | | | (15,184) | | | (1,606) | |
| | | | | |
Ending balance | $ | 23,728 | | | $ | (40,233) | | | $ | (16,505) | |
| | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2019 |
| Unrealized | | Unrealized | | |
| Gains (Losses) | | Gains (Losses) | | |
| on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI |
| (Dollars in thousands) |
Beginning balance | $ | (2,990) | | | $ | 7,330 | | | $ | 4,340 | |
Transfer of HTM securities to AFS securities | 2,336 | | | 0 | | | 2,336 | |
Other comprehensive income (loss), before reclassifications | 10,804 | | | (32,817) | | | (22,013) | |
Amount reclassified from AOCI, net of taxes of $(141) | 0 | | | 438 | | | 438 | |
Other comprehensive income (loss) | 13,140 | | | (32,379) | | | (19,239) | |
| | | | | |
Ending balance | $ | 10,150 | | | $ | (25,049) | | | $ | (14,899) | |
| | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, 2018 |
| Unrealized | | Unrealized | | |
| Gains (Losses) | | Gains (Losses) | | |
| on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI |
| (Dollars in thousands) |
Beginning balance | $ | 3,290 | | | $ | (372) | | | $ | 2,918 | |
Other comprehensive income (loss), before reclassifications | (6,741) | | | 6,981 | | | 240 | |
Amount reclassified from AOCI, net of taxes of $(197) | 0 | | | 515 | | | 515 | |
Other comprehensive income (loss) | (6,741) | | | 7,496 | | | 755 | |
Reclassification of certain income tax effects related to adoption of ASU 2018-02 | 461 | | | 206 | | | 667 | |
Ending balance | $ | (2,990) | | | $ | 7,330 | | | $ | 4,340 | |
17. REVENUE RECOGNITION
On October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, and all subsequent ASUs that modified the principles for recognizing revenue. The Company's primary sources of revenue consist of net interest income on financial assets and liabilities, which are not within the scope of the amended ASU. In addition, certain non-interest income revenue streams, such as loan servicing fees, derivatives, and BOLI, are not in-scope of the amended ASU. Based on an assessment of non-interest income revenue streams and a review of the related contracts with customers, the Company concluded the amended ASU did not significantly change the Company's revenue recognition methods. The Company elected to implement the amended ASU using the modified retrospective application with a cumulative adjustment, which increased opening retained earnings at October 1, 2018 by $394 thousand related to contracts that were not complete upon adoption. The amount was related to the change in the recognition of revenue related to certain insurance commissions.
Details of the Company's primary types of non-interest income revenue streams by financial statement line item reported in the consolidated statements of income that are within the scope of ASC Topic 606 are below. During fiscal years 2020 and 2019, revenue from contracts with customers totaled $14.8 million and $16.6 million, respectively.
Deposit Service Fees
Interchange Transaction Fees - Interchange transaction fee income primarily consists of interchange fees earned on a transactional basis through card payment networks. The performance obligation for these types of transactions is satisfied as services are rendered for each transaction and revenue is recognized daily concurrently with the transaction processing services provided to the cardholder.
In order to participate in the card payment networks, the Company must pay various transaction related costs established by the networks ("interchange network charges"), including membership fees and a per unit charge for each transaction. The Company is acting as an agent for its debit card customers when they are utilizing the card payment networks; therefore, upon adoption of the amended ASU, interchange transaction fee income is reported net of interchange network charges. Previously, interchange network charges were reported in deposit and loan expense. Interchange network charges totaled $3.2 million and $3.4 million for fiscal years 2020 and 2019, respectively.
Service Charges on Deposit Accounts - Service charges on deposit accounts consist of account maintenance and transaction-based fees such as overdrafts, insufficient funds, wire transfers and the use of out-of-network ATMs. The Company's performance obligation is satisfied over a period of time, generally a month, for account maintenance and at the time of service for transaction-based fees. Revenue is recognized after the performance obligation is satisfied. Payments are typically collected from the customer's deposit account at the time the transaction is processed and/or at the end of the customer's statement cycle (typically monthly).
Insurance Commissions
Commissions are received on insurance product sales. The Company acts in the capacity of an agent between the Company's customer and the insurance carrier. The Company's performance obligation is satisfied when the terms of the policy have been agreed upon and the insurance policy becomes effective. Additionally, the Company earns performance-based incentives ("contingent insurance commissions") based on certain criteria established by the insurance carriers. Upon adoption of the amended ASU, contingent insurance commissions are accrued based upon management's expectations. Previously, contingent insurance commissions were recognized when the funds were received.
