UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_________________
Form
10-Q
(Mark
One)
þ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2007
or
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number: 000-25391
_________________
Capitol
Federal Financial
(Exact
name of registrant as specified in its charter)
United
States 48-1212142
(State
or other jurisdiction of
incorporation (I.R.S.
Employer
or
organization) Identification
No.)
700
Kansas Avenue, Topeka,
Kansas 66603
(Address
of principal executive
offices) (Zip
Code)
Registrant’s
telephone number, including area code:
(785)
235-1341
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such requirements for the
past
90 days. Yes þ
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer þ Accelerated
filer ¨ Non-accelerated
filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes ¨ No þ
As
of April 30, 2007, there were 74,271,720 shares of Capitol Federal Financial
Common Stock outstanding.
|
Page
Number
|
Item
1. Financial Statements (Unaudited):
|
|
|
3
|
|
|
March
31, 2007 and March 31, 2006
|
4
|
|
|
March
31, 2007
|
5
|
|
|
March
31, 2007 and March 31, 2006
|
6
|
|
8
|
|
|
Results
of Operations
|
9
|
|
43
|
|
51
|
|
|
PART
II -- OTHER INFORMATION
|
|
|
51
|
|
51
|
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
|
52
|
|
52
|
|
52
|
|
52
|
|
52
|
|
|
Signature
Page
|
53
|
|
|
INDEX
TO EXHIBITS
|
54
|
|
|
PART
I -- FINANCIAL INFORMATION
Item
1. Financial Statements
CAPITOL
FEDERAL FINANCIAL AND SUBSIDIARY
(Dollars
in thousands except per share data and amounts)
|
|
March
31,
|
|
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS:
|
|
|
(Unaudited
|
)
|
|
|
|
Cash
and cash equivalents
|
|
$
|
242,186
|
|
$
|
183,242
|
|
Investment
securities:
|
|
|
|
|
|
|
|
Available-for-sale(“AFS”)
at market (amortized cost of $131,060 and $189,275)
|
|
|
131,167
|
|
|
189,480
|
|
Held-to-maturity(“HTM”),
at cost (market value of $637,279 and $233,525)
|
|
|
642,237
|
|
|
240,000
|
|
Mortgage-related
securities:
|
|
|
|
|
|
|
|
Trading,
at market
|
|
|
--
|
|
|
396,904
|
|
AFS,
at market (amortized cost of $453,625 and $558,939)
|
|
|
454,114
|
|
|
556,248
|
|
HTM,
at cost (market value of $1,128,515 and $1,101,159)
|
|
|
1,149,329
|
|
|
1,131,634
|
|
Loans
receivable held-for-sale, net
|
|
|
266
|
|
|
1,440
|
|
Loans
receivable, net
|
|
|
5,215,701
|
|
|
5,221,117
|
|
Mortgage
servicing rights ("MSR")
|
|
|
6,304
|
|
|
6,917
|
|
Capital
stock of Federal Home Loan Bank ("FHLB"), at cost
|
|
|
157,344
|
|
|
165,130
|
|
Accrued
interest receivable
|
|
|
37,712
|
|
|
38,032
|
|
Premises
and equipment, net
|
|
|
28,344
|
|
|
26,500
|
|
Real
estate owned, net
|
|
|
1,905
|
|
|
2,409
|
|
Income
taxes receivable, net
|
|
|
7,119
|
|
|
5,359
|
|
Deferred
income taxes, net
|
|
|
9,164
|
|
|
20,967
|
|
Other
assets
|
|
|
14,401
|
|
|
13,694
|
|
TOTAL
ASSETS
|
|
$
|
8,097,293
|
|
$
|
8,199,073
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
4,002,866
|
|
$
|
3,900,431
|
|
Advances
from FHLB
|
|
|
3,074,973
|
|
|
3,268,705
|
|
Other
borrowings, net
|
|
|
53,495
|
|
|
53,467
|
|
Advance
payments by borrowers for taxes and insurance
|
|
|
33,877
|
|
|
48,353
|
|
Accounts
payable and accrued expenses
|
|
|
61,458
|
|
|
64,898
|
|
Total
liabilities
|
|
|
7,226,669
|
|
|
7,335,854
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
Preferred
stock ($0.01 par value) 50,000,000 shares authorized; none
issued
|
|
|
--
|
|
|
--
|
|
Common
stock ($0.01 par value) 450,000,000 shares authorized; 91,512,287
|
|
|
|
|
|
|
|
shares
issued as of March 31, 2007 and September 30, 2006
|
|
|
915
|
|
|
915
|
|
Additional
paid-in capital
|
|
|
435,643
|
|
|
429,286
|
|
Unearned
compensation, Employee Stock Ownership Plan ("ESOP")
|
|
|
(13,106
|
)
|
|
(14,784
|
)
|
Unearned
compensation, Recognition and Retention Plan ("RRP")
|
|
|
(803
|
)
|
|
(825
|
)
|
Retained
earnings
|
|
|
757,281
|
|
|
760,890
|
|
Accumulated
other comprehensive gain (loss)
|
|
|
370
|
|
|
(1,543
|
)
|
Less
shares held in treasury (17,242,193 and 17,480,537 shares as
of
|
|
|
|
|
|
|
|
March
31, 2007 and September 30, 2006, at cost)
|
|
|
(309,676
|
)
|
|
(310,720
|
)
|
Total
stockholders' equity
|
|
|
870,624
|
|
|
863,219
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
8,097,293
|
|
$
|
8,199,073
|
|
See
accompanying notes to consolidated interim financial statements.
CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
(Dollars
and share counts in thousands except per share data and amounts)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
INTEREST
AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$
|
73,990
|
|
$
|
75,505
|
|
$
|
147,182
|
|
$
|
150,665
|
|
Mortgage-related
securities
|
|
|
17,317
|
|
|
18,950
|
|
|
36,838
|
|
|
38,294
|
|
Investment
securities
|
|
|
9,262
|
|
|
4,425
|
|
|
15,946
|
|
|
9,319
|
|
Capital
stock of FHLB
|
|
|
2,544
|
|
|
2,473
|
|
|
5,243
|
|
|
4,856
|
|
Cash
and cash equivalents
|
|
|
1,460
|
|
|
605
|
|
|
4,530
|
|
|
684
|
|
Total
interest and dividend income
|
|
|
104,573
|
|
|
101,958
|
|
|
209,739
|
|
|
203,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
36,267
|
|
|
28,974
|
|
|
71,736
|
|
|
56,219
|
|
FHLB
advances
|
|
|
38,508
|
|
|
38,176
|
|
|
79,249
|
|
|
77,980
|
|
Other
borrowings
|
|
|
1,101
|
|
|
993
|
|
|
2,230
|
|
|
1,948
|
|
Total
interest expense
|
|
|
75,876
|
|
|
68,143
|
|
|
153,215
|
|
|
136,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST AND DIVIDEND INCOME
|
|
|
28,697
|
|
|
33,815
|
|
|
56,524
|
|
|
67,671
|
|
PROVISION
(RECOVERY) FOR LOAN LOSSES
|
|
|
55
|
|
|
(138
|
)
|
|
(225
|
)
|
|
130
|
|
NET
INTEREST AND DIVIDEND INCOME AFTER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
(RECOVERY) FOR LOAN LOSSES
|
|
|
28,642
|
|
|
33,953
|
|
|
56,749
|
|
|
67,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
fees and charges
|
|
|
3,543
|
|
|
3,914
|
|
|
7,831
|
|
|
8,263
|
|
Loan
fees
|
|
|
551
|
|
|
435
|
|
|
1,212
|
|
|
910
|
|
Insurance
commissions
|
|
|
513
|
|
|
808
|
|
|
954
|
|
|
1,232
|
|
Gain
on trading securities, net
|
|
|
--
|
|
|
--
|
|
|
34
|
|
|
--
|
|
Loss
on sale of available-for-sale securities
|
|
|
--
|
|
|
--
|
|
|
(47
|
)
|
|
--
|
|
Other,
net
|
|
|
824
|
|
|
858
|
|
|
1,662
|
|
|
1,452
|
|
Total
other income
|
|
|
5,431
|
|
|
6,015
|
|
|
11,646
|
|
|
11,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
10,373
|
|
|
10,185
|
|
|
20,494
|
|
|
20,120
|
|
Occupancy
of premises
|
|
|
3,529
|
|
|
3,185
|
|
|
6,399
|
|
|
6,283
|
|
Regulatory
and outside services
|
|
|
1,490
|
|
|
1,102
|
|
|
3,133
|
|
|
2,301
|
|
Deposit
and loan transaction costs
|
|
|
950
|
|
|
1,103
|
|
|
2,000
|
|
|
2,212
|
|
Advertising
|
|
|
1,223
|
|
|
868
|
|
|
2,112
|
|
|
1,565
|
|
Other,
net
|
|
|
2,455
|
|
|
1,493
|
|
|
3,513
|
|
|
3,047
|
|
Total
other expenses
|
|
|
20,020
|
|
|
17,936
|
|
|
37,651
|
|
|
35,528
|
|
INCOME
BEFORE INCOME TAX EXPENSE
|
|
|
14,053
|
|
|
22,032
|
|
|
30,744
|
|
|
43,870
|
|
INCOME
TAX EXPENSE
|
|
|
5,597
|
|
|
8,445
|
|
|
12,037
|
|
|
16,970
|
|
NET
INCOME
|
|
$
|
8,456
|
|
$
|
13,587
|
|
$
|
18,707
|
|
$
|
26,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.12
|
|
$
|
0.19
|
|
$
|
0.26
|
|
$
|
0.37
|
|
Diluted
earnings per common share
|
|
$
|
0.12
|
|
$
|
0.19
|
|
$
|
0.26
|
|
$
|
0.37
|
|
Dividends
declared per share
|
|
$
|
0.50
|
|
$
|
0.50
|
|
$
|
1.09
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,812
|
|
|
72,647
|
|
|
72,718
|
|
|
72,649
|
|
Diluted
|
|
|
72,955
|
|
|
72,923
|
|
|
72,895
|
|
|
72,947
|
|
See
accompanying notes to consolidated interim financial statements.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollars
in thousands except per share data and amounts)
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Additional
|
Unearned
|
Unearned
|
|
Other
|
|
|
|
Common
|
Paid-In
|
Compensation
|
Compensation
|
Retained
|
Comprehensive
|
Treasury
|
|
|
Stock
|
Capital
|
(ESOP)
|
(RRP)
|
Earnings
|
Gain
(Loss)
|
Stock
|
Total
|
|
|
|
|
|
|
|
|
|
Balance
at October 1, 2006
|
$ 915
|
$ 429,286
|
$ (14,784)
|
$ (825)
|
$ 760,890
|
$ (1,543)
|
$ (310,720)
|
$ 863,219
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
18,707
|
|
|
18,707
|
Changes
in unrealized gains on
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
deferred income
taxes of $1.2 million
|
|
|
|
|
1,913
|
|
1,913
|
Total
comprehensive income
|
|
|
|
|
|
|
|
20,620
|
|
|
|
|
|
|
|
|
|
Tax
benefit of market value change in vested
|
|
|
|
|
|
|
|
|
RRP
shares
|
|
26
|
|
|
|
|
|
26
|
Common
stock committed to be released for
|
|
|
|
|
|
|
|
|
allocation
- ESOP
|
|
2,824
|
1,009
|
|
|
|
|
3,833
|
Acquisition
of treasury stock
|
|
|
|
|
|
|
(1,516)
|
(1,516)
|
Stock
options exercised
|
|
3,224
|
|
|
|
|
2,518
|
5,742
|
Treasury
stock activity related to RRP, net
|
|
138
|
|
(190)
|
|
|
42
|
(10)
|
Amortization
of unearned compensation - RRP
|
|
|
|
212
|
|
|
|
212
|
Stock
based compensation expense
|
|
145
|
|
|
|
|
|
145
|
Dividends
in excess of debt service cost - ESOP
|
|
|
669
|
|
|
|
|
669
|
Dividends
on common stock to stockholders
|
|
|
|
|
|
|
|
|
($1.09
per public share)
|
|
|
|
|
(22,316)
|
|
|
(22,316)
|
Balance
at March 31, 2007
|
$
915
|
$
435,643
|
$
(13,106)
|
$
(803)
|
$ 757,281
|
$
370
|
$ (309,676)
|
$
870,624
|
See
accompanying notes to consolidated interim financial statements.
CAPITOL
FEDERAL FINANCIAL AND SUBSIDIARY
(Unaudited)
(Dollars
in thousands)
|
|
For
the Six Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income
|
|
$
|
18,707
|
|
$
|
26,900
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
FHLB
stock dividends
|
|
|
(5,243
|
)
|
|
(4,856
|
)
|
Net
loan origination fees capitalized
|
|
|
722
|
|
|
1,288
|
|
Amortization
of net deferred loan origination fees
|
|
|
(776
|
)
|
|
(678
|
)
|
(Recovery)
provision for loan losses
|
|
|
(225
|
)
|
|
130
|
|
Originations
of loans receivable held-for-sale
|
|
|
(1,667
|
)
|
|
(2,206
|
)
|
Proceeds
from sales of loans receivable held-for-sale
|
|
|
2,910
|
|
|
3,775
|
|
Amortization
of MSR
|
|
|
498
|
|
|
368
|
|
Impairment
(recovery of impairment) of MSR
|
|
|
115
|
|
|
(132
|
)
|
Amortization
and accretion of premiums and discounts on
|
|
|
|
|
|
|
|
mortgage-related
securities and investment securities
|
|
|
(551
|
)
|
|
4,082
|
|
Principal
collected on trading securities
|
|
|
7,729
|
|
|
--
|
|
Proceeds
from sale of trading securities
|
|
|
389,209
|
|
|
--
|
|
Depreciation
and amortization of premises and equipment
|
|
|
2,023
|
|
|
1,769
|
|
Amortization
of deferred debt issuance costs
|
|
|
28
|
|
|
28
|
|
Common
stock committed to be released for allocation - ESOP
|
|
|
3,833
|
|
|
3,353
|
|
RRP
shares sold, net of forfeitures
|
|
|
(10
|
)
|
|
(11
|
)
|
Stock
based compensation - stock options and RRP
|
|
|
357
|
|
|
500
|
|
Other,
net
|
|
|
(327
|
)
|
|
(323
|
)
|
Changes
in:
|
|
|
|
|
|
|
|
Accrued
interest receivable
|
|
|
320
|
|
|
874
|
|
Other
assets
|
|
|
(707
|
)
|
|
513
|
|
Income
taxes payable/receivable and deferred income taxes
|
|
|
8,900
|
|
|
12,466
|
|
Accounts
payable and accrued expenses
|
|
|
2,828
|
|
|
(2,710
|
)
|
Net
cash provided by operating activities
|
|
|
428,673
|
|
|
45,130
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from maturities or calls of investment securities AFS
|
|
|
60,000
|
|
|
50,000
|
|
Purchases
of investment securities AFS
|
|
|
(1,520
|
)
|
|
--
|
|
Proceeds
from maturities or calls of investment securities HTM
|
|
|
226,500
|
|
|
--
|
|
Purchases
of investment securities HTM
|
|
|
(626,388
|
)
|
|
--
|
|
Principal
collected on mortgage-related securities AFS
|
|
|
108,407
|
|
|
159,067
|
|
Purchases
of mortgage-related securities AFS
|
|
|
(19,912
|
)
|
|
--
|
|
Proceeds
from sale of mortgage-related securities AFS
|
|
|
15,237
|
|
|
--
|
|
Principal
collected on mortgage-related securities HTM
|
|
|
116,655
|
|
|
144,076
|
|
Purchases
of mortgage-related securities HTM
|
|
|
(134,878
|
)
|
|
(983
|
)
|
Proceeds
from the redemption of capital stock of FHLB
|
|
|
13,029
|
|
|
--
|
|
Loan
originations, net of principal collected
|
|
|
(40,738
|
)
|
|
(11,503
|
)
|
Loan
purchases, net of principal collected
|
|
|
44,518
|
|
|
(50,004
|
)
|
Purchases
of premises and equipment, net
|
|
|
(3,871
|
)
|
|
(3,272
|
)
|
Proceeds
from sales of real estate owned, net
|
|
|
2,694
|
|
|
2,074
|
|
Net
cash (used in) provided by investing
activities
|
|
|
(240,267
|
)
|
|
289,455
|
|
(Continued)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Dividends
paid
|
|
|
(22,316
|
)
|
|
(26,616
|
)
|
Dividends
in excess of debt service cost of ESOP, net
|
|
|
669
|
|
|
(79
|
)
|
Deposits,
net of withdrawals
|
|
|
102,435
|
|
|
54,831
|
|
Proceeds
from advances/line of credit from FHLB
|
|
|
--
|
|
|
629,100
|
|
Repayments
on advances/line of credit from FHLB
|
|
|
(200,000
|
)
|
|
(829,100
|
)
|
Change
in advance payments by borrowers for taxes
and insurance
|
|
|
(14,476
|
)
|
|
(6,391
|
)
|
Acquisitions
of treasury stock
|
|
|
(1,516
|
)
|
|
(10,056
|
)
|
Stock
options exercised
|
|
|
3,264
|
|
|
1,335
|
|
Excess
tax benefits from stock options
|
|
|
2,478
|
|
|
--
|
|
Net
cash used in financing activities
|
|
|
(129,462
|
)
|
|
(186,976
|
)
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
58,944
|
|
|
147,609
|
|
CASH
AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
183,242
|
|
|
58,566
|
|
End
of period
|
|
$
|
242,186
|
|
$
|
206,175
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Income
tax payments
|
|
$
|
711
|
|
$
|
2,885
|
|
Interest
payments, net of interest credited to deposits
|
|
$
|
78,920
|
|
$
|
84,633
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH
|
|
|
|
|
|
|
|
INVESTING
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Loans
transferred to real estate owned
|
|
$
|
1,915
|
|
$
|
2,072
|
|
|
|
|
|
|
|
|
|
Market
value change related to fair value hedge:
|
|
|
|
|
|
|
|
Interest
rate swaps hedging FHLB advances
|
|
$
|
(6,268
|
)
|
$
|
13,123
|
|
|
|
|
|
|
|
|
|
(Concluded)
See
accompanying notes to consolidated interim financial statements.
1. Basis
of Financial Statement Presentation
The
accompanying consolidated financial statements of Capitol Federal Financial
and
subsidiary (the “Company”) have been prepared in accordance with generally
accepted accounting principles in the United States of America (“GAAP”) for
interim financial information and with the instructions to Form 10-Q and
Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the
opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s 2006 Annual Report on
Form 10-K to the Securities and Exchange Commission (“SEC”). Interim results are
not necessarily indicative of results for a full year.
In
preparing the financial statements, management is required to make estimates
and
assumptions that affect the reported amounts of assets and liabilities as
of the
date of the balance sheet and revenues and expenses for the period. Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowance for loan losses,
other-than-temporary declines in the value of securities, the valuation of
MSR
and deferred income tax assets, and our policy regarding derivative instruments.
See “Item 2- Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies.”
The
Company is the sole stockholder of Capitol Federal Savings Bank (the “Bank”).
The Company’s majority stockholder is Capitol Federal Savings Bank MHC (“MHC”),
a federally chartered mutual holding company.
