cffn10q063008.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_________________
Form
10-Q
(Mark
One)
|
þ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR
15(d)
|
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2008
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, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer, large accelerated filer, and smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer þ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller
Reporting Company ¨
(do
not check if a smaller
reporting
company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No þ
As
of July 28, 2008, there were 74,070,618 shares of Capitol Federal Financial
Common Stock outstanding.
|
Page
Number
|
Item
1. Financial Statements (Unaudited):
|
|
|
3
|
|
|
June
30, 2008 and June 30, 2007
|
4
|
|
|
June
30, 2008
|
5
|
|
|
June
30, 2008 and June 30, 2007
|
6
|
|
8
|
|
|
Results
of Operations
|
10
|
|
45
|
|
52
|
|
|
PART
II -- OTHER INFORMATION
|
|
|
52
|
|
52
|
Item
2. Unregistered Sales of Equity Securities
and Use of Proceeds
|
53
|
|
53
|
|
53
|
|
53
|
|
53
|
|
|
|
54
|
|
|
INDEX
TO EXHIBITS
|
55
|
|
|
PART
I -- FINANCIAL INFORMATION
Item
1. Financial Statements
CAPITOL
FEDERAL FINANCIAL AND SUBSIDIARY
(Dollars
in thousands except per share data and amounts)
|
|
June
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS:
|
|
(Unaudited)
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
86,437 |
|
|
$ |
162,791 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale
("AFS") at market (amortized cost of $51,833 and $102,331)
|
|
|
51,343 |
|
|
|
102,424 |
|
Held-to-maturity
("HTM") at cost (market value of $92,778 and $418,940)
|
|
|
93,003 |
|
|
|
421,744 |
|
Mortgage-related
securities:
|
|
|
|
|
|
|
|
|
AFS,
at market (amortized cost of $1,273,229 and $400,705)
|
|
|
1,265,366 |
|
|
|
402,686 |
|
HTM,
at cost (market value of $791,936 and $995,415)
|
|
|
801,319 |
|
|
|
1,011,585 |
|
Loans
receivable held-for-sale, net
|
|
|
3,671 |
|
|
|
2,184 |
|
Loans
receivable, net
|
|
|
5,326,061 |
|
|
|
5,291,426 |
|
Mortgage
servicing rights ("MSR")
|
|
|
5,166 |
|
|
|
5,606 |
|
Bank-owned
life insurance ("BOLI")
|
|
|
51,837 |
|
|
|
50,027 |
|
Capital
stock of Federal Home Loan Bank ("FHLB"), at cost
|
|
|
129,172 |
|
|
|
139,661 |
|
Accrued
interest receivable
|
|
|
32,308 |
|
|
|
35,869 |
|
Premises
and equipment, net
|
|
|
27,775 |
|
|
|
26,610 |
|
Real
estate owned, net
|
|
|
2,207 |
|
|
|
2,097 |
|
Income
taxes receivable
|
|
|
-- |
|
|
|
6,620 |
|
Deferred
income tax assets, net
|
|
|
-- |
|
|
|
543 |
|
Other
assets
|
|
|
16,472 |
|
|
|
15,657 |
|
TOTAL
ASSETS
|
|
$ |
7,892,137 |
|
|
$ |
7,677,530 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
3,961,543 |
|
|
$ |
3,922,782 |
|
Advances
from FHLB
|
|
|
2,547,294 |
|
|
|
2,732,183 |
|
Other
borrowings, net
|
|
|
453,566 |
|
|
|
53,524 |
|
Advance
payments by borrowers for taxes and insurance
|
|
|
29,189 |
|
|
|
51,397 |
|
Income
taxes payable
|
|
|
4,293 |
|
|
|
-- |
|
Deferred
income tax liabilities, net
|
|
|
512 |
|
|
|
-- |
|
Accounts
payable and accrued expenses
|
|
|
31,834 |
|
|
|
50,013 |
|
Total
liabilities
|
|
|
7,028,231 |
|
|
|
6,809,899 |
|
|
|
|
|
|
|
|
|
|
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; 74,067,618 and 74,258,977 shares
outstanding
|
|
|
915 |
|
|
|
915 |
|
as
of June 30, 2008 and September 30, 2007, respectively
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
443,446 |
|
|
|
438,964 |
|
Unearned
compensation, Employee Stock Ownership Plan ("ESOP")
|
|
|
(10,586 |
) |
|
|
(12,098 |
) |
Unearned
compensation, Recognition and Retention Plan ("RRP")
|
|
|
(639 |
) |
|
|
(630 |
) |
Retained
earnings
|
|
|
753,951 |
|
|
|
750,186 |
|
Accumulated
other comprehensive (loss) gain
|
|
|
(5,202 |
) |
|
|
1,287 |
|
Less
shares held in treasury (17,444,669 and 17,253,310 shares as
of
|
|
|
|
|
|
|
|
|
June
30, 2008 and September 30, 2007, respectively, at cost)
|
|
|
(317,979 |
) |
|
|
(310,993 |
) |
Total
stockholders' equity
|
|
|
863,906 |
|
|
|
867,631 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
7,892,137 |
|
|
$ |
7,677,530 |
|
|
|
|
|
|
|
|
|
|
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 Nine Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
INTEREST
AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$ |
74,651 |
|
|
$ |
73,219 |
|
|
$ |
226,190 |
|
|
$ |
220,401 |
|
Mortgage-related
securities
|
|
|
24,869 |
|
|
|
16,224 |
|
|
|
62,242 |
|
|
|
53,062 |
|
Investment
securities
|
|
|
1,298 |
|
|
|
8,459 |
|
|
|
8,489 |
|
|
|
24,405 |
|
Capital
stock of FHLB
|
|
|
1,502 |
|
|
|
2,413 |
|
|
|
5,446 |
|
|
|
7,656 |
|
Cash
and cash equivalents
|
|
|
465 |
|
|
|
1,211 |
|
|
|
3,262 |
|
|
|
5,741 |
|
Total
interest and dividend income
|
|
|
102,785 |
|
|
|
101,526 |
|
|
|
305,629 |
|
|
|
311,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
31,174 |
|
|
|
37,377 |
|
|
|
104,352 |
|
|
|
109,113 |
|
FHLB
advances
|
|
|
30,248 |
|
|
|
37,220 |
|
|
|
96,205 |
|
|
|
116,469 |
|
Other
borrowings
|
|
|
4,682 |
|
|
|
1,113 |
|
|
|
10,762 |
|
|
|
3,343 |
|
Total
interest expense
|
|
|
66,104 |
|
|
|
75,710 |
|
|
|
211,319 |
|
|
|
228,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST AND DIVIDEND INCOME
|
|
|
36,681 |
|
|
|
25,816 |
|
|
|
94,310 |
|
|
|
82,340 |
|
PROVISION
(RECOVERY) FOR LOAN LOSSES
|
|
|
1,602 |
|
|
|
-- |
|
|
|
1,721 |
|
|
|
(225 |
) |
NET
INTEREST AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFTER
PROVISION (RECOVERY) FOR LOAN LOSSES
|
|
|
35,079 |
|
|
|
25,816 |
|
|
|
92,589 |
|
|
|
82,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
fees and charges
|
|
|
4,566 |
|
|
|
3,957 |
|
|
|
13,150 |
|
|
|
12,034 |
|
Income
from BOLI
|
|
|
577 |
|
|
|
-- |
|
|
|
1,810 |
|
|
|
-- |
|
Loan
fees
|
|
|
572 |
|
|
|
644 |
|
|
|
1,751 |
|
|
|
1,856 |
|
Insurance
commissions
|
|
|
486 |
|
|
|
529 |
|
|
|
1,661 |
|
|
|
1,483 |
|
Gains
on securities and loans receivable, net
|
|
|
244 |
|
|
|
7 |
|
|
|
501 |
|
|
|
64 |
|
Other,
net
|
|
|
900 |
|
|
|
771 |
|
|
|
3,565 |
|
|
|
2,363 |
|
Total
other income
|
|
|
7,345 |
|
|
|
5,908 |
|
|
|
22,438 |
|
|
|
17,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
11,021 |
|
|
|
10,717 |
|
|
|
31,729 |
|
|
|
31,211 |
|
Occupancy
of premises
|
|
|
3,750 |
|
|
|
3,488 |
|
|
|
10,384 |
|
|
|
9,887 |
|
Regulatory
and other services
|
|
|
1,267 |
|
|
|
1,781 |
|
|
|
4,345 |
|
|
|
4,914 |
|
Deposit
and loan transaction fees
|
|
|
1,364 |
|
|
|
1,226 |
|
|
|
3,935 |
|
|
|
3,226 |
|
Advertising
|
|
|
1,216 |
|
|
|
1,081 |
|
|
|
3,433 |
|
|
|
3,193 |
|
Other,
net
|
|
|
1,218 |
|
|
|
1,843 |
|
|
|
6,368 |
|
|
|
5,602 |
|
Total
other expenses
|
|
|
19,836 |
|
|
|
20,136 |
|
|
|
60,194 |
|
|
|
58,033 |
|
INCOME
BEFORE INCOME TAX EXPENSE
|
|
|
22,588 |
|
|
|
11,588 |
|
|
|
54,833 |
|
|
|
42,332 |
|
INCOME
TAX EXPENSE
|
|
|
8,233 |
|
|
|
4,299 |
|
|
|
19,638 |
|
|
|
16,336 |
|
NET
INCOME
|
|
$ |
14,355 |
|
|
$ |
7,289 |
|
|
$ |
35,195 |
|
|
$ |
25,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.20 |
|
|
$ |
0.10 |
|
|
$ |
0.48 |
|
|
$ |
0.36 |
|
Diluted
earnings per common share
|
|
$ |
0.20 |
|
|
$ |
0.10 |
|
|
$ |
0.48 |
|
|
$ |
0.36 |
|
Dividends
declared per public share
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
1.50 |
|
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares
|
|
|
72,933 |
|
|
|
72,947 |
|
|
|
72,922 |
|
|
|
72,795 |
|
Diluted
weighted average common shares
|
|
|
73,021 |
|
|
|
73,043 |
|
|
|
72,985 |
|
|
|
72,944 |
|
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, 2007
|
|
$ |
915 |
|
|
$ |
438,964 |
|
|
$ |
(12,098 |
) |
|
$ |
(630 |
) |
|
$ |
750,186 |
|
|
$ |
1,287 |
|
|
$ |
(310,993 |
) |
|
$ |
867,631 |
|
Cumulative
effect of Financial Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standards
Board Interpretation No. 48
adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(339 |
) |
|
|
|
|
|
|
|
|
|
|
(339 |
) |
Balance
at October 1, 2007
|
|
$ |
915 |
|
|
$ |
438,964 |
|
|
$ |
(12,098 |
) |
|
$ |
(630 |
) |
|
$ |
749,847 |
|
|
$ |
1,287 |
|
|
$ |
(310,993 |
) |
|
$ |
867,292 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,195 |
|
|
|
|
|
|
|
|
|
|
|
35,195 |
|
Changes
in unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
mortgage-related and investment
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS, net of deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$3.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,489 |
) |
|
|
|
|
|
|
(6,489 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefit of market value change in vested RRP
shares
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Common
stock committed to be released for allocation -
ESOP
|
|
|
|
|
|
|
3,838 |
|
|
|
1,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,350 |
|
Acquisition
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,307 |
) |
|
|
(7,307 |
) |
Stock
options exercised
|
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
376 |
|
Treasury
stock activity related to RRP, net
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
(322 |
) |
|
|
|
|
|
|
|
|
|
|
96 |
|
|
|
(10 |
) |
Amortization
of unearned compensation - RRP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313 |
|
Stock
based compensation expense
|
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262 |
|
Dividends
on common stock to public
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
($1.50 per public share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,091 |
) |
|
|
|
|
|
|
|
|
|
|
(31,091 |
) |
Balance
at June 30, 2008
|
|
$ |
915 |
|
|
$ |
443,446 |
|
|
$ |
(10,586 |
) |
|
$ |
(639 |
) |
|
$ |
753,951 |
|
|
$ |
(5,202 |
) |
|
$ |
(317,979 |
) |
|
$ |
863,906 |
|
See
accompanying notes to consolidated interim financial statements.
CAPITOL
FEDERAL FINANCIAL AND SUBSIDIARY
(Unaudited)
(Dollars
in thousands)
|
|
For
the Nine Months Ended
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
35,195 |
|
|
$ |
25,996 |
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
FHLB
stock dividends
|
|
|
(5,446 |
) |
|
|
(7,655 |
) |
Provision
(Recovery) for loan losses
|
|
|
1,721 |
|
|
|
(225 |
) |
Originations
of loans receivable held-for-sale
|
|
|
(32,555 |
) |
|
|
(1,941 |
) |
Proceeds
from sales of loans receivable held-for-sale
|
|
|
31,220 |
|
|
|
3,103 |
|
MSR
activity, net
|
|
|
440 |
|
|
|
900 |
|
Amortization
and accretion of premiums and discounts on mortgage-
|
|
|
|
|
|
|
|
|
related
securities and investment securities
|
|
|
496 |
|
|
|
(626 |
) |
Principal
collected on trading securities
|
|
|
-- |
|
|
|
7,729 |
|
Proceeds
from sale of trading securities
|
|
|
-- |
|
|
|
389,209 |
|
Increase
in cash surrender value of BOLI
|
|
|
(1,810 |
) |
|
|
-- |
|
Depreciation
and amortization of premises and equipment
|
|
|
3,934 |
|
|
|
3,399 |
|
Amortization
of deferred debt issuance costs
|
|
|
42 |
|
|
|
42 |
|
Deferred gain on termination of interest rate swaps, net of
amortization
|
|
|
1,294 |
|
|
|
-- |
|
Common
stock committed to be released for allocation - ESOP
|
|
|
5,350 |
|
|
|
5,766 |
|
Stock
based compensation - stock options and RRP
|
|
|
575 |
|
|
|
514 |
|
Other,
net
|
|
|
(484 |
) |
|
|
(525 |
) |
Changes
in:
|
|
|
|
|
|
|
|
|
Accrued
interest receivable
|
|
|
3,561 |
|
|
|
3,223 |
|
Other
assets
|
|
|
(815 |
) |
|
|
(1,290 |
) |
Income
taxes payable/receivable
|
|
|
15,583 |
|
|
|
13,337 |
|
Accounts
payable and accrued expenses
|
|
|
(4,362 |
) |
|
|
(2,285 |
) |
Net
cash provided by operating activities
|
|
|
53,939 |
|
|
|
438,671 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities or calls of investment securities AFS
|
|
|
99,791 |
|
|
|
83,740 |
|
Purchases
of investment securities AFS
|
|
|
(49,248 |
) |
|
|
(1,520 |
) |
Proceeds
from maturities or calls of investment securities HTM
|
|
|
514,108 |
|
|
|
361,500 |
|
Purchases
of investment securities HTM
|
|
|
(185,138 |
) |
|
|
(683,717 |
) |
Principal
collected on mortgage-related securities AFS
|
|
|
171,534 |
|
|
|
174,750 |
|
Purchases
of mortgage-related securities AFS
|
|
|
(1,044,847 |
) |
|
|
(19,912 |
) |
Proceeds
from sale of mortgage-related securities AFS
|
|
|
-- |
|
|
|
15,237 |
|
Principal
collected on mortgage-related securities HTM
|
|
|
215,767 |
|
|
|
186,217 |
|
Purchases
of mortgage-related securities HTM
|
|
|
(5,483 |
) |
|
|
(135,570 |
) |
Proceeds
from the redemption of capital stock of FHLB
|
|
|
28,861 |
|
|
|
25,529 |
|
Purchases
of capital stock of FHLB
|
|
|
(12,926 |
) |
|
|
(301 |
) |
Loan
originations, net of principal collected
|
|
|
(85,692 |
) |
|
|
(96,602 |
) |
Loan
purchases, net of principal collected
|
|
|
45,015 |
|
|
|
64,824 |
|
Net
deferred fee activity
|
|
|
463 |
|
|
|
177 |
|
Purchases
of premises and equipment, net
|
|
|
(5,113 |
) |
|
|
(4,292 |
) |
Proceeds
from sales of real estate owned, net
|
|
|
4,084 |
|
|
|
3,711 |
|
Net
cash used in investing activities
|
|
|
(308,824 |
) |
|
|
(26,229 |
) |
(Continued)
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(31,091 |
) |
|
|
(32,653 |
) |
Dividends
in excess of debt service cost of ESOP, net
|
|
|
-- |
|
|
|
669 |
|
Deposits,
net of withdrawals
|
|
|
38,761 |
|
|
|
46,262 |
|
Proceeds
from advances/line of credit from FHLB
|
|
|
725,000 |
|
|
|
6,901 |
|
Repayments
on advances/line of credit from FHLB
|
|
|
(925,000 |
) |
|
|
(406,901 |
) |
Proceeds
from repurchase agreements
|
|
|
400,000 |
|
|
|
-- |
|
Change
in advance payments by borrowers for taxes
and insurance
|
|
|
(22,208 |
) |
|
|
(26,139 |
) |
Acquisitions
of treasury stock
|
|
|
(7,307 |
) |
|
|
(1,516 |
) |
Stock
options exercised
|
|
|
325 |
|
|
|
3,828 |
|
Excess
tax benefits from stock options
|
|
|
51 |
|
|
|
2,529 |
|
Net
cash provided by (used in) financing activities
|
|
|
178,531 |
|
|
|
(407,020 |
) |
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(76,354 |
) |
|
|
5,422 |
|
CASH
AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
162,791 |
|
|
|
183,242 |
|
End
of period
|
|
$ |
86,437 |
|
|
$ |
188,664 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Income
tax payments, net of refunds
|
|
$ |
4,003 |
|
|
$ |
711 |
|
Interest
payments, net of interest credited to deposits
|
|
$ |
106,659 |
|
|
$ |
124,992 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH
|
|
|
|
|
|
|
|
|
INVESTING
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loans
transferred to real estate owned
|
|
$ |
4,188 |
|
|
$ |
2,673 |
|
|
|
|
|
|
|
|
|
|
Market
value change related to fair value hedge:
|
|
|
|
|
|
|
|
|
Interest
rate swaps hedging FHLB advances
|
|
$ |
(13,817 |
) |
|
$ |
(1,632 |
) |
(Concluded)
See
accompanying notes to consolidated interim financial statements.