Other Non-Interest Income
Trust Asset Management Income - The Company provides trust asset management services to customers. The Company primarily earns fees for these services over time as the monthly services are provided and the Company assesses revenue at each month end. Fees are charged based on a tiered scale of the market value of the individual trust asset accounts at the end of the month.
18. LEASES
The Company leases real estate property for branches, ATMs, and certain equipment. These leases have remaining terms that range from one year endedto 47 years, some of which include the exercising of renewal options that the Company considers to be reasonably certain. As September 30, 2017. During2020, a right-of-use asset of $14.7 million was included in other assets and a lease liability of $14.7 million was included in accounts payable and accrued expenses on the years endedconsolidated balance sheets.
As of September 30, 20162020, for the Company's operating leases, the weighted average remaining lease term was 23.5 years and 2015, the only changes in AOCI, net of tax, wereweighted average discount rate was 2.59%.
The following table presents lease expenses and supplemental cash flow information related to unrealized gains (losses) on AFS securitiesthe Company's leases for fiscal year 2020 (dollars in thousands).
| | | | | |
Operating lease expense | $ | 1,511 | |
Variable lease expense | 201 | |
Short-term lease expense | 17 | |
Cash paid for amounts included in the measurement of lease liabilities | 1,357 | |
The following table presents future minimum payments, rounded to the nearest thousand, for operating leases with initial or remaining terms in excess of one year as of September 30, 2020 (dollars in thousands):
| | | | | |
| |
Fiscal year 2021 | 1,192 | |
Fiscal year 2022 | 1,302 | |
Fiscal year 2023 | 1,210 | |
Fiscal year 2024 | 1,003 | |
Fiscal year 2025 | 827 | |
Thereafter | 15,308 | |
Total future minimum lease payments | 20,842 | |
Amounts representing interest | (6,129) | |
Present value of net future minimum lease payments | $ | 14,713 | |
The Company elected the modified retrospective approach for its adoption of ASU 2016-02, and therethe optional transition method under which the Company used the effective date as the date of initial application of the amendments. These elections require the inclusion of ASC Topic 840 disclosures for periods that continue to be presented in accordance with ASC Topic 840. As of September 30, 2019, future minimum rental commitments, rounded to the nearest thousand, required under operating leases that had initial or remaining non-cancelable lease terms in excess of one year were no amounts reclassified from AOCI.as follows (dollars in thousands):
| | | | | |
2020 | $ | 1,298 | |
2021 | 1,187 | |
2022 | 1,069 | |
2023 | 930 | |
2024 | 637 | |
Thereafter | 1,115 | |
| $ | 6,236 | |
|
| | | | | | | | | | | |
| For the Year Ended September 30, 2017 |
| Unrealized | | Unrealized | | |
| Gains (Losses) | | Gains (Losses) | | |
| on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI |
| (dollars in thousands) |
Balance at October 1, 2016 | $ | 5,915 |
| | $ | — |
| | $ | 5,915 |
|
Other comprehensive income (loss), before reclassifications | (2,625 | ) | | (506 | ) | | (3,131 | ) |
Amount reclassified from AOCI | — |
| | 134 |
| | 134 |
|
Other comprehensive income (loss) | (2,625 | ) | | (372 | ) | | (2,997 | ) |
Balance at September 30, 2017 | $ | 3,290 |
| | $ | (372 | ) | | $ | 2,918 |
|
15.19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly data for each of the years indicated for the Company.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First | | Second | | Third | | Fourth | | |
| Quarter | | Quarter | | Quarter | | Quarter | | Total |
| (Dollars and counts in thousands, except per share amounts) |
2020 | | | | | | | | | |
Total interest and dividend income | $ | 80,036 | | | $ | 78,955 | | | $ | 74,381 | | | $ | 71,606 | | | $ | 304,978 | |
Net interest and dividend income | 48,697 | | | 48,668 | | | 46,287 | | | 45,683 | | | 189,335 | |
Provision for credit losses | 225 | | | 22,075 | | | 0 | | | 0 | | | 22,300 | |