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007(1)
(2)
|
|
2006(3)
(4)
|
|
2007(1)(2)
|
|
2006(3)(4)
|
|
(Dollars
in thousands, except per share amounts)
|
|
Net
income
|
|
$
|
8,456
|
|
$
|
13,587
|
|
$
|
18,707
|
|
$
|
26,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
72,760,899
|
|
|
72,596,424
|
|
|
72,692,770
|
|
|
72,623,113
|
|
Average
committed ESOP shares outstanding
|
|
|
50,970
|
|
|
50,970
|
|
|
25,482
|
|
|
25,482
|
|
Total
basic average common shares outstanding
|
|
|
72,811,869
|
|
|
72,647,394
|
|
|
72,718,252
|
|
|
72,648,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive RRP shares
|
|
|
5,173
|
|
|
2,114
|
|
|
6,547
|
|
|
2,775
|
|
Effect
of dilutive stock options
|
|
|
138,109
|
|
|
273,367
|
|
|
169,829
|
|
|
295,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
diluted average common shares outstanding
|
|
|
72,955,151
|
|
|
72,922,875
|
|
|
72,894,628
|
|
|
72,947,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
$
|
0.19
|
|
$
|
0.26
|
|
$
|
0.37
|
|
Diluted
|
|
$
|
0.12
|
|
$
|
0.19
|
|
$
|
0.26
|
|
$
|
0.37
|
|
(1)
Options
to purchase 34,000 shares of common stock at $38.77 per share were outstanding
as of March 31, 2007, but were not included in the computation of diluted
EPS
because they were anti-dilutive for the three months and the six months ended
March 31, 2007.
(2)
At
March
31, 2007, there were 4,000 unvested RRP shares at $38.76 per share that were
excluded from the computation of diluted EPS because they were anti-dilutive
for
the three months and the six months ended March 31, 2007.
(3)
At
March
31, 2006, there were 16,000 unvested RRP shares at $32.53 per share that
were
excluded from the computation of diluted EPS because they were anti-dilutive
for
the three months and the six months ended March 31, 2006.
(4)
Options
to purchase 249,000 shares of common stock at prices between $32.48 per share
and $36.19 per share were outstanding as of March 31, 2006, but were not
included in the computation of diluted EPS because they were anti-dilutive
for
the three months and the six months ended March 31, 2006.
3. Recent
Accounting Pronouncements
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 155, “Accounting for
Certain Hybrid Financial Instruments.” SFAS No. 155 amends SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.” SFAS No. 155 permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that would otherwise
require bifurcation, if the holder irrevocably elects to account for the
whole
instrument on a fair value basis, and clarifies various aspects of SFAS No.
133
and SFAS No. 140 relating to derivative financial instruments and qualifying
special-purpose entities holding derivative financial instruments. The Company’s
adoption of SFAS No. 155 had no impact on its financial condition or results
of
operations.
In
March
2006, FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets -
an amendment of FASB Statement No. 140.” SFAS No. 156 requires an entity to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
as
defined in the SFAS. It requires all separately recognized servicing assets
and
servicing liabilities to be initially measured at fair value, if practicable,
and allows an entity to choose between amortization or fair value measurement
methods for each class of separately recognized servicing assets and servicing
liabilities. It also permits a one-time reclassification of available-for-sale
securities to trading without tainting the investment portfolio, provided
the
available-for-sale securities are identified in some manner as offsetting
the
entity’s exposure to changes in fair value of servicing assets or servicing
liabilities. The Company’s adoption of SFAS No. 156 had no impact on its
financial condition or results of operations, as management will continue
to
value MSR at the lower of cost or market.
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” which permits an entity to measure certain
financial assets and financial liabilities at fair value. The objective of
SFAS
No. 159 is to improve financial reporting by allowing entities to mitigate
volatility in reported earnings caused by the measurement of related assets
and
liabilities using different attributes, without having to apply complex hedge
accounting provisions. When a company elects to apply the fair value option
to
existing specific items, the company reports the difference between the items’
carrying value and their fair value as a cumulative-effect adjustment to
the
opening balance of retained earnings. When a company elects to apply the
fair
value option to new items, the company reports the change in the items value
through current period income. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007, which for the Company is October 1, 2008.
An
entity may elect to early adopt SFAS No. 159 if, among a number of conditions,
it has not issued financial statements for any interim period within the
fiscal
year SFAS No. 159 is first adopted. The Company has not yet completed its
assessment of the impact of SFAS No. 159.
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The
Company and/or the Bank may from time to time make written or oral “forward
looking statements,” including statements contained in the documents we file
with or furnish to the SEC. These forward-looking statements may be included
in
this Quarterly Report on Form 10-Q and the exhibits attached to it, in the
Company’s reports to stockholders and in other communications by the Company,
which are made in good faith by us pursuant to the “safe harbor” provisions of
the Private Securities Litigation Reform Act of 1995.
These
forward-looking statements include statements about our beliefs, plans,
objectives, goals, expectations, anticipations, estimates and intentions,
that
are subject to significant risks and uncertainties, and are subject to change
based on various factors, many of which are beyond our control. The words
“may,”
“could,” “should,”
“would,”
“believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar
expressions are intended to identify forward-looking statements. The following
factors, among others, could cause our future results to differ materially
from
the plans, objectives, goals, expectations, anticipations, estimates and
intentions expressed in the forward-looking statements:
· |
our
ability to continue to maintain overhead costs at reasonable levels;
|
· |
our
ability to continue to originate a significant volume of one- to
four-family mortgage loans in our market
area;
|
· |
our
ability to acquire funds from or invest funds in wholesale or secondary
markets;
|
· |
the
future earnings and capital levels of the Bank, which could affect
the
ability of the Company to pay dividends in accordance with its dividend
policies;
|
· |
the
credit risks of lending and investing activities, including changes
in the
level and direction of loan delinquencies and write-offs and changes
in
estimates of the adequacy of the allowance for loan
losses;
|
· |
the
strength of the U.S. economy in general and the strength of the local
economies in which we conduct operations;
|
· |
the
effects of, and changes in, trade, monetary and fiscal policies and
laws,
including interest rate policies of the Board of Governors of the
Federal
Reserve System;
|
· |
the
effects of, and changes in, foreign and military policies of the
United
States Government;
|
· |
inflation,
interest rate, market and monetary fluctuations;
|
· |
our
ability to access cost-effective funding;
|
· |
the
timely development of and acceptance of our new products and services
and
the perceived overall value of these products and services by users,
including the features, pricing and quality compared to competitors’
products and services;
|
· |
the
willingness of users to substitute competitors’ products and services for
our products and services;
|
· |
our
success in gaining regulatory approval of our products and services,
when
required;
|
· |
the
impact of changes in financial services laws and regulations, including
laws concerning taxes, banking, securities and
insurance;
|
· |
acquisitions
and dispositions;
|
· |
changes
in consumer spending and saving habits;
and
|
· |
our
success at managing the risks involved in our
business.
|
This
list
of important factors is not all inclusive. We do not undertake to update
any
forward-looking statement, whether written or oral, that may be made from
time
to time by or on behalf of the Company or the Bank.
As
used
in this Form 10-Q, unless we specify otherwise, “the Company,” “we,” “us,” and
“our” refer to Capitol Federal Financial, a United States corporation. “Capitol
Federal Savings,” and “the Bank,” refer to Capitol Federal Savings Bank, a
federal savings bank and the wholly-owned subsidiary of the Company. “MHC”
refers to Capitol Federal Savings Bank MHC, a mutual holding company and
majority-owner of the Company.
The
following discussion and analysis is intended to assist in understanding
the
financial condition and results of operations of the Company. It should be
read
in conjunction with the consolidated financial statements and notes presented
in
this report. The discussion includes comments relating to the Bank, since
the
Bank is wholly owned by the Company and comprises the majority of assets
and is
the principal source of income for the Company. This discussion and analysis
should be read in conjunction with the management discussion and analysis
included in the Company’s 2006 Annual Report on Form 10-K filed with the SEC.
Executive
Summary
The
following summary should be read in conjunction with our Management’s Discussion
and Analysis of Financial Condition and Results of Operations in its
entirety.
Our
principal business consists of attracting deposits from the general public
and
investing those funds primarily in permanent loans secured by first mortgages
on
owner-occupied, one- to four-family residences. We also originate consumer
loans, loans secured by first mortgages on nonowner-occupied one- to four-family
residences, permanent and construction loans secured by one- to four-family
residences, commercial real estate loans and multi-family real estate loans.
While our primary business is the origination of one- to four-family mortgage
loans funded through
retail
deposits, we also purchase whole loans and invest in certain investment and
mortgage-related securities using FHLB advances as an additional funding
source.
The
Company is significantly affected by prevailing economic conditions including
federal monetary and fiscal policies and federal regulation of financial
institutions. Deposit balances are influenced by a number of factors including
interest rates paid on competing personal investments, the level of personal
income, and the personal rate of savings within our market areas. Lending
activities are influenced by the demand for housing and other loans, as well
as
interest rate pricing competition from other lending institutions. The primary
sources of funds for lending activities include deposits, loan repayments,
investment income, borrowings, and funds provided from operations.
The
Company’s results of operations are primarily dependent on net interest income,
which is the difference between the interest earned on loans, mortgage-related
securities, and investments, and the interest paid on deposits and borrowings.
We generally price our loan and deposit products based upon an analysis of
our
competition and changes in market rates. On a weekly basis, management reviews
deposit flows, loan demand, cash levels, and changes in several market rates
to
assess all pricing strategies. While we do not explicitly price our products
at
a margin to a specific market rate or index, our products tend to be priced
at a
margin to general market rates or indices. While national market rates change
constantly, and rates offered by competitors with nationwide delivery channels
may change during a business day, our offered rates generally remain available
to customers for up to a week on deposit products and several days to a week
on
loan products. Our one- to four-family mortgage loans are generally priced
based
upon the 10-year Treasury rate while the rates on our deposits are generally
priced based upon short-term Treasury rates. The majority of our loans are
fixed-rate products with maturities up to 30 years, while the majority of
our
deposits have maturity or reprice dates of less than two years.
During
the quarter, the Federal Open Market Committee of the Federal Reserve Board
(“FOMC”) maintained the Federal Funds rate at 5.25% for the sixth consecutive
meeting, but indicated that inflation remained the main threat to the economic
outlook, despite mixed economic indicators and evidence of modest economic
growth. The Federal Funds rate is the rate at which depository institutions
lend
reserve requirement surplus balances at the Federal Reserve to other depository
institutions in deficit of their reserve requirement. An increase in this
rate
does not directly impact the rates offered to loan and deposit consumers,
but
the trickle-down effect caused by an increase in borrowing costs for banks
may
be eventually realized in mortgage, consumer, and corporate loan rates and
deposit rates. Previous FOMC meeting minutes discussed the potential impact
of
the slowdown in the housing market on the economy, but current data suggests
stabilization, despite recent increases in delinquencies on subprime
adjustable-rate mortgage (“ARM”) loans. Delinquency rates market-wide have
prompted a tightening of credit standards, which could constrain home purchases
and restrict recovery. See additional discussion under “Item 2- Management’s
Discussion and Analysis of Financial Condition and Results of Operations
-
Lending Practices and Underwriting Standards.”
During
the second quarter of fiscal year 2007, the yield curve remained inverted,
and
is expected to remain inverted or flat through fiscal year 2007. This yield
curve environment has resulted in the compression of the Company’s net interest
margin, as the interest-earning assets of the Company generally take longer
to
reprice relative to its interest-bearing liabilities. The current inverted
yield
curve environment is likely to cause a continuation of the net interest margin
compression during fiscal year 2007.
Net
income for the quarter ending March 31, 2007 was $8.5 million compared to
$13.6
million for the same period in the prior fiscal year. The $5.1 million decrease
in net income was primarily a result of an increase in interest expense of
$7.7
million, which was partially offset by an increase of $2.6 million in interest
and dividend income. The increase in interest expense was mainly attributable
to
higher rates on the certificate of deposit and money market portfolios, and,
to
a lesser extent, the interest rate swaps which are all generally priced based
upon short-term interest rates (two year and shorter maturities). The increase
in interest and dividend income was primarily a result of an increase in
the
yields on all interest-earning assets, partially offset by a decrease in
the
average balance of the loan and mortgage-related securities
portfolios.
During
fiscal year 2006, management implemented an asset management strategy of
shortening the average life of the Bank’s assets to address the interest rate
sensitivity that has occurred during the current interest rate environment.
Management has been purchasing short-term securities and adjustable-rate
securities with terms to maturity or reprice of generally two years or less.
The
purchases have primarily been investment securities. Management intends to
continue purchasing these types of securities for the foreseeable
future.
In
January 2007, management did not renew $200.0 million of maturing FHLB advances,
as the renewal rate on the advances was approximately 5.30% compared to the
rate
on the maturing advances of 3.37%. Subsequent to March
31,
2007,
management did not renew an additional $200.0 million of maturing FHLB advances,
as the renewal rate on the advances was approximately 5.00% compared to the
rate
on the maturing advances of 3.49%. The advances were not renewed because
the
interest rate available on the Bank’s short-term investment opportunities for
these funds was less than or equal to what the rate would have been on the
new
advances. Management will continue to monitor the Bank’s investment
opportunities and balance those opportunities with the cost of FHLB advances
or
other funding sources. See additional discussion of interest rate risk in
"Item
7A. Quantitative and Qualitative Disclosure About Market Risk."
Available
Information
Company
and financial information, including press releases, Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all
amendments to those reports can be obtained free of charge from our investor
relations website, http://ir.capfed.com. SEC filings are available on our
website immediately after they are electronically filed with or furnished
to the
SEC, and are also available on the SEC’s website at www.sec.gov.
Critical
Accounting Policies
Our
most
critical accounting policies are the methodologies used to determine the
allowance for loan losses, other-than-temporary declines in the value of
securities, the valuation of MSR and deferred income tax assets, and our
policy
regarding derivative instruments. These policies are important to the
presentation of our financial condition and results of operations, involve
a
high degree of complexity, and require management to make difficult and
subjective judgments that may require assumptions or estimates about highly
uncertain matters. The use of different judgments, assumptions, and estimates
could cause reported results to differ materially. These critical accounting
policies and their application are reviewed at least annually by our audit
committee and board of directors. The following is a description of our critical
accounting policies and an explanation of the methods and assumptions underlying
their application.
Allowance
for Loan Losses.
Management maintains an allowance for loan losses to absorb losses known
and
inherent in the loan portfolio based upon ongoing quarterly assessments of
the
loan portfolio. Our methodology for assessing the appropriateness of the
allowance consists of several key elements, which includes a formula allowance,
specific allowances for identified problem loans and portfolio segments,
and
knowledge of economic conditions that may lead to credit risk concerns about
the
loan portfolio or segments of the loan portfolio. In addition, the allowance
incorporates the results of measuring impaired loans as provided in SFAS
No.
114, “Accounting by Creditors for Impairment of a Loan” and SFAS No. 118,
“Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures.” These accounting standards prescribe the measurement methods,
income recognition and disclosures related to impaired loans.
One-
to
four-family mortgage loans and consumer loans that are not impaired, as defined
in SFAS No. 114 and No. 118, are collectively evaluated for impairment using
a
formula allowance as permitted by SFAS No. 5, “Accounting for Contingencies”.
Loans on residential properties with greater than four units, residential
construction loans and commercial properties that are delinquent or where
the
borrower’s total loan concentration balance is greater than $1.5 million
(excluding one- to four-family mortgage loans) are evaluated for impairment
on a
loan by loan basis at least annually. If no impairment exists, these loans
are
included in the formula allowance. The formula allowance is calculated by
applying loss factors to outstanding loans based on the internal risk evaluation
of pools of loans. Changes in risk evaluations of both performing and
non-performing loans affect the amount of the formula allowance. Loss factors
are based both on our historical loss experience and on significant factors
that, in management’s judgment, affect the collectibility of the portfolio as of
the evaluation date. Loan loss factors for portfolio segments are representative
of the credit risks associated with loans in those segments. The greater
the
credit risks associated with a particular segment, the greater the loss factor.
Loss factors increase as individual loans become classified, delinquent,
the
foreclosure process begins, or as economic conditions warrant.
Management
reviews the appropriateness of the allowance based upon its evaluation of
then-existing economic and business conditions affecting our key lending
areas.
Other conditions management considers in determining the appropriateness
of the
allowance include, but are not limited to, changes in our underwriting
standards, credit quality trends (including changes in the balance and
characteristics of non-performing loans expected to result from existing
economic conditions), trends in collateral values, loan volumes and
concentrations, and recent loss experience in particular segments of the
portfolio as of the balance sheet date. Management also measures the impact
that
such conditions were believed to have had on the collectibility of impaired
loans.
Senior
management reviews these conditions quarterly. To the extent that any of
these
conditions are evidenced by a specifically identifiable problem loan or
portfolio segment as of the evaluation date, management’s estimate of the effect
of such condition may be reflected as a specific allowance applicable to
such
loan or loans. Where any of these conditions are not evidenced by a specifically
identifiable problem loan or portfolio segment as of the evaluation date,
management’s evaluation of the loss related to these conditions is reflected in
the allowance associated with our homogeneous population of mortgage loans.
The
evaluation of the inherent loss with respect to these conditions is subject
to a
higher degree of uncertainty because they are not identified with specific
problem loans or portfolio segments.
The
amounts actually observed with respect to these losses can vary significantly
from the estimated amounts. Our methodology permits adjustments to any loss
factor used in the computation of the formula allowance in the event that,
in
management’s judgment, significant factors which affect the collectibility of
the portfolio, as of the evaluation date, are not reflected in the current
loss
factors. By assessing the estimated losses inherent in our loan portfolios
on a
quarterly basis, we can adjust specific and inherent loss estimates based
upon
more current information.
Assessing
the adequacy of the allowance for loan losses is inherently subjective as
it
requires making material estimates, including the amount and timing of future
cash flows expected to be received on impaired loans, and changes in the
market
value of collateral securing loans, which may be susceptible to volatility.
In
the opinion of management, the allowance, when taken as a whole, is adequate
to
absorb reasonable estimated loan losses inherent in our loan
portfolios.
Securities
Impairment.
Management regularly monitors the investment and mortgage-related security
portfolios for impairment on a security by security basis. Many factors are
considered in determining whether the impairment is deemed to be
other-than-temporary, including, but not limited to, the length of time the
security has had a market value less than the cost basis, the severity of
the
loss, the intent and ability of the Bank to hold the security for a period
of
time sufficient for a substantial recovery of its investment, 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. If management deems such decline
to be other-than-temporary, the carrying value of the security is adjusted
and
an impairment amount is recorded in the consolidated statements of income.
Valuation
of Mortgage Servicing Rights.
The Bank
records MSR as a result of retaining the servicing of loans that are owned
by
another entity. Impairment exists if the carrying value of MSR exceeds the
estimated fair value of the MSR. MSR are stratified by the underlying loan
term
and by interest rate. Individual impairment allowances for each stratum are
established when necessary and then adjusted in subsequent periods to reflect
changes in the measurement of impairment. The estimated fair value of each
MSR
stratum is determined through analysis of future cash flows incorporating
numerous assumptions including: servicing income, servicing costs, market
discount rates, prepayment speeds, and other market driven data.
The
fair
value of MSR is highly sensitive to changes in assumptions. Changes in
prepayment speed assumptions have the most significant impact on the fair
value
of MSR. Generally, as interest rates decline, prepayments accelerate due
to
increased refinance activity, which results in a decrease in the fair value
of
MSR. As interest rates rise, prepayments slow which generally results in
an
increase in the fair value of MSR. All assumptions are reviewed for
reasonableness on a quarterly basis and adjusted as necessary to reflect
current
and anticipated market conditions. Thus, any measurement of the fair value
of
MSR is limited by the conditions existing and the assumptions utilized as
of a
particular point in time, and those assumptions may not be appropriate if
applied at a different point in time. We receive an independent appraisal
of the
fair value of our MSR at least annually.
Valuation
of Deferred Income Tax Assets.
Management assesses the available positive and negative evidence surrounding
the
recoverability of deferred income tax assets on a quarterly basis. A valuation
allowance will be recorded to reduce deferred income tax assets when it is
more
likely than not that the assets will not be realized.