1. Basis
of Financial Statement Presentation
The
accompanying consolidated financial statements of Capitol Federal Financial
(“CFFN”) 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 2007 Annual Report on Form 10-K filed with 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. Significant estimates include the allowance for loan losses,
impairment of securities, valuation of MSR, and the fair values of derivative
instruments. Actual results could differ from those estimates. See
“Item 2- Management’s Discussion and Analysis of Financial Condition and Results
of Operations - Critical Accounting Policies.”
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, Capitol Federal Savings Bank (the “Bank”). The Bank has
a wholly owned subsidiary, Capitol Funds, Inc. Capitol Funds, Inc.
has a wholly owned subsidiary, Capitol Federal Mortgage Reinsurance
Company. Significant intercompany accounts and transactions have been
eliminated.
2. Earnings
Per Share
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008(1)
|
|
|
2007(4)
|
|
|
2008(2) (3)
|
|
|
2007(4) (5)
|
|
(Dollars
in thousands, except per share amounts)
|
|
Net
income
|
|
$ |
14,355 |
|
|
$ |
7,289 |
|
|
$ |
35,195 |
|
|
$ |
25,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
72,832,039 |
|
|
|
72,846,007 |
|
|
|
72,870,800 |
|
|
|
72,743,849 |
|
Average
committed ESOP shares outstanding
|
|
|
101,374 |
|
|
|
101,374 |
|
|
|
50,778 |
|
|
|
50,779 |
|
Total
basic average common shares outstanding
|
|
|
72,933,413 |
|
|
|
72,947,381 |
|
|
|
72,921,578 |
|
|
|
72,794,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive RRP shares
|
|
|
5,240 |
|
|
|
5,234 |
|
|
|
4,295 |
|
|
|
5,987 |
|
Effect
of dilutive stock options
|
|
|
82,132 |
|
|
|
90,298 |
|
|
|
58,784 |
|
|
|
143,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
diluted average common shares outstanding
|
|
|
73,020,785 |
|
|
|
73,042,913 |
|
|
|
72,984,657 |
|
|
|
72,943,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.20 |
|
|
$ |
0.10 |
|
|
$ |
0.48 |
|
|
$ |
0.36 |
|
Diluted
|
|
$ |
0.20 |
|
|
$ |
0.10 |
|
|
$ |
0.48 |
|
|
$ |
0.36 |
|
(1)
Options to purchase 31,500 shares of common stock at $38.77 per share
were outstanding as of June 30, 2008, but were not included in the computation
of diluted earnings per share (“EPS”) because they were anti-dilutive for the
three months ended June 30, 2008.
(2)
Options to purchase 128,055 shares of common stock at prices between
$32.23 per share and $38.77 per share were outstanding as of June 30, 2008, but
were not included in the computation of diluted EPS because they were
anti-dilutive for the nine months ended June 30, 2008.
(3)
At June 30, 2008, there were 6,000 unvested RRP shares at $32.30 per
share that were excluded from the computation of diluted EPS because they were
anti-dilutive for the nine months ended June 30, 2008.
(4)
Options to purchase 34,000 shares of common stock at $38.77 per share
were outstanding as of June 30, 2007, but were not included in the computation
of diluted EPS because they were anti-dilutive for the three months and the nine
months ended June 30, 2007.
(5)
At June 30, 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 nine months ended June 30, 2007.
3. Recent
Accounting Pronouncements
In
November 2007, the SEC issued Staff Accounting Bulletin (“SAB”) 109, “Written
Loan Commitments Recorded at Fair Value Through Earnings.” SAB 109 supersedes
SAB 105, “Miscellaneous Accounting – Loan Commitments Accounted for as
Derivative Instruments.” SAB 109 requires a company to include the
value of the MSR asset in the estimated fair value of the commitments on loans
to be sold. SAB 105 had stated that this treatment was
inappropriate. The new guidance should be applied prospectively to
commitments accounted for at fair value that are issued or modified in fiscal
quarters beginning after December 15, 2007, which for the Company was January 1,
2008. The adoption of SAB 109 did not have a material impact on the
Company’s financial statements.
In
December 2007, the SEC codified SAB 110 as part of SAB Topic 14.D.2,
“Share-Based Payment: Certain Assumptions Used in Valuation Methods – Expected
Term.” SAB 110 permits companies, under certain circumstances, to
continue to use the simplified method when calculating the expected term of
“plain vanilla” share options. Originally, the simplified method was due to
expire on December 31, 2007. A company may use the simplified method
if it concludes that it is not reasonable to base its estimate of expected term
on its experience with exercising historical share options. SAB 110
was effective for the Company on January 1, 2008. Management
determined there was sufficient history of stock option exercises to develop an
expected term based on historical experience so the simplified method will no
longer be used to calculate expected term when stock options are
granted. The adoption of SAB 110 did not have a material impact on
the Company’s financial statements.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141(R) “Business
Combinations” and SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements – an amendment of ARB No. 51.” These statements
change the way companies account for business combinations and noncontrolling
interests (minority interests in current GAAP) and continue the FASB’s push
toward more fair value reporting in financial statements. These
Statements should both be applied prospectively for fiscal years beginning on or
after December 15, 2008, which for the Company is October 1,
2009. However, Statement No. 160 requires entities to apply the
presentation and disclosure requirements retrospectively to comparative
financial statements, if presented. Both Statements prohibit early
adoption. Management is assessing the impact of the adoption of FASB
Statements No. 141(R) and No. 160.
In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FAS 133”. SFAS 161 requires an
entity with derivatives to describe how and why it uses derivative instruments,
how derivative instruments and related hedged items are accounted for under SFAS
133 “Accounting for Derivative Instruments and Hedging Activities” and related
interpretations, and how derivative instruments and related hedged items affect
the entity's financial position, financial performance, and cash
flows. SFAS No. 161 is effective for the Company beginning January 1,
2009. The Company's adoption of SFAS 161 is not expected to have a
material impact on its financial condition or results of
operations.
In May
2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted
Accounting Principles”. The purpose of SFAS 162 is to improve
financial reporting by providing a consistent framework for determining what
accounting principles should be applied when preparing GAAP financial
statements. The FASB believes that issuing the GAAP hierarchy as an
FASB standard, recategorizing the existing GAAP hierarchy into two levels of
accounting literature (authoritative and nonauthoritative), and elevating the
conceptual framework within the GAAP hierarchy are key objectives of achieving
the FASB’s goal of improving the quality of accounting standards and the
standard-setting process. SFAS 162 is effective 60 days following the
SEC’s approval of Public Company Accounting Oversight Board (“PCAOB”) amendment
to AU Section 411. The Company’s adoption of SFAS 162 is not expected
to have a material impact on its financial condition or results of
operations.
4.
Interest Rate Swaps
During
the quarter ended December 31, 2007, management terminated interest rate swaps
with a notional amount of $575.0 million that were scheduled to mature during
fiscal year 2010. As a result of the termination, the Bank received
cash proceeds and recorded a deferred gain of $1.7 million. The gain
will be amortized to interest expense on FHLB advances over the remaining life
of the FHLB advances that were originally hedged by the terminated interest rate
swap agreements. As of June 30, 2008, all remaining swaps had
matured.
5.
Income Taxes
The
Company adopted FASB Interpretation (“FIN”) No. 48 “Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109” on October 1,
2007. The interpretation clarifies the accounting for uncertainty in
income taxes recognized in financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” The interpretation prescribes a
process by which the likelihood of a tax position is gauged based upon the
technical merits of the position, and then a subsequent measurement relates the
maximum benefit and the degree of likelihood to determine the amount of benefit
to recognize in the financial statements.
As of
October 1, 2007 (the date of adoption), the Company had unrecognized tax
benefits of $3.8 million as a result of tax positions taken during prior
periods, $531 thousand of which would affect the Company’s effective income tax
rate if recognized. Of the total $3.8 million increase in liability
for unrecognized tax positions, $339 thousand was accounted for as a decrease to
the October 1, 2007 balance of retained earnings, and the remaining $3.5 million
was accounted for as an increase to net deferred tax assets.
As of
June 30, 2008, the Company had a total of $3.3 million of unrecognized tax
benefits, which included accrued penalties and interest of $548
thousand. Estimated penalties and interest of $43 thousand are
included in income tax expense in the consolidated statements of
income. Included in Other income in the consolidated statements of
income is $235 thousand of interest income related to state and federal tax
refunds. We do not expect a material change in unrecognized tax
benefits within the next twelve months.
We file
income tax returns in the U.S. federal jurisdiction and the states of Kansas and
Missouri. In many cases, uncertain tax positions are related to tax
years that remain subject to examination by the relevant taxing
authorities. With few exceptions, the Company is no longer subject to
U.S. federal and state examinations by tax authorities for years before fiscal
year 2005.
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The
Company and its wholly-owned subsidiary, the Bank, may from time to time make
written or oral “forward-looking statements”, including statements contained in
the Company’s filings with 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, some 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;
|
|
·
|
fluctuations
in real estate values;
|
|
·
|
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 laws and regulations affecting financial
institutions;
|
|
·
|
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 Capitol Federal
Financial. “MHC” refers to Capitol Federal Savings Bank MHC, a mutual holding
company and majority-owner of Capitol Federal Financial.
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 its 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 2007 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 non-owner-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 and repurchase agreements as additional funding
sources.
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 investment products, 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, changing loan underwriting guidelines, 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, investment securities, and cash, and the interest paid on deposits
and borrowings. On a weekly basis, management reviews deposit flows,
loan demand, cash levels,
and
changes in several market rates to assess all pricing strategies. We
generally price our loan and deposit products based upon an analysis of our
competition and changes in market rates. The Bank generally prices
its first mortgage loan products based upon prices available in the secondary
market if it were to sell them at prices near par. Generally, deposit
pricing is based upon a survey of peers in the Bank’s market areas, and the need
to attract funding and retain maturing deposits. The majority of our
loans are fixed-rate products with maturities up to 30 years, while the majority
of our deposits have maturity or reprice dates of less than two
years.
During
the third quarter of fiscal year 2008, the Federal Open Market Committee of the
Federal Reserve (“FOMC”) lowered the overnight lending rate an additional 25
basis points, from 2.25% to 2.00%, which brings the cumulative total for fiscal
year 2008 to a reduction of 275 basis points. The primary motivation
behind the policy easing was to increase lending facilities and improve access
to liquidity, in hopes of maintaining a certain level of activity and growth in
the economy due to recent stress in housing and financial markets and a decline
in credit quality and capital adequacy. The Bank’s liquidity and
capital position remains relatively unchanged from previous periods; see
“Management’s Discussion and Analysis-Liquidity and Capital
Resources.”
Sub-prime
mortgage lending, which has been the riskiest sector of the residential housing
market, is not a market we participate in. The loans we originate and
purchase are fully documented, and adhere to underwriting guidelines generally
more restrictive than used by other lenders; see section entitled “Lending
Practices and Underwriting Standards.” While the sub-prime lending
market essentially does not exist today, past practices have caused considerable
strain in the credit markets from rising delinquencies, lower real estate
valuations, and liquidity pressures. This strain has resulted in
tightened lending practices and negative impacts on many real estate markets, as
well as negative perceptions of our business and industry. The
continued decline in the real estate markets, as well as the overall economic
environment, contributed to an increase in our non-performing loans during the
quarter. Despite the increase in non-performing loans at June 30,
2008, our non-performing loans continue to remain at low levels relative to the
size of our loan portfolio. Based on our evaluation of the quality of
the loans in our residential loan portfolio, real estate markets, the overall
economic environment, and the increase in and composition of our delinquencies
and non-performing loans, we determined that a $1.6 million provision for loan
losses was prudent and warranted during the quarter ended June 30,
2008.
Net
income for the quarter ended June 30, 2008 was $14.4 million compared to $11.7
million for the quarter ended March 31, 2008. The $2.7 million increase in net
income was primarily a result of a decrease in interest expense. The
decrease in interest expense also resulted in an increase of 27 basis points in
the net interest margin compared to the quarter ended March 31,
2008. The decrease in interest expense was a result of a decrease in
the weighted average cost of deposits, specifically a decrease in the rate paid
on the money market and certificate of deposit portfolios, and a decrease in the
weighted average rate and balance of FHLB advances.
During
fiscal year 2008, management has entered into $400.0 million of repurchase
agreements as a means of expanding its funding sources, and has borrowed $725.0
million of FHLB advances while $925.0 million of FHLB advances have
matured. The amount of total borrowings is a function of balancing
investment opportunities, liquidity requirements, and managing the interest rate
sensitivity of the Bank. Management monitors the Bank’s investment
opportunities and balances those opportunities with the cost of FHLB advances or
other funding sources for various terms to maturity. See additional
discussion of interest rate risk in "Item 3. Quantitative and Qualitative
Disclosure About Market Risk."
On July
22, 2008, the board of directors approved a dividend of $0.50 per public
share. The dividend will be paid on August 15, 2008 to shareholders
of record on August 1, 2008. 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.
Currently,
the Bank has plans to open four new branches in late fiscal year 2008 and early
fiscal year 2009. Three of these branches will be located in our
market areas in Kansas City, and one is adjacent to our market area near
Wichita, KS. The Bank has preliminary plans for three additional
branches in our market areas in Kansas City, Wichita, and Manhattan,
KS.