Net income | 22,511 | | | 4,276 | | | 19,474 | | | 18,279 | | | 64,540 | |
Basic EPS | 0.16 | | | 0.03 | | | 0.14 | | | 0.13 | | | 0.47 | |
Diluted EPS | 0.16 | | | 0.03 | | | 0.14 | | | 0.13 | | | 0.47 | |
Dividends declared per share | 0.425 | | | 0.085 | | | 0.085 | | | 0.085 | | | 0.68 | |
Average number of basic shares outstanding | 137,898 | | | 137,968 | | | 138,018 | | | 137,705 | | | 137,897 | |
Average number of diluted shares outstanding | 137,976 | | | 138,000 | | | 138,018 | | | 137,705 | | | 137,901 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | | | | | | | | |
Total interest and dividend income | $ | 82,421 | | | $ | 82,037 | | | $ | 82,211 | | | $ | 83,285 | | | $ | 329,954 | |
Net interest and dividend income | 52,301 | | | 52,597 | | | 51,681 | | | 49,811 | | | 206,390 | |
Provision for credit losses | 0 | | | 0 | | | 450 | | | 300 | | | 750 | |
Net income | 24,383 | | | 24,554 | | | 22,897 | | | 22,409 | | | 94,243 | |
Basic EPS | 0.18 | | | 0.18 | | | 0.17 | | | 0.16 | | | 0.68 | |
Diluted EPS | 0.18 | | | 0.18 | | | 0.17 | | | 0.16 | | | 0.68 | |
Dividends declared per share | 0.475 | | | 0.085 | | | 0.335 | | | 0.085 | | | 0.98 | |
Average number of basic shares outstanding | 137,551 | | | 137,635 | | | 137,720 | | | 137,801 | | | 137,677 | |
Average number of diluted shares outstanding | 137,592 | | | 137,691 | | | 137,788 | | | 137,867 | | | 137,735 | |
|
| | | | | | | | | | | | | | | | | | | |
| First | | Second | | Third | | Fourth | | |
| Quarter | | Quarter | | Quarter | | Quarter | | Total |
| (Dollars and counts in thousands, except per share amounts) |
2017 | | | | | | | | | |
Total interest and dividend income | $ | 75,322 |
| | $ | 77,660 |
| | $ | 79,630 |
| | $ | 80,574 |
| | $ | 313,186 |
|
Net interest and dividend income | 47,306 |
| | 49,054 |
| | 49,364 |
| | 49,658 |
| | 195,382 |
|
Provision for credit losses | — |
| | — |
| | — |
| | — |
| | — |
|
Net income | 20,578 |
| | 21,587 |
| | 21,370 |
| | 20,602 |
| | 84,137 |
|
Basic EPS | 0.15 |
| | 0.16 |
| | 0.16 |
| | 0.15 |
| | 0.63 |
|
Diluted EPS | 0.15 |
| | 0.16 |
| | 0.16 |
| | 0.15 |
| | 0.63 |
|
Dividends declared per share | 0.375 |
| | 0.085 |
| | 0.335 |
| | 0.085 |
| | 0.88 |
|
Average number of basic shares outstanding | 133,697 |
| | 134,066 |
| | 134,254 |
| | 134,314 |
| | 134,082 |
|
Average number of diluted shares outstanding | 133,950 |
| | 134,259 |
| | 134,360 |
| | 134,404 |
| | 134,244 |
|
|
| | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | |
Total interest and dividend income | $ | 74,359 |
| | $ | 75,632 |
| | $ | 75,527 |
| | $ | 75,595 |
| | $ | 301,113 |
|
Net interest and dividend income | 47,982 |
| | 48,538 |
| | 47,930 |
| | 47,732 |
| | 192,182 |
|
Provision for credit losses | — |
| | — |
| | — |
| | (750 | ) | | (750 | ) |
Net income | 20,718 |
| | 21,527 |
| | 20,551 |
| | 20,698 |
| | 83,494 |
|
Basic EPS | 0.16 |
| | 0.16 |
| | 0.15 |
| | 0.16 |
| | 0.63 |
|
Diluted EPS | 0.16 |
| | 0.16 |
| | 0.15 |
| | 0.16 |
| | 0.63 |
|
Dividends declared per share | 0.335 |
| | 0.085 |
| | 0.335 |
| | 0.085 |
| | 0.84 |
|
Average number of basic shares outstanding | 132,822 |
| | 132,960 |
| | 133,102 |
| | 133,296 |
| | 133,045 |
|
Average number of diluted shares outstanding | 132,911 |
| | 133,031 |
| | 133,251 |
| | 133,493 |
| | 133,176 |
|
16.20. PARENT COMPANY FINANCIAL INFORMATION (PARENT COMPANY ONLY)
The Company serves as the holding company for the Bank (see "Note 1. Summary of Significant Accounting Policies"). The Company's (parent company only) balance sheets at the dates presented, and the related statements of income and cash flows for each of the years presented are as follows:
| | | | | | | | | | | |
BALANCE SHEETS |
SEPTEMBER 30, 2020 and 2019 |
(Dollars in thousands, except per share amounts) |
| | | |
| 2020 | | 2019 |
ASSETS: | | | |
Cash and cash equivalents | $ | 82,466 | | | $ | 126,320 | |
Investment in the Bank | 1,165,813 | | | 1,168,986 | |
Note receivable - ESOP | 38,614 | | | 39,971 | |
Other assets | 707 | | | 711 | |
Income taxes receivable, net | 492 | | | 429 | |