Derivative
Instruments.
The Bank
has entered into interest rate swap agreements to hedge certain FHLB advances
(“swapped FHLB advances”). When the Bank entered into the interest rate swap
agreements, they were designated as fair value hedges. All terms of the interest
rate swap agreements relating to the pay, fixed-rate components, and timing
of
cash flows match the terms of the swapped FHLB advances. Therefore, the Bank
has
assumed no ineffectiveness in the hedging relationship and accounts for the
interest rate swaps using the shortcut method, under which any gain or loss
in
the fair value of the interest rate swaps is recorded as an other asset or
liability and is offset by a gain or loss on the hedged FHLB
advances.
Before
entering into the interest rate swap agreements, management formally documented
its risk management objectives and strategy, and the relationship between
the
interest rate swap agreements and the swapped FHLB advances. To qualify for
hedge accounting, the interest rate swaps and the related FHLB advances must
be
designated as a hedge. Both at the inception of the hedge and on an ongoing
basis, management assesses whether the hedging relationship is expected to
be
highly effective in offsetting changes in fair values of the swapped FHLB
advances. If at some point it is determined that the interest rate swaps
are not
highly effective as a hedge, hedge accounting will be discontinued. If hedge
accounting is discontinued, changes in the fair value of the interest rate
swaps
will be recorded in earnings and the swapped FHLB advances will no longer
be
adjusted for changes in fair value.
Financial
Condition
Total
assets decreased from $8.20 billion at September 30, 2006 to $8.10 billion
at
March 31, 2007 primarily as a result of not renewing maturing FHLB advances.
The
$101.8 million decrease in assets was primarily attributed to a $481.3 million
decrease in the mortgage-related securities portfolio, partially offset by
a
$343.9 million increase in the investment securities portfolio. During the
first
quarter of fiscal year 2007, all trading mortgage-related securities were
sold
and the majority of the proceeds were invested in short-term investment
securities, generally with terms to maturity or reprice of two years or less.
Proceeds of principal repayments, maturities and calls from the mortgage-related
and investment securities portfolios were utilized to pay off maturing FHLB
advances.
Total
liabilities decreased from $7.34 billion at September 30, 2006 to $7.23 billion
at March 31, 2007. The $109.2 million decrease in liabilities was due primarily
to the maturity of a $200.0 million FHLB advance that was not renewed, partially
offset by an increase in deposits of $102.4 million, particularly in the
checking and money market portfolios due to the timing of payroll deposits.
Stockholders’
equity increased $7.4 million to $870.6 million at March 31, 2007, from $863.2
million at September 30, 2006.
The
following table presents selected balance sheet data for the Company at the
dates indicated.
|
|
Balance
at
|
|
|
|
March
31,
|
|
December
31,
|
|
September
30,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
2006
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
Selected
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,097,293
|
|
$
|
8,205,833
|
|
$
|
8,199,073
|
|
$
|
8,252,195
|
|
Cash
and cash equivalents
|
|
|
242,186
|
|
|
187,479
|
|
|
183,242
|
|
|
206,175
|
|
Investment
securities
|
|
|
773,404
|
|
|
844,514
|
|
|
429,480
|
|
|
380,518
|
|
Mortgage-related
securities
|
|
|
1,603,443
|
|
|
1,668,548
|
|
|
2,084,786
|
|
|
1,839,593
|
|
Loans
receivable, net
|
|
|
5,215,701
|
|
|
5,229,032
|
|
|
5,221,117
|
|
|
5,522,825
|
|
MSR
|
|
|
6,304
|
|
|
6,508
|
|
|
6,917
|
|
|
2,633
|
|
Capital
stock of FHLB
|
|
|
157,344
|
|
|
167,829
|
|
|
165,130
|
|
|
187,115
|
|
Deposits
|
|
|
4,002,866
|
|
|
3,934,707
|
|
|
3,900,431
|
|
|
4,015,128
|
|
Advances
from FHLB
|
|
|
3,074,973
|
|
|
3,270,125
|
|
|
3,268,705
|
|
|
3,213,342
|
|
Other
borrowings
|
|
|
53,495
|
|
|
53,481
|
|
|
53,467
|
|
|
53,438
|
|
Stockholders'
equity
|
|
|
870,624
|
|
|
867,139
|
|
|
863,219
|
|
|
861,813
|
|
Accumulated
other comprehensive gain (loss)
|
|
|
370
|
|
|
(457
|
)
|
|
(1,543
|
)
|
|
(3,397
|
)
|
Equity
to total assets at end of period
|
|
|
10.75
|
%
|
|
10.57
|
%
|
|
10.53
|
%
|
|
10.44
|
%
|
Book
value per share
|
|
$
|
11.94
|
|
$
|
11.92
|
|
$
|
11.89
|
|
$
|
11.87
|
|
Shares
outstanding
|
|
|
72,932,544
|
|
|
72,725,595
|
|
|
72,589,660
|
|
|
72,598,164
|
|
|
March
31,
|
|
December
31,
|
|
September
30,
|
|
|
March
31,
|
|
2007
|
|
2006
|
|
2006
|
|
|
2006
|
Average
Yield / Cost at End of Period: (annualized)
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
5.72
|
%
|
|
5.66
|
%
|
|
5.64
|
%
|
|
|
5.55
|
%
|
Mortgage-related
securities
|
4.27
|
|
|
4.26
|
|
|
4.54
|
|
|
|
4.01
|
|
Investment
securities
|
4.76
|
|
|
4.82
|
|
|
4.46
|
|
|
|
4.41
|
|
Deposits
|
3.76
|
|
|
3.68
|
|
|
3.61
|
|
|
|
3.07
|
|
FHLB
advances
|
4.97
|
|
|
4.88
|
|
|
4.88
|
|
|
|
4.70
|
|
Borrowings,
other
|
8.13
|
|
|
8.14
|
|
|
8.28
|
|
|
|
7.37
|
|
Loans
Receivable. The
loan
portfolio remained relatively unchanged compared to September 30, 2006, at
$5.22
billion for both period ends. Purchased loans from nationwide lenders
represented 19.5% of the loan portfolio at March 31, 2007 compared to 21.3%
at
September 30, 2006. As of March 31, 2007, the average balance of a purchased
mortgage loan was approximately $348 thousand while the average balance of
an
originated mortgage loan was $115 thousand.
Included
in the loan portfolio at March 31, 2007 was $425.7 million of interest-only
loans, which were primarily purchased from nationwide lenders during fiscal
year
2005. These loans do not typically require principal payments during their
initial term. The interest-only loans in our portfolio have initial
interest-only terms of either five or ten years, with approximately equal
distribution between the two terms. Loans of this type generally are considered
to be of greater risk to the lender because of the possibility that the borrower
may default once principal payments are required. We attempt to mitigate
the
risk of interest-only loans by using prudent underwriting criteria. The
interest-only loans we purchased have an average credit score of 734 and
an
average loan-to-value ratio not exceeding 80% at the time of purchase. As
of
March 31, 2007, the performance of our interest-only loans is comparable
to the
performance of the rest of our one- to four-family loan portfolio.
Total
one- to four-family loan originations during the current six month period
were
$268.7 million at an average rate of 5.90% compared to one- to four-family
loan
originations of $269.7 million at an average rate of 5.69% for the same period
one year ago. Of the one- to four- family loans originated during the current
six month period and the same period one year ago, $245.6 million and $249.2
million, respectively, were fixed-rate. Generally, during the six months
ended
March 31, 2007, the Bank’s 30 year fixed-rate loans, with no points paid by the
borrower, were priced at approximately 143 basis points above the average
10-year Treasury rate, while the Bank’s 15 year fixed-rate loans were priced
approximately 105 basis points above the average 10-year Treasury rate. The
Bank’s loan pricing is comparable to the secondary mortgage market
pricing.
The
following table summarizes the activity in the loan portfolio for the periods
indicated, excluding changes in loans in process, deferred fees and allowance
for loan losses. Included in the six months ending March 31, 2006 repayment
amounts are $47.6 million of loans which were repurchased by a seller. These
loans were purchased during fiscal year 2005.
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
Loans
receivable:
|
(Dollars
in thousands)
|
|
Beginning
balance
|
$
5,259,857
|
5.57
|
%
|
|
$
5,257,473
|
5.55
|
%
|
|
$
5,601,211
|
5.51
|
%
|
|
$
5,554,691
|
5.45
|
%
|
|
|
Originations
and refinances
|
161,705
|
6.31
|
|
|
169,473
|
6.39
|
|
|
215,763
|
6.63
|
|
|
249,077
|
6.46
|
|
|
|
Purchases
|
23,518
|
5.75
|
|
|
26,372
|
5.98
|
|
|
85,295
|
6.08
|
|
|
40,115
|
5.99
|
|
|
|
Repayments
|
(194,085)
|
|
|
|
(193,991)
|
|
|
|
(240,209)
|
|
|
|
(242,449)
|
|
|
|
|
Principal
balance of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchanged
for securities(1)
|
--
|
--
|
|
|
--
|
--
|
|
|
(404,819)
|
5.72
|
|
|
--
|
--
|
|
|
|
Other
|
(1,202)
|
|
|
|
530
|
|
|
|
232
|
|
|
|
(223)
|
|
|
|
|
Ending
balance
|
$
5,249,793
|
5.59
|
%
|
|
$
5,259,857
|
5.57
|
%
|
|
$
5,257,473
|
5.55
|
%
|
|
$
5,601,211
|
5.51
|
%
|
|
(1)
During
the quarter ended September 30, 2006, the Bank entered into a transaction
with
the Federal Home Loan Mortgage Corporation (“FHLMC”) whereby the Bank exchanged
$404.8 million of fixed-rate mortgage loans for mortgage-related securities.
These securities, which the Bank classified as trading, were sold subsequent
to
September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable:
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
$
5,257,473
|
5.55
|
%
|
|
$
5,494,387
|
5.39
|
%
|
|
|
|
|
|
|
|
|
|
|
Originations
and refinances
|
331,178
|
6.35
|
|
|
346,406
|
6.14
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
49,890
|
5.87
|
|
|
203,909
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
|
(388,076)
|
|
|
|
(490,396)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
(672)
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
$
5,249,793
|
5.59
|
%
|
|
$
5,554,691
|
5.45
|
%
|
|
|
|
|
|
|
|
|
|
The
following table presents the Company’s loan portfolio at the dates indicated.
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
Amount
|
|
Average
Rate
|
|
%
of Total
|
|
Amount
|
|
Average
Rate
|
|
%
of Total
|
|
Amount
|
|
Average
Rate
|
|
%
of Total
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
Real
Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
$4,925,267
|
|
5.46
|
%
|
|
93.82
|
%
|
|
$4,940,363
|
|
5.44
|
%
|
|
93.93
|
%
|
|
$
4,931,505
|
|
5.41
|
%
|
|
93.80
|
%
|
Multi-family
and commercial
|
62,287
|
|
6.48
|
|
|
1.19
|
|
|
58,793
|
|
6.49
|
|
|
1.12
|
|
|
56,774
|
|
6.48
|
|
|
1.08
|
|
Construction
and development
|
41,765
|
|
5.90
|
|
|
0.79
|
|
|
37,168
|
|
5.94
|
|
|
0.70
|
|
|
45,452
|
|
5.81
|
|
|
0.87
|
|
Total
real estate loans
|
5,029,319
|
|
5.47
|
|
|
95.80
|
|
|
5,036,324
|
|
5.45
|
|
|
95.75
|
|
|
5,033,731
|
|
5.43
|
|
|
95.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
loans
|
5,790
|
|
6.34
|
|
|
0.11
|
|
|
6,161
|
|
6.27
|
|
|
0.12
|
|
|
6,250
|
|
6.12
|
|
|
0.12
|
|
Automobile
|
4,316
|
|
6.93
|
|
|
0.08
|
|
|
4,114
|
|
6.87
|
|
|
0.08
|
|
|
3,660
|
|
6.88
|
|
|
0.07
|
|
Home
equity
|
209,788
|
|
8.39
|
|
|
4.00
|
|
|
212,628
|
|
8.39
|
|
|
4.04
|
|
|
213,182
|
|
8.40
|
|
|
4.05
|
|
Other
|
580
|
|
9.15
|
|
|
0.01
|
|
|
630
|
|
9.03
|
|
|
0.01
|
|
|
650
|
|
9.03
|
|
|
0.01
|
|
Total
consumer loans
|
220,474
|
|
8.31
|
|
|
4.20
|
|
|
223,533
|
|
8.31
|
|
|
4.25
|
|
|
223,742
|
|
8.31
|
|
|
4.25
|
|
Total
loans receivable
|
5,249,793
|
|
5.59
|
%
|
|
100.00
|
%
|
|
5,259,857
|
|
5.57
|
%
|
|
100.00
|
%
|
|
5,257,473
|
|
5.55
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
in process
|
20,634
|
|
|
|
|
|
|
|
17,244
|
|
|
|
|
|
|
|
22,605
|
|
|
|
|
|
|
Unearned
loan fees and deferred costs
|
9,265
|
|
|
|
|
|
|
|
9,438
|
|
|
|
|
|
|
|
9,318
|
|
|
|
|
|
|
Allowance
for losses
|
4,193
|
|
|
|
|
|
|
|
4,143
|
|
|
|
|
|
|
|
4,433
|
|
|
|
|
|
|
Total
loans receivable, net
|
$5,215,701
|
|
|
|
|
|
|
|
$5,229,032
|
|
|
|
|
|
|
|
$5,221,117
|
|
|
|
|
|
|
Lending
Practices and Underwriting Standards
The
Bank’s primary lending activity is the origination of loans and purchase of
loans from a select group of correspondent lenders. These loans are secured
by
first mortgages on owner-occupied one- to four-family residences in the Bank’s
market areas and select market areas in Missouri. Additional lending volume
is
generated by purchasing whole one- to four-family mortgage loans from nationwide
lenders. These purchases allow the Bank to attain geographic diversification
and
manage credit concentration risks and rate risk in its loan portfolio.
The
Bank’s one- to four-family loans are primarily fully amortizing loans with
contractual maturities of up to 30 years, except for interest-only loans
during
the interest-only period, with payments due monthly. Our one- to-four family
loans are generally not assumable and do not contain prepayment penalties.
A
“due on sale” clause allowing the Bank to declare the unpaid principal balance
due and payable upon the sale of the secured property, is generally included
in
the security instrument.
Current
adjustable-rate one- to four-family loans originated by the Bank generally
provide for a specified rate limit or cap on the periodic adjustment to the
interest rate, as well as a specified maximum lifetime cap and minimum rate,
or
floor. Negative amortization of principal is not allowed. Borrowers are
qualified based on the principal, interest, taxes and insurance payment at
the
initial rate for three, five and seven year ARM loans.
The
Bank
also originates interest-only ARM loans that do not require principal payments
for a period of up to ten years. Borrowers are qualified based on a fully
amortizing payment at the initial loan rate. The Bank is more restrictive
on
debt-to-income and credit scores on interest-only ARM loans than on other
ARM
loans to offset the potential risk of payment shock at the time the loan
rate
adjusts and/or the principal and interest payments begin.
The
Bank
offers existing loan customers the opportunity to modify their original loan
terms to new loan terms generally consistent with those currently being offered
in our market areas. This is a convenient tool for customers who may have
considered refinancing from an ARM loan to a fixed rate loan or would like
to
reduce their term and take advantage of lower rates associated with a shorter
term loan. The program helps ensure the Bank maintains the relationship with
the
customer and significantly reduces the amount of time it takes for customers
to
obtain current market pricing and terms without having to refinance their
loans.
The Bank charges a fee for this service generally comparable to fees charged
on
new loans.
One-
to
four-family loans are generally underwritten using an automated underwriting
system developed by a third party. The system’s components closely resemble the
Bank’s manual underwriting standards which are generally in accordance with
FHLMC and Federal National Mortgage Corporation (“FNMA”) underwriting
guidelines. The automated underwriting system analyzes the applicant’s data,
with emphasis on credit history, employment and income history, qualifying
ratios reflecting the applicant’s ability to repay, asset reserves and
loan-to-value ratio. Loans that do not meet the automated underwriting standards
are referred to a staff underwriter for manual underwriting. Full documentation
to support the applicant’s credit, income, and sufficient funds to cover all
applicable fees and reserves at closing are required on all loans. Properties
securing one- to four-family loans are appraised by either staff appraisers
or
independent fee appraisers approved by the board of directors who are
independent of the loan origination function.
Presently,
the Bank lends up to 105% of the lesser of the appraised value or purchase
price
for one- to four-family mortgage loans. At March 31, 2007, less than 1% of
the
balance of the loan portfolio had a loan-to-value ratio greater than 100%.
For
loans with a loan-to-value ratio in excess of 80%, private mortgage insurance
is
required in order to reduce the Bank’s loss exposure.
The
underwriting standards of the lenders from whom the Bank purchases loans
are
generally similar to the Bank’s internal underwriting standards. “No Doc” or
“Stated Income, Stated Assets” loans are not permitted. Lenders are required to
fully document all data sources for each application. Management believes
these
requirements reduce the credit risk associated with these loans. Before
committing to purchase a pool of loans, the Bank’s Chief Lending Officer or
Secondary Marketing Manager reviews specific criteria such as loan amount,
credit scores, loan-to-value ratios, geographic location, and debt ratios
of
each loan in the pool. If the specific criteria does not meet the Bank’s
underwriting standards and compensating factors are not sufficient, then
a loan
may be removed from the pool. Once the review of the specific criteria is
complete and loans not meeting the Bank’s standards are removed from the pool,
changes are sent back to the lender for acceptance and pricing. Before the
pool
is funded, a Bank underwriter reviews 25% of the loan files and the supporting
documentation in the pool. If a loan does not meet the Bank’s underwriting
standards for these loans, it is removed from the pool prior to funding.
The
underwriting standard for loans purchased under contractual agreement through
correspondent lenders is generally performed by a third party underwriter
who is
under contract to use the Bank’s internal underwriting standards. Correspondent
lenders are located within the metropolitan Kansas City and Wichita, Kansas
market areas and select market areas in Missouri. The loan product is originated
to the Bank’s specifications including interest rates, product description and
underwriting standards. The Bank purchases approved loans and the servicing
rights, on a loan-by-loan basis.
The
Bank
also originates construction-to-permanent loans primarily secured by one-
to
four-family residential real estate. Presently, all of these loans are secured
by property located within the Bank’s market areas. Construction loans are
obtained primarily by homeowners who will occupy the property when construction
is complete. Construction loans to builders for speculative purposes are
not
permitted. The application process includes submission of complete plans,
specifications and costs of the project to be constructed. These items are
used
as a basis to determine the appraised value of the subject property. All
construction loans are manually underwritten using the Bank’s internal
underwriting standards. The construction and permanent loan are closed at
the
same time allowing the borrower to secure the interest rate at the beginning
of
the construction period and throughout the permanent loan. Construction draw
requests and the supporting documentation are reviewed and approved by
management. The Bank also performs regular documented inspections of the
construction project to ensure the funds are being used for the intended
purpose
and the project is being completed according to the plans and specifications
provided.
The
Bank
offers a variety of secured consumer loans, including home equity loans and
lines of credit, home improvement loans, auto loans, student 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. Currently, all consumer loans are
originated in the Bank’s market areas. Home equity loans may be originated in
amounts, together with the amount of the existing first mortgage, of up to
100%
of the value of the property securing the loan. In order to minimize risk
of
loss, home equity loans that are greater than 90% of the value of the property,
when combined with the first mortgage, require private mortgage insurance.
The
term-to-maturity of home equity and home improvement loans may be up to 20
years. Home equity lines of credit have no stated term-to-maturity and require
a
payment of 1.5% of the outstanding loan balance per month. Unused principal
may
be re-advanced at any time, not to exceed the original credit limit of the
loan.