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. 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 with an outstanding balance of $1.5 million or
more are reviewed annually if secured by property in one of the following
categories: multifamily (5 or more units) property, unimproved land,
other improved commercial property, acquisition and development of land
projects, developed building lots, office building, single-use
building, or retail building. Specific allowances are established if
the review determines a quantifiable impairment; if no impairment exists the
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 these conditions were believed to have had on the collectibility of
impaired loans.
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 the condition may be reflected as a specific allowance applicable to the 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 or any portion 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 portfolio on a quarterly basis, we can adjust
specific and inherent loss estimates based upon more current
information.
During
the current quarter, the loss factors in our formula allowance were increased on
certain purchased loans in our portfolio as a result of changes in the real
estate markets, borrower credit attributes, economic environment, and
composition of our delinquencies and non-performing loans. The
increase in the loss factors was based on when the loan was originated, the
lender from whom the loan was purchased, and changes in credit scores and
loan-to-value (“LTV”) ratios since the time of origination. Since we
rely primarily on the collateral securing a one-to-four family mortgage loan if
the loan were to enter foreclosure, management believes the increase in the loss
factor on these loans was necessary. The majority of our
non-performing purchased loans were purchased from one nationwide
lender. Management reviewed the pool of loans purchased from the
nationwide lender and increased the loss factors on loans that met certain LTV
and credit score criteria. Management also reviewed the pool of
purchased loans from all other nationwide lenders and increased the loss
factors, but to a lesser extent, on loans that met certain LTV and credit score
criteria. During the quarter, our balance of non-performing purchased loans
increased and we recorded specific allowances on several of those loans as a
result of a decrease in real estate market values since the time of
origination. These loans were excluded from the formula
allowance.
Assessing
the adequacy of the allowance for loan losses is inherently
subjective. Actual results could differ from our estimates as a
result of changes in economic or market conditions. Changes in
estimates could result in a material change in the allowance for loan
losses. In the opinion of management, the allowance for loan losses,
when taken as a whole, is adequate to absorb reasonable estimated losses
inherent in our loan portfolio. However, future adjustments may be
necessary if portfolio performance or economic or market conditions differ
substantially from the conditions that existed at the time of the initial
determinations.
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 these
ratings. If management deems the 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. Currently, all
securities are rated investment grade, and there is a market for the
securities.
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 may
exist 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.
Financial
Condition
Total
assets increased from $7.68 billion at September 30, 2007 to $7.89 billion at
June 30, 2008. The $214.6 million increase in assets was primarily
attributed to a $652.4 million increase in the mortgage-related securities
portfolio, partially offset by a $379.8 million decrease in the investment
securities portfolio. The increase in the mortgage-related securities
portfolio was a result of cash flows from the investment securities portfolio
being reinvested into the mortgage-related securities portfolio at a higher
average yield, and funds from repurchase agreements being used to purchase
mortgage-related securities. The decrease in the investment
securities portfolio was a result of calls and maturities that were not replaced
in their entirety.
Total
liabilities increased from $6.81 billion at September 30, 2007 to $7.03 billion
at June 30, 2008. The $218.3 million increase in liabilities was
primarily a result of entering into $400.0 million of repurchase agreements,
partially offset by a decrease in FHLB advances of $184.9
million. The repurchase agreements replaced certain maturing FHLB
advances, as the rate and term offerings on the repurchase agreements were more
favorable than other funding options on those dates.
Stockholders’
equity decreased $3.7 million to $863.9 million at June 30, 2008, from $867.6
million at September 30, 2007.
The
following table presents selected balance sheet data for the Company at the
dates indicated.
|
|
Balance
at
|
|
|
|
June
30,
|
|
|
March
31,
|
|
|
December
31,
|
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
Selected
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
7,892,137 |
|
|
$ |
8,034,662 |
|
|
$ |
7,945,586 |
|
|
$ |
7,677,530 |
|
|
$ |
7,826,549 |
|
Cash
and cash equivalents
|
|
|
86,437 |
|
|
|
264,501 |
|
|
|
253,725 |
|
|
|
162,791 |
|
|
|
188,664 |
|
Investment
securities
|
|
|
144,346 |
|
|
|
88,597 |
|
|
|
500,045 |
|
|
|
524,168 |
|
|
|
673,160 |
|
Mortgage-related
securities
|
|
|
2,066,685 |
|
|
|
2,076,766 |
|
|
|
1,608,897 |
|
|
|
1,414,271 |
|
|
|
1,466,822 |
|
Loans
receivable, net
|
|
|
5,326,061 |
|
|
|
5,292,866 |
|
|
|
5,310,296 |
|
|
|
5,291,426 |
|
|
|
5,252,275 |
|
MSR
|
|
|
5,166 |
|
|
|
4,734 |
|
|
|
5,483 |
|
|
|
5,606 |
|
|
|
6,017 |
|
Capital
stock of FHLB
|
|
|
129,172 |
|
|
|
129,170 |
|
|
|
139,380 |
|
|
|
139,661 |
|
|
|
147,557 |
|
Deposits
|
|
|
3,961,543 |
|
|
|
4,020,966 |
|
|
|
3,981,449 |
|
|
|
3,922,782 |
|
|
|
3,946,693 |
|
Advances
from FHLB
|
|
|
2,547,294 |
|
|
|
2,547,588 |
|
|
|
2,746,532 |
|
|
|
2,732,183 |
|
|
|
2,870,337 |
|
Other
borrowings
|
|
|
453,566 |
|
|
|
453,552 |
|
|
|
303,538 |
|
|
|
53,524 |
|
|
|
53,509 |
|
Stockholders'
equity
|
|
|
863,906 |
|
|
|
869,106 |
|
|
|
862,579 |
|
|
|
867,631 |
|
|
|
870,095 |
|
Accumulated
other comprehensive (loss) gain
|
|
|
(5,202 |
) |
|
|
6,215 |
|
|
|
3,165 |
|
|
|
1,287 |
|
|
|
174 |
|
Equity
to total assets at end of period
|
|
|
10.95 |
% |
|
|
10.82 |
% |
|
|
10.86 |
% |
|
|
11.30 |
% |
|
|
11.12 |
% |
Book
value per share
|
|
$ |
11.84 |
|
|
$ |
11.92 |
|
|
$ |
11.84 |
|
|
$ |
11.88 |
|
|
$ |
11.92 |
|
Shares
outstanding
|
|
|
72,985,216 |
|
|
|
72,930,747 |
|
|
|
72,857,963 |
|
|
|
73,024,845 |
|
|
|
73,010,580 |
|
Loans Receivable. The loan portfolio
increased $34.6 million from $5.29 billion at September 30, 2007 to $5.33
billion at June 30, 2008. Loans purchased from nationwide lenders
represented 14% of the loan portfolio at June 30, 2008 compared to 17% at
September 30, 2007. As of June 30, 2008, the average balance of a
purchased mortgage loan was approximately $350 thousand while the average
balance of an originated mortgage loan was approximately $100
thousand.
Included
in the loan portfolio at June 30, 2008 were $356.5 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, and have initial interest-only terms of either five or ten
years. At June 30, 2008, $351.7 million, or 99%, of these loans were
still in their interest-only payment term. As of June 30, 2008, $99.8
million will begin to amortize principal within two years, $88.1 million will
begin amortizing principal within two-to-five years, and the remaining $163.8
million will begin to amortize principal within five-to-ten
years. 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. Interest-only loans we purchased had an average credit
score greater than 700 and an average LTV ratio of 80% or less at the time of
purchase.
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
|
|
|
|
June
30, 2008
|
|
|
June
30, 2007
|
|
|
|
Amount
|
|
|
Rate
|
|
|
%
of Total
|
|
|
Amount
|
|
|
Rate
|
|
|
%
of Total
|
|
Fixed-Rate:
|
|
(Dollars
in thousands)
|
|
One-
to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
15 years
|
|
$ |
62,965 |
|
|
|
5.21
|
% |
|
|
21.21
|
% |
|
$ |
35,188 |
|
|
|
5.69
|
% |
|
|
11.67
|
% |
>
15 years
|
|
|
163,671 |
|
|
|
5.83 |
|
|
|
55.13 |
|
|
|
163,983 |
|
|
|
6.04 |
|
|
|
54.39 |
|
Other
real estate
|
|
|
675 |
|
|
|
6.50 |
|
|
|
0.23 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Consumer
|
|
|
3,996 |
|
|
|
8.03 |
|
|
|
1.34 |
|
|
|
8,480 |
|
|
|
8.32 |
|
|
|
2.81 |
|
Total
fixed-rate
|
|
|
231,307 |
|
|
|
5.70 |
|
|
|
77.91 |
|
|
|
207,651 |
|
|
|
6.07 |
|
|
|
68.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
36 months
|
|
|
4,220 |
|
|
|
5.21 |
|
|
|
1.42 |
|
|
|
8,688 |
|
|
|
5.34 |
|
|
|
2.88 |
|
>
36 months
|
|
|
30,897 |
|
|
|
5.52 |
|
|
|
10.41 |
|
|
|
47,540 |
|
|
|
5.66 |
|
|
|
15.76 |
|
Other
real estate
|
|
|
1,800 |
|
|
|
6.00 |
|
|
|
0.60 |
|
|
|
15,000 |
|
|
|
7.45 |
|
|
|
4.97 |
|
Consumer
|
|
|
28,667 |
|
|
|
6.07 |
|
|
|
9.66 |
|
|
|
22,685 |
|
|
|
8.56 |
|
|
|
7.52 |
|
Total
adjustable-rate
|
|
|
65,584 |
|
|
|
5.75 |
|
|
|
22.09 |
|
|
|
93,913 |
|
|
|
6.62 |
|
|
|
31.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
originations, refinances and purchases
|
|
$ |
296,891 |
|
|
|
5.71
|
% |
|
|
100.00
|
% |
|
$ |
301,564 |
|
|
|
6.24
|
% |
|
|
100.00
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
loans included above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
$ |
18,209 |
|
|
|
5.51
|
% |
|
|
|
|
|
$ |
13,635 |
|
|
|
6.03
|
% |
|
|
|
|
Adjustable-rate
|
|
$ |
14,509 |
|
|
|
5.51
|
% |
|
|
|
|
|
$ |
40,989 |
|
|
|
6.33
|
% |
|
|
|
|
|
|
For
the Nine Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
June
30, 2008
|
|
|
June
30, 2007
|
|
|
|
Amount
|
|
|
Rate
|
|
|
%
of Total
|
|
|
Amount
|
|
|
Rate
|
|
|
%
of Total
|
|
Fixed-Rate:
|
|
(Dollars
in thousands)
|
|
One-
to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
15 years
|
|
$ |
120,162 |
|
|
|
5.36
|
% |
|
|
16.33
|
% |
|
$ |
78,611 |
|
|
|
5.69
|
% |
|
|
11.52
|
% |
>
15 years
|
|
|
415,714 |
|
|
|
5.85 |
|
|
|
56.51 |
|
|
|
366,144 |
|
|
|
6.04 |
|
|
|
53.64 |
|
Other
real estate
|
|
|
975 |
|
|
|
6.58 |
|
|
|
0.13 |
|
|
|
3,873 |
|
|
|
6.54 |
|
|
|
0.57 |
|
Consumer
|
|
|
15,081 |
|
|
|
8.13 |
|
|
|
2.05 |
|
|
|
25,487 |
|
|
|
8.12 |
|
|
|
3.73 |
|
Total
fixed-rate
|
|
|
551,932 |
|
|
|
5.81 |
|
|
|
75.02 |
|
|
|
474,115 |
|
|
|
6.10 |
|
|
|
69.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<=
36 months
|
|
|
22,266 |
|
|
|
5.33 |
|
|
|
3.03 |
|
|
|
23,095 |
|
|
|
5.35 |
|
|
|
3.38 |
|
>
36 months
|
|
|
88,606 |
|
|
|
5.64 |
|
|
|
12.04 |
|
|
|
106,106 |
|
|
|
5.66 |
|
|
|
15.54 |
|
Other
real estate
|
|
|
1,800 |
|
|
|
6.00 |
|
|
|
0.24 |
|
|
|
15,000 |
|
|
|
7.45 |
|
|
|
2.20 |
|
Consumer
|
|
|
71,097 |
|
|
|
6.95 |
|
|
|
9.67 |
|
|
|
64,316 |
|
|
|
8.57 |
|
|
|
9.42 |
|
Total
adjustable-rate
|
|
|
183,769 |
|
|
|
6.11 |
|
|
|
24.98 |
|
|
|
208,517 |
|
|
|
6.65 |
|
|
|
30.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
originations, refinances and purchases
|
|
$ |
735,701 |
|
|
|
5.88
|
% |
|
|
100.00
|
% |
|
$ |
682,632 |
|
|
|
6.27
|
% |
|
|
100.00
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
loans included above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
$ |
40,486 |
|
|
|
5.77
|
% |
|
|
|
|
|
$ |
34,644 |
|
|
|
6.08
|
% |
|
|
|
|
Adjustable-rate
|
|
$ |
54,611 |
|
|
|
5.64
|
% |
|
|
|
|
|
$ |
69,871 |
|
|
|
6.07
|
% |
|
|
|
|
During
the nine months ended June 30, 2008, the rate on the Bank’s 30-year fixed-rate
loans, with no points paid by the borrower, were approximately 200 basis points
above the average 10-year Treasury rate, while the rate on the Bank’s 15-year
fixed-rate loans were approximately 160 basis points above the average 10-year
Treasury rate. The Bank’s loan pricing is benchmarked to the
secondary market mortgage 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.
|
For
the Three Months Ended
|
|
|
June
30, 2008
|
|
March
31, 2008
|
|
December
31, 2007
|
|
September
30, 2007
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
|
(Dollars
in thousands)
|
Beginning
balance
|
$
5,352,278
|
5.66
|
%
|
|
$
5,366,186
|
5.71
|
%
|
|
$
5,346,626
|
5.68
|
%
|
|
$
5,303,830
|
5.64
|
%
|
|
Originations
and refinances
|
264,173
|
5.74
|
|
|
201,832
|
5.77
|
|
|
174,599
|
6.34
|
|
|
225,333
|
6.50
|
|
|
Purchases
|
32,718
|
5.51
|
|
|
30,513
|
5.58
|
|
|
31,866
|
5.98
|
|
|
39,820
|
6.06
|
|
|
Repayments
|
(258,350)
|
|
|
|
(244,763)
|
|
|
|
(186,091)
|
|
|
|
(221,075)
|
|
|
|
Other(1)
|
(918)
|
|
|
|
(1,490)
|
|
|
|
(814)
|
|
|
|
(1,282)
|
|
|
|
Ending
balance
|
$
5,389,901
|
5.63
|
%
|
|
$
5,352,278
|
5.66
|
%
|
|
$
5,366,186
|
5.71
|
%
|
|
$
5,346,626
|
5.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
Amount
|
Rate
|
|
|
Amount
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
$
5,346,626
|
5.68
|
%
|
|
$
5,257,473
|
5.55
|
%
|
|
|
|
|
|
|
|
|
|
Originations
and refinances
|
640,604
|
5.91
|
|
|
578,117
|
6.30
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
95,097
|
5.69
|
|
|
104,515
|
6.07
|
|
|
|
|
|
|
|
|
|
|
Repayments
|
(689,204)
|
|
|
|
(634,905)
|
|
|
|
|
|
|
|
|
|
|
|
Other(1)
|
(3,222)
|
|
|
|
(1,370)
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
$
5,389,901
|
5.63
|
%
|
|
$
5,303,830
|
5.64
|
%
|
|
|
|
|
|
|
|
|
|
(1)“Other”consists of transfers to
REO and net fees advanced.