| | | |
TOTAL ASSETS | $ | 1,288,092 | | | $ | 1,336,417 | |
| | | |
LIABILITIES: | | | |
| | | |
| | | |
Accounts payable and accrued expenses | 3,142 | | | 91 | |
Deferred income tax liabilities, net | 91 | | | 0 | |
Total liabilities | 3,233 | | | 91 | |
| | | |
STOCKHOLDERS' EQUITY: | | | |
Preferred stock, $.01 par value; 100,000,000 shares authorized, 0 shares issued or outstanding | 0 | | | 0 | |
Common stock, $.01 par value; 1,400,000,000 shares authorized, 138,956,296 and 141,440,030 shares issued and outstanding as of September 30, 2020 and 2019, respectively | 1,389 | | | 1,414 | |
Additional paid-in capital | 1,189,853 | | | 1,210,226 | |
Unearned compensation - ESOP | (33,040) | | | (34,692) | |
Retained earnings | 143,162 | | | 174,277 | |
AOCI, net of tax | (16,505) | | | (14,899) | |
Total stockholders' equity | 1,284,859 | | | 1,336,326 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,288,092 | | | $ | 1,336,417 | |
|
| | | | | | | |
BALANCE SHEETS |
SEPTEMBER 30, 2017 and 2016 |
(Dollars in thousands, except per share amounts) |
| | | |
| 2017 |
| | 2016 |
|
ASSETS: | | | |
Cash and cash equivalents | $ | 120,785 |
| | $ | 108,197 |
|
Investment in the Bank | 1,204,781 |
| | 1,240,827 |
|
Note receivable - ESOP | 42,557 |
| | 43,790 |
|
Other assets | 365 |
| | 389 |
|
TOTAL ASSETS | $ | 1,368,488 |
| | $ | 1,393,203 |
|
| | | |
LIABILITIES: | | | |
Income taxes payable, net | $ | 88 |
| | $ | 128 |
|
Accounts payable and accrued expenses | 52 |
| | 74 |
|
Deferred income tax liabilities, net | 35 |
| | 37 |
|
Total liabilities | 175 |
| | 239 |
|
| | | |
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, 138,223,835 and 137,486,172 | | | |
shares issued and outstanding as of September 30, 2017 and 2016, respectively | 1,382 |
| | 1,375 |
|
Additional paid-in capital | 1,167,368 |
| | 1,156,855 |
|
Unearned compensation - ESOP | (37,995 | ) | | (39,647 | ) |
Retained earnings | 234,640 |
| | 268,466 |
|
AOCI, net of tax | 2,918 |
| | 5,915 |
|
Total stockholders' equity | 1,368,313 |
| | 1,392,964 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,368,488 |
| | $ | 1,393,203 |
|
| | | | | | | | | | | | | | | | | |
STATEMENTS OF INCOME |
YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 |
(Dollars in thousands) |
| | | | | |
| 2020 | | 2019 | | 2018 |
| | | | | |
INTEREST AND DIVIDEND INCOME: | | | | | |
Dividend income from the Bank | $ | 68,329 | | | $ | 129,409 | | | $ | 134,540 | |
Interest income from other investments | 2,036 | | | 2,428 | | | 1,951 | |
| | | | | |
Total interest and dividend income | 70,365 | | | 131,837 | | | 136,491 | |
INTEREST EXPENSE | 0 | | | 403 | | | 62 | |
NET INTEREST INCOME | 70,365 | | | 131,434 | | | 136,429 | |
NON-INTEREST INCOME | 0 | | | 14 | | | 0 | |
NON-INTEREST EXPENSE: | | | | | |
Salaries and employee benefits | 988 | | | 829 | | | 1,031 | |
Regulatory and outside services | 292 | | | 286 | | | 1,129 | |
Other non-interest expense | 622 | | | 652 | | | 581 | |
Total non-interest expense | 1,902 | | | 1,767 | | | 2,741 | |
INCOME BEFORE INCOME TAX EXPENSE AND EQUITY IN | | | | | |
EXCESS OF DISTRIBUTION OVER EARNINGS OF SUBSIDIARY | 68,463 | | | 129,681 | | | 133,688 | |
INCOME TAX EXPENSE (BENEFIT) | 28 | | | 57 | | | (179) | |
INCOME BEFORE EQUITY IN EXCESS OF | | | | | |
DISTRIBUTION OVER EARNINGS OF SUBSIDIARY | 68,435 | | | 129,624 | | | 133,867 | |
EQUITY IN EXCESS OF DISTRIBUTION OVER EARNINGS OF SUBSIDIARY | (3,895) | | | (35,381) | | | (34,940) | |
NET INCOME | $ | 64,540 | | | $ | 94,243 | | | $ | 98,927 | |
|
| | | | | | | | | | | |
STATEMENTS OF INCOME |
YEARS ENDED SEPTEMBER 30, 2017, 2016, and 2015 |
(Dollars in thousands) |
| | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
INTEREST AND DIVIDEND INCOME: | | | | | |
Dividend income from the Bank | $ | 120,215 |
| | $ | 117,513 |
| | $ | 115,359 |
|
Interest income from other investments | 1,715 |
| | 1,725 |
| | 1,835 |
|
Total interest and dividend income | 121,930 |
| | 119,238 |
| | 117,194 |
|
NON-INTEREST EXPENSE: | | | | | |
Salaries and employee benefits | 896 |
| | 827 |
| | 835 |
|