Other consumer loan terms vary according to the type of collateral and the
length of the contract.
The
majority of the consumer loan portfolio is comprised of home equity lines
of
credit, which have interest rates that can adjust monthly based upon changes
in
the prime rate, to a maximum of 18%. Since May 2006, the rates on existing
home
equity loans have not been increased, despite the increase in the prime rate.
This action was taken to retain home equity loans that might otherwise have
been
refinanced.
The
underwriting standards for consumer loans include a determination of the
applicant’s payment history on other debts and an assessment of their ability to
meet existing obligations and payments on the proposed loan. Although
creditworthiness of the 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.
The
Bank’s multi-family and commercial real estate loans are secured primarily by
multi-family dwellings and small office buildings generally located in the
Bank’s market areas. These loans are granted based on the income producing
potential of the property and the financial strength of the borrower.
Loan-to-value ratios on multi-family and commercial real estate loans usually
do
not exceed 80% of the appraised value of the property securing the loans.
The
net operating income, which is the income derived from the operation of the
property less all operating expenses, must be sufficient to cover the payments
related to the outstanding debt. The Bank generally requires personal guarantees
of the borrowers covering a portion of the debt in addition to the security
property as collateral for such loans. The Bank also generally requires an
assignment of rents or leases in order to be assured that the cash flow from
the
project will be used to repay the debt. Appraisals on properties securing
these
loans are performed by independent state certified fee appraisers approved
by
the board of directors. While maximum maturities may extend to 30 years,
loans
frequently have shorter maturities and may not be fully amortizing, requiring
balloon payments of unamortized principal at maturity.
Loans
over $500 thousand must be underwritten by two senior level underwriters.
Any
loan greater than $750 thousand must be approved by the Asset and Liability
Management Committee (“ALCO”) and loans over $1.5 million must be approved by
the board of directors. For loans requiring ALCO and/or board of directors’
approval,
management
is responsible for presenting to the ALCO and/or board of directors information
about the creditworthiness of the borrower and the estimated value of the
subject property. Information pertaining to the creditworthiness of the borrower
generally consists of a summary of the borrower’s credit history, employment
stability, sources of income, net worth, and debt ratios. The estimated value
of
the property must be supported by an independent appraisal report prepared
in
accordance with our appraisal policy.
Asset
Quality
During
the current quarter, our methodology for calculating the number of days
delinquent changed with the conversion of our core information processing
system. For mortgage loans, the new system utilizes a 30/360 calculation,
which
is consistent with industry standards. Our former core system calculated
days
delinquent based upon actual days. The method of calculating days delinquent
for
home equity loans did not change with the core conversion.
Non-performing
loans consist primarily of loans 90 or more days delinquent and loans in
the
process of foreclosure. Non-performing loans increased $1.2 million from
$5.6
million at September 30, 2006 to $6.8 million at March 31, 2007. The increase
in
non-performing loans increased our ratio of non-performing loans to total
loans
from 0.11% as of September 30, 2006 to 0.13% at March 31, 2007. Of the $6.8
million, $4.7 million, or 69%, of non-performing loans are secured by property
located in our market areas.
Loans
30
to 89 days delinquent, which are not included in non-performing loans, decreased
approximately $1.6 million from $20.5 million at September 30, 2006 to $18.9
million at March 31, 2007. Of the $18.9 million at March 31, 2007, $10.6
million, or 56% of 30-89 day delinquent loans represent loans secured by
property located in our market areas.
The
risk
that our non-performing and other delinquent loans may increase is primarily
driven by the state of the local economies in which we lend. Since the loans
we
originate in our market areas are geographically concentrated, we attempt
to
mitigate the risks of this concentration by purchasing loans from outside
our
market areas. At March 31, 2007, the asset quality of our purchased loans
was
essentially the same as loans originated locally. In most of our market areas,
the economy has continued to be generally stable. Other risks to our loan
portfolio remained largely unchanged from September 30, 2006.
The
following table presents the Company’s 30-89 day delinquent loans,
non-performing loans, and real estate owned at the dates indicated. The ratios
of non-performing loans to total loans and non-performing assets to total
assets
do not include loans that are 30-89 days delinquent. Non-performing assets
include non-performing loans and real estate owned.
|
|
March
31,
|
|
December
31,
|
|
September
30,
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
2006
|
|
Asset
quality information:
|
(Dollars
in thousands)
|
|
Loans
30-89 days delinquent
|
$
18,883
|
|
|
$
24,716
|
|
|
$
20,478
|
|
$
23,027
|
|
|
|
Non-performing
loans
|
6,833
|
|
|
6,681
|
|
|
5,609
|
|
8,682
|
|
|
|
Real
estate owned
|
1,905
|
|
|
1,770
|
|
|
2,401
|
|
1,932
|
|
|
Asset
quality ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
assets to total assets
|
0.11
|
%
|
|
0.10
|
%
|
|
0.10
|
%
|
0.13
|
%
|
|
|
Non-performing
loans to total loans
|
0.13
|
%
|
|
0.13
|
%
|
|
0.11
|
%
|
0.16
|
%
|
|
The
allowance for loan losses as a percentage of non-performing loans was 61.36%
at
March 31, 2007, compared to 79.03% at September 30, 2006 and 53.91% at March
31,
2006. The decrease in the ratio of allowance for loan losses to non-performing
loans since September 30, 2006 primarily resulted from an increase in
non-performing loans. Charge-offs, net of recoveries, totaled $15 thousand
for
the current six months and represented 0.24% of average non-performing loans
and
less than 0.01% of the average outstanding balance of loans receivable.
The
following table presents the Company’s activity for the allowance for loan
losses and related ratios at the dates and for the periods
indicated.
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Allowance
for loan losses:
|
|
(Dollars
in thousands)
|
|
Beginning
balance
|
|
$
|
4,143
|
|
$
|
4,832
|
|
$
|
4,433
|
|
$
|
4,598
|
|
Losses
charged against the allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family loans
|
|
|
--
|
|
|
12
|
|
|
9
|
|
|
33
|
|
Multi-family
loans
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Commercial
and other loans
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Consumer
loans
|
|
|
5
|
|
|
3
|
|
|
6
|
|
|
16
|
|
Total
charge-offs
|
|
|
5
|
|
|
15
|
|
|
15
|
|
|
49
|
|
Recoveries
|
|
|
--
|
|
|
1
|
|
|
--
|
|
|
1
|
|
Provision
(recovery) charged to expense
|
|
|
55
|
|
|
(138
|
)
|
|
(225
|
)
|
|
130
|
|
Ending
balance
|
|
$
|
4,193
|
|
$
|
4,680
|
|
$
|
4,193
|
|
$
|
4,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performing
loans at period end
|
|
|
|
|
|
|
|
|
61.36
|
%
|
|
53.91
|
%
|
Allowance
for loan losses to loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable,
net at period end
|
|
|
|
|
|
|
|
|
0.08
|
%
|
|
0.08
|
%
|
Mortgage-Related
Securities.
The
balance of mortgage-related securities decreased $481.3 million from $2.08
billion at September 30, 2006 to $1.60 billion at March 31, 2007. The decrease
in the portfolio was primarily a result of the sale of the trading securities
in
the first quarter of fiscal year 2007 which were received in the loan swap
transaction with FHLMC in the quarter ended September 30, 2006, and principal
repayments. The proceeds from the sale of the trading securities were used
to
purchase short-term investment securities.
The
following tables provide a summary of the activity in our portfolio of
mortgage-related securities for the periods presented. The yields and weighted
average life (“WAL”) for purchases are presented as recorded at the time of
purchase. The yields for the beginning and ending balances are as of the
period
presented and are generally derived from recent prepayment activity on the
securities in the portfolio as of the dates presented. The beginning and
ending
WAL is the estimated remaining maturity of the underlying collateral after
projected prepayment speeds have been applied. The decrease in the yield
and WAL
at March 31, 2007 compared to September 30, 2006 was primarily a result of
the
sale of the trading securities which had a net yield and WAL greater than
that
of the existing portfolio. Excluding the yield and WAL on the trading
securities, the portfolio yield would have been 4.26% and the WAL would have
been 3.74 years at September 30, 2006.
|
|
For
the Three Months Ended
|
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
Mortgage-related
securities:
|
(Dollars
in thousands)
|
|
Beginning
balance
|
$ 1,668,548
|
4.26
|
%
|
3.48
|
|
$ 2,084,786
|
4.54
|
%
|
4.39
|
|
$ 1,788,858
|
4.14
|
%
|
3.85
|
|
$ 1,839,593
|
4.01
|
%
|
3.30
|
|
Maturities
and repayments
|
(112,054)
|
|
|
|
|
(120,737)
|
|
|
|
|
(124,473)
|
|
|
|
|
(135,663)
|
|
|
|
|
Sale
of securities, net of gains
|
--
|
|
|
|
|
(404,459)
|
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
|
Net
amortization of premiums/discounts
|
(988)
|
|
|
|
|
(1,075)
|
|
|
|
|
(1,222)
|
|
|
|
|
(1,709)
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
1,983
|
5.65
|
|
18.18
|
|
--
|
--
|
|
--
|
|
--
|
--
|
|
--
|
|
10,092
|
6.50
|
|
1.65
|
|
Adjustable
|
44,672
|
4.60
|
|
1.24
|
|
108,135
|
5.17
|
|
1.76
|
|
22,239
|
5.95
|
|
1.88
|
|
77,792
|
5.98
|
|
2.14
|
|
Fair
value of securities received in exchange of loans
|
--
|
--
|
|
--
|
|
--
|
--
|
|
--
|
|
395,828
|
5.73
|
|
7.15
|
|
--
|
--
|
|
--
|
|
Other-than-temporary
impairment of AFS securities
|
--
|
|
|
|
|
--
|
|
|
|
|
(472)
|
|
|
|
|
--
|
|
|
|
|
Change
in valuation of AFS securities
|
1,282
|
|
|
|
|
1,898
|
|
|
|
|
4,028
|
|
|
|
|
(1,247)
|
|
|
|
|
Ending
balance
|
$ 1,603,443
|
4.27
|
%
|
3.40
|
|
$ 1,668,548
|
4.26
|
%
|
3.48
|
|
$ 2,084,786
|
4.54
|
%
|
4.39
|
|
$ 1,788,858
|
4.14
|
%
|
3.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities:
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
$ 2,084,786
|
4.54
|
%
|
4.39
|
|
$ 2,145,254
|
3.71
|
%
|
3.38
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
and repayments
|
(232,791)
|
|
|
|
|
(303,143)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of securities, net of gains
|
(404,459)
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amortization of premiums/discounts
|
(2,063)
|
|
|
|
|
(4,101)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
1,983
|
5.65
|
|
18.18
|
|
983
|
5.65
|
|
7.88
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
|
152,807
|
5.00
|
|
1.61
|
|
--
|
--
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
Change
in valuation of AFS
|
3,180
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
$ 1,603,443
|
4.27
|
%
|
3.40
|
|
$ 1,839,593
|
4.01
|
%
|
3.30
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities.
Investment securities, which consist of agency bonds (primarily issued by
FNMA,
FHLMC, or FHLB) and municipal investments, increased $343.9 million from
$429.5
million at September 30, 2006 to $773.4 million at March 31, 2007. The following
tables provide a summary of the activity of investment securities for the
periods presented. The yields for the beginning and ending balances are as
of
the periods presented. The increase in the yield at March 31, 2007 compared
to
September 30, 2006 was a result of security purchases with net yields greater
than the overall portfolio yield. The beginning and ending WAL represent
the
estimated remaining maturity of the underlying collateral after projected
call
dates have been considered, based upon market rates at each date presented.
The
decrease in the WAL at March 31, 2007 compared to September 30, 2006 was
primarily due to purchases with a net WAL less than that of the overall
portfolio WAL.
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
|
Amount
|
|
Yield
|
|
WAL
|
|
Amount
|
|
Yield
|
|
WAL
|
|
Amount
|
|
Yield
|
|
WAL
|
|
Amount
|
|
Yield
|
|
WAL
|
|
Investment
securities:
|
|
(Dollars
in thousands)
|
|
Beginning
balance
|
|
$
|
844,514
|
|
|
4.82
|
%
|
|
1.66
|
|
$
|
429,480
|
|
|
4.46
|
%
|
|
2.63
|
|
$
|
382,128
|
|
|
4.35
|
%
|
|
3.09
|
|
$
|
380,518
|
|
|
4.41
|
%
|
|
2.84
|
|
Maturities
and calls
|
|
|
(229,500
|
)
|
|
|
|
|
|
|
|
(57,000
|
)
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
(140,510
|
)
|
|
|
|
|
|
|
Net
amortization of premiums/discounts
|
|
|
1,572
|
|
|
|
|
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
Purchases
- Fixed
|
|
|
156,768
|
|
|
5.34
|
|
|
1.44
|
|
|
471,140
|
|
|
5.18
|
|
|
0.68
|
|
|
56,730
|
|
|
5.36
|
|
|
1.72
|
|
|
142,413
|
|
|
5.32
|
|
|
1.27
|
|
Change
in valuation of AFS securities
|
|
|
50
|
|
|
|
|
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
773,404
|
|
|
4.76
|
%
|
|
1.72
|
|
$
|
844,514
|
|
|
4.82
|
%
|
|
1.66
|
|
$
|
429,480
|
|
|
4.46
|
%
|
|
2.63
|
|
$
|
382,128
|
|
|
4.35
|
%
|
|
3.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
March
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Yield
|
|
|
WAL
|
|
|
Amount
|
|
|
Yield
|
|
|
WAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities:
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
429,480
|
|
|
4.46
|
%
|
|
2.63
|
|
$
|
430,499
|
|
|
4.54
|
%
|
|
2.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
and calls
|
|
|
(286,500
|
)
|
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amortization of premiums/discounts
|
|
|
2,614
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
- Fixed
|
|
|
627,908
|
|
|
5.22
|
|
|
0.87
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in valuation of AFS securities
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
773,404
|
|
|
4.76
|
%
|
|
1.72
|
|
$
|
380,518
|
|
|
4.41
|
%
|
|
2.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities.
Total liabilities decreased from $7.34 billion at September 30, 2006 to $7.23
billion at March 31, 2007. The $109.2 million decrease in liabilities was
due
primarily to the maturity of $200.0 million of FHLB advances that were not
renewed, partially offset by an increase in deposits of $102.4 million,
particularly in the checking and money market portfolios due to the timing
of
payroll deposits.
At
March
31, 2007, $218.5 million of our $2.49 billion in certificates were brokered
and
public unit deposits, compared to $233.5 million in brokered and public unit
deposits at September 30, 2006. The $15.0 million decrease between September
30,
2006 and March 31, 2007 was primarily attributed to maturities of public
unit
deposits that were not retained because the Bank did not price at the top
market
rate for public units. Management will continue to monitor the wholesale
deposit
market for attractive opportunities.
|
|
At
|
|
At
|
|
At
|
|
At
|
|
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
|
|
|
Average
|
|
%
of
|
|
|
|
Average
|
|
%
of
|
|
|
|
Average
|
|
%
of
|
|
|
|
Average
|
|
%
of
|
|
|
|
Amount
|
|
Cost
|
|
Total
|
|
Amount
|
|
Cost
|
|
Total
|
|
Amount
|
|
Cost
|
|
Total
|
|
Amount
|
|
Cost
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Checking
|
|
$
|
435,300
|
|
|
0.21
|
%
|
|
10.87
|
%
|
$
|
423,907
|
|
|
0.21
|
%
|
|
10.77
|
%
|
$
|
402,898
|
|
|
0.21
|
%
|
|
10.33
|
%
|
$
|
420,933
|
|
|
0.21
|
%
|
|
10.80
|
%
|
Savings(1)
|
|
|
247,844
|
|
|
2.99
|
|
|
6.19
|
|
|
101,960
|
|
|
0.65
|
|
|
2.59
|
|
|
106,347
|
|
|
0.65
|
|
|
2.73
|
|
|
113,018
|
|
|
0.65
|
|
|
2.90
|
|
Money
market
|
|
|
825,432
|
|
|
3.28
|
|
|
20.62
|
|
|
823,151
|
|
|
3.33
|
|
|
20.92
|
|
|
808,910
|
|
|
3.31
|
|
|
20.74
|
|
|
834,419
|
|
|
3.15
|
|
|
21.42
|
|
Certificates(1)
|
|
|
2,494,290
|
|
|
4.62
|
|
|
62.32
|
|
|
2,585,689
|
|
|
4.48
|
|
|
65.72
|
|
|
2,582,276
|
|
|
4.35
|
|
|
66.20
|
|
|
2,527,499
|
|
|
4.14
|
|
|
64.88
|
|
Total
deposits
|
|
$
|
4,002,866
|
|
|
3.76
|
%
|
|
100.00
|
%
|
$
|
3,934,707
|
|
|
3.68
|
%
|
|
100.00
|
%
|
$
|
3,900,431
|
|
|
3.61
|
%
|
|
100.00
|
%
|
$
|
3,895,869
|
|
|
3.40
|
%
|
|
100.00
|
%
|
(1) During
the current quarter, variable-rate retirement certificates of deposit were
reclassified to Savings as the accounts did not have a stated maturity date
as a
result of changes required by the new core information technology processing
system. The balance of the reclassified variable-rate certificates of deposit
at
March 31, 2007 was $141.5 million. The amount of variable-rate certificates
of
deposit included in Certificates at December 31, 2006, September 30, 2006
and
June 30, 2006 were $144.9 million, $153.0 million and $154.0 million,
respectively.
Stockholders’
Equity. Stockholders’
equity increased $7.4 million from $863.2 million at September 30, 2006 to
$870.6 million at March 31, 2007.
Dividends
from the Company are the only source of funds for MHC. It is expected that
MHC
will waive future dividends except to the extent they are needed to fund
its
continuing operations. The following table shows the number of shares eligible
to receive dividends (“public shares”) because of the waiver of dividends by MHC
at March 31, 2007. The unvested shares in the ESOP receive cash equal to
the
dividends paid on the public shares. The cash received is used first to repay
the annual debt obligation on the loan taken out by the ESOP from the Company
at
the time of the mutual-to-stock conversion of the Bank to purchase shares
for
the ESOP. Cash received in excess of the debt obligation is distributed to
participants in the plan. Because these shares are held in trust for a future
employee benefit, they are excluded from the calculation of public
shares.
Total
voting shares outstanding at September 30, 2006
|
|
|
74,031,930
|
|
Treasury
stock acquisitions
(1)
|
|
|
(38,345
|
)
|
RRP
grants, net
|
|
|
4,600
|
|
Options
exercised, net
|
|
|
271,909
|
|
Total
voting shares outstanding at March 31, 2007
|
|
|
74,270,094
|
|
Unvested
shares in ESOP
|
|
|
(1,411,470
|
)
|
Shares
held by MHC
|
|
|
(52,192,817
|
)
|
Total
public shares March 31, 2007
|
|
|
20,665,807
|
|
(1)Treasury
stock acquisitions represent shares that were received in exchange for the
exercise of options.
The
following table presents quarterly dividends paid in calendar years 2007,
2006
and 2005. The dollar amounts represent dividends paid during the quarter.