The
following table presents the Company’s loan portfolio at the dates
indicated.
|
June
30, 2008
|
March
31, 2008
|
|
September
30, 2007
|
|
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
|
$ 5,033,735
|
|
5.58
|
%
|
|
93.39
|
%
|
$ 5,001,195
|
|
5.58
|
%
|
|
93.44
|
%
|
|
$ 4,992,398
|
|
5.55
|
%
|
|
93.38
|
%
|
Multi-family
and commercial
|
57,835
|
|
6.42
|
|
|
1.07
|
|
57,273
|
|
6.46
|
|
|
1.07
|
|
|
60,625
|
|
6.48
|
|
|
1.13
|
|
Construction
and development
|
88,177
|
|
5.64
|
|
|
1.64
|
|
82,737
|
|
6.10
|
|
|
1.55
|
|
|
74,521
|
|
6.22
|
|
|
1.39
|
|
Total
real estate loans
|
5,179,747
|
|
5.59
|
|
|
96.10
|
|
5,141,205
|
|
5.60
|
|
|
96.06
|
|
|
5,127,544
|
|
5.57
|
|
|
95.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
loans
|
4,393
|
|
6.16
|
|
|
0.08
|
|
4,918
|
|
6.37
|
|
|
0.09
|
|
|
5,249
|
|
6.55
|
|
|
0.10
|
|
Automobile
|
3,648
|
|
7.01
|
|
|
0.07
|
|
3,836
|
|
7.02
|
|
|
0.07
|
|
|
4,234
|
|
6.98
|
|
|
0.08
|
|
Home
equity
|
201,497
|
|
6.56
|
|
|
3.74
|
|
201,743
|
|
7.26
|
|
|
3.77
|
|
|
208,986
|
|
8.41
|
|
|
3.91
|
|
Other
|
616
|
|
7.99
|
|
|
0.01
|
|
576
|
|
8.36
|
|
|
0.01
|
|
|
613
|
|
8.26
|
|
|
0.01
|
|
Total
consumer loans
|
210,154
|
|
6.56
|
|
|
3.90
|
|
211,073
|
|
7.24
|
|
|
3.94
|
|
|
219,082
|
|
8.33
|
|
|
4.10
|
|
Total
loans receivable
|
5,389,901
|
|
5.63
|
%
|
|
100.00
|
%
|
5,352,278
|
|
5.66
|
%
|
|
100.00
|
%
|
|
5,346,626
|
|
5.68
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
in process
|
47,772
|
|
|
|
|
|
|
45,033
|
|
|
|
|
|
|
|
41,126
|
|
|
|
|
|
|
Deferred
fees and discounts
|
10,357
|
|
|
|
|
|
|
10,129
|
|
|
|
|
|
|
|
9,893
|
|
|
|
|
|
|
Allowance
for loan losses
|
5,711
|
|
|
|
|
|
|
4,250
|
|
|
|
|
|
|
|
4,181
|
|
|
|
|
|
|
Total
loans receivable, net
|
$ 5,326,061
|
|
|
|
|
|
|
$ 5,292,866
|
|
|
|
|
|
|
|
$ 5,291,426
|
|
|
|
|
|
|
Lending
Practices and Underwriting Standards
The
Bank’s primary lending activity is the origination of loans and the purchase of
loans from a select group of correspondent lenders. These loans are
generally secured by first mortgages on owner-occupied, one- to four-family
residences in the Bank’s market areas and select market areas in
Missouri. Historically, additional lending volume has been generated
by purchasing whole one- to four-family mortgage loans from nationwide
lenders. For the foreseeable future, the Bank plans to reduce the
volume of loans purchased from nationwide lenders and instead focus efforts on
expanding its network of correspondent lenders, in an effort to reduce future
credit exposure in markets with higher volatility of real estate
prices. These purchases allowed the Bank to attain some geographic
diversification and mitigate credit concentration risks in its loan
portfolio. The loans that were purchased helped mitigate the Bank’s
interest rate risk exposure because they are predominately adjustable-rate or
short-term fixed-rate loans.
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 which
require the payment of interest during the interest-only period, all 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 payments at the initial rate for three, five and seven year
adjustable-rate mortgage (“ARM”) loans.
As of
March 2008, the Bank discontinued offering an interest-only ARM product, but
holds in its portfolio originated interest-only ARM loans. The
product was discontinued to reduce future credit exposure. At the
time of origination, these loans did not require principal payments for a period
of up to ten years. Borrowers were qualified based on a fully
amortizing payment at the initial loan rate. The Bank was more
restrictive on debt-to-income ratios 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.
In an
effort to offset the impact of repayments and to retain our customers, the Bank
offers existing loan customers whose loans have not been sold to third parties
the opportunity to modify their original loan terms to new loan terms generally
consistent with those currently being offered. 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 current market rates. 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, and is a more efficient way for
the Bank to process the change. The Bank charges a fee for this
service generally comparable to fees charged on new loans. The Bank
does not solicit customers for this program, but considers it a valuable
opportunity to retain customers who, due to our strict initial underwriting,
could likely obtain similar financing elsewhere.
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 Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal
National Mortgage Association (“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 fee appraisers independent of the loan origination
function who have been approved by the board of directors.
Presently,
the Bank lends up to 97% of the lesser of the appraised value or purchase price
for one- to four-family mortgage loans. For loans with an LTV
ratio in excess of 80% at the time of origination, private mortgage insurance is
required in order to reduce the Bank’s loss exposure to less than 80% of the
appraised value or the purchase price of the property.
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 from a nationwide lender, the Bank’s Chief Lending
Officer or Secondary Marketing Manager reviews specific criteria such as loan
amount, credit scores, LTV ratios, geographic location, and debt ratios of each
loan in the pool. If the specific criteria do not meet the Bank’s
underwriting standards and
compensating
factors are not sufficient, then a loan will 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 at least 25% of the loan files and the
supporting documentation in the pool.
The
underwriting of 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 market area 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 related 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 the one- to
four-family construction 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 loans 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, and loans secured by
savings deposits. The Bank discontinued offering a student loan
product in March 2008. 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. 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 95% of the value of the property securing the
loan. In order to minimize risk of loss, home equity loans that are
greater than 80% 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. Other
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. Interest-only home
equity lines of credit have a maximum term of 12 months, monthly payments of
accrued interest, and a balloon payment at maturity. Repaid 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%.
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. LTV 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 at the time of
origination. The Bank generally requires personal guarantees of the
borrowers covering a portion of the debt in addition to the security property as
collateral for these 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, lending 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
The
Bank’s underwriting guidelines have provided the Bank with loans of high quality
and generally low delinquencies and low levels of non-performing assets compared
to national levels. Of particular importance is the complete
documentation required for each loan the Bank originates and
purchases. This allows the Bank to make an informed credit decision
based upon a thorough assessment of the borrower’s ability to repay the loan
compared to underwriting methodologies that do not require full
documentation.
The
following matrix shows the balance of one-to-four family mortgage loans
cross-referenced by LTV ratio and credit score. The LTV ratios used
in the matrix were based on the lesser of the purchase price or the most recent
bank appraisal available. Credit scores were updated in January
2008. Per the matrix, the greatest concentration of loans are believed to
be of the highest quality, which fall into the “751 and above” credit score
category and have a LTV ratio of less than 70%. The loans believed to
be of the lowest quality, which fall into the “less than 660” credit score
category and have LTV ratios of more than 80%, comprise the lowest
concentration.
|
Credit
Score
|
|
Less
than 660
|
|
|
|
661
to 700
|
|
|
|
701
to 750
|
|
|
|
751
and above
|
|
|
|
Total
|
|
|
LTV ratio
|
Amount
|
%
of
total
|
Amount
|
%
of
total
|
Amount
|
%
of
total
|
|
Amount
|
%
of
total
|
Amount
|
%
of total
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 70%
|
$ 157,547
|
3.1
|
%
|
|
$ 144,113
|
2.9
|
%
|
|
$ 385,463
|
7.7
|
%
|
|
$ 1,732,384
|
34.4
|
%
|
|
$ 2,419,507
|
48.1
|
%
|
70%
to 80%
|
146,170
|
2.9
|
|
|
143,276
|
2.8
|
|
|
411,869
|
8.2
|
|
|
1,157,998
|
23.0
|
|
|
1,859,313
|
36.9
|
|
More
than 80%
|
82,411
|
1.7
|
|
|
85,493
|
1.7
|
|
|
213,498
|
4.2
|
|
|
373,513
|
7.4
|
|
|
754,915
|
15.0
|
|
Total
|
$ 386,128
|
7.7
|
%
|
|
$ 372,882
|
7.4
|
%
|
|
$ 1,010,830
|
20.1
|
%
|
|
$ 3,263,895
|
64.8
|
%
|
|
$ 5,033,735
|
100.0
|
%
|
The
following table presents the Company’s 30 to 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 to 89
days delinquent. Non-performing assets include non-performing loans
and real estate owned.
|
|
June
30,
|
|
|
March
31,
|
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Loans
30-89 days delinquent(1)
|
|
$ |
19,212 |
|
|
$ |
18,908 |
|
|
$ |
22,712 |
|
|
$ |
17,732 |
|
Non-performing
loans(2)
|
|
|
13,254 |
|
|
|
9,884 |
|
|
|
10,232 |
|
|
|
7,352 |
|
Real
estate owned
|
|
|
2,207 |
|
|
|
2,764 |
|
|
|
2,023 |
|
|
|
2,097 |
|
Non-performing
assets to total assets at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
end
of period
|
|
|
0.20
|
% |
|
|
0.16
|
% |
|
|
0.15
|
% |
|
|
0.12
|
% |
Non-performing
loans to total loans
|
|
|
0.25
|
% |
|
|
0.19
|
% |
|
|
0.19
|
% |
|
|
0.14
|
% |
(1)
Included in loans 30 to 89 days delinquent at June 30, 2008 are $81 thousand of
non-mortgage loans.
(2)
Included in non-performing loans at June 30, 2008 are $65 thousand of
non-mortgage loans.
Loans 30
to 89 days delinquent, which are not included in non-performing loans, increased
approximately $300 thousand from $18.9 million at March 31, 2008 to $19.2
million at June 30, 2008. Of the $19.2 million at June 30, 2008,
$12.6 million, or 66% represent loans secured by property located in our market
areas and $6.6 million, or 34%, were purchased loans. There is not
believed to be a geographic trend associated with our purchased loans 30 to 89
days delinquent.
Non-performing
loans consist primarily of loans 90 or more days delinquent and loans in the
process of foreclosure. Non-performing loans increased $3.4 million
from $9.9 million at March 31, 2008 to $13.3 million at June 30,
2008. The increase in non-performing loans increased our ratio of
non-performing loans to total loans from 0.19% as of March 31, 2008 to 0.25% at
June 30, 2008. Of the $13.3 million of non-performing loans at June
30, 2008, $5.2 million or 39%, of total non-performing loans were purchased from
one nationwide lender. The total balance of loans purchased from this
lender was $113.9 million or 2% of the total loan
portfolio. There is not believed to be a geographic trend
associated with our purchased non-performing loans.
At June
30, 2008, non-performing loans with LTV ratios greater than 80% comprised 26% of
total non-performing loans. Of the non-performing loans with LTV
ratios greater than 80%, 74% had private mortgage insurance which substantially
reduces or eliminates the Bank’s exposure to loss. The balance of
non-performing loans with LTV ratios greater than 80% with no private mortgage
insurance was $864 thousand at June 30, 2008. At origination, these
loans had LTV ratios less than 80%, but as a result of updating the appraisals,
the LTV ratios are now in excess of 80%.
During
the quarter, management reviewed the risk exposure of the Bank’s mortgage loan
portfolio using its established formula allowance methodology. In
addition, management considered other then-existing inherent risks to the loan
portfolio based upon our recent experience with non-performing 1-4 family loans,
well-documented trends in the markets in which we have purchased loans, and
changes in the credit risks in the lending portfolio based upon changing
borrower credit characteristics. We have focused our attention on the
purchased loan portfolio because those loans are, in some instances, located in
markets that have seen significant declines in home valuations. Of
the loans purchased by the Bank from the nationwide lender reporting the highest
concentration of non-performing loans, most involved so-called “80-20”
combination purchase mortgage loans. These combinations involved an
80% LTV first mortgage and a simultaneous 20% LTV second
mortgage. The Bank purchased only the first mortgage. Due
to declining market values, many of the second mortgage holders are not pursuing
their claims in the event of default. Of the $1.6 million, $1.1
million are specific allowances on certain purchased
loans. Additional loan loss provision was recorded due to additional
risks management believes are inherent in our purchased loan
portfolio. In some instances, the real estate market values of the
underlying collateral decreased below our outstanding loan balance on purchased
loans from the previously mentioned nationwide lender. Since we rely
primarily on the collateral securing a one-to-four family mortgage loan if a
loan were to enter foreclosure, the additional provision for the loans with
specific allowances was necessary. See additional discussion
regarding the specific allowances and the increase in certain loss factors on
purchased loans in the section entitled “Critical Accounting Policies –
Allowance for Loan Losses”.
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. Based upon our underwriting standards, the value of
underlying collateral, along with any required private mortgage insurance, is
sufficient to protect the Bank from losses in excess of our allowance for loan
losses. Collateral dependent loans comprise over 95% of the loan
portfolio.
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Allowance
for loan losses:
|
|
(Dollars
in thousands)
|
|
Beginning
balance
|
|
$ |
4,250 |
|
|
$ |
4,193 |
|
|
$ |
4,181 |
|
|
$ |
4,433 |
|
Losses
charged against the allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family loans
|
|
|
133 |
|
|
|
-- |
|
|
|
163 |
|
|
|
9 |
|
Multi-family
loans
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Commercial
and other loans
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Consumer
loans
|
|
|
8 |
|
|
|
4 |
|
|
|
28 |
|
|
|
10 |
|
Total
charge-offs
|
|
|
141 |
|
|
|
4 |
|
|
|
191 |
|
|
|
19 |
|
Recoveries
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Provision
(recovery) charged to expense
|
|
|
1,602 |
|
|
|
-- |
|
|
|
1,721 |
|
|
|
(225 |
) |
Ending
balance
|
|
$ |
5,711 |
|
|
$ |
4,189 |
|
|
$ |
5,711 |
|
|
$ |
4,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performing
loans at period end
|
|
|
|
|
|
|
|
|
|
|
43.09
|
% |
|
|
63.92
|
% |
Allowance
for loan losses to loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable,
net at period end
|
|
|
|
|
|
|
|
|
|
|
0.11
|
% |
|
|
0.08
|
% |
Mortgage-Related
Securities. The balance of mortgage-related securities
increased $652.4 million from $1.41 billion at September 30, 2007 to $2.07
billion at June 30, 2008. 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 after projected prepayment speeds have been
applied. The increase in the yield at June 30, 2008 compared to
September 30, 2007 was primarily a result of the purchase of mortgage-related
securities with yields higher than that of the existing
portfolio. The increase in the WAL at June 30, 2008 compared to
September 30, 2007 was due to purchases of mortgage-related securities with WALs
greater than that of the existing portfolio.