Regulatory and outside services | 247 |
| | 261 |
| | 243 |
|
Other non-interest expense | 561 |
| | 558 |
| | 517 |
|
Total non-interest expense | 1,704 |
| | 1,646 |
| | 1,595 |
|
INCOME BEFORE INCOME TAX EXPENSE AND EQUITY IN | | | | | |
EXCESS OF DISTRIBUTION OVER EARNINGS OF SUBSIDIARY | 120,226 |
| | 117,592 |
| | 115,599 |
|
INCOME TAX EXPENSE | 4 |
| | 28 |
| | 84 |
|
INCOME BEFORE EQUITY IN EXCESS OF | | | | | |
DISTRIBUTION OVER EARNINGS OF SUBSIDIARY | 120,222 |
| | 117,564 |
| | 115,515 |
|
EQUITY IN EXCESS OF DISTRIBUTION OVER EARNINGS OF SUBSIDIARY | (36,085 | ) | | (34,070 | ) | | (37,422 | ) |
NET INCOME | $ | 84,137 |
| | $ | 83,494 |
| | $ | 78,093 |
|
| | | | | | | | | | | | | | | | | |
STATEMENTS OF CASH FLOWS |
YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 |
(Dollars in thousands) |
| | | | | |
| 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 64,540 | | | $ | 94,243 | | | $ | 98,927 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Equity in excess of distribution over earnings of subsidiary | 3,895 | | | 35,381 | | | 34,940 | |
Depreciation of equipment | 45 | | | 37 | | | 30 | |
Loss on disposal of premises and equipment | 0 | | | 8 | | | 0 | |
| | | | | |
| | | | | |
Provision for deferred income taxes | 91 | | | 0 | | | (35) | |
Changes in: | | | | | |
Other assets | (60) | | | 54 | | | (53) | |
Income taxes receivable/payable | (63) | | | 57 | | | (145) | |
Accounts payable and accrued expenses | 13 | | | (86) | | | (257) | |
Net cash provided by operating activities | 68,461 | | | 129,694 | | | 133,407 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| | | | | |
Principal collected on note receivable from ESOP | 1,357 | | | 1,314 | | | 1,272 | |
Cash acquired from acquisition | 0 | | | 0 | | | 18 | |
Purchase of equipment | 0 | | | (423) | | | 0 | |
Proceeds from the redemption of common equity securities related to the redemption of junior subordinated debentures | 0 | | | 302 | | | 0 | |
Net cash provided by investing activities | 1,357 | | | 1,193 | | | 1,290 | |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
Net payment from subsidiary related to restricted stock awards | 319 | | | 1,245 | | | 253 | |
Cash dividends paid | (93,862) | | | (134,929) | | | (118,312) | |
Repurchase of common stock | (20,767) | | | 0 | | | 0 | |
Repayment of other borrowings | 0 | | | (10,052) | | | 0 | |
Stock options exercised | 638 | | | 1,485 | | | 261 | |
Net cash used in financing activities | (113,672) | | | (142,251) | | | (117,798) | |
| | | | | |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (43,854) | | | (11,364) | | | 16,899 | |
| | | | | |
CASH AND CASH EQUIVALENTS: | | | | | |
Beginning of year | 126,320 | | | 137,684 | | | 120,785 | |
End of year | $ | 82,466 | | | $ | 126,320 | | | $ | 137,684 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | | | | | |
Common stock issued for acquisition | $ | 0 | | | $ | 0 | | | $ | 39,113 | |
Capital contribution to subsidiary in conjunction with acquisition of CCB | $ | 0 | | | $ | 0 | | | $ | 48,798 | |
|
| | | | | | | | | | | |
STATEMENTS OF CASH FLOWS |
YEARS ENDED SEPTEMBER 30, 2017, 2016, and 2015 |
(Dollars in thousands) |
| | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | $ | 84,137 |
| | $ | 83,494 |
| | $ | 78,093 |
|
Adjustments to reconcile net income to net cash provided by | | | | | |
operating activities: | | | | | |
Equity in excess of distribution over earnings of subsidiary | 36,085 |
| | 34,070 |
| | 37,422 |
|
Depreciation of equipment | 29 |
| | 30 |
| | 30 |
|
Provision for deferred income taxes | (2 | ) | | 2 |
| | 428 |
|
Changes in: | | | | | |
Other assets | (5 | ) | | 1 |
| | 35 |
|
Income taxes receivable/payable | (40 | ) | | 445 |
| | 3,300 |
|
Accounts payable and accrued expenses | (22 | ) | | 14 |
| | 1 |
|
Net cash flows provided by operating activities | 120,182 |
| | 118,056 |
| | 119,309 |
|
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Principal collected on notes receivable from ESOP | 1,233 |
| | 1,194 |
| | 1,156 |
|
Net cash flows provided by investing activities | 1,233 |
| | 1,194 |
| | 1,156 |
|