The
actual amount of dividends to be paid during the quarter ending June 30,
2007,
as declared on April 24, 2007, will be based upon the number of shares
outstanding on the record date of May 4, 2007. All shares outstanding presented
in the table below, except for the quarter ending June 30, 2007, are as of
the
date of record per the dividend declaration. For the purposes of the table
below, the number of dividend shares for the quarter ending June 30, 2007
is
based upon shares outstanding on April 30, 2007. This does not represent
the
actual dividend payout, but rather management’s estimate of the number of shares
eligible to receive the dividend and the total dividend payout as of April
30,
2007.
|
|
Calendar
Year
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
Quarter
ended March 31
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
20,519,318
|
|
|
20,457,283
|
|
|
20,634,728
|
|
Dividend
per share
|
|
$
|
0.50
|
|
$
|
0.50
|
|
$
|
0.50
|
|
Total
dividends paid
|
|
$
|
10,261
|
|
$
|
10,229
|
|
$
|
10,317
|
|
Quarter
ended June 30
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
20,667,433
|
|
|
20,257,420
|
|
|
20,393,519
|
|
Dividend
per share
|
|
$
|
0.50
|
|
$
|
0.50
|
|
$
|
0.50
|
|
Total
dividends paid
|
|
$
|
10,334
|
|
$
|
10,129
|
|
$
|
10,197
|
|
Quarter
ended September 30
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
|
|
|
20,250,134
|
|
|
20,363,619
|
|
Dividend
per share
|
|
|
|
|
$
|
0.50
|
|
$
|
0.50
|
|
Total
dividends paid
|
|
|
|
|
$
|
10,125
|
|
$
|
10,182
|
|
Quarter
ended December 31
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
|
|
|
20,432,393
|
|
|
20,483,464
|
|
Dividend
per share
|
|
|
|
|
$
|
0.50
|
|
$
|
0.50
|
|
Total
dividends paid
|
|
|
|
|
$
|
10,216
|
|
$
|
10,242
|
|
Special
year end dividend
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
|
|
|
20,432,793
|
|
|
20,483,464
|
|
Dividend
per share
|
|
|
|
|
$
|
0.09
|
|
$
|
0.30
|
|
Total
dividends paid
|
|
|
|
|
$
|
1,839
|
|
$
|
6,145
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar
year-to-date dividends per share
|
|
$
|
1.00
|
|
$
|
2.09
|
|
$
|
2.30
|
|
Analysis
of Net Interest Income
Net
interest income represents the difference between interest income earned
on
interest-earning assets, such as mortgage loans, investment securities, and
mortgage-backed securities, and interest paid on interest-bearing liabilities,
such as deposits and FHLB advances. Net interest income depends on the balance
of interest-earning assets and interest-bearing liabilities, and the interest
rates earned or paid on them.
Average
Balance Sheet: The
following table presents the average balances of our assets, liabilities
and
stockholders’ equity and the related annualized yields and costs on our
interest-earning assets and interest-bearing liabilities for the periods
indicated. Average yields are derived by dividing annualized income by the
average balance of the related assets and average costs are derived by dividing
recorded expense by the average balance of the related liabilities, for the
periods shown. Average balances for interest-earning assets and interest-bearing
liabilities are derived from average daily balances. Average balances for
other
non-interest-earning assets, other non-interest-bearing liabilities and
stockholders’ equity are calculated using month end balances. The yields and
costs include amortization of fees, costs, premiums and discounts which are
considered adjustments to interest rates. Yields on tax-exempt securities
were
not calculated on a tax-equivalent basis.
|
For
the Three Months Ended
|
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
March
31, 2006
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Assets:
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable (1)
|
$
5,223,416
|
|
5.67
|
%
|
$
5,235,039
|
|
5.59
|
%
|
$
5,502,349
|
|
5.60
|
%
|
$
5,538,579
|
|
5.46
|
%
|
Mortgage-related
securities
|
1,633,477
|
|
4.24
|
|
1,803,033
|
|
4.33
|
|
1,826,499
|
|
4.23
|
|
1,914,287
|
|
3.96
|
|
Investment
securities
|
776,143
|
|
4.77
|
|
574,857
|
|
4.65
|
|
412,013
|
|
4.42
|
|
397,463
|
|
4.45
|
|
Cash
and cash equivalents
|
114,528
|
|
5.17
|
|
236,522
|
|
5.15
|
|
93,095
|
|
5.03
|
|
57,048
|
|
4.30
|
|
Capital
stock of FHLB
|
159,171
|
|
6.48
|
|
165,159
|
|
6.48
|
|
163,997
|
|
6.23
|
|
184,670
|
|
5.43
|
|
Total
interest-earning assets (1)
|
7,906,735
|
|
5.30
|
|
8,014,610
|
|
5.24
|
|
7,997,953
|
|
5.23
|
|
8,092,047
|
|
5.05
|
|
Other
non-interest-earning assets
|
170,200
|
|
|
|
192,225
|
|
|
|
164,325
|
|
|
|
152,641
|
|
|
|
Total
assets
|
$
8,076,935
|
|
|
|
$
8,206,835
|
|
|
|
$
8,162,278
|
|
|
|
$
8,244,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
3,917,104
|
|
3.75
|
|
$
3,855,407
|
|
3.65
|
|
$
3,881,477
|
|
3.55
|
|
$
3,953,841
|
|
2.97
|
|
FHLB
advances (2)
|
3,110,915
|
|
4.95
|
|
3,271,001
|
|
4.89
|
|
3,215,093
|
|
4.89
|
|
3,268,757
|
|
4.68
|
|
Other
borrowings
|
53,486
|
|
8.24
|
|
53,472
|
|
8.26
|
|
53,457
|
|
8.36
|
|
53,193
|
|
7.47
|
|
Total
interest-bearing liabilities
|
7,081,505
|
|
4.31
|
|
7,179,880
|
|
4.25
|
|
7,150,027
|
|
4.19
|
|
7,275,791
|
|
3.77
|
|
Other
non-interest-bearing liabilities
|
126,904
|
|
|
|
161,865
|
|
|
|
150,838
|
|
|
|
105,852
|
|
|
|
Stockholders'
equity
|
868,526
|
|
|
|
865,090
|
|
|
|
861,413
|
|
|
|
863,045
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders'
equity
|
$
8,076,935
|
|
|
|
$
8,206,835
|
|
|
|
$
8,162,278
|
|
|
|
$
8,244,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
|
Net
interest rate spread
|
|
|
0.99
|
%
|
|
|
0.99
|
%
|
|
|
1.04
|
%
|
|
|
1.28
|
%
|
Net
interest-earning assets
|
$
825,230
|
|
|
|
$
834,730
|
|
|
|
$
847,926
|
|
|
|
$
816,256
|
|
|
|
Net
interest margin
|
|
|
1.45
|
%
|
|
|
1.39
|
%
|
|
|
1.43
|
%
|
|
|
1.67
|
%
|
Ratio
of interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
interest-bearing liabilities
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
performance ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (annualized)
|
|
|
0.42
|
%
|
|
|
0.50
|
%
|
|
|
0.49
|
%
|
|
|
0.66
|
%
|
Return
on average equity (annualized)
|
|
|
3.89
|
%
|
|
|
4.74
|
%
|
|
|
4.60
|
%
|
|
|
6.30
|
%
|
Average
equity to average assets
|
|
|
10.75
|
%
|
|
|
10.54
|
%
|
|
|
10.55
|
%
|
|
|
10.47
|
%
|
(1)
Calculated
net of deferred loan fees, loan discounts, and loans in process. Non-accruing
loans are included in the loans receivable average balance with a yield of
zero
percent.
(2)
Includes
net interest expense of $3.3 million, $3.4 million, $3.4 million and $1.7
million related to the interest rate swaps for the three months ended March
31,
2007, December 31, 2006, September 30, 2006 and March 31, 2006,
respectively.
(Concluded)
The
following table presents selected income statement information for the quarters
indicated.
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
December
31,
|
|
September
30,
|
|
June
30,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
Selected
income statement data:
|
|
(Dollars
in thousands, except per share amounts)
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$
|
73,990
|
|
$
|
73,192
|
|
$
|
77,034
|
|
$
|
76,123
|
|
$
|
75,505
|
|
Mortgage-related
securities
|
|
|
17,317
|
|
|
19,521
|
|
|
19,337
|
|
|
18,175
|
|
|
18,950
|
|
Investment
securities
|
|
|
9,262
|
|
|
6,684
|
|
|
4,558
|
|
|
4,170
|
|
|
4,425
|
|
Other
interest and dividend income
|
|
|
4,004
|
|
|
5,769
|
|
|
3,754
|
|
|
3,959
|
|
|
3,078
|
|
Total
interest and dividend income
|
|
|
104,573
|
|
|
105,166
|
|
|
104,683
|
|
|
102,427
|
|
|
101,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
36,267
|
|
|
35,469
|
|
|
34,741
|
|
|
31,588
|
|
|
28,974
|
|
FHLB
advances
|
|
|
38,508
|
|
|
40,741
|
|
|
40,212
|
|
|
39,005
|
|
|
38,176
|
|
Other
borrowings
|
|
|
1,101
|
|
|
1,129
|
|
|
1,142
|
|
|
1,070
|
|
|
993
|
|
Total
interest expense
|
|
|
75,876
|
|
|
77,339
|
|
|
76,095
|
|
|
71,663
|
|
|
68,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(recovery) for loan losses
|
|
|
55
|
|
|
(280
|
)
|
|
77
|
|
|
40
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(after
provision (recovery) for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loan
losses)
|
|
|
28,642
|
|
|
28,107
|
|
|
28,511
|
|
|
30,724
|
|
|
33,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
5,431
|
|
|
6,215
|
|
|
6,878
|
|
|
6,069
|
|
|
6,022
|
|
Other
expenses
|
|
|
20,020
|
|
|
17,631
|
|
|
19,175
|
|
|
18,174
|
|
|
17,943
|
|
Income
tax expense
|
|
|
5,597
|
|
|
6,440
|
|
|
6,303
|
|
|
7,313
|
|
|
8,445
|
|
Net
income
|
|
$
|
8,456
|
|
$
|
10,251
|
|
$
|
9,911
|
|
$
|
11,306
|
|
$
|
13,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency
ratio
|
|
|
58.90
|
%
|
|
51.74
|
%
|
|
54.11
|
%
|
|
49.41
|
%
|
|
45.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.12
|
|
$
|
0.14
|
|
$
|
0.14
|
|
$
|
0.16
|
|
$
|
0.19
|
|
Diluted
earnings per share
|
|
$
|
0.12
|
|
$
|
0.14
|
|
$
|
0.14
|
|
$
|
0.15
|
|
$
|
0.19
|
|
Dividends
declared per share
|
|
$
|
0.50
|
|
$
|
0.59
|
|
$
|
0.50
|
|
$
|
0.50
|
|
$
|
0.50
|
|
Comparison
of Operating Results for the Three Months Ended March 31, 2007 and
2006
Net
income for the quarter ending March 31, 2007 was $8.5 million compared to
$13.6
million for the same period in the prior fiscal year. The $5.1 million decrease
in net income was primarily a result of an increase in interest expense of
$7.7
million, which was partially offset by an increase of $2.6 million in interest
and dividend income.
Total
interest and dividend income for the quarter was $104.6 million compared
to
$102.0 million for the prior year quarter. The $2.6 million increase was
primarily a result of an increase in interest income on investment securities
and cash and cash equivalents, partially offset by a decrease in interest
income
on loans receivable and mortgage-related securities.
Interest
income on loans receivable for the quarter was $74.0 million compared to
$75.5
million for the prior year quarter. The $1.5 million decrease in interest
income
was primarily a result of a $315.2 million decrease in the average balance
of
the loan portfolio between the two periods due to the exchange of loans for
securities transaction with FHLMC during the fourth quarter of fiscal year
2006.
The decrease in the average balance was partially offset by an increase of
21
basis points in the weighted average yield of the loan portfolio to 5.67%
for
the current quarter. The increase in the weighted average yield can be
attributed to loans originated at rates higher than the portfolio rate, ARM
loans repricing to higher rates and a change in the interest accrual calculation
as a result of the implementation of the Bank’s new core information technology
processing system. Under the old system, for a particular scheduled interest
payment, interest was accrued from the day after the due date of the prior
scheduled interest payment through the due date of the current scheduled
interest payment. Under the new system, interest is accrued from the due
date of
the prior scheduled interest payment through the day before the due date
of the
current scheduled interest payment. This change resulted in a one-time 5
basis
point increase in yield in the loan portfolio for the quarter ending March
31,
2007.
Interest
income on mortgage-related securities for the quarter was $17.3 million compared
to $19.0 million for the prior year quarter. The $1.7 million decrease in
interest income was due to a decrease in the average balance of $280.8 million,
partially offset by an increase in the average yield. The decrease in the
average balance was a result of the timing of investments and management’s
decision to primarily invest the proceeds from the sale of trading securities
into investment securities instead of mortgage-related securities. The weighted
average yield of the mortgage-related securities portfolio increased by 28
basis
points between the two periods as a result of adjustable-rate securities
in the
portfolio repricing to higher rates and to the purchase of mortgage-related
securities with yields higher than that of the existing portfolio.
Interest
income on investment securities for the quarter was $9.3 million compared
to
$4.4 million for the prior year quarter. The $4.9 million increase in interest
income was primarily a result of a $378.7 million increase in the average
balance of the portfolio and, to a lesser extent, a 32 basis point increase
in
the weighted average portfolio yield to 4.77% for the current quarter. The
increase in the average balance was a result of investing proceeds from the
sale
of the trading securities during the first quarter of fiscal year 2007 into
short-term investment securities. The increase in the weighted average yield
of
the portfolio was attributed to purchases of agency securities with weighted
average yields greater than that of the portfolio.
Interest
income on cash and cash equivalents for the quarter was $1.5 million compared
to
$605 thousand for the prior year quarter. The $855 thousand increase in interest
income was primarily a result of a $57.5 million increase in the average
balance
for the quarter, earning an average yield of 5.17% compared to 4.30% in the
prior year quarter. The increase in the average balance of cash and cash
equivalents related primarily to the accumulation of cash in anticipation
of
paying off maturing FHLB advances. The increase in the average yield was
due to
an increase in short-term interest rates.
Interest
expense on deposits for the current quarter was $36.3 million compared to
$29.0
million for the prior year quarter. The $7.3 million increase in interest
expense was primarily a result of an increase in the average rate paid on
the
certificate of deposit and money market portfolios. The weighted average
rate of
the certificate of deposit portfolio for the current quarter was 4.55% compared
to 3.71% for the prior year quarter. The weighted average rate of the money
market portfolio for the current quarter was 3.32% compared to 2.35% for
the
prior year quarter. The Bank has increased retail deposit rates in response
to
the general trend of all rates increasing to remain competitive in its markets,
which has resulted in an increase in the weighted average rate of the
certificate of deposit and money market portfolios.
Interest
expense on FHLB advances for the current quarter was $38.5 million compared
to
$38.2 million for the prior year quarter. The $332 thousand increase in interest
expense was a result of an increase in the paying rate on
the
interest rate swaps, offset by a decrease in the average balance due to maturing
advances that were not renewed. The weighted average paying rate on the
variable-rate interest rate swaps was 7.80% for the current quarter compared
to
7.01% for the prior year quarter. The 79 basis point increase was due to
the
increase in the one month LIBOR rate between the two periods. Currently,
the
Bank is in a net paying position on the interest rate swaps. If the one month
LIBOR rate remains higher than 3.68% (weighted average break even LIBOR rate),
then the Bank will continue to be in a paying position on the interest rate
swaps. The interest rate swap agreements are summarized by maturity date
under
“Item 3 - Quantitative and Qualitative Disclosure About Market Risk.”
Total
other income for the current quarter was $5.4 million compared to $6.0 million
in the prior year quarter. The $584 thousand decrease in other income was
due to
a decrease in retail service fees of $371 thousand primarily related to the
discontinuation of certain fees due to the implementation of the Bank’s new core
information technology processing system, a decrease in insurance commissions
of
$295 thousand due to the claim experience of the insurance companies with
which
the Bank does business, partially offset by an increase in loan fees of $116
thousand due primarily to an increase in MSR, as a result of the exchange
of
loans for securities.
Total
other expenses for the current quarter increased $2.1 million to $20.0 million
compared to $17.9 million in the prior year quarter. The increase was due
primarily to an increase in other, net expenses of $962 thousand, regulatory
and
outside services of $388 thousand, advertising expense of $355 thousand,
and an
increase in occupancy expense of $344 thousand. The increase in other, net
expense was due primarily to an increase in office supplies and postage of
$466
thousand, an increase in amortization of MSR of $132 thousand, a recovery
of MSR
impairment in prior year quarter of $131 thousand with no similar occurrence
in
the current quarter, and an increase in other miscellaneous operating expenses.
The increase in office supplies and postage was due primarily to mailings
and
customer statement printing changes related to the core conversion, and,
to a
lesser extent, an increase in postage rates which occurred in January 2006.
The
increase in regulatory and outside services was due to consulting fees related
to Sarbanes-Oxley Act of 2002 Section 404 (“SOX 404”) and other professional
services. The increase in advertising expense was due to scheduled
network television advertising campaigns
during
the quarter. The increase in occupancy expense related to depreciation of
the
new core information technology assets.
The
Bank
completed the implementation of its new core information technology processing
system during January 2007. As of March 31, 2007, the Bank has capitalized
$6.8
million of costs directly associated with the required hardware upgrades
and the
software and services related to the installation of the core system and
$1.0
million of capitalized payroll costs. Both of these amounts began amortizing
during the second quarter of fiscal year 2007. The amortization period will
not
exceed five years.
Income
tax expense for the current quarter was $5.6 million compared to $8.4 million
in
the prior year quarter. The decrease in income tax expense was a direct result
of a decrease in earnings compared to the prior year quarter. The effective
tax
rate for the current quarter was 39.8%, compared to 38.3% for the prior year
quarter. The increase in the effective tax rate was primarily a result of
the
accrual for taxes due as a result of the state audit that was completed during
the current quarter, and the amendment of the fiscal year 2005 and 2006 returns
based upon the audit results. These items resulted in an increase of 103
basis
points in the current quarter effective tax rate.
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 the quarter ended March 31, 2007 to the quarter ended
March 31, 2006. 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.
|
|
Quarter
Ended March 31,
|
|
|
|
2007
vs. 2006
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
Loans
receivable, net
|
|
$
|
(4,263
|
)
|
$
|
2,748
|
|
$
|
(1,515
|
)
|
Mortgage-related
securities
|
|
|
(2,913
|
)
|
|
1,280
|
|
|
(1,633
|
)
|
Investment
securities
|
|
|
4,498
|
|
|
339
|
|
|
4,837
|
|
Capital
stock of FHLB
|
|
|
(374
|
)
|
|
446
|
|
|
72
|
|
Cash
equivalents
|
|
|
712
|
|
|
142
|
|
|
854
|
|
Total
interest-earning assets
|
|
$
|
(2,340
|
)
|
$
|
4,955
|
|
$
|
2,615
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Savings(1)
|
|
$
|
206
|
|
$
|
908
|
|
$
|
1,114
|
|
Checking
|
|
|
1
|
|
|
--
|
|
|
1
|
|
Money
market
|
|
|
(244
|
)
|
|
1,991
|
|
|
1,747
|
|
Certificates(1)
|
|
|
(774
|
)
|
|
5,205
|
|
|
4,431
|
|
FHLB
advances and other borrowings
|
|
|
(1,684
|
)
|
|
2,124
|
|
|
440
|
|
Total
interest-bearing liabilities
|
|
$
|
(2,495
|
)
|
$
|
10,228
|
|
$
|
7,733
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in net interest and dividend income
|
|
$
|
155
|
|
$
|
(5,273
|
)
|
$
|
(5,118
|
)
|
(1)
The
increase in the volume and the rate in the savings accounts are related to
the
variable-rate retirement certificate of deposits that were reclassified to
savings from certificates as the accounts did not have a stated maturity
date as
a result of changes required by the new core information technology processing
system.