|
For
the Three Months Ended
|
|
June
30, 2008
|
|
March
31, 2008
|
|
December
31, 2007
|
|
September
30, 2007
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
(Dollars
in thousands)
|
Beginning
balance
|
$ 2,076,766
|
4.70
|
%
|
4.88
|
|
$ 1,608,897
|
4.66
|
%
|
4.41
|
|
$ 1,414,271
|
4.46
|
%
|
4.04
|
|
$ 1,466,822
|
4.30
|
%
|
4.89
|
Maturities
and repayments
|
(172,376)
|
|
|
|
|
(119,682)
|
|
|
|
|
(95,243)
|
|
|
|
|
(126,050)
|
|
|
|
Net
amortization of premiums/discounts
|
(9)
|
|
|
|
|
(426)
|
|
|
|
|
(335)
|
|
|
|
|
(783)
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
129,614
|
4.64
|
|
4.56
|
|
395,048
|
4.90
|
|
4.98
|
|
200,382
|
5.17
|
|
3.98
|
|
72,610
|
5.79
|
|
4.34
|
Adjustable
|
50,443
|
4.25
|
|
4.04
|
|
188,024
|
4.71
|
|
5.06
|
|
86,819
|
4.88
|
|
4.68
|
|
--
|
--
|
|
--
|
Change
in valuation on AFS securities
|
(17,753)
|
|
|
|
|
4,905
|
|
|
|
|
3,003
|
|
|
|
|
1,672
|
|
|
|
Ending
balance
|
$ 2,066,685
|
4.76
|
%
|
4.32
|
|
$ 2,076,766
|
4.70
|
%
|
4.88
|
|
$ 1,608,897
|
4.66
|
%
|
4.41
|
|
$ 1,414,271
|
4.46
|
%
|
4.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
$ 1,414,271
|
4.46
|
%
|
4.04
|
|
$ 2,084,786
|
4.54
|
%
|
4.39
|
|
|
|
|
|
|
|
|
|
|
Maturities
and repayments
|
(387,301)
|
|
|
|
|
(368,696)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of securities, net of gains
|
--
|
|
|
|
|
(404,459)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amortization of premiums/discounts
|
(770)
|
|
|
|
|
(3,291)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
725,044
|
4.93
|
|
4.63
|
|
2,675
|
5.64
|
|
15.45
|
|
|
|
|
|
|
|
|
|
|
Adjustable
|
325,286
|
4.68
|
|
4.80
|
|
152,807
|
5.00
|
|
1.61
|
|
|
|
|
|
|
|
|
|
|
Change
in valuation on AFS securities
|
(9,845)
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
$ 2,066,685
|
4.76
|
%
|
4.32
|
|
$ 1,466,822
|
4.30
|
%
|
4.89
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities. Investment securities, which consist primarily of
agency bonds (primarily issued by FNMA, FHLMC, or FHLB) and municipal
investments, decreased $379.9 million from $524.2 million at September 30, 2007
to $144.3 million at June 30, 2008. This decrease is primarily a
result of calls and maturities that were not reinvested in agency securities due
to more attractive yields available on mortgage-related
securities. Recent market conditions have prompted concern over the
creditworthiness and capital adequacy of bond issuers FNMA and
FHLMC. $62.1 million, or 43%, of our investment portfolio is invested
in agency bonds issued by FNMA and FHLMC. The Bank does not hold any
equity securities issued by FNMA and FHLMC. 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 decrease in the yield at June 30, 2008
compared to September 30, 2007 was a result of calls and/or maturities of
securities with rates higher than that of the remaining portfolio, and due to
purchases of securities with yields lower than that of the
portfolio. The beginning and ending WAL represent the estimated
remaining maturity of the securities after projected call dates have been
considered, based upon market rates at each date presented. The
increase in the WAL at June 30, 2008 compared to September 30, 2007 was due to
issuers of certain securities in the portfolio exercising their option to call
the security, and to maturing securities.
|
For
the Three Months Ended
|
|
June
30, 2008
|
|
March
31, 2008
|
|
December
31, 2007
|
|
September
30, 2007
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
(Dollars
in thousands)
|
Beginning
balance
|
$ 88,597
|
4.48
|
%
|
2.78
|
|
$ 500,045
|
4.14
|
%
|
0.67
|
|
$ 524,168
|
4.52
|
%
|
1.66
|
|
$ 673,160
|
4.68
|
%
|
1.71
|
Maturities
and calls
|
(4,009)
|
|
|
|
|
(420,000)
|
|
|
|
|
(189,890)
|
|
|
|
|
(155,250)
|
|
|
|
Net
amortization of premiums/discounts
|
(204)
|
|
|
|
|
307
|
|
|
|
|
171
|
|
|
|
|
334
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
56,669
|
3.12
|
|
1.46
|
|
8,253
|
3.20
|
|
5.67
|
|
165,590
|
4.28
|
|
0.70
|
|
5,802
|
3.76
|
|
4.85
|
Adjustable
|
3,874
|
6.58
|
|
28.98
|
|
--
|
--
|
|
--
|
|
--
|
--
|
|
--
|
|
--
|
--
|
|
--
|
Change
in valuation of AFS securities
|
(581)
|
|
|
|
|
(8)
|
|
|
|
|
6
|
|
|
|
|
122
|
|
|
|
Ending
balance
|
$ 144,346
|
3.94
|
%
|
4.45
|
|
$ 88,597
|
4.48
|
%
|
2.78
|
|
$ 500,045
|
4.14
|
%
|
0.67
|
|
$ 524,168
|
4.52
|
%
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
Yield
|
|
WAL
|
|
Amount
|
Yield
|
|
WAL
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
$ 524,168
|
4.52
|
%
|
1.66
|
|
$ 429,480
|
4.46
|
%
|
2.63
|
|
|
|
|
|
|
|
|
|
|
Maturities
and calls
|
(613,899)
|
|
|
|
|
(445,240)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amortization of premiums/discounts
|
274
|
|
|
|
|
3,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
230,512
|
3.96
|
|
1.07
|
|
685,237
|
5.20
|
|
0.85
|
|
|
|
|
|
|
|
|
|
|
Adjustable
|
3,874
|
6.58
|
|
28.98
|
|
--
|
--
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Change
in valuation of AFS securities
|
(583)
|
|
|
|
|
(234)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
$ 144,346
|
3.94
|
%
|
4.45
|
|
$ 673,160
|
4.68
|
%
|
1.71
|
|
|
|
|
|
|
|
|
|
|
Liabilities. Total
liabilities increased from $6.81 billion at September 30, 2007 to $7.03 billion
at June 30, 2008. The $218.3 million increase in liabilities was due
primarily to entering into $400.0 million of repurchase agreements, an increase
in deposits of $38.8 million, partially offset by a decrease in FHLB advances of
$184.9 million. The decrease in FHLB advances was due to $925.0
million of maturing advances, of which only $725.0 million were
renewed. Certain FHLB advances were replaced with repurchase
agreements because rates and terms were more favorable than other funding
options on those dates. The use of repurchase agreements also allows
for the diversification of funding sources and the use of securities that were
not being leveraged as collateral. Management will continue to
monitor market conditions for funding opportunities that can be leveraged to
improve earnings without creating undue interest rate or credit risk
exposure.
The
following table presents the amount, average rate and percentage of total
deposits for checking, savings, money market and certificates for the periods
presented.
|
|
At
|
|
At
|
|
At
|
|
At
|
|
|
June
30, 2008
|
|
March
31, 2008
|
|
December
31, 2007
|
|
September
30, 2007
|
|
|
|
|
|
Average
|
|
%
of
|
|
|
|
|
Average
|
|
%
of
|
|
|
|
|
Average
|
|
%
of
|
|
|
|
|
Average
|
|
%
of
|
|
|
Amount
|
|
|
Rate
|
|
Total
|
|
Amount
|
|
|
Rate
|
|
Total
|
|
Amount
|
|
|
Rate
|
|
Total
|
|
Amount
|
|
|
Rate
|
|
Total
|
|
|
(Dollars
in thousands)
|
Checking
|
|
$ |
419,678 |
|
|
|
0.21
|
% |
|
|
10.59
|
% |
|
$ |
423,675 |
|
|
|
0.21
|
% |
|
|
10.54
|
% |
|
$ |
413,349 |
|
|
|
0.21
|
% |
|
|
10.38
|
% |
|
$ |
394,109 |
|
|
|
0.21
|
% |
|
|
10.05
|
% |
Savings
|
|
|
232,807 |
|
|
|
1.64 |
|
|
|
5.88 |
|
|
|
231,050 |
|
|
|
1.35 |
|
|
|
5.75 |
|
|
|
229,862 |
|
|
|
2.05 |
|
|
|
5.77 |
|
|
|
237,148 |
|
|
|
2.58 |
|
|
|
6.04 |
|
Money
market
|
|
|
811,415 |
|
|
|
1.46 |
|
|
|
20.48 |
|
|
|
827,623 |
|
|
|
1.65 |
|
|
|
20.58 |
|
|
|
811,002 |
|
|
|
2.95 |
|
|
|
20.37 |
|
|
|
790,277 |
|
|
|
3.18 |
|
|
|
20.15 |
|
Certificates
|
|
|
2,497,643 |
|
|
|
4.16 |
|
|
|
63.05 |
|
|
|
2,538,618 |
|
|
|
4.54 |
|
|
|
63.13 |
|
|
|
2,527,236 |
|
|
|
4.77 |
|
|
|
63.48 |
|
|
|
2,501,248 |
|
|
|
4.77 |
|
|
|
63.76 |
|
Total
deposits
|
|
$ |
3,961,543 |
|
|
|
3.04
|
% |
|
|
100.00
|
% |
|
$ |
4,020,966 |
|
|
|
3.31
|
% |
|
|
100.00
|
% |
|
$ |
3,981,449 |
|
|
|
3.77
|
% |
|
|
100.00
|
% |
|
$ |
3,922,782 |
|
|
|
3.86
|
% |
|
|
100.00
|
% |
At June
30, 2008, $180.6 million of the $2.50 billion in certificates were brokered
deposits, compared to $193.0 million in brokered and public unit deposits at
September 30, 2007. There were no public unit deposits at June 30,
2008. The $12.4 million decrease between September 30, 2007 and June
30, 2008 was attributed to maturities of public unit deposits that were not
retained because the Bank did not actively pursue public unit
deposits. Management will continue to monitor the wholesale deposit
market for attractive opportunities. Approximately $85.0 million of
brokered deposits will mature in the quarter ending December 31,
2008.
Stockholders’
Equity. Stockholders’ equity decreased $3.7 million from
$867.6 million at September 30, 2007 to $863.9 million at June 30,
2008. The decrease was primarily a result of dividends paid of $31.1
million, treasury stock purchases of $7.3 million and an increase in unrealized
losses on AFS securities of $6.5 million, partially offset by net income of
$35.2 million and ESOP activity of $5.4 million.
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 June 30, 2008. The unvested shares in the ESOP
receive cash equal to the dividends paid on the public shares. The
cash received is used 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. These shares are held in
trust for a future employee benefit, and are therefore excluded from the
calculation of public shares.
Total
voting shares outstanding at September 30, 2007
|
|
74,258,977
|
Treasury
stock acquisitions
|
|
|
(225,042)
|
RRP
grants
|
|
|
10,000
|
Options
exercised
|
|
|
23,683
|
Total
voting shares outstanding at June 30, 2008
|
|
74,067,618
|
Unvested
shares in ESOP
|
|
|
(1,209,832)
|
Shares
held by MHC
|
|
|
(52,192,817)
|
Total
shares eligible to receive dividends at June 30, 2008 (public
shares)
|
20,664,969
|
The
following table presents quarterly dividends paid in calendar years 2008, 2007,
and 2006. The dollar amounts represent dividends paid during the
quarter. The actual amount of dividends to be paid during the quarter
ending September 30, 2008, as declared on July 23, 2008, will be based upon the
number of shares outstanding on the record date of August 1,
2008. All shares outstanding presented in the table below, except for
the quarter ending September 30, 2008, 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 September 30, 2008 is based upon
shares outstanding on July 28, 2008. 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 July 28,
2008.
|
|
Calendar
Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
Quarter
ended March 31
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
20,660,510 |
|
|
|
20,520,793 |
|
|
|
20,457,283 |
|
Dividend
per share
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
Total
dividends paid
|
|
$ |
10,330 |
|
|
$ |
10,261 |
|
|
$ |
10,229 |
|
Quarter
ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
20,661,660 |
|
|
|
20,673,933 |
|
|
|
20,257,420 |
|
Dividend
per share
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
Total
dividends paid
|
|
$ |
10,331 |
|
|
$ |
10,337 |
|
|
$ |
10,129 |
|
Quarter
ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
20,667,969 |
|
|
|
20,694,533 |
|
|
|
20,250,134 |
|
Dividend
per share
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
Total
dividends paid
|
|
|
10,334 |
|
|
$ |
10,347 |
|
|
$ |
10,125 |
|
Quarter
ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
|
|
|
|
20,860,278 |
|
|
|
20,432,393 |
|
Dividend
per share
|
|
|
|
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
Total
dividends paid
|
|
|
|
|
|
$ |
10,430 |
|
|
$ |
10,216 |
|
Special
year end dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
|
|
|
|
-- |
|
|
|
20,432,793 |
|
Dividend
per share
|
|
|
|
|
|
$ |
-- |
|
|
$ |
0.09 |
|
Total
dividends paid
|
|
|
|
|
|
$ |
-- |
|
|
$ |
1,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar
year-to-date dividends per share
|
|
$ |
1.50 |
|
|
$ |
2.00 |
|
|
$ |
2.09 |
|
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-related securities, and interest paid on interest-bearing liabilities,
such as deposits, FHLB advances, and other borrowings. 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 rates on our interest-earning assets and interest-bearing liabilities
for the periods indicated and the yield/rate on our interest-earning assets and
interest-bearing liabilities at June 30, 2008. Average yields are
derived by dividing annualized income by the average balance of the related
assets and average rates are derived by dividing annualized expense by the
average balance of the related liabilities, for the periods
shown. Average outstanding balances are derived from average daily
balances. The yields and rates include amortization of fees, costs,
premiums and discounts which are considered adjustments to yields/rates. Yields
on tax-exempt securities were not calculated on a tax-equivalent
basis.