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
Net payment from subsidiary related to restricted stock awards | 293 |
| | 473 |
| | 95 |
|
Dividends paid | (117,963 | ) | | (111,767 | ) | | (114,162 | ) |
Repurchase of common stock | — |
| | — |
| | (50,034 | ) |
Stock options exercised | 8,843 |
| | 4,070 |
| | 267 |
|
Net cash flows used in financing activities | (108,827 | ) | | (107,224 | ) | | (163,834 | ) |
| | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 12,588 |
| | 12,026 |
| | (43,369 | ) |
| | | | | |
CASH AND CASH EQUIVALENTS: | | | | | |
Beginning of year | 108,197 |
| | 96,171 |
| | 139,540 |
|
End of year | $ | 120,785 |
| | $ | 108,197 |
| | $ | 96,171 |
|
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of September 30, 2017.2020. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2017,2020, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act). The Company's internal control system is a process designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation and fair presentation of published financial statements.
The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or untimely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Company's financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial reporting. Further, because of changes in conditions, the effectiveness of any system of internal control may vary over time. The design of any internal control system also factors in resource constraints and consideration for the benefit of the control relative to the cost of implementing the control. Because of these inherent limitations in any system of internal control, management cannot provide absolute assurance that all control issues and instances of fraud within the Company have been detected.
Management assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2017.2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Management has concluded that the Company maintained an effective system of internal control over financial reporting based on these criteria as of September 30, 2017.2020.
The Company's independent registered public accounting firm, Deloitte & Touche LLP, who audited the consolidated financial statements included in the Company's annual report, has issued an audit report on the Company's internal control over financial reporting as of September 30, 20172020 and it is included in Item 8.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended September 30, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item concerning the Company's directors and compliance withany delinquent reports under Section 16(a) of the Act is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in January 2018,2021, a copy of which will be filed not later than 120 days after the close of the fiscal year. Pursuant to General Instruction G(3), information concerning executive officers of the Company is included in Part I of this Form 10-K, under the caption "Executive Officers of the Registrant" of this Form 10-K."Information about our Executive Officers."
Information required by this item regarding the audit committee of the Company's Board of Directors, including information regarding the audit committee financial experts serving on the committee, is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in January 2018,2021, a copy of which will be filed not later than 120 days after the close of the fiscal year.
Code of Ethics
We have adopted a written code of ethics within the meaning of Item 406 of SEC Regulation S-K that applies to our principal executive officer and senior financial officers, and to all of our other employees and our directors, a copy of which is available free of charge in the Investor Relations section of our website, www.capfed.com.
Item 11. Executive Compensation
Information required by this item concerning compensation is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in January 2018,2021, a copy of which will be filed not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in January 2018,2021, a copy of which will be filed not later than 120 days after the close of the fiscal year.