Comparison
of Operating Results for the Six Months Ended March 31, 2007 and
2006
For
the
six months ended March 31, 2007, the Company recognized net income of $18.7
million, compared to net income of $26.9 million for the six months ended
March
31, 2006. The $8.2 million decrease in net income was primarily a result
of an
increase in interest expense on deposits of $15.5 million and an increase
in
other expenses of $2.1 million. The increase in expenses was partially offset
by
an increase in total interest and dividend income of $5.9 million and a decrease
in income tax expense of $4.9 million as a result of a reduction in
earnings.
Total
interest and dividend income for the current six months was $209.7 million
compared to $203.8 million for the six months ended March 31, 2006. The $5.9
million increase was primarily a result of an increase in interest income
on
investment securities of $6.6 million and cash and cash equivalents of $3.8
million, partially offset by a decrease in interest income on loans receivable
of $3.5 million and mortgage-related securities of $1.5 million.
Interest
income on loans receivable for the current six months was $147.2 million
compared to $150.7 million for the six months ended March 31, 2006. The $3.5
million decrease in interest income was primarily a result of a decrease
in the
average balance of the portfolio as a result of the exchange of loans for
securities in the fourth quarter of fiscal year 2006, partially offset by
an
increase in the average yield of the portfolio of 19 basis points. The increase
in the weighted average yield can be attributed to loans originated at rates
higher than the portfolio rate, ARM loans repricing to higher rates and a
change
in the interest accrual calculation as a result of the implementation of
the
Bank’s new core information technology processing system. Under the old system,
for a particular scheduled interest payment, interest was accrued from the
day
after the due date of the prior scheduled interest payment through the due
date
of the current scheduled interest payment. Under the new system, interest
is
accrued from the due date of the prior scheduled interest payment through
the
day before the due date of the current scheduled interest payment. This change
resulted in a one-time 3 basis point increase in the yield in the loan portfolio
for the six months ending March 31, 2007.
Interest
income on mortgage-related securities for the current six months was $36.8
million compared to $38.3 million for the six months ended March 31, 2006.
The
$1.5 million decrease in interest income was due to a decrease in the average
balance partially offset by an increase in the portfolio yield. The decrease
in
the average balance was due to the sale of the trading securities during
the
first quarter of fiscal year 2007. The portfolio yield increased 44 basis
points
between the two periods as a result of adjustable-rate securities in the
portfolio repricing to higher rates, the purchase of mortgage-related securities
with yields higher than that of the existing portfolio, and trading securities
held during a portion of the first quarter of fiscal year 2007 which also
had
yields higher than that of the existing portfolio.
Interest
income on investment securities for the current six months was $15.9 million
compared to $9.3 million for the six months ended March 31, 2006. The $6.6
million increase was primarily a result of a $260.2 million increase in the
average balance for the six months due to the reinvestment of proceeds from
the
sale of trading securities into investment securities during the first quarter
of fiscal year 2007, in addition to an increase in the average yield of the
portfolio of 23 basis points as a result of securities purchased with yields
higher than that of the existing portfolio.
Interest
income on cash and cash equivalents for the current six months was $4.5 million
compared to $684 thousand for the same period in the prior year. The $3.8
million increase in interest income was primarily a result of an increase
in the
average balance for the six months due to the timing of the reinvestment
of
proceeds from the sale of the trading securities.
Interest
expense on deposits for the current six months was $71.7 million compared
to
$56.2 million for the same period in the prior year. The $15.5 million increase
in interest expense was primarily a result of an increase in the average
rate
paid on the certificate of deposit and money market portfolios. As previously
discussed, the Bank has raised certain retail interest rates to remain
competitive in our markets.
Interest
expense on FHLB advances for the current six months was $79.2 million compared
to $78.0 million for the same period in the prior year. The $1.2 million
increase in interest expense was primarily a result of an increase in
the
paying rate on the interest rate swaps. The
weighted
average paying rate on the variable-rate interest rate swaps was 7.81% for
the
current six month period compared to 6.78% for the six months ended March
31,
2006.
The
increase in FHLB advance interest expense was partially offset by a decrease
in
the average balance of FHLB advances due to maturing advances in the first
and
second quarters of fiscal year 2007 that were not renewed.
The
Bank
recorded a recovery for loan losses of $225 thousand during the current six
months, compared to a provision of $130 thousand in the same period in the
prior
year due to changes in the current year to the risk assessments of certain
categories of loans to better reflect the inherent risk of those
categories.
Total
other income decreased $211 thousand to $11.6 million for the current six
months
compared to $11.9 million for the six months ended March 31, 2006. The decrease
was due to a decrease in retail fees and charges and insurance commissions,
partially offset by an increase of $302 thousand in loan fees due to an increase
in MSR as a result of the loan swap transaction and an increase of $210 thousand
in other income, net related to other miscellaneous operating income. As
previously indicated in our Form 10-K for the year ended September 30, 2006,
we
would not collect fees for transactions originated electronically following
the
core conversion. Fees charged for the processing of insufficient fund (“NSF”)
transactions decreased due to fewer incidents of NSF. Fees generally charged
to
our customers relating to their usage of ATM’s not owned by the Bank were not
charged during the quarter. Management believes this unanticipated missed
ATM
fee opportunity will be corrected during the quarter ending June 30, 2007.
In
addition, waived fees increased $151 thousand, due primarily to fees assessed
to
customers that were waived immediately following the conversion as customers
were becoming accustomed to new interfaces. The waived fees and ATM service
charges that were not charged are expected to be a one-time conversion-related
incident. The
extent
to which NSF fee income will return to previous levels is uncertain. The
decrease in insurance commissions of $278 thousand was due to the claim
experience of the insurance companies with whom the Bank does business.
Total
other expenses for the current six month period increased $2.1 million to
$37.7
million compared to $35.5 million for the six months ended March 31, 2006.
The
increase can be attributed to increases in regulatory and outside services,
advertising expenses, salaries and employee benefits, and other, net expenses.
The $832 thousand increase in regulatory and outside services was due primarily
to an increase in consulting fees related to compliance with the SOX 404
and
other
professional services, as the Company’s internal control environment must be
completely reviewed under the new core computer systems.
The
$547 thousand increase in advertising expense is due to scheduled network
television and radio campaigns. The $374 thousand increase in salaries and
employee benefits is a result of an increase in payroll expense and related
taxes largely attributed to overtime paid following our core computer conversion
for additional staffing required to address customer service issues, partially
offset by capitalized payroll expense related to the computer conversion.
The
increase in other, net expense is due primarily to a $795 thousand increase
in
office supplies and postage due primarily to mailings and customer statement
printing changes related to the core conversion, and, to a lesser extent,
an
increase in postage rates which occurred in January 2006.
Income
tax expense for the six months was $12.0 million compared to $17.0 million
for
the six months ended March 31, 2006. The decrease in income tax expense was
primarily due to a decrease in earnings for the current six months. The
effective tax rate for the current six month period was 39.2% compared to
38.7%
for the six months ended March 31, 2006. The increase in the effective tax
rate
was primarily due to the accrual of taxes as a result of the state audit
that
was completed during the current quarter, and the amendment of the fiscal
year
2005 and 2006 returns based upon the audit results. These items resulted
in an
increase of 47 basis points in the effective tax rate for the current six
months.
The
following table presents the average balances of our assets, liabilities
and
stockholders’ equity and the related yields and costs on our interest-earning
assets and interest-bearing liabilities for the periods indicated. Average
yields are derived by dividing recorded income by the average balance of
the
related assets and average costs are derived by dividing recorded expense
by the
average balance of the related liabilities, for the periods shown. Average
balances of interest-earning assets and interest-bearing liabilities are
derived
from average daily balances. Average balances for other non-interest-earning
assets, other non-interest-bearing liabilities and stockholders’ equity are
calculated using month end balances. The yields and costs include amortization
of fees, costs, premiums and discounts which are considered adjustments to
interest rates.
|
|
For
the Six Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Assets:
|
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Loans
receivable (1)
|
|
$
|
5,229,290
|
|
|
5.63
|
%
|
$
|
5,541,348
|
|
|
5.44
|
%
|
Mortgage-related
securities
|
|
|
1,719,138
|
|
|
4.29
|
|
|
1,991,710
|
|
|
3.85
|
|
Investment
securities
|
|
|
674,394
|
|
|
4.73
|
|
|
414,166
|
|
|
4.50
|
|
Cash
and cash equivalents
|
|
|
176,195
|
|
|
5.16
|
|
|
32,587
|
|
|
4.21
|
|
Capital
stock of FHLB
|
|
|
162,198
|
|
|
6.48
|
|
|
183,453
|
|
|
5.31
|
|
Total
interest-earning assets (1)
|
|
|
7,961,215
|
|
|
5.27
|
|
|
8,163,264
|
|
|
5.00
|
|
Other
noninterest-earning assets
|
|
|
171,534
|
|
|
|
|
|
145,106
|
|
|
|
|
Total
assets
|
|
$
|
8,132,749
|
|
|
|
|
$
|
8,308,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
3,885,554
|
|
|
3.71
|
|
$
|
3,926,067
|
|
|
2.87
|
|
FHLB
advances (2)
|
|
|
3,191,838
|
|
|
4.91
|
|
|
3,356,052
|
|
|
4.60
|
|
Other
borrowings
|
|
|
53,479
|
|
|
8.25
|
|
|
53,305
|
|
|
7.23
|
|
Total
interest-bearing liabilities
|
|
|
7,130,871
|
|
|
4.28
|
|
|
7,335,424
|
|
|
3.69
|
|
Other
noninterest-bearing liabilities
|
|
|
135,117
|
|
|
|
|
|
108,344
|
|
|
|
|
Stockholders'
equity
|
|
|
866,761
|
|
|
|
|
|
864,602
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
8,132,749
|
|
|
|
|
$
|
8,308,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest rate spread
|
|
|
|
|
|
.99
|
%
|
|
|
|
|
1.31
|
%
|
Net
interest-earning assets
|
|
$
|
830,344
|
|
|
|
|
$
|
827,840
|
|
|
|
|
Net
interest margin
|
|
|
|
|
|
1.42
|
%
|
|
|
|
|
1.66
|
%
|
Ratio
of interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
interest-bearing liabilities
|
|
|
|
|
|
1.12
|
|
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (annualized)
|
|
|
|
|
|
0.46
|
%
|
|
|
|
|
0.65
|
%
|
Return
on average equity (annualized)
|
|
|
|
|
|
4.32
|
%
|
|
|
|
|
6.22
|
%
|
Average
equity to average assets
|
|
|
|
|
|
10.66
|
%
|
|
|
|
|
10.41
|
%
|
(1)
Calculated
net of deferred loan fees, loan discounts, and loans in process. Non-accruing
loans are included in the loans receivable average balance with a yield of
zero
percent.
(2)
Includes
net interest expense of $6.7 million and $2.5 million related to the interest
rate swaps for the six months ended March 31, 2007 and March 31, 2006,
respectively.
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 the six months ended March 31, 2007 to the six months
ended March 31, 2006. 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 Six Months Ended
|
|
|
|
March
31, 2007 vs. March 31, 2006
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
Loans
receivable, net
|
|
$
|
(8,374
|
)
|
$
|
4,891
|
|
$
|
(3,483
|
)
|
Mortgage-related
securities
|
|
|
(5,569
|
)
|
|
4,113
|
|
|
(1,456
|
)
|
Investment
securities
|
|
|
6,131
|
|
|
496
|
|
|
6,627
|
|
Capital
stock of FHLB
|
|
|
(607
|
)
|
|
994
|
|
|
387
|
|
Cash
and cash equivalents
|
|
|
3,659
|
|
|
187
|
|
|
3,846
|
|
Total
interest-earning assets
|
|
$
|
(4,760
|
)
|
$
|
10,681
|
|
$
|
5,921
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Savings(1)
|
|
$
|
125
|
|
$
|
959
|
|
$
|
1,084
|
|
Checking
|
|
|
2
|
|
|
20
|
|
|
22
|
|
Money
market
|
|
|
(599
|
)
|
|
4,179
|
|
|
3,580
|
|
Certificates(1)
|
|
|
(464
|
)
|
|
11,295
|
|
|
10,831
|
|
FHLB
advances and other borrowings
|
|
|
(3,043
|
)
|
|
4,594
|
|
|
1,551
|
|
Total
interest-bearing liabilities
|
|
$
|
(3,979
|
)
|
$
|
21,047
|
|
$
|
17,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in net interest and dividend income
|
|
$
|
(781
|
)
|
$
|
(10,366
|
)
|
$
|
(11,147
|
)
|
(1)
The
increase in the volume and the rate in the savings accounts are related to
the
variable-rate retirement certificate of deposits that were reclassified to
savings from certificates as the accounts did not have a stated maturity
date as
a result of changes required by the new core information technology processing
system.
Comparison
of Operating Results for the Three Months Ended March 31, 2007 and December
31,
2006
For
the
quarter ended March 31, 2007, the Company recognized net income of $8.5 million,
compared to net income of $10.3 million for the quarter ended December 31,
2006.
The $1.8 million decrease in net income was primarily a result of an increase
of
$2.4 million in other expenses, partially offset by a $535 thousand increase
in
net interest and dividend income, after provision for loan loss.
Total
interest and dividend income for the quarter was $104.6 million compared
to
$105.2 million for the quarter ended December 31, 2006. The $593 thousand
decrease was primarily a result of a decrease in interest income on
mortgage-related securities of $2.2 million and cash and cash equivalents
of
$1.6 million, offset by an increase in interest income from investment
securities of $2.6 million and loans receivable of $798 thousand.
Interest
income on loans receivable for the current quarter was $74.0 million compared
to
$73.2 million for the quarter ended December 31, 2006. The $798 thousand
increase in interest income was primarily a result of an additional day of
accrued interest in the current quarter as a result of the implementation
of the
Bank’s new core information technology processing system. Under the old system,
for a particular scheduled interest payment, interest was accrued from the
day
after the due date of the prior scheduled interest payment through the due
date
of the current scheduled interest payment. Under the new system, interest
is
accrued from the due date of the prior scheduled interest payment through
the
day before the due date of the current scheduled interest payment. This
change
resulted in a one-time 5 basis point increase in yield in the loan portfolio
for
the quarter ending March 31, 2007.
Interest
income on mortgage-related securities for the current quarter was $17.3 million
compared to $19.5 million for the quarter ended December 31, 2006. The $2.2
million decrease was primarily a result of a decrease in the average portfolio
balance due to the timing of the sale of trading securities during the December
2006 quarter and principal repayments and maturities.
Interest
income on investment securities for the current quarter was $9.3 million
compared to $6.7 million for the quarter ended December 31, 2006. The $2.6
million increase was primarily a result of an increase in the average balance
for the current quarter due to purchases.
Interest
income on cash and cash equivalents for the current quarter was $1.5 million
compared to $3.1 million for the prior quarter. The $1.6 million decrease
in
interest income was primarily a result of a $122.0 million decrease in the
average balance for the current quarter due to the timing of the reinvestment
of
proceeds from the sale of the trading securities in the previous quarter
and the
timing of the repayment of maturing FHLB advances in the current quarter.
Interest
expense decreased $1.5 million to $75.9 million for the current quarter from
$77.3 million for the quarter ended December 31, 2006. The decrease was due
to a
decrease in interest expense on FHLB advances of $2.2 million as a result
of the
advances that matured and were not renewed in January 2007 and to fewer days
to
accrue interest in the quarter ending March 31, 2007. The decrease in interest
expense on FHLB advances was partially offset by an increase in interest
expense
on deposits of $798 thousand as a result of an increase in the average rate
paid
on the certificate of deposit portfolio.
Total
other income decreased $784 thousand to $5.4 million for the current quarter
compared to $6.2 million for the quarter ended December 31, 2006. The decrease
in other income was due primarily to a decrease in retail service fees of
$745
thousand related to the implementation of the new core information technology
processing system. Retail fees and charges decreased to $3.5 million for
the
current quarter from $4.3 million for the quarter ended December 31, 2006
as a
result of fees not collected as a result of the conversion to our new core
information technology processing system. As previously indicated in our
Form
10-K for the year ended September 30, 2006, we would not collect fees for
transactions originated electronically following the conversion. Fees collected
for the processing of NSF transactions decreased primarily due to fewer
incidents of NSF. The extent to which NSF fee income will return to previous
levels is uncertain. Fees generally charged to our customers relating to
their
usage of ATM’s not owned by the Bank were not charged during the quarter.
Management believes the unanticipated missed ATM fee opportunity will be
corrected during the quarter ending June 30, 2007. In addition, the Bank
waived
fees assessed to customers immediately following the conversion as customers
were becoming accustomed to the new interfaces. The waived fees and ATM service
charges that were not charged are expected to be a one-time conversion-related
incident.
Total
other expenses for the current quarter increased $2.4 million to $20.0 million
compared to $17.6 million for the quarter ended December 31, 2006. The increase
can be attributed to an increase in other, net expense, occupancy, and
advertising expenses. Other,
net expense increased $1.3 million relative to a decrease of approximately
$1.0
million in miscellaneous operating expenses in the prior quarter, without
a
similar event in the current quarter. Occupancy expense increased by $659
thousand primarily as a result of depreciation expense related to the core
conversion assets. The
$335
thousand increase in advertising
was
due
primarily to scheduled network television advertising campaigns.
Income
tax expense for the current quarter was $5.6 million compared to $6.4 million
for the quarter ended December 31, 2006. The decrease in income tax expense
was
primarily due to a decrease in earnings for the current quarter. The effective
tax rate for the current quarter was 39.8% compared to 38.6% for the quarter
ended December 31, 2006. The increase in the effective tax rate was primarily
due to the accrual of taxes as a result of the state audit that was completed
during the current quarter, and the amendment of the fiscal year 2005 and
2006
returns based upon the audit results. These items resulted in an increase
of 103
basis points in the current quarter effective tax rate.
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 the quarter ended March 31, 2007 to the quarter ended
December 31, 2006. 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.
|
|
Quarter
Ended
|
|
|
|
March
31, 2007 vs. December 31, 2006
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
Loans
receivable, net
|
|
$
|
(181
|
)
|
$
|
979
|
|
$
|
798
|
|
Mortgage-related
securities
|
|
|
(1,804
|
)
|
|
(400
|
)
|
|
(2,204
|
)
|
Investment
securities
|
|
|
2,398
|
|
|
180
|
|
|
2,578
|
|
Capital
stock of FHLB
|
|
|
(154
|
)
|
|
(1
|
)
|
|
(155
|
)
|
Cash
and cash equivalents
|
|
|
(1,622
|
)
|
|
12
|
|
|
(1,610
|
)
|
Total
interest-earning assets
|
|
$
|
(1,363
|
)
|
$
|
770
|
|
$
|
(593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Savings(1)
|
|
$
|
236
|
|
$
|
909
|
|
$
|
1,145
|
|
Checking
|
|
|
7
|
|
|
(30
|
)
|
|
(23
|
)
|
Money
market
|
|
|
50
|
|
|
20
|
|
|
70
|
|
Certificates(1)
|
|
|
(832
|
)
|
|
438
|
|
|
(394
|
)
|
FHLB
advances and other borrowings
|
|
|
(1,847
|
)
|
|
(414
|
)
|
|
(2,261
|
)
|
Total
interest-bearing liabilities
|
|
$
|
(2,386
|
)
|
$
|
923
|
|
$
|
(1,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in net interest and dividend income
|
|
$
|
1,023
|
|
$
|
(153
|
)
|
$
|
870
|
|
(1)
The
increase in the volume and the rate in the savings accounts are related to
the
variable-rate retirement certificate of deposits that were reclassified to
savings from certificates as the accounts did not have a stated maturity
date as
a result of changes required by the new core information technology processing
system.
Liquidity
and Capital Resources
Liquidity
management is both a daily and long-term function of our business management.