|
At
|
|
For
the Three Months Ended
|
|
|
June
30, 2008
|
|
June
30, 2008
|
|
March
31, 2008
|
|
December
31, 2007
|
|
June
30, 2007
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Assets:
|
|
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable (1)
|
5.67%
|
|
$ 5,316,794
|
|
5.62
|
%
|
$ 5,306,797
|
|
5.67
|
%
|
$ 5,309,758
|
|
5.74
|
%
|
$ 5,238,291
|
|
5.59
|
%
|
Mortgage-related
securities
|
4.76
|
|
2,107,757
|
|
4.72
|
|
1,756,593
|
|
4.61
|
|
1,497,081
|
|
4.58
|
|
1,543,049
|
|
4.21
|
|
Investment
securities
|
3.94
|
|
128,784
|
|
4.03
|
|
304,470
|
|
4.02
|
|
391,173
|
|
4.22
|
|
717,008
|
|
4.72
|
|
Capital
stock of FHLB
|
4.72
|
|
128,379
|
|
4.71
|
|
130,752
|
|
5.73
|
|
133,378
|
|
6.21
|
|
149,288
|
|
6.48
|
|
Cash
and cash equivalents
|
2.35
|
|
90,556
|
|
2.03
|
|
171,356
|
|
3.16
|
|
129,227
|
|
4.32
|
|
89,768
|
|
5.34
|
|
Total
interest-earning assets (1)
|
5.35
|
|
7,772,270
|
|
5.29
|
|
7,669,968
|
|
5.31
|
|
7,460,617
|
|
5.41
|
|
7,737,404
|
|
5.25
|
|
Other
noninterest-earning assets
|
|
|
187,701
|
|
|
|
202,741
|
|
|
|
203,260
|
|
|
|
160,904
|
|
|
|
Total
assets
|
|
|
$ 7,959,971
|
|
|
|
$ 7,872,709
|
|
|
|
$ 7,663,877
|
|
|
|
$ 7,898,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
1.65
|
|
230,164
|
|
1.42
|
|
228,710
|
|
1.66
|
|
232,930
|
|
2.34
|
|
243,816
|
|
2.92
|
|
Checking
|
0.21
|
|
412,468
|
|
0.20
|
|
395,295
|
|
0.21
|
|
382,748
|
|
0.21
|
|
407,993
|
|
0.21
|
|
Money
market
|
1.46
|
|
814,074
|
|
1.53
|
|
810,464
|
|
2.22
|
|
794,391
|
|
3.12
|
|
808,162
|
|
3.27
|
|
Certificates
|
4.16
|
|
2,508,743
|
|
4.32
|
|
2,531,232
|
|
4.68
|
|
2,504,463
|
|
4.79
|
|
2,480,765
|
|
4.66
|
|
Total
deposits
|
3.04
|
|
3,965,449
|
|
3.15
|
|
3,965,701
|
|
3.56
|
|
3,914,532
|
|
3.86
|
|
3,940,736
|
|
3.81
|
|
FHLB
advances (2)
|
4.73
|
|
2,547,450
|
|
4.75
|
|
2,602,210
|
|
4.88
|
|
2,593,271
|
|
5.19
|
|
2,915,505
|
|
5.05
|
|
Other
borrowings
|
4.07
|
|
452,458
|
|
4.09
|
|
323,323
|
|
4.74
|
|
149,724
|
|
5.77
|
|
53,500
|
|
8.23
|
|
Total
interest-bearing liabilities
|
3.73
|
|
6,965,357
|
|
3.80
|
|
6,891,234
|
|
4.11
|
|
6,657,527
|
|
4.42
|
|
6,909,741
|
|
4.36
|
|
Other
noninterest-bearing liabilities
|
|
|
122,747
|
|
|
|
111,881
|
|
|
|
137,469
|
|
|
|
118,137
|
|
|
|
Stockholders'
equity
|
|
|
871,867
|
|
|
|
869,594
|
|
|
|
868,881
|
|
|
|
870,430
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders'
equity
|
|
|
$ 7,959,971
|
|
|
|
$ 7,872,709
|
|
|
|
$ 7,663,877
|
|
|
|
$ 7,898,308
|
|
|
|
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest rate spread
|
1.62%
|
|
|
|
1.49
|
%
|
|
|
1.20
|
%
|
|
|
0.99
|
%
|
|
|
0.89
|
%
|
Net
interest-earning assets
|
|
|
$ 806,913
|
|
|
|
$ 778,734
|
|
|
|
$ 803,090
|
|
|
|
$ 827,663
|
|
|
|
Net
interest margin
|
|
|
|
|
1.89
|
%
|
|
|
1.62
|
%
|
|
|
1.43
|
%
|
|
|
1.33
|
%
|
Ratio
of interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
interest-bearing liabilities
|
|
|
|
|
1.12
|
|
|
|
1.11
|
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
performance ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (annualized)
|
|
|
|
|
0.72
|
%
|
|
|
0.60
|
%
|
|
|
0.48
|
%
|
|
|
0.37
|
%
|
Return
on average equity (annualized)
|
|
|
|
|
6.59
|
%
|
|
|
5.39
|
%
|
|
|
4.20
|
%
|
|
|
3.35
|
%
|
Average
equity to average assets
|
|
|
|
|
10.95
|
%
|
|
|
11.05
|
%
|
|
|
11.34
|
%
|
|
|
11.02
|
%
|
(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)
The rate calculation includes net interest (income) expense of ($122)
thousand, $238 thousand, $2.2 million and $3.3 million related to the interest
rate swaps for the three months ended June 30, 2008, March 31, 2008, December
31, 2007 and June 30, 2007, respectively.
(Concluded)
The
following table presents selected income statement information for the quarters
indicated.
|
|
For
the Three Months Ended
|
|
|
|
June
30,
|
|
|
March
31,
|
|
|
December
31,
|
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
Selected
income statement data:
|
|
(Dollars
in thousands, except per share amounts)
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$ |
74,651 |
|
|
$ |
75,276 |
|
|
$ |
76,263 |
|
|
$ |
74,343 |
|
|
$ |
73,219 |
|
Mortgage-related
securities
|
|
|
24,869 |
|
|
|
20,246 |
|
|
|
17,127 |
|
|
|
15,690 |
|
|
|
16,224 |
|
Investment
securities
|
|
|
1,298 |
|
|
|
3,061 |
|
|
|
4,130 |
|
|
|
6,444 |
|
|
|
8,459 |
|
Other
interest and dividend income
|
|
|
1,967 |
|
|
|
3,233 |
|
|
|
3,508 |
|
|
|
3,808 |
|
|
|
3,624 |
|
Total
interest and dividend income
|
|
|
102,785 |
|
|
|
101,816 |
|
|
|
101,028 |
|
|
|
100,285 |
|
|
|
101,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
31,174 |
|
|
|
35,145 |
|
|
|
38,033 |
|
|
|
38,166 |
|
|
|
37,377 |
|
FHLB
advances
|
|
|
30,248 |
|
|
|
31,796 |
|
|
|
34,161 |
|
|
|
36,894 |
|
|
|
37,220 |
|
Other
borrowings
|
|
|
4,682 |
|
|
|
3,873 |
|
|
|
2,207 |
|
|
|
1,125 |
|
|
|
1,113 |
|
Total
interest expense
|
|
|
66,104 |
|
|
|
70,814 |
|
|
|
74,401 |
|
|
|
76,185 |
|
|
|
75,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,602 |
|
|
|
119 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest and dividend income
|
|
|
35,079 |
|
|
|
30,883 |
|
|
|
26,627 |
|
|
|
24,100 |
|
|
|
25,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
7,345 |
|
|
|
7,982 |
|
|
|
7,111 |
|
|
|
6,412 |
|
|
|
5,908 |
|
Other
expenses
|
|
|
19,836 |
|
|
|
20,907 |
|
|
|
19,451 |
|
|
|
19,938 |
|
|
|
20,136 |
|
Income
tax expense
|
|
|
8,233 |
|
|
|
6,231 |
|
|
|
5,174 |
|
|
|
4,274 |
|
|
|
4,299 |
|
Net
income
|
|
$ |
14,355 |
|
|
$ |
11,727 |
|
|
$ |
9,113 |
|
|
$ |
6,300 |
|
|
$ |
7,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency
ratio
|
|
|
45.05 |
|
|
|
53.63 |
|
|
|
57.65 |
|
|
|
65.34 |
|
|
|
63.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.20 |
|
|
$ |
0.16 |
|
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
Diluted
earnings per share
|
|
$ |
0.20 |
|
|
$ |
0.16 |
|
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
Dividends
declared per public share
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
Comparison
of Operating Results for the Three Months Ended June 30, 2008 and
2007
Net
income for the quarter ended June 30, 2008 was $14.4 million compared to $7.3
million for the same period in the prior fiscal year. The $7.1 million increase
in net income was primarily a result of a $9.6 million decrease in interest
expense and a $1.4 million increase in other income, partially offset by a $1.6
million provision for loan loss and a $3.9 million increase in income tax
expense.
Total
interest and dividend income for the quarter was $102.8 million compared to
$101.5 million for the prior year quarter. The $1.3 million increase
was primarily a result of an increase in interest income on mortgage-related
securities of $8.6 million, partially offset by a decrease in interest income on
investment securities of $7.2 million.
Interest
income on loans receivable for the quarter was $74.6 million compared to $73.2
million for the prior year quarter. The $1.4 million increase was a
result of a $78.5 million increase in the average balance of the loan portfolio
between the two periods, and an increase of 3 basis points in weighted average
yield of the portfolio to 5.62% for the current quarter.
Interest
income on mortgage-related securities for the quarter was $24.9 million compared
to $16.2 million for the prior year quarter. The $8.7 million
increase in interest income was due to an increase of $564.7 million in the
average balance and an increase of 51 basis points in the average yield to 4.72%
for the current quarter. The increase in the average portfolio
balance was a result of purchases, partially offset by principal
repayments. The funds for the purchases came from maturities and
calls of investment securities and from repurchase agreement
proceeds. The weighted average yield of the mortgage-related
securities portfolio increased between the two periods due primarily 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 $1.3 million compared to
$8.5 million for the prior year quarter. The $7.2 million decrease in
interest income was primarily a result of a decrease of $588.2 million in the
average balance of the portfolio and, to a lesser extent, a 69 basis point
decrease in the weighted average portfolio yield to 4.03% for the current
quarter. The decrease in the average balance was a result of calls
and maturities that were not reinvested into the investment securities portfolio
but rather the higher yielding mortgage-related securities
portfolio. The decrease in the weighted average yield of the
portfolio was attributed to maturities and calls of securities with weighted
average yields greater than that of the portfolio, and also due to reinvestments
made at lower yields.
Dividends
on FHLB stock for the quarter were $1.5 million compared to $2.4 million for the
prior year quarter. The $910 thousand decrease was due to a 177 basis
point decrease in the average yield and a decrease in the average
balance. The dividend rate on FHLB stock correlates to the federal
funds rate, which decreased during the period. The decrease in the
average balance was a result of the redemption of shares, as the required number
of shares held is based upon outstanding FHLB advances, which decreased during
the period.
Interest
expense on deposits for the current quarter was $31.2 million compared to $37.4
million for the prior year quarter. The $6.2 million decrease in
interest expense was primarily a result of a decrease in the average rate paid
on the money market and certificate portfolios due to the portfolios repricing
to lower market rates. During fiscal year 2007, the Bank increased
the rates offered on its certificate of deposit portfolio, with an emphasis on
the mid-term maturity category, in order to remain competitive. A
portion of those mid-term certificates have matured, and the amounts retained
were deposited into lower rate certificate products.
Interest
expense on FHLB advances for the current quarter was $30.2 million compared to
$37.2 million for the prior year quarter. The $7.0 million decrease
in interest expense was primarily a result of a decrease in the average balance
due to maturing advances that were not renewed, and partially due to a decrease
in rate as a result of the termination of the interest rate
swaps. During the quarter ended December 31, 2007, management
terminated interest rate swaps with a notional amount of $575.0
million. The remaining interest rate swaps matured in May
2008. During the current quarter, income of $122 thousand was related
to the interest rate swaps, compared to $3.3 million of interest expense in the
prior year quarter.
Interest
expense on other borrowings was $4.7 million compared to $1.1 million in the
prior year quarter. The $3.6 million increase was due to an increase
in the average balance of other borrowings due to the Bank entering into $400.0
million of repurchase agreements during fiscal year 2008. Additional
information about the repurchase agreements is included under “Liquidity and
Capital Resources.”
The Bank
recorded a provision for loan losses of $1.6 million during the current quarter,
compared to no provision in the prior year quarter. Based on our
evaluation of the issues regarding the real estate markets, the overall economic
environment, and the increase in and composition of our delinquencies and
non-performing loans, we determined that a provision for loan losses was prudent
and warranted for the three months ended June 30, 2008. See
additional discussion regarding the provision for loan losses in the sections
entitled “Critical Accounting Policies – Allowance for Loan Losses” and “Asset
Quality.”
Total
other income for the current quarter was $7.3 million compared to $5.9 million
in the prior year quarter. The $1.4 million increase in other income
was primarily a result of an increase of $609 thousand in retail fees and an
increase of $577 thousand in income from BOLI. Retail fees increased
during the current quarter as a result of an increase in ATM and Visa check card
usage and a net increase in checking account fees. BOLI income was
$577 thousand for the current quarter, compared to no income from BOLI in the
prior year quarter, as the Bank’s BOLI purchase was made in the fourth quarter
of fiscal year 2007.
Total
other expenses for the current quarter decreased $301 thousand to $19.8 million
for the current quarter, compared to $20.1 million in the prior year
quarter. The decrease was due primarily to a decrease in other, net
expense of $625 thousand and regulatory and outside services expense of $514
thousand, partially offset by an increase in salaries and employee benefits of
$303 thousand and occupancy expense of $262 thousand. The decrease in
other expense, net was due primarily to a recovery of $510 thousand on the MSR
valuation allowance recorded in the current quarter due to a slow down in
prepayment speeds. The decrease in regulatory and outside services
expense was due to a decrease in consulting and audit fees during the current
quarter compared to the prior year quarter.
Income
tax expense for the current quarter was $8.2 million compared to $4.3 million in
the prior year quarter. The increase in income tax expense was due to
an increase in earnings compared to the prior year quarter, partially offset by
a decrease in the effective tax rate. The effective tax rate for the
current quarter was 36.4%, compared to 37.1% for the prior year
quarter. The decrease in the effective tax rate between quarters was
a result of an increase in nontaxable income from municipal securities and BOLI,
along with an increase in pre-tax income.
|
Quarter
Ended June 30,
|
|
|
|
2008
vs. 2007
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
Loans
receivable
|
$ 1,066
|
|
$ 366
|
|
$ 1,432
|
|
Mortgage-related
securities
|
6,481
|
|
2,164
|
|
8,645
|
|
Investment
securities
|
(6,082)
|
|
(1,079)
|
|
(7,161)
|
|
Capital
stock of FHLB
|
(308)
|
|
(602)
|
|
(910)
|
|
Cash
equivalents
|
10
|
|
(757)
|
|
(747)
|
|
Total
interest-earning assets
|
$ 1,167
|
|
$ 92
|
|
$ 1,259
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
Savings
|
$ (94)
|
|
$ (857)
|
|
$ (951)
|
|
Checking
|
2
|
|
(10)
|
|
(8)
|
|
Money
market
|
49
|
|
(3,505)
|
|
(3,456)
|
|
Certificates
|
325
|
|
(2,113)
|
|
(1,788)
|
|
FHLB
advances
|
(4,705)
|
|
(2,267)
|
|
(6,972)
|
|
Other
borrowings
|
3,885
|
|
(316)
|
|
3,569
|
|
Total
interest-bearing liabilities
|
$ (538)
|
|
$ (9,068)
|
|
$ (9,606)
|
|
|
|
|
|
|
|
|
Net
change in net interest and dividend income
|
$ 1,705
|
|
$ 9,160
|
|
$ 10,865
|
|
Comparison
of Operating Results for the Nine Months Ended June 30, 2008 and
2007
Net
income for the nine months ended June 30, 2008 was $35.2 million compared to
$26.0 million for the same period in the prior fiscal year. The $9.2 million
increase in net income was primarily a result of a decrease in interest expense
of $17.6 million, partially offset by a decrease in interest and dividend income
of $5.7 million.
Total
interest and dividend income for the current nine month period was $305.6
million compared to $311.3 million for the prior year period. The
$5.7 million decrease was primarily a result of a decrease in interest income on
investments of $15.9 million, partially offset by an increase in interest income
on mortgage-related securities of $9.1 million.
Interest
income on loans receivable for the current nine month period was $226.2 million
compared to $220.4 million for the prior year period. The $5.8
million increase was a result of a $78.8 million increase in the average balance
of the loan portfolio between the two periods and an increase of six basis
points in the weighted average yield of the loan portfolio to 5.68% for the
current nine month period. The increase in the weighted average yield
can be attributed to loans originated throughout the year at rates higher than
the overall portfolio rate and to ARM loans repricing.
Interest
income on mortgage-related securities for the current nine month period was
$62.2 million compared to $53.1 million for the same period in the prior
year. The $9.1 million increase in interest income was due to an
increase of 39 basis points in the average yield to 4.65% for the current nine
month period, and an increase of $125.6 million in the average balance of the
portfolio. The weighted average yield of the mortgage-related
securities portfolio increased between the two periods due to the purchase of
mortgage-related securities with yields higher than that of the existing
portfolio. The increase in the average portfolio balance was due
primarily to the utilization of cash available for investment to purchase
mortgage-related securities rather than other instruments due to the more
favorable yields on mortgage-related securities.
Interest
income on investment securities for the current nine month period was $8.5
million compared to $24.4 million for the same period in the prior
year. The $15.9 million decrease in interest income was primarily a
result of a decrease of $413.4 million in the average balance of the portfolio
and, to a lesser extent, a 62 basis point decrease in the weighted average
portfolio yield to 4.11% for the current nine month period. The
decrease in the average balance was a result of maturities and calls which were
not reinvested into investment securities and were used, in part, to pay down
maturing FHLB advances and purchase higher yielding mortgage-related securities
during fiscal year 2008. The decrease in the weighted average yield of the
portfolio was attributed to calls and maturities of securities with weighted
average yields greater than that of the portfolio, and to purchases with lower
yields than that of the portfolio.