The following table sets forth information as of September 30, 20172020 with respect to compensation plans under which shares of our common stock may be issued.
| | | | | | | | | | | | | | | | | | | | | | | |
Equity Compensation Plan Information |
| | | | | | Number of Shares | |
| | | | | | Remaining Available | |
| | | | | | for Future Issuance | |
| | Number of Shares | | | | Under Equity | |
| | to be issued upon | | Weighted Average | | Compensation Plans | |
| | Exercise of | | Exercise Price of | | (Excluding Shares | |
| | Outstanding Options, | | Outstanding Options, | | Reflected in the | |
Plan Category | | Warrants and Rights | | Warrants and Rights | | First Column) | |
Equity compensation plans | | | | | | | |
approved by stockholders | | 813,645 | | | $ | 12.86 | | | 5,824,835 | | (1) |
Equity compensation plans not | | | | | | | |
approved by stockholders | | N/A | | N/A | | N/A | |
| | 813,645 | | | $ | 12.86 | | | 5,824,835 | | |
(1)This amount includes 1,625,519 shares available for future grants of restricted stock under the Equity Incentive Plan.
|
| | | | | | | | | | | |
Equity Compensation Plan Information |
| | | | | | Number of Shares | |
| | | | | | Remaining Available | |
| | | | | | for Future Issuance | |
| | Number of Shares | | | | Under Equity | |
| | to be issued upon | | Weighted Average | | Compensation Plans | |
| | Exercise of | | Exercise Price of | | (Excluding Shares | |
| | Outstanding Options, | | Outstanding Options, | | Reflected in the | |
Plan Category | | Warrants and Rights | | Warrants and Rights | | First Column) | |
Equity compensation plans | | | | | | | |
approved by stockholders | | 1,236,798 |
| | $ | 13.31 |
| | 5,941,966 |
| (1) |
Equity compensation plans not | | | | | | | |
approved by stockholders | | N/A |
| | N/A |
| | N/A |
| |
| | 1,236,798 |
| | $ | 13.31 |
| | 5,941,966 |
| |
| |
(1) | This amount includes 1,757,650 shares available for future grants of restricted stock under the Equity Incentive Plan. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item concerning certain relationships, related transactions and director independence is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in January 20182021, a copy of which will be filed not later than 120 days after the close of the fiscal year.
Item 14. Principal Accounting Fees and Services
Information required by this item concerning principal accounting fees and services is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in January 2018,2021, a copy of which will be filed not later than 120 days after the close of the fiscal year.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following is a list of documents filed as part of this report:
(1) Financial Statements:
The following financial statements are included under Part II, Item 8 of this Form 10-K:
| |
1. | Reports of Independent Registered Public Accounting Firm. |
| |
2. | Consolidated Balance Sheets as of September 30, 2017 and 2016. |
| |
3. | Consolidated Statements of Income for the Years Ended September 30, 2017, 2016, and 2015. |
| |
4. | Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2017, 2016, and 2015. |
| |
5. | Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2017, 2016, and 2015. |
| |
6. | Consolidated Statements of Cash Flows for the Years Ended September 30, 2017, 2016, and 2015. |
| |
7. | Notes to Consolidated Financial Statements for the Years Ended September 30, 2017, 2016, and 2015. |
1.Reports of Independent Registered Public Accounting Firm.
2.Consolidated Balance Sheets as of September 30, 2020 and 2019.
3.Consolidated Statements of Income for the Years Ended September 30, 2020, 2019, and 2018.
4.Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2020, 2019, and 2018.
5.Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2020, 2019, and 2018.
6.Consolidated Statements of Cash Flows for the Years Ended September 30, 2020, 2019, and 2018.
7.Notes to Consolidated Financial Statements for the Years Ended September 30, 2020, 2019, and 2018.
(2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.
(3) Exhibits:
See "Index to Exhibits."