The Bank’s most available liquid assets, represented by cash and cash
equivalents, available-for-sale mortgage-related and investment securities,
and
short-term investment securities, are a product of its operating, investing
and
financing activities. The Bank’s primary sources of funds are deposits, FHLB
advances, repayments on and maturities of outstanding loans and mortgage-related
securities, other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans and mortgage-related
securities and payments on short-term investments are relatively predictable
sources of funds, deposit flows and prepayments on loans and mortgage-related
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 portfolios by the rates
it
offers customers. Sources of funds are used primarily to meet our ongoing
operations, to pay maturing certificates of deposit and savings withdrawals
and
to fund loan commitments. At March 31, 2007, approximately $1.55 billion
of our
$2.49 billion in certificates of deposit were scheduled to mature within
one
year. Based on past experience and our pricing strategy, we expect that a
majority of these maturing deposits will renew, although no assurance can
be
given in this regard.
At
March
31, 2007, cash and cash equivalents totaled $242.2 million. In January 2007,
the
Bank did not renew $200.0 million of maturing FHLB advances. Subsequent to
March
31, 2007, an additional $200.0 million of FHLB advances matured and were
not
renewed. Cash on hand and cash received from repayments and maturing investments
subsequent to March 31, 2007 were utilized to repay these advances.
The
Bank
has used FHLB advances to provide funds for lending and investment activities.
FHLB lending guidelines set borrowing limits as part of their underwriting
standards. At March 31, 2007, the Bank’s ratio of the face amount of advances to
total assets, as reported to the Office of Thrift Supervision (“OTS”), was 38%.
Our advances are secured by a blanket pledge of our loan portfolio, as
collateral, supported by quarterly reporting to FHLB Topeka. Advances in
excess
of 40% of total assets, but not exceeding 55% of total assets, may be approved
by the president of FHLB Topeka based upon a review of documentation supporting
the use of the advances. In July 2006, the president of FHLB Topeka approved
a
renewal of our request to increase the Bank’s borrowing limit to 45% of total
assets for one year. Currently, the blanket pledge is sufficient collateral
for
the FHLB advances. It is possible that increases in our borrowings or decreases
in our loan portfolio could require the Bank to pledge securities as collateral
on the FHLB advances. The Bank’s policy allows borrowing from FHLB of up to 55%
of total assets. In the past, the Bank has utilized other sources for liquidity,
such as secondary market repurchase agreements, but in recent years it has
relied primarily on the FHLB advances.
In
2004,
the Company issued $53.6 million in Junior Subordinated Deferrable Interest
Debentures (“Debentures”) in connection with a trust preferred securities
offering. The Company received, net, $52.0 million from the issuance of the
Debentures and an investment of $1.6 million in Capitol Federal Financial
Trust
I (the “Trust”). The Company did not down-stream the proceeds to be used by the
Bank for Tier 1 capital because the Bank exceeded all regulatory requirements
to
be a well-capitalized institution. Instead, the Company deposited the proceeds
into certificate accounts at the Bank to be used to further the Company’s
general corporate and capital management strategies which could include the
payment of dividends.
Even
with
the current challenging rate environment, it is management’s and the board of
directors’ intention to continue to pay regular quarterly dividends of $0.50 per
share for the foreseeable future. At March 31, 2007, Capitol Federal Financial,
at the holding company level, had $115.3 million in cash and certificates
of
deposit at the Bank.
In
December 2005, the Bank entered into a series of agreements with third party
entities in connection with the planned replacement of the Bank’s core
information technology processing system. The agreements provide for the
Bank’s
purchase of hardware, purchase and licensing of software and receipt of
maintenance, support and other services. The principal software maintenance
agreement has an initial term of five and one-half years, renewable thereafter
for successive terms of 33 months. Also in connection with the replacement
of
its core information technology processing system, the Bank entered into
a
license and service agreement with a third party for the use of the third
party’s proprietary mortgage loan origination system software. Under this
agreement, maintenance services are to be provided for an initial term of
five
years, renewable thereafter for additional one-year terms. The replacement
of
the core technology processing system was completed in January 2007. The
costs
associated with the replacement of core information technology processing
system
were $6.8 million for hardware, software and services and $1.0 million in
capitalized payroll costs. Both of these amounts started being depreciated
during the current quarter. The depreciation period will not exceed five years.
Management anticipates incurring an amount not greater than $900 thousand
during
fiscal year 2007 as a result of documenting and testing controls of the new
core
information technology processing system to comply with SOX 404. During the
first six months of fiscal year 2007, $306 thousand of consulting fees were
incurred related to the compliance with SOX 404.
Off
Balance Sheet Arrangements, Commitments and Contractual
Obligations
The
Company, in the normal course of business, makes commitments to buy or sell
assets or to incur or fund liabilities. Commitments may include, but are
not
limited to:
· |
the
origination, purchase or sale of loans,
|
· |
the
purchase or sale of investment and mortgage-related
securities,
|
· |
extensions
of credit on home equity loans and construction
loans,
|
· |
terms
and conditions of operating leases, and
|
· |
funding
withdrawals of savings accounts at
maturity.
|
The
Company’s contractual obligations related to operating leases and debentures
have not changed significantly from September 30, 2006. The following table
summarizes our other contractual obligations as of March 31, 2007.
|
|
Maturity
Range
|
|
|
|
|
|
Less
than
|
|
1
- 3
|
|
3
- 5
|
|
More
than
|
|
|
|
Total
|
|
1
year
|
|
years
|
|
years
|
|
5
years
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
Advances
|
|
$
|
3,096,000
|
|
$
|
1,050,000
|
|
$
|
1,520,000
|
|
$
|
526,000
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of Deposit
|
|
|
2,494,290
|
|
|
1,554,035
|
|
|
864,250
|
|
|
74,395
|
|
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to originate and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
mortgage loans
|
|
|
85,163
|
|
|
85,163
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to fund unused home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
lines of credit
|
|
|
273,403
|
|
|
273,403
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unadvanced
portion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
construction
loans
|
|
|
20,634
|
|
|
20,634
|
|
|
--
|
|
|
--
|
|
|
--
|
|
The
maturity schedule for our certificate of deposit portfolio at March 31, 2007
is
located under “Item 3. Quantitative and Qualitative Disclosure About Market
Risk”. We
anticipate that we will continue to have sufficient funds, through repayments
and maturities of loans and securities, deposits and borrowings, to meet
our
current commitments.
The
following table presents the maturity of FHLB advances at par as of March
31,
2007. As
previously discussed, subsequent to March 31, 2007, $200.0 million of maturing
FHLB advances were not renewed. The
balance of advances excludes the $21.0 million unrealized loss adjustment
on
the
swapped FHLB advances.
|
|
|
Actual
rates
|
|
Effective
|
|
|
|
|
without
|
|
rates
with
|
|
Maturity
by
|
|
interest
rate
|
|
interest
rate
|
|
Fiscal
year
|
Amount
|
swaps
|
|
swaps
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
2007
|
$
550,000
|
3.58
|
%
|
3.58
|
%
|
|
2008
|
1,125,000
|
4.23
|
|
4.64
|
|
|
2009
|
620,000
|
4.27
|
|
4.27
|
|
|
2010
|
775,000
|
5.90
|
|
7.00
|
|
|
2011
|
26,000
|
5.09
|
|
5.09
|
|
|
Total
|
$
3,096,000
|
4.55
|
%
|
4.97
|
%
|
The
following table presents the maturity of FHLB advances by quarter for fiscal
year 2007 as of March 31, 2007.
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Maturity
by Quarter End
|
Amount
|
Rate
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
June
30, 2007
|
$
200,000
|
3.49
|
%
|
|
|
|
September
30, 2007
|
350,000
|
3.63
|
|
|
|
|
|
$
550,000
|
3.58
|
%
|
|
|
We
anticipate that we will continue to have sufficient funds, through repayments
and maturities of loans and securities, deposits and borrowings, to meet
our
current commitments.
Management
has entered into interest rate swap agreements with an aggregate notional
principal amount of $800.0 million to modify the Bank’s interest rate risk
profile. The counterparties with whom we have entered into the interest rate
swap agreements are rated as AA- or higher per our internal policies.
Counterparties to the interest rate swaps require collateral for their exposure
to the Bank’s net payable mark-to-market position under the terms of the
interest rate swap agreements. The exposure is estimated daily by the
counterparties calculating a market value for each swap on a net settlement
basis. When the valuation indicates that the Bank has a net payable to the
counterparty, the Bank may be required to post collateral sufficient to satisfy
the counterparty’s exposure. When required, the collateral pledged to the
counterparty would be restricted and not available-for-sale. Each counterparty
has different collateralization requirements. At March 31, 2007, the Bank
had
posted available-for-sale mortgage-related securities with an estimated market
value of $34.4 million. If the future obligation indicates that the Bank
has a
net receivable mark-to-market position from the counterparties, the Bank
could
have a certain level of exposure to the extent the counterparties are not
able
to satisfy their obligations to the Bank.
Contingencies
In
the
normal course of business, the Company and its subsidiary 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 current interim or future periods.
Capital
Consistent
with our goal to operate a sound and profitable financial organization, we
actively seek to maintain a “well-capitalized” status in accordance with
regulatory standards. Total equity for the Bank was $790.8 million at March
31,
2007, or 9.7% of total Bank assets on that date. As of March 31, 2007, the
Bank
exceeded all capital requirements of the OTS. The following table presents
the
Bank’s regulatory capital ratios at March 31, 2007 based upon regulatory
guidelines.
|
|
|
Regulatory
|
|
|
|
Requirement
|
|
Bank
|
|
For
“Well
|
|
Ratios
|
|
Capitalized”
Status
|
Core
capital
|
9.7%
|
|
5.0%
|
Tier
I risk-based capital
|
22.4%
|
|
6.0%
|
Total
risk-based capital
|
22.3%
|
|
10.0%
|
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. Under OTS safe harbor regulations, the Bank may distribute to the
Company capital not exceeding net income for the current calendar year and
the
prior two calendar years. Due to the impact refinancing the FHLB advances
had on
earnings in 2004, the Bank cannot distribute capital to the Company unless
it
receives waivers of the safe harbor regulation from the OTS during the current
waiver period. The Bank had previously reported that a waiver would be required
for capital distributions through at least December 31, 2007. As a result
of net
interest margin compression, earnings have not been at the levels originally
forecasted which would likely result in a waiver being required through December
31, 2008. Currently, the Bank has authorization from the OTS to distribute
capital from the Bank to the Company through the quarter ending June 30,
2007.
So long as the Bank continues to maintain excess capital, operate in a safe
and
sound manner, and comply with the interest rate risk management guidelines
of
the OTS, it is management’s belief that the Bank will continue to receive
waivers allowing it to distribute the net income of the Bank to the Company,
although no assurance can be given in this regard.
For
a
complete discussion of the Company’s asset and liability management policies, as
well as the potential impact of interest rate changes upon the market value
of
the Company’s portfolios, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Asset and Liability Management and
Market
Risk” in the Company’s Annual Report to Stockholders for the year ended
September 30, 2006, attached as Exhibit 13 to the
Company’s
Annual Report on Form 10-K for the year ended September 30, 2006.
ALCO
regularly reviews the interest rate risk exposure of the Bank by forecasting
the
impact of hypothetical, alternative interest rate environments on net interest
income and measuring the market value of portfolio equity (“MVPE”) at various
dates. The MVPE is defined as the net of the present value of the cash flows
of
an institution’s existing assets, liabilities and off-balance sheet instruments.
The present values are determined in alternative interest rate environments
providing potential changes in MVPE under those alternative interest rate
environments. The Bank’s analysis of its MVPE at March 31, 2007 indicates no
significant increase in its risk exposure as compared to September 30, 2006.
The
Bank’s analysis of the sensitivity of its net interest income to parallel
changes in interest rates at March 31, 2007 indicates no significant increase
since September 30, 2006.
Gap
Table:
The
following gap table summarizes the anticipated maturities or repricing of
our
interest-earning assets and interest-bearing liabilities as of March 31,
2007,
based on the information and assumptions set forth in the notes
below.
|
|
Within
Three Months
|
Three
Months To One Year
|
More
Than One Year to Three Years
|
More
Than Three Years to Five Years
|
Over
Five Years
|
Total
|
|
|
|
Interest-earning
assets:
|
|
(Dollars
in thousands)
|
Loans
receivable(1)(2):
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
Fixed
|
|
$ 63,580
|
$ 376,349
|
$ 988,138
|
$ 587,183
|
$ 1,173,773
|
$ 3,189,023
|
Adjustable
|
|
85,865
|
510,216
|
929,702
|
280,301
|
18,495
|
1,824,579
|
Other
loans
|
|
139,630
|
5,688
|
9,161
|
6,839
|
58,986
|
220,304
|
Securities:
|
|
|
|
|
|
|
|
Non-mortgage(3)
|
|
178,546
|
374,733
|
211,254
|
460
|
8,303
|
773,296
|
Mortgage-related
securities(4)
|
|
214,050
|
593,881
|
497,922
|
110,692
|
186,409
|
1,602,954
|
Other
interest-earning assets
|
|
197,407
|
--
|
--
|
--
|
--
|
197,407
|
Total
interest-earning assets
|
|
879,078
|
1,860,867
|
2,636,177
|
985,475
|
1,445,966
|
7,807,563
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Savings(5)
|
|
144,077
|
7,455
|
17,203
|
12,877
|
66,232
|
247,844
|
Checking
(5)
|
|
18,246
|
50,211
|
100,483
|
63,006
|
203,354
|
435,300
|
Money
market (5)
|
|
20,408
|
57,838
|
130,408
|
90,947
|
525,831
|
825,432
|
Certificates
|
|
569,086
|
1,002,440
|
847,503
|
73,867
|
1,394
|
2,494,290
|
Borrowings(6)
|
|
1,000,000
|
850,000
|
1,020,000
|
226,000
|
53,609
|
3,149,609
|
Total
interest-bearing liabilities
|
|
1,751,817
|
1,967,944
|
2,115,597
|
466,697
|
850,420
|
7,152,475
|
|
|
|
|
|
|
|
|
Excess
(deficiency) of interest-earning assets over
|
|
|
|
|
|
|
|
interest-bearing
liabilities
|
|
(872,739)
|
(107,077)
|
520,580
|
518,778
|
595,546
|
655,088
|
|
|
|
|
|
|
|
|
Cumulative
excess (deficiency) of interest-earning
|
|
|
|
|
|
|
|
assets
over interest-bearing liabilities
|
|
(872,739)
|
(979,816)
|
(459,236)
|
59,542
|
655,088
|
|
|
|
|
|
|
|
|
|
Cumulative
excess (deficiency) of interest-earning
|
|
|
|
|
|
|
|
assets
over interest-bearing liabilities as a
|
|
|
|
|
|
|
|
percent
of total assets at March 31, 2007
|
|
(10.78)%
|
(12.10)%
|
(5.67)%
|
0.74%
|
8.09%
|
|
Cumulative
one-year gap at September 30, 2006
|
|
|
(13.62)
|
|
|
|
|
Cumulative
one-year gap at September 30, 2005
|
|
|
(4.01)
|
|
|
|
|
(1) Adjustable-rate
loans are included in the period in which the rate is next scheduled to adjust,
rather than in the period in which the loans are due or in the period in
which
repayments are expected to occur prior to their next rate adjustment. Fixed-rate
loans are included in the periods in which they are scheduled to be repaid,
based on scheduled amortization and prepayment assumptions.
(2) Balances
have been reduced for non-performing loans, which totaled $6.6 million,
excluding accrued interest, at March 31, 2007.
(3) Based
on
contractual maturities or term to call date based on the current rate
environment, and excludes the unrealized gain adjustment of $108 thousand
on AFS
investment securities.
(4) Reflects
estimated prepayments of mortgage-related securities in our portfolio, and
excludes the unrealized loss adjustment of $489 thousand on AFS mortgage-related
securities.
(5) Although
our checking, savings and money market accounts are subject to immediate
withdrawal, management considers a substantial amount of such accounts to
be
core deposits having significantly longer effective maturities. The decay
rates
(the assumed rate at which the balance of existing accounts would decline)
used
on these accounts are based on assumptions developed based upon our actual
experience with these accounts. If all of our 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 $2.19 billion, for a cumulative one-year gap of (27.05)%
of
total assets.
(6) Borrowings
exclude the $21.0 million unrealized loss adjustment on the swapped FHLB
advances and $114 thousand of capitalized debt issuance costs on other
borrowings. These amounts are included in the Within Three Months category.
The
table
on the previous page contains certain assumptions which affect the presentation.
Although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates. 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 ARM 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 likely would deviate significantly from those assumed in calculating
the
gap table.
The
FHLB
advances designated in hedging relationships have maturities ranging from
May
2008 to August 2010. At March 31, 2007, the Bank was in a paying position
on the
interest rate swaps. If the one month LIBOR rate remains higher than 3.68%
(weighted average break even LIBOR rate), then the Bank will continue to
be in a
paying position on the interest rate swaps. The following summarizes the
interest rate swap agreements by maturity date at March 31, 2007.
|
March
31, 2007
|
|
|
|
Paying
|
|
|
Fiscal
|
|
Notional
|
1
Month
|
|
|
Receiving
|
|
Year
|
Fair
|
Principal
|
LIBOR
|
|
Interest
|
Interest
|
|
Maturity
|
Value(1)
|
Amount
|
Rate
(2)
|
Margin
|
Rate
|
Rate
|
Spread
|
|
(Dollars
in thousands)
|
|
|
|
|
|
2008
|
$
(4,420)
|
$
225,000
|
5.32%
|
2.41%
|
7.73%
|
5.68%
|
(2.05)%
|
2010
|
(16,607)
|
575,000
|
5.32
|
2.51
|
7.83
|
6.35
|
(1.48)
|
|
$
(21,027)
|
$
800,000
|
5.32%
|
2.48%
|
7.80%
|
6.16%
|
(1.64)%
|
(1) The
one
month LIBOR rate as of March 30, 2007 was 5.32%. This rate was used to calculate
the fair value of the interest rate swaps at March 31, 2007.
(2) The
one
month LIBOR rate as of February 27, 2007 was 5.32%. This rate plus the margin
noted above was the paying interest rate during March 2007.
Changes
in portfolio composition. The
following tables provide information regarding the fixed- and adjustable-rate
composition of our loan, investment and mortgage-related security portfolios
as
well as the change in the composition of these portfolios from September
30,
2006 to March 31, 2007. Also presented is the maturity information for our
certificate of deposit portfolio, which shows the change in composition between
periods.