Dividends
on FHLB stock for the current nine month period were $5.4 million compared to
$7.7 million for the same period in the prior year. The $2.3 million
decrease was due to a decrease of $27.0 million in the average balance and a 92
basis point decrease in the average yield. The decrease in the
average balance was due to the redemption of shares, as the required number of
shares held is based primarily upon the balance of outstanding FHLB advances,
which decreased during the period. The dividend rate on FHLB stock
correlates to the federal funds rate, which also decreased during the
period.
Interest
income on cash and cash equivalents for the nine months was $3.3 million
compared to $5.7 million for the same period in the prior year. The
$2.4 million decrease was primarily a result of a 185 basis point decrease in
the average yield to 3.29% for the current nine months due to a decrease in
short-term market interest rates, and, to a lesser extent, a decrease of $17.0
million in the average balance.
Interest
expense on deposits for the current nine month period was $104.4 million
compared to $109.1 million for the same period in the prior year. The
$4.7 million decrease in interest expense was primarily a result of a decrease
in the rate on money market accounts due to a decrease in market interest rates,
partially offset by a higher weighted average rate on the certificate of deposit
portfolio in the current nine month period compared to the same period in the
prior year. During fiscal year 2007, the Bank increased the rates
offered on its certificate of deposit portfolio, with an emphasis on the
mid-term maturity category, in order to remain competitive. This
resulted in a higher weighted average certificate of deposit portfolio rate in
the current nine month period than the previous year period as some of those
certificates were outstanding during the current nine month period.
Interest
expense on FHLB advances for the current nine month period was $96.2 million
compared to $116.5 million for the same period in the prior year. The
$20.3 million decrease in interest expense was primarily a result of a decrease
of $518.7 million in the average balance due to maturing advances that were not
renewed in their entirety.
Interest
expense on other borrowings was $10.8 million compared to $3.3 million in the
same period in the prior year. The $7.5 million increase was due to
an increase in the average balance of other borrowings due to the Bank entering
into $400.0 million of repurchase agreements during fiscal year
2008. The increase was partially offset by a decrease in the rate
paid on $53.6 million of other borrowings tied to the three month LIBOR, which
decreased between the periods. Additional information about the
repurchase agreements is included under “Liquidity and Capital
Resources.”
The Bank
recorded a provision for loan losses of $1.7 million during the current nine
month period compared to a recovery of $225 thousand in the same period in the
prior year. Based on our evaluation of the issues regarding the real
estate markets, the overall economic environment, and the increase in and
composition of our delinquencies and
non-performing
loans, we determined that a provision for loan losses was prudent and
warranted. See additional discussion regarding the provision for loan
losses in the sections entitled “Critical Accounting Policies – Allowance for
Loan Losses” and “Asset Quality.”
Total
other income for the current nine month period was $22.4 million compared to
$17.8 million in the same prior year period. The $4.6 million
increase in other income was due primarily to increases in BOLI income, other
income, net, and retail fees. BOLI income was $1.8 million for the
current nine month period, compared to no income from BOLI in the prior year
period. Other income, net increased $1.2 million due primarily to the
redemption of shares received in the Visa, Inc. initial public
offering. Total proceeds from the Visa redemption reported in other
income, net were $992 thousand, offset by a liability accrual of $594 thousand,
reported in other expense, net related to ongoing litigation involving Visa,
Inc. for net proceeds of $398 thousand. Retail fees increased $1.1
million due primarily to an increase in fees received on ATM and Visa check
cards from increased volume and an increase in the interchange rate received on
point-of-sale transactions.
Total
other expenses for the current nine month period increased $2.2 million to $60.2
million compared to $58.0 million in the prior year period. The
increase was due primarily to an increase in other expense, net of $766
thousand, an increase in deposit and loan expense of $709 thousand, and an
increase in salaries and employee benefits of $518 thousand. The
increase in other expense, net was due primarily to a liability accrual of $594
thousand related to ongoing litigation involving Visa, Inc., as mentioned
above. The increase in deposit and loan expense was due primarily to
an increase in Visa check card fees and ATM network expense from increased
transaction volume. The increase in salaries and employee
benefits was due primarily to increased payroll expense resulting from the
hiring of new employees for existing vacant and new positions, filling positions
held open during the previous year nine month period prior to the
core information technology processing system conversion, and to no
capitalization of payroll expense in the current nine month period while certain
amounts related to the core conversion were capitalized in the prior year nine
month period. These increases in salaries and employee benefits were partially
offset by a decrease in ESOP expense due to the Company’s common stock being at
a lower market price during the current nine month period compared to the prior
year nine month period.
Income
tax expense for the current nine month period was $19.6 million compared to
$16.3 million in the prior year. The increase in income tax expense
was due to an increase in income, partially offset by a decrease in the
effective tax rate for the current nine month period to 35.8%, compared to 38.6%
for the same period in the prior year. The decrease in the effective
tax rate between periods was a result of an increase in nontaxable income from
municipal securities and BOLI, along with an increase in pre-tax
income.
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 annualized expense by the average balance of the related liabilities,
for the periods shown. Average outstanding balances are derived from
average daily balances. The yields and costs include amortization of
fees, costs, premiums and discounts which are considered adjustments to
yields/rates. Yields on tax-exempt securities were not calculated on
a tax-equivalent basis.
|
For
the Nine Months Ended
|
|
|
June
30, 2008
|
|
June
30, 2007
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
Outstanding
|
|
Yield/
|
|
Outstanding
|
|
Yield/
|
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Assets:
|
(Dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
Loans
receivable (1)
|
$ 5,311,111
|
|
5.68
|
%
|
$ 5,232,290
|
|
5.62
|
%
|
Mortgage-related
securities
|
1,786,085
|
|
4.65
|
|
1,660,441
|
|
4.26
|
|
Investment
securities
|
275,234
|
|
4.11
|
|
688,599
|
|
4.73
|
|
Capital
stock of FHLB
|
130,845
|
|
5.56
|
|
157,895
|
|
6.48
|
|
Cash
and cash equivalents
|
130,375
|
|
3.29
|
|
147,386
|
|
5.14
|
|
Total
interest-earning assets (1)
|
7,633,650
|
|
5.34
|
|
7,886,611
|
|
5.26
|
|
Other
noninterest-earning assets
|
197,944
|
|
|
|
155,907
|
|
|
|
Total
assets
|
$ 7,831,594
|
|
|
|
$ 8,042,518
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity:
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
Savings
|
230,426
|
|
1.81
|
|
180,887
|
|
2.37
|
|
Checking
|
396,785
|
|
0.21
|
|
399,102
|
|
0.22
|
|
Money
market
|
806,359
|
|
2.29
|
|
811,888
|
|
3.30
|
|
Certificates
|
2,514,228
|
|
4.60
|
|
2,512,057
|
|
4.54
|
|
Total
deposits
|
3,947,798
|
|
3.52
|
|
3,903,934
|
|
3.74
|
|
FHLB
advances (2)
|
2,581,022
|
|
4.94
|
|
3,099,727
|
|
4.96
|
|
Other
borrowings
|
307,922
|
|
4.60
|
|
53,486
|
|
8.24
|
|
Total
interest-bearing liabilities
|
6,836,742
|
|
4.10
|
|
7,057,147
|
|
4.31
|
|
Other
noninterest-bearing liabilities
|
124,741
|
|
|
|
117,529
|
|
|
|
Stockholders'
equity
|
870,111
|
|
|
|
867,842
|
|
|
|
Total
liabilities and stockholders' equity
|
$ 7,831,594
|
|
|
|
$ 8,042,518
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest rate spread
|
|
|
1.24
|
%
|
|
|
0.95
|
%
|
Net
interest-earning assets
|
$ 796,908
|
|
|
|
$ 829,464
|
|
|
|
Net
interest margin
|
|
|
1.65
|
%
|
|
|
1.39
|
%
|
Ratio
of interest-earning assets
|
|
|
|
|
|
|
|
|
to
interest-bearing liabilities
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
|
Selected
Performance Ratios:
|
|
|
|
|
|
|
|
|
Return
on average assets (annualized)
|
|
|
0.60
|
%
|
|
|
0.43
|
%
|
Return
on average equity (annualized)
|
|
|
5.39
|
%
|
|
|
3.99
|
%
|
Average
equity to average assets
|
|
|
11.11
|
%
|
|
|
10.79
|
%
|
(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) The
rate calculation includes net interest expense of $2.3 million and $10.0 million
related to the interest rate swaps for the nine months ended June 30, 2008 and
June 30, 2007, respectively.
The table
below presents the dollar amount of changes in interest income and interest
expense for the major components of interest-earning assets and interest-bearing
liabilities, comparing the nine months ended June 30, 2008 to the nine months
ended June 30, 2007. 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 Nine Months Ended
|
|
June
30, 2008 vs. June 30, 2007
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
(Dollars
in thousands)
|
Interest-earning
assets:
|
|
|
|
|
|
Loans
receivable
|
$ 3,223
|
|
$ 2,566
|
|
$ 5,789
|
Mortgage-related
securities
|
4,154
|
|
5,026
|
|
9,180
|
Investment
securities
|
(13,088)
|
|
(2,828)
|
|
(15,916)
|
Capital
stock of FHLB
|
(1,207)
|
|
(1,003)
|
|
(2,210)
|
Cash
and cash equivalents
|
(602)
|
|
(1,877)
|
|
(2,479)
|
Total
interest-earning assets
|
$ (7,520)
|
|
$ 1,884
|
|
$ (5,636)
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
Savings(1)
|
$ 773
|
|
$ (854)
|
|
$ (81)
|
Checking
|
(4)
|
|
(27)
|
|
(31)
|
Money
market
|
(125)
|
|
(5,636)
|
|
(5,761)
|
Certificates(1)
|
68
|
|
1,044
|
|
1,112
|
FHLB
advances
|
(19,299)
|
|
(965)
|
|
(20,264)
|
Other
borrowings
|
7,854
|
|
(435)
|
|
7,419
|
Total
interest-bearing liabilities
|
$ (10,733)
|
|
$ (6,873)
|
|
$ (17,606)
|
|
|
|
|
|
|
Net
change in net interest and dividend income
|
$ 3,213
|
|
$ 8,757
|
|
$ 11,970
|
(1) A portion of the change in the volume
and the rate in the savings accounts is related to the variable-rate retirement
certificate of deposits that were reclassified to savings from certificates as
the reclassified accounts did not have a stated maturity date as a result of
changes required by the new core information technology processing
system. The change in volume and rate on the savings accounts would
have been a decrease of $924 thousand and a decrease of $1.6 million,
respectively, excluding the variable-rate retirement certificates reclassified
to savings. The change in the volume and rate on the certificates
would have been an increase of $4.1 million and a decrease of $548 thousand,
respectively, including the variable-rate retirement certificates reclassified
to savings.
Comparison
of Operating Results for the Three Months Ended June 30, 2008 and March 31,
2008
For the
quarter ended June 30, 2008, the Company recognized net income of $14.4 million,
compared to net income of $11.7 million for the quarter ended March 31,
2008. The $2.7 million increase in net income was primarily the
result of a $4.7 million decrease in interest expense, partially offset by an
increase in income tax expense of $2.0 million.
Total
interest and dividend income for the current quarter was $102.8 million compared
to $101.8 million for the quarter ended March 31, 2008. The $1.0
million increase was primarily a result of an increase in interest income
on
mortgage-related
securities of $4.6 million, partially offset by decreases in interest income on
investment securities of $1.8 million and cash and cash equivalents of $904
thousand.
Interest
income on loans receivable for the current quarter was $74.6 million compared to
$75.3 million for the quarter ended March 31, 2008. The $625 thousand
decrease in interest income was primarily a result of a five basis point
decrease in the average yield of the portfolio to 5.62% for the current
quarter. The decrease in the average yield was due primarily to a
decrease in the average yield of the home equity portfolio as a result of a
decrease in the prime rate.
Interest
income on mortgage-related securities for the current quarter was $24.9 million
compared to $20.2 million for the quarter ended March 31, 2008. The
$4.7 million increase was primarily a result of a $351.2 million increase in the
average balance of the portfolio due to purchases.
Interest
income on investment securities for the current quarter was $1.3 million
compared to $3.1 million for the quarter ended March 31, 2008. The
$1.8 million decrease was primarily a result of a decrease in the average
balance of $175.7 million for the current quarter due to calls and maturities
that were not entirely reinvested in the investment securities
portfolio.
Interest
expense decreased $4.7 million to $66.1 million for the current quarter from
$70.8 million for the quarter ended March 31, 2008. The decrease was
due to a decrease in interest expense on deposits of $4.0 million and FHLB
advances of $1.5 million, partially offset by an increase in interest expense on
other borrowings of $809 thousand. The decrease in deposit interest
expense was primarily a result of a decrease in the rate paid on money market
accounts and certificates of deposits. The weighed average rate of
the certificate of deposit portfolio decreased as certificates with higher rates
matured during the current quarter and the funds retained were deposited into
lower rate certificate products. The decrease in interest expense on
FHLB advances was primarily a result of interest income on the interest rate
swap and amortization of the deferred gain on the interest rate swap
termination, and due to a decrease in the average balance due to the timing of
maturities and renewals of FHLB advances during the quarter. The
increase in interest expense on other borrowings of $809 thousand was due to an
increase in the average balance due to additional repurchase
agreements.
The Bank
recorded a provision for loan losses of $1.6 million during the current quarter,
compared to a provision of $119 thousand in the prior quarter. See
additional discussion regarding the provision for loan losses in the sections
entitled “Critical Accounting Policies – Allowance for Loan Losses” and “Asset
Quality.”
Total
other income decreased $637 thousand to $7.3 million for the current quarter
compared to $8.0 million for the quarter ended March 31, 2008. The
decrease was due primarily to a decrease of $917 thousand in other income, net,
partially offset by an increase in retail fees of $471
thousand. Other income, net decreased primarily as a result of the
redemption of shares received in the Visa, Inc. initial public offering in the
prior quarter. Proceeds from the Visa redemption totaled $992
thousand, partially offset by a liability accrual for $594 thousand reported in
Other expense, net related to ongoing litigation involving Visa,
Inc. Retail fees and charges increased as a result of an increase in
overdraft fees, ATM fees, and fee income from Visa check cards.
Total
other expenses for the current quarter were $19.8 million for the current
quarter, compared to $20.9 million in the prior quarter. The $1.1
million decrease was due primarily to a decrease in other expenses, net as a
result of a recovery of $510 thousand of the MSR valuation allowance due to a
slow down in prepayment speeds, relative to the MSR valuation allowance of $524
thousand recorded in the prior quarter.
Income
tax expense for the current quarter was $8.2 million compared to $6.2 million
for the quarter ended March 31, 2008. The effective tax rate for the
current quarter was 36.4% compared to 34.7% for the quarter ended March 31,
2008. The increase in the effective tax rate between quarters was a
result of certain effective tax rate adjustments that were recorded entirely in
the quarter ended March 31, 2008. These second quarter items included
a decrease in the Company’s FIN 48 liabilities due to lapses of applicable
statutes of limitation and adjustments to the deferred state 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 June 30, 2008 to the quarter ended
March 31, 2008. 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
|
|
June
30, 2008 vs. March 31, 2008
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
(Dollars
in thousands)
|
Interest-earning
assets:
|
|
|
|
|
|
Loans
receivable
|
$ 113
|
|
$ (738)
|
|
$ (625)
|
Mortgage-related
securities
|
4,133
|
|
490
|
|
4,623
|
Investment
securities
|
(1,771)
|
|
8
|
|
(1,763)
|
Capital
stock of FHLB
|
(33)
|
|
(328)
|
|
(361)
|
Cash
and cash equivalents
|
(514)
|
|
(391)
|
|
(905)
|
Total
interest-earning assets
|
$ 1,928
|
|
$ (959)
|
|
$ 969
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
Savings
|
$ 6
|
|
$ (132)
|
|
$ (126)
|
Checking
|
9
|
|
(10)
|
|
(1)
|
Money
market
|
20
|
|
(1,382)
|
|
(1,362)
|
Certificates
|
(257)
|
|
(2,225)
|
|
(2,482)
|
FHLB
advances
|
(679)
|
|
(869)
|
|
(1,548)
|
Other
borrowings
|
1,289
|
|
(480)
|
|
809
|
Total
interest-bearing liabilities
|
$ 388
|
|
$ (5,098)
|
|
$ (4,710)
|
|
|
|
|
|
|
Net
change in net interest and dividend income
|
$ 1,540
|
|
$ 4,139
|
|
$ 5,679
|
|
|
|
|
|
|
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, other borrowings, 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 loan and deposit
portfolios by the rates it offers customers. Sources of funds are
used primarily to meet ongoing operations, to pay maturing certificates of
deposit and savings withdrawals, and to fund loan commitments. At
June 30, 2008, approximately $1.51 billion of the $2.50 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.