Item 16. Form 10-K Summary
None
INDEX TO EXHIBITS
|
| | | | | | | |
Exhibit Number
| | Document |
| | Charter of Capitol Federal Financial, Inc., as filed on May 6, 2010, as Exhibit 3(i) to Capitol Federal Financial, Inc.'s Registration Statement on Form S-1 (File No. 333-166578) and incorporated herein by reference |
| | Bylaws of Capitol Federal Financial, Inc., as amended, filed on SeptemberMarch 30, 2016,2020, as Exhibit 3.2 to Form 8-K for Capitol Federal Financial Inc. and incorporated herein by reference |
| | Capitol Federal Financial, Inc.'s Employee Stock Ownership Plan,Description of the Registrant's Securities, as amended, filed on May 10, 2011November 27, 2019, as Exhibit 10.1(ii)4 to the March 31, 2011Registrant's Annual Report on Form 10-Q for Capitol Federal Financial, Inc.,10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference |
| | Form of Change of Control Agreement with each of Natalie G. Haag and Carlton A. Ricketts filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with Robert D. Kobbeman filed on November 29, 2018 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Employment Agreement with Robert D. Kobbeman, as amended, filed on November 29, 2018 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with Anthony S. Barry filed on May 10, 2019 as Exhibit 10.1(vi) to the Registrant's March 31, 2019 Form 10-Q and incorporated herein by reference |
| | Capitol Federal Financial's 2000 Stock Option and Incentive Plan (the "Stock Option Plan") filed on April 13, 2000 as Appendix A to Capitol Federal Financial's Revised Proxy Statement (File No. 000-25391) and incorporated herein by reference |
| | Capitol Federal Financial Deferred Incentive Bonus Plan, as amended, filed on May 5, 20098, 2020 as Exhibit 10.410.3 to the Registrant's March 31, 20092020 Form 10-Q for Capitol Federal Financial and incorporated herein by reference |
| | Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference |
| | Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference |
| | Description of Director Fee Arrangements filed on August 1, 2014November 29, 2018 as Exhibit 10.910.6 to the Registrant's JuneSeptember 30, 20142018 Form 10-K and incorporated herein by reference |
| | Short-term Performance Plan, as amended, filed on May 8, 2020 as Exhibit 10.7 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference |
| | Short-term Performance Plan filed on August 4, 2015 as Exhibit 10.10 to the Registrant's June 30, 2015 Form 10-Q and incorporated herein by reference |
| | Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference |
| | Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
| | Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
| | Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
| | Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
14 | | Code of Ethics* |
| | Calculations of Basic and Diluted Earnings Per Share (See "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Earnings Per Share") |
14 | | Code of Ethics* |
| | Subsidiaries of the Registrant |
| | Consent of Independent Registered Public Accounting Firm |
| | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer |
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| | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer |
| | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer |
101 | | The following information from the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017,2020, filed with the SEC on November 29, 2017,25, 2020, has been formatted in Inline eXtensible Business Reporting Language:Language ("XBRL"): (i) Consolidated Balance Sheets at September 30, 20172020 and 2016,2019, (ii) Consolidated Statements of Income for the fiscal years ended September 30, 2017, 2016,2020, 2019, and 2015,2018, (iii) Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2017, 2016,2020, 2019, and 2015,2018, (iv) Consolidated Statement of Stockholders' Equity for the fiscal years ended September 30, 2017, 2016,2020, 2019, and 2015,2018, (v) Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2017, 2016,2020, 2019, and 2015,2018, and (vi) Notes to the Consolidated Financial Statements |
104 | | Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101 |
*May be obtained free of charge in the Investor Relations section of our website, www.capfed.com.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | CAPITOL FEDERAL FINANCIAL, INC. |
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CAPITOL FEDERAL FINANCIAL, INC. | | | |
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| Date: November 29, 201725, 2020 | By: | /s/ John B. Dicus |
| | | John B. Dicus, Chairman, President and |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantregistrant and in the capacities and on the date indicated. |
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By: | /s/ John B. Dicus | By: | /s/ Reginald L. Robinson |
| John B. Dicus, Chairman, President | | Reginald L. Robinson, Director |
| and Chief Executive Officer | | Date: November 29, 2017 |
| (Principal Executive Officer) | | |
| Date: November 29, 2017 | By: | /s/ Michael T. McCoy, M.D. |
| John B. Dicus, Chairman, President | | Michael T. McCoy, M.D., Director |
By: | and Chief Executive Officer | | Date: November 25, 2020 |
| (Principal Executive Officer) | | |
| Date: November 25, 2020 | By: | /s/ James G. Morris |
| | | James G. Morris, Director |
By: | /s/ Kent G. Townsend | | Date: November 29, 201725, 2020 |
| Kent G. Townsend, Executive Vice President, | | |
| Chief Financial Officer and Treasurer | By: | /s/ James G. MorrisMichel' P. Cole |
| (Principal Financial Officer) | | James G. Morris,Michel' P. Cole, Director |
| Date: November 29, 201725, 2020 | | Date: November 29, 201725, 2020 |
| | | |
By: | /s/ Jeffrey R. Thompson | By: | /s/ Michel' P. ColeCarlton A. Ricketts |
| Jeffrey R. Thompson, Director | | Michel' P. Cole,Carlton A. Ricketts, Director |
| Date: November 29, 201725, 2020 | | Date: November 29, 201725, 2020 |
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By: | /s/ Jeffrey M. Johnson | By: | /s/ Tara D. Van Houweling |
| Jeffrey M. Johnson, Director | | Tara D. Van Houweling, First Vice President |
| Date: November 29, 201725, 2020 | | and Reporting Director |
| | | (Principal Accounting Officer) |
By: | /s/ Morris J. Huey II | | Date: November 29, 201725, 2020 |
| Morris J. Huey II, Director | | |
| Date: November 29, 201725, 2020 | | |
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