The
following table presents loan origination, refinance and purchase activity
for
the periods indicated. Loan originations, purchases and refinances are reported
together. The fixed-rate one- to four-family loans less than or equal to
15
years have an original maturity at origination of less than or equal to 15
years, while fixed-rate one- to four-family loans greater than 15 years have
an
original maturity at origination of greater than 15 years. The adjustable-rate
one- to four-family loans less than or equal to 36 months have a term to
first
reset of less than or equal to 36 months at origination and adjustable-rate
one-
to four-family loans greater than 36 months have a term to first reset of
greater than 36 months at origination.
|
|
For
the Three Months Ended
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
Amount
|
|
Rate
|
|
%
of Total
|
|
Amount
|
|
Rate
|
|
%
of Total
|
|
Fixed-rate:
|
|
(Dollars
in thousands)
|
|
One-
to four-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
15 years
|
|
$
|
22,816
|
|
|
5.64
|
%
|
|
12.32
|
%
|
$
|
16,946
|
|
|
5.65
|
%
|
|
8.28
|
%
|
>
15 years
|
|
|
97,122
|
|
|
5.98
|
|
|
52.43
|
|
|
79,795
|
|
|
6.05
|
|
|
38.99
|
|
Other
real estate
|
|
|
3,100
|
|
|
6.50
|
|
|
1.67
|
|
|
640
|
|
|
6.25
|
|
|
0.31
|
|
Non
real estate
|
|
|
7,960
|
|
|
8.13
|
|
|
4.30
|
|
|
10,530
|
|
|
7.57
|
|
|
5.15
|
|
Total
fixed-rate
|
|
|
130,998
|
|
|
6.06
|
|
|
70.72
|
|
|
107,911
|
|
|
6.14
|
|
|
52.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
36 months
|
|
|
8,515
|
|
|
5.31
|
|
|
4.60
|
|
|
7,410
|
|
|
5.21
|
|
|
3.62
|
|
>
36 months
|
|
|
25,186
|
|
|
5.59
|
|
|
13.60
|
|
|
65,394
|
|
|
5.41
|
|
|
31.95
|
|
Non
real estate
|
|
|
20,524
|
|
|
8.57
|
|
|
11.08
|
|
|
23,942
|
|
|
8.30
|
|
|
11.70
|
|
Total
adjustable-rate
|
|
|
54,225
|
|
|
6.68
|
|
|
29.28
|
|
|
96,746
|
|
|
6.11
|
|
|
47.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loan originations and purchases
|
|
$
|
185,223
|
|
|
6.24
|
%
|
|
100.00
|
%
|
$
|
204,657
|
|
|
6.12
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
loans included above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
purchased loans
|
|
$
|
9,333
|
|
|
6.01
|
%
|
|
|
|
$
|
11,793
|
|
|
6.12
|
%
|
|
|
|
Adjustable-rate
purchased loans
|
|
$
|
14,185
|
|
|
5.57
|
%
|
|
|
|
$
|
42,124
|
|
|
5.34
|
%
|
|
|
|
|
|
For
the Six Months Ended
|
|
For
the Six Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
Amount
|
|
Rate
|
|
%
of Total
|
|
Amount
|
|
Rate
|
|
%
of Total
|
|
Fixed-Rate:
|
|
(Dollars
in thousands)
|
|
One-
to four-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
15 years
|
|
$
|
43,423
|
|
|
5.69
|
%
|
|
11.40
|
%
|
$
|
56,607
|
|
|
5.46
|
%
|
|
10.28
|
%
|
>
15 years
|
|
|
202,161
|
|
|
6.04
|
|
|
53.05
|
|
|
192,631
|
|
|
5.92
|
|
|
35.00
|
|
Other
real estate
|
|
|
3,873
|
|
|
6.54
|
|
|
1.02
|
|
|
6,697
|
|
|
6.28
|
|
|
1.22
|
|
Non
real estate
|
|
|
17,007
|
|
|
8.02
|
|
|
4.46
|
|
|
19,851
|
|
|
7.50
|
|
|
3.61
|
|
Total
fixed-rate
|
|
|
266,464
|
|
|
6.12
|
|
|
69.93
|
|
|
275,786
|
|
|
5.95
|
|
|
50.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
36 months
|
|
|
14,407
|
|
|
5.35
|
|
|
3.78
|
|
|
48,529
|
|
|
4.75
|
|
|
8.82
|
|
>
36 months
|
|
|
58,566
|
|
|
5.66
|
|
|
15.37
|
|
|
175,881
|
|
|
5.20
|
|
|
31.96
|
|
Non
real estate
|
|
|
41,631
|
|
|
8.58
|
|
|
10.92
|
|
|
50,118
|
|
|
8.00
|
|
|
9.11
|
|
Total
adjustable-rate
|
|
|
114,604
|
|
|
6.67
|
|
|
30.07
|
|
|
274,528
|
|
|
5.63
|
|
|
49.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loan originations and purchases
|
|
$
|
381,068
|
|
|
6.29
|
%
|
|
100.00
|
%
|
$
|
550,314
|
|
|
5.79
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
loans included above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
purchased loans
|
|
$
|
21,009
|
|
|
6.10
|
%
|
|
|
|
$
|
45,875
|
|
|
5.76
|
%
|
|
|
|
Adjustable-rate
purchased loans
|
|
$
|
28,882
|
|
|
5.69
|
%
|
|
|
|
$
|
158,034
|
|
|
5.04
|
%
|
|
|
|
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
|
|
Amount
|
|
Rate
|
|
%
of Total
|
|
Amount
|
|
Rate
|
|
%
of Total
|
|
Amount
|
|
Rate
|
|
%
of Total
|
|
|
|
(Dollars
in thousands)
|
|
Fixed-rate
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four- family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
15 years
(1)
|
|
$
|
1,134,151
|
|
|
5.37
|
%
|
|
21.61
|
%
|
$
|
1,152,290
|
|
|
5.36
|
%
|
|
21.90
|
%
|
$
|
1,166,880
|
|
|
5.35
|
%
|
|
22.19
|
%
|
>
15 years (1)
|
|
|
1,974,136
|
|
|
5.93
|
|
|
37.60
|
|
|
1,923,923
|
|
|
5.93
|
|
|
36.58
|
|
|
1,864,854
|
|
|
5.93
|
|
|
35.47
|
|
Other
real estate
|
|
|
94,027
|
|
|
6.30
|
|
|
1.79
|
|
|
85,031
|
|
|
6.35
|
|
|
1.62
|
|
|
86,761
|
|
|
6.34
|
|
|
1.65
|
|
Non
real estate
|
|
|
72,985
|
|
|
7.69
|
|
|
1.39
|
|
|
70,798
|
|
|
7.63
|
|
|
1.35
|
|
|
67,083
|
|
|
7.57
|
|
|
1.28
|
|
Total
fixed-rate loans
|
|
|
3,275,299
|
|
|
5.79
|
|
|
62.39
|
|
|
3,232,042
|
|
|
5.78
|
|
|
61.45
|
|
|
3,185,578
|
|
|
5.76
|
|
|
60.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four- family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
36 months (2)
|
|
|
1,067,303
|
|
|
4.83
|
|
|
20.33
|
|
|
1,032,723
|
|
|
4.80
|
|
|
19.63
|
|
|
989,316
|
|
|
4.76
|
|
|
18.82
|
|
>
36 months (2)
|
|
|
749,677
|
|
|
5.23
|
|
|
14.28
|
|
|
831,427
|
|
|
5.18
|
|
|
15.81
|
|
|
910,455
|
|
|
5.13
|
|
|
17.32
|
|
Other
real estate
|
|
|
10,025
|
|
|
5.73
|
|
|
0.19
|
|
|
10,930
|
|
|
5.66
|
|
|
0.21
|
|
|
15,465
|
|
|
5.33
|
|
|
0.29
|
|
Non
real estate
|
|
|
147,489
|
|
|
8.62
|
|
|
2.81
|
|
|
152,735
|
|
|
8.62
|
|
|
2.90
|
|
|
156,659
|
|
|
8.63
|
|
|
2.98
|
|
Total
adjustable-rate loans
|
|
|
1,974,494
|
|
|
5.27
|
|
|
37.61
|
|
|
2,027,815
|
|
|
5.25
|
|
|
38.55
|
|
|
2,071,895
|
|
|
5.22
|
|
|
39.41
|
|
Total
loans
|
|
|
5,249,793
|
|
|
5.60
|
%
|
|
100.00
|
%
|
|
5,259,857
|
|
|
5.57
|
%
|
|
100.00
|
%
|
|
5,257,473
|
|
|
5.55
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
in process
|
|
|
20,634
|
|
|
|
|
|
|
|
|
17,244
|
|
|
|
|
|
|
|
|
22,605
|
|
|
|
|
|
|
|
Unearned
fees and deferred costs
|
|
|
9,265
|
|
|
|
|
|
|
|
|
9,438
|
|
|
|
|
|
|
|
|
9,318
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
4,193
|
|
|
|
|
|
|
|
|
4,143
|
|
|
|
|
|
|
|
|
4,433
|
|
|
|
|
|
|
|
Total
loans receivable, net
|
|
$
|
5,215,701
|
|
|
|
|
|
|
|
$
|
5,229,032
|
|
|
|
|
|
|
|
$
|
5,221,117
|
|
|
|
|
|
|
|
(1) |
Loans
are reported based on their remaining term to maturity, with consideration
for historical curtailments, as of the date
indicated.
|
(2) |
Loans
are reported based on their term to next rate reset as of the date
indicated.
|
The
following table presents the distribution of our investment and mortgage-related
securities portfolios, at cost, at the dates indicated. Overall, fixed-rate
securities comprised 58.3% of these portfolios at March 31, 2007 compared
to
51.5% at September 30, 2006. The WAL is the estimated remaining maturity
of the
underlying collateral after projected prepayment speeds have been applied.
The
decrease in the WAL between September 30, 2006 and March 31, 2007 was due
to the
purchase of investments with terms to maturity or reprice of generally less
than
two years. The increase in the yield between September 30, 2006 and March
31,
2007 as a result of the yield on the securities purchased being greater than
that of the overall portfolio yield.
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
|
|
Balance
|
|
WAL
|
|
Yield
|
|
Balance
|
|
WAL
|
|
Yield
|
|
Balance
|
|
WAL
|
|
Yield
|
|
|
|
(Dollars
in thousands)
|
|
Fixed-rate
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
bonds
|
|
$
|
763,971
|
|
|
1.66
|
|
|
4.77
|
%
|
$
|
837,693
|
|
|
1.62
|
|
|
4.83
|
%
|
$
|
428,074
|
|
|
2.62
|
|
|
4.46
|
%
|
Mortgage-related
securities, at cost
|
|
|
613,127
|
|
|
4.01
|
|
|
4.56
|
|
|
635,904
|
|
|
4.09
|
|
|
4.55
|
|
|
662,480
|
|
|
4.29
|
|
|
4.58
|
|
Municipal
bonds
|
|
|
9,326
|
|
|
6.96
|
|
|
3.61
|
|
|
6,764
|
|
|
7.05
|
|
|
3.61
|
|
|
1,201
|
|
|
6.09
|
|
|
3.90
|
|
Total
fixed-rate investments
|
|
|
1,386,424
|
|
|
2.73
|
|
|
4.67
|
|
|
1,480,361
|
|
|
2.71
|
|
|
4.70
|
|
|
1,091,755
|
|
|
3.64
|
|
|
4.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities, at cost
|
|
|
989,827
|
|
|
3.02
|
|
|
4.09
|
|
|
1,033,437
|
|
|
3.10
|
|
|
4.08
|
|
|
1,028,093
|
|
|
3.38
|
|
|
4.04
|
|
Total
adjustable-rate investments
|
|
|
989,827
|
|
|
3.02
|
|
|
4.09
|
|
|
1,033,437
|
|
|
3.10
|
|
|
4.08
|
|
|
1,028,093
|
|
|
3.38
|
|
|
4.04
|
|
Total
investment portfolio, at cost
|
|
$
|
2,376,251
|
|
|
2.85
|
|
|
4.43
|
%
|
$
|
2,513,798
|
|
|
2.87
|
|
|
4.45
|
%
|
$
|
2,119,848
|
|
|
3.51
|
|
|
4.29
|
%
|
The
certificate of deposit portfolio decreased $80.0 million from September 30,
2006
to March 31, 2007 and the average cost of the portfolio increased 27 basis
points between the two reporting dates. Certificates maturing in one year
or
less at March 31, 2007 were $1.55 billion with an average cost of 4.54%.
The
following table presents the maturity of certificates of deposit at the dates
indicated.
|
|
March
31, 2007
|
|
December
31, 2006
|
|
September
30, 2006
|
|
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Certificates
maturing within:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
to 3 months
|
|
$ |
442,706
|
|
|
4.40
|
%
|
$
|
321,975
|
|
|
4.02
|
%
|
$
|
518,974
|
|
|
4.40
|
%
|
3
to 6 months
|
|
|
357,839
|
|
|
4.41
|
|
|
460,940
|
|
|
4.41
|
|
|
314,279
|
|
|
4.04
|
|
6
months to one year
|
|
|
753,490
|
|
|
4.68
|
|
|
674,221
|
|
|
4.44
|
|
|
825,885
|
|
|
4.45
|
|
One
year to two years
|
|
|
680,400
|
|
|
4.81
|
|
|
858,453
|
|
|
4.70
|
|
|
695,580
|
|
|
4.38
|
|
After
two years
|
|
|
259,855
|
|
|
4.62
|
|
|
270,100
|
|
|
4.54
|
|
|
227,558
|
|
|
4.23
|
|
Total
certificates
|
|
$
|
2,494,290
|
|
|
4.62
|
%
|
$
|
2,585,689
|
|
|
4.48
|
%
|
$
|
2,582,276
|
|
|
4.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
maturity (in years)
|
|
|
0.97
|
|
|
|
|
|
1.04
|
|
|
|
|
|
0.94
|
|
|
|
|
John
B.
Dicus, the Company’s President and Chief Executive Officer, and Kent G.
Townsend, the Company’s Executive Vice President, Chief Financial Officer and
Treasurer, have evaluated the Company’s disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended,
the “Act”) as of March 31, 2007. Based upon their evaluation, they have
concluded that as of March 31, 2007, 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.
Changes
in Internal Control Over Financial Reporting
As
previously disclosed, the Company, through its primary subsidiary the Bank,
completed the installation and implementation of a new core processing system
during January 2007. The conversion to a new core processing system was made
in
the ordinary course of business due to obsolescence of the previous computer
hardware and software platform. In connection with this conversion, management
modified previously established internal controls where applicable, and has
implemented, or is in the process of implementing, additional controls and
processes to maintain the strength of the overall system of internal controls.
Management does not believe any of the changes currently underway in the
Bank's
systems of internal controls, or any other factors that could significantly
affect internal controls, have resulted in any material weaknesses in the
Company's internal control over financial reporting. Other than changes relating
to the core conversion, there has been no change in our internal control
over
financial reporting as
defined by Rule 13a-15(d) of the Act during
our second fiscal quarter that has materially affected, or is reasonably
likely
to materially affect, our internal control over financial reporting.
Part II - OTHER
INFORMATION
We
are
not involved in any pending legal proceedings other than routine legal
proceedings occurring in the ordinary course of business. We believe that
these
routine legal proceedings, in the aggregate, are immaterial to our financial
condition and results of operations.
There
has
been no material change to our risk factors since September 30, 2006. For
a
summary of risk factors relevant to our operations, see Part I,
Item 1A in our 2006 Annual Report on Form 10-K.
See
“Liquidity and Capital Resources - Capital” in “Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” regarding the OTS
restrictions on dividends from the Bank to the Company.
The
following table summarizes our share repurchase activity during the three
months
ended March 31, 2007 and additional information regarding our share repurchase
program. All shares repurchased during the quarter were tendered to the Company
by holders of stock options in lieu of paying the option exercise price in
cash.
Our current repurchase plan of 500,000 shares was announced on May 26, 2006.
The
plan has no expiration date and had 461,316 shares remaining as of March
31,
2007. The Company intends to repurchase shares from time to time, depending
on
market conditions, at prevailing market prices in open-market and other
transactions. The shares would be held as treasury stock for general corporate
use.
|
Total
|
|
Total
Number of
|
Maximum
Number
|
|
Number
of
|
Average
|
Shares
Purchased as
|
of
Shares that May
|
|
Shares
|
Price
Paid
|
Part
of Publicly
|
Yet
Be Purchased
|
Period
|
Purchased
|
per
Share
|
Announced
Plans(1)
|
Under
the Plan
|
January
1, 2007 through
|
|
|
|
|
January
31, 2007
|
--
|
--
|
--
|
498,548
|
February
1, 2007 through
|
|
|
|
|
February
28, 2007
|
37,232
|
--(1)
|
37,232
|
461,316
|
March
1, 2007 through
|
|
|
|
|
March
31, 2007
|
--
|
--
|
--
|
461,316
|
Total
|
37,232
|
|
37,232
|
461,316
|
(1) All
shares repurchased during the quarter were in exchange for the exercise of
options.
<Index>
Item
3. Defaults Upon Senior Securities
Not
applicable
Item
4. Submission of Matters to a Vote of Security Holders
The
Annual Meeting of Stockholders for the fiscal year ended September 30, 2006,
was
held on January 23, 2007. Two matters were presented to the stockholders.
The
results were previously included in Part 2, Item 4 in the Form 10-Q for the
period ended December 31, 2006.
Item
5. Other Information
Not
applicable
Item
6. Exhibits
See
Index
to Exhibits
SIGNATURES
Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CAPITOL
FEDERAL FINANCIAL
Date: May
7, 2007 By: /s/
John B.
Dicus
John B. Dicus, President and
Chief Executive Officer
Date: May
7,
2007 By: /s/
Kent G.
Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer
INDEX
TO EXHIBITS
Exhibit
Number
|
Document
|
2.0
|
|
Plan
of Reorganization and Stock Issuance Plan*
|
3(i)
|
|
Federal
Stock Charter of Capitol Federal Financial*
|
3(ii)
|
|
Bylaws
of Capitol Federal Financial filed on August 4, 2004 as Exhibit
3(ii) to
|
|
|
the
June 30, 2004 Form 10-Q and incorporated herein by
reference
|
4(i)
|
|
Form
of Stock Certificate of Capitol Federal Financial*
|
4(ii)
|
|
The
Registrant agrees to furnish to the Securities and Exchange Commission,
upon request, the
|
|
|
instruments
defining the rights of the holders of the Registrant’s long-term debt
|
10.1
|
|
Registrant’s
Thrift and Stock Ownership Plan filed on December 14, 2005 as Exhibit
10.1
to
|
|
|
the
Annual Report on Form 10-K and incorporated herein by
reference
|
10.2
|
|
Registrant’s
2000 Stock Option and Incentive Plan (the “Stock Option Plan”) filed on
April 13,
|
|
|
2000
as Appendix A to Registrant’s Revised Proxy Statement (File No. 000-25391)
and incorporated herein by reference
|
10.3
|
|
Registrant’s
2000 Recognition and Retention Plan (the “RRP”) filed on April 13, 2000 as
|
|
|
Appendix
B to Registrant’s Revised Proxy Statement (File No. 000-25391) and
incorporated herein by reference
|
10.4
|
|
Capitol
Federal Financial Deferred Incentive Bonus Plan filed on December
14, 2006
|
|
|
as
Exhibit 10.4 to the Annual Report on Form 10-K and incorporated
herein by
reference
|
10.5
|
|
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 and incorporated
herein by
reference
|
10.6
|
|
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 and incorporated
herein
by reference
|
10.7
|
|
Form
of Restricted Stock Agreement under the RRP filed on February 4,
2005 as
Exhibit 10.7 to the
|
|
|
December
31, 2004 Form 10-Q and incorporated herein by reference
|
10.8
|
|
Description
of Named Executive Officer Salary and Bonus Arrangements filed
on December
14,
|
|
|
2006
as Exhibit 10.8 to the Annual Report on Form 10-K and incorporated
herein
by reference
|
10.9
|
|
Description
of Director Fee Arrangements filed on February 5, 2007 as Exhibit
10.9 to
the December 31, 2006 Form 10-Q and incorporated herein by
reference
|
10.10
|
|
Short-term
Performance Plan filed on December 14, 2005 as Exhibit 10.10 to
the
Annual
|
|
|
Report
on Form 10-K for the fiscal year ended September 30, 2005 and incorporated
herein by reference
|
11
|
|
Statement
re: computation of earnings per share**
|
31.1
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 made
by John B.
Dicus, President and Chief Executive Officer
|
31.2
|
|
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
|
32
|
|
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, Chief Executive
Officer, and Kent G. Townsend, Executive Vice President, Chief
Financial
Officer and Treasurer
|
*Incorporated
by reference from Capitol Federal Financial’s Registration Statement on Form S-1
(File No. 333-68363) filed on February 11, 2000, as amended and declared
effective on the same date.
**No
statement is provided because the computation of per share earnings on both
a
basic and fully diluted basis can be clearly determined from the Financial
Statements included in this report.