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 June 30, 2008, the Bank’s ratio of
the face amount of advances to total assets, as reported to the Office of Thrift
Supervision (“OTS”), was 32%. 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. Currently, the blanket pledge is sufficient collateral for
our outstanding 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.
During
fiscal year 2008, the Bank entered into repurchase agreements totaling $400.0
million. The agreements are treated as secured borrowings and are
reported as a liability of the Company on a consolidated basis. The
Bank has pledged securities with a market value of $448.1 million as
collateral. At the maturity date of these borrowings, the pledged
securities will be delivered to the Bank. The Bank may enter into
additional repurchase agreements as management deems appropriate.
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.
At June
30, 2008, cash and cash equivalents totaled $86.4 million, a decrease of $76.4
million from September 30, 2007. The decrease in cash was due to
using funds to originate loans and purchase securities. The Company
maintains access to additional liquidity through its management of the level of
borrowings from the FHLB and counterparties of repurchase agreements through the
availability of high quality collateral for borrowings. The Company
also has access to the brokered deposit market but does not currently consider
the cost of this funding source to be balanced with investment
opportunities.
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. MHC, which owns a majority of the outstanding shares of CFFN
common stock, generally waives its right to receive dividends paid on the common
stock. See additional discussion and calculation of public shares in
“Item 2, Management’s Discussion and Analysis – Stockholders’ Equity.” At June
30, 2008, CFFN, at the holding company level, had $110.2 million in cash and
certificates of deposit at the Bank to be used to further the Company's general
corporate and capital management strategies, which could include the payment of
dividends.
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 lower earnings in prior periods compared to the timing
of dividend payments by the Bank to the Company, 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. It is likely a waiver
will be necessary through December 31, 2009. Currently, the Bank has
authorization from the OTS to distribute capital from the Bank to the Company
through the quarter ending June 30, 2009. 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.
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, 2007. The following
table summarizes our other contractual obligations as of June 30,
2008.
|
Maturity
Range
|
|
|
|
Less
than
|
|
1
- 3
|
|
3
- 5
|
|
More
than
|
|
|
Total
|
|
1
year
|
|
years
|
|
years
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
Advances
|
$ 2,546,000
|
|
$ 500,000
|
|
$ 1,445,000
|
|
$ 601,000
|
|
$ --
|
|
Weighted
average rate
|
4.71
|
%
|
4.09
|
%
|
5.19
|
%
|
4.06
|
%
|
--
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
Agreements
|
400,000
|
|
--
|
|
175,000
|
|
225,000
|
|
--
|
|
Weighted
average rate
|
3.88
|
%
|
--
|
%
|
3.62
|
%
|
4.08
|
%
|
--
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of Deposit
|
2,497,643
|
|
1,511,847
|
|
853,562
|
|
131,101
|
|
1,133
|
|
Weighted
average rate
|
4.16
|
%
|
4.17
|
%
|
4.18
|
%
|
3.79
|
%
|
4.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to originate and
|
|
|
|
|
|
|
|
|
|
|
purchase
mortgage loans
|
156,308
|
|
156,308
|
|
--
|
|
--
|
|
--
|
|
Weighted
average rate
|
5.85
|
%
|
5.85
|
%
|
--
|
|
--
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to fund unused home
|
|
|
|
|
|
|
|
|
|
|
equity
lines of credit
|
269,716
|
|
269,716
|
|
--
|
|
--
|
|
--
|
|
Weighted
average rate
|
5.70
|
%
|
5.70
|
%
|
--
|
|
--
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Unadvanced
portion of
|
|
|
|
|
|
|
|
|
|
|
construction
loans
|
47,772
|
|
47,772
|
|
--
|
|
--
|
|
--
|
|
Excluded
from the table above are income tax liabilities of $3.3 million related to FIN
48. The amounts are excluded as management is unable to estimate the
period of cash settlement as that is contingent on the statute of limitations
expiring without examination by the respective taxing authority.
A
percentage of commitments to originate mortgage loans are expected to expire
unfunded, so the amounts reflected in the table above are not necessarily
indicative of future liquidity requirements. Additionally, the Bank
is not obligated to honor commitments to fund unused home equity lines of credit
if a customer is delinquent or otherwise in violation of the loan
agreement.
The
maturity schedule for our certificate of deposit portfolio at June 30, 2008 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 and repurchase
agreements as of June 30, 2008. The balance of FHLB advances excludes
the deferred gain on the terminated interest rate swaps. Management
will continue to monitor the Bank’s investment opportunities and balance those
opportunities with the cost of FHLB advances or other funding sources throughout
fiscal year 2008.
|
|
|
|
|
|
|
|
FHLB
|
|
Repurchase
|
|
Weighted
|
|
Maturity
by
|
Advances
|
|
Agreements
|
|
Average
|
|
Fiscal
year
|
Amount
|
|
Amount
|
|
Rates
|
|
(Dollars
in thousands)
|
|
2008
|
$ 200,000
|
|
$ --
|
|
3.99
|
%
|
2009
|
620,000
|
|
--
|
|
4.27
|
|
2010(1)
|
925,000
|
|
25,000
|
|
5.50
|
|
2011
|
276,000
|
|
150,000
|
|
4.49
|
|
2012
|
100,000
|
|
150,000
|
|
4.22
|
|
2013
|
425,000
|
|
75,000
|
|
3.80
|
|
Total
|
$ 2,546,000
|
|
$ 400,000
|
|
4.59
|
%
|
(1) The interest rate swaps hedged against
a portion of these FHLB advances were terminated during the first quarter of
fiscal year 2008. The weighted average rate includes the rate adjustment
associated with the deferred gain related to the interest rate swap termination,
which will be amortized as a rate adjustment over the remaining life of the
related FHLB advances.
The
following table presents the maturity of FHLB advances for the next four
quarters as of June 30, 2008.
|
|
|
Weighted
|
|
Maturity
by
|
|
|
Average
|
|
Quarter
End
|
Amount
|
|
Rate
|
|
|
(Dollars
in thousands)
|
|
|
|
September
30, 2008
|
$ 200,000
|
|
3.99
|
%
|
December
31, 2008
|
--
|
|
--
|
|
March
31, 2009
|
300,000
|
|
4.16
|
|
June
30, 2009
|
--
|
|
--
|
|
|
$ 500,000
|
|
4.09
|
%
|
In
December 2003, management entered into interest rate swap agreements with an
aggregate notional amount of $800.0 million to modify the Bank’s interest rate
risk profile by hedging certain FHLB advances. In December
2007, management terminated interest rate swap agreements with an aggregate
notional amount of $575.0 million due to favorable economic market
conditions. The interest rate swaps were scheduled to mature in
fiscal year 2010.
The net
position at the time of termination was a gain of $1.7 million which is being
deferred and recorded as a yield adjustment to the related advances over the
remaining term to maturity of the advances. The termination of the
interest rate swap agreements improved the interest rate risk profile of the
Bank by extending the effective repricing frequency of the related advances from
monthly to their stated maturity. The remaining interest rate swap
agreement matured in May 2008. See “Notes to Consolidated Financial
Statements-Note 4.”
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 $790.9 million at
June 30, 2008, or 10.0% of total Bank assets on that date. As of June
30, 2008, the Bank exceeded all capital requirements of the OTS. The
following table presents the Bank’s regulatory capital ratios at June 30, 2008
based upon regulatory guidelines.
|
|
|
Regulatory
|
|
|
|
Requirement
|
|
Bank
|
|
For
“Well
|
|
Ratios
|
|
Capitalized”
Status
|
Core
capital
|
10.0%
|
|
5.0%
|
Tier
I risk-based capital
|
23.4%
|
|
6.0%
|
Total
risk-based capital
|
23.2%
|
|
10.0%
|
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, 2007, attached as Exhibit 13 to the Company’s Annual Report on
Form 10-K for the year ended September 30, 2007.
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 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 net interest income
and MVPE under those alternative interest rate environments. The Bank’s analysis
of its MVPE at June 30, 2008 indicates an increase in its risk exposure as
compared to March 31, 2008. The Bank’s analysis of the sensitivity of
its net interest income to parallel changes in interest rates at June 30, 2008
indicates a decrease in sensitivity since March 31, 2008.
For each
period end presented in the following table, the estimated percentage change in
the Bank’s net interest income based on the indicated instantaneous, parallel
and permanent change in interest rates is presented. The percentage
change in each interest rate environment represents the difference between
estimated net interest income in the 0 basis point interest rate environment
(“base case”, assumes the forward market and product interest rates implied by
the yield curve are realized) and estimated net interest income in each
alternative interest rate environment (assumes market and product interest rates
have a parallel shift in rates across all maturities by the indicated change in
rates). At June 30, 2008, the three-month Treasury bill yield was
less than 2%, so the -200 basis point scenario is not
presented. Estimations of net interest income used in preparing the
table below are based upon the assumptions that the total composition of
interest-earning assets and interest-bearing liabilities does not
change
materially
and that any repricing of assets or liabilities occurs at anticipated product
and market rates for the alternative rate environments as of the dates
presented. The estimation of net interest income does not include any
projected gain-on-sale related to the sale of loans or securities or the effect
of the use of new interest rate swaps or income derived from non-interest income
sources, but does include the use of different prepayment assumptions in the
alternative interest rate environments. It is important to consider
that the estimated changes in net interest income are for a cumulative
four-quarter period. These do not reflect the earnings expectations
of management.
Percentage
Change in Net Interest Income
|
|
|
|
|
At
|
Change
|
|
|
June
30,
|
March
31,
|
September
30,
|
in
Interest Rates (1)
|
|
|
2008
(2)
|
2008
(2)
|
2007
|
-100
bp
|
|
|
0.93
|
-2.61
|
14.53
|
000 bp
|
|
|
--
|
--
|
--
|
+100
bp
|
|
|
-2.39
|
-3.08
|
-8.30
|
+200
bp
|
|
|
-6.12
|
-7.38
|
-23.25
|
+300
bp
|
|
|
-10.24
|
-12.65
|
-38.61
|
(1) Assumes
an instantaneous, permanent and parallel change in interest rates at all
maturities.
(2)
|
The
Bank implemented changes to its modeling of prepayments during the current
quarter to make them more consistent with general market
conventions. Consequently, comparisons to the September 2007
period are less meaningful.
|
The
primary reason for the decrease in estimated net interest income in the
increasing rate environments is the anticipated increase in the cost of deposits
in excess of the increases in yields in the loan and investment and
mortgage-related securities portfolios. The increase in the cost of
deposits is primarily a result of the relatively short average maturity of the
Bank’s certificate of deposit portfolio. The increase in the cost of
deposits is also due to anticipated increases in the cost of money market
accounts. Changes in the rates on the mortgage loan and
mortgage-related securities portfolios happen at a slower pace, compared to the
interest-bearing liabilities, because only the amount of cash flow received on
the repayment of these portfolios is reinvested at the higher rates. In
addition, caps on adjustable-rate products limit the increase in rates in these
assets when rates rise. The decrease in the sensitivity of net
interest income since March 31, 2008 in the increasing rate scenarios was
primarily driven by rolling borrowings that matured during the quarter into
longer-term borrowings. During the quarter, $425.0 million in borrowings that
matured were rolled into 5-year fixed-rate borrowings.
The
increase in estimated net interest income if interest rates were to decrease 100
basis points is primarily the result of the reduced interest expense the Bank
would incur because of the quicker repricing of short-term deposits discussed
above. This was not the case in March 2008 when interest rates were
lower. Mortgage-related assets at March 31, 2008 had a shorter
beginning WAL. Further decreases in interest rates resulted in a
significant increase in prepayment on mortgage-related assets that would have
been reinvested at lower yields, more than offsetting the benefit from the
repricing of short-term deposits.
As a
result of the flat or inverted yield curve during fiscal year 2007 and the
relatively short term to reprice of our liabilities compared to our assets, the
Bank experienced net interest margin compression during fiscal year
2007. The steeper yield curve during the first half of fiscal year
2008 has benefited the net interest margin as short-term liabilities have
repriced at lower interest rates while cash flows from the mortgage loan and
mortgage-related securities portfolios have been reinvested at relatively higher
rates, which has caused an increase in earnings.
The
following table sets forth the estimated percentage change in MVPE at each
period end presented based on the indicated instantaneous, parallel and
permanent change in interest rates. 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 percentage change
in each interest rate environment represents the difference between MVPE in the
base case and MVPE in each alternative interest rate environment. At
June 30, 2008, the three-month Treasury bill was less than 2%, so the -200 basis
point scenario is not presented. The estimations of MVPE used in
preparing the table below are based upon the assumptions that the total
composition of interest-earning assets and interest-bearing liabilities does not
change, that any repricing of assets or liabilities occurs at current product or
market rates for the alternative rate environments as of the dates presented,
and that different prepayment rates are used in each alternative interest rate
environment. The estimated MVPE results from the valuation of cash
flows from financial assets and liabilities over the anticipated lives of each
for each interest rate environment. The table presents the effects of
the change in interest rates on our assets and liabilities as they mature, repay
or reprice, as shown by the change in the MVPE in changing interest rate
environments.
Percentage
Change in MVPE
|
|
|
|
At
|
Change
|
|
|
June
30,
|
|
March
31,
|
September
30,
|
in
Interest Rates (1)
|
|
|
2008
(2)
|
|
2008
(2)
|
2007
|
-100
bp
|
|
|
3.00
|
|
-1.09
|
5.37
|
000 bp
|
|
|
--
|
|
--
|
--
|
+100
bp
|
|
|
-10.79
|
|
-8.69
|
-13.99
|
+200
bp
|
|
|
-26.83
|
|
-25.07
|
-32.14
|
+300
bp
|
|
|
-45.30
|
|
-44.23
|
-52.52
|
(1)
|
Assumes
an instantaneous, permanent and parallel change in interest rates at all
maturities.
|
(2)
|
The
Bank implemented changes to its modeling of prepayments during the current
quarter to make them more consistent with general market
conventions. Consequently, comparisons to the September 2007
period are less meaningful.
|
Changes
in the estimated market values of our financial assets and liabilities drive
changes in estimates of MVPE. The market value of shorter
term-to-maturity financial instruments is less sensitive to changes in interest
rates than the market value of longer term-to-maturity financial
instruments. Because of this, our certificates of deposit (which have
relatively short average lives) tend to display less sensitivity to changes in
interest rates than do our mortgage-related assets (which have relatively long
average lives). However, the average life expected on our
mortgage-related assets varies under different interest rate environments
because customers have the ability to prepay their mortgage
loans. Prepayment assumptions change on mortgage-related assets under
various interest rate environments because many customers with mortgage debt
look to obtain financing at the lowest cost available. Generally,
there is no penalty to prepay a mortgage loan we have originated or
purchased. If rates decrease, the customer has an economic incentive
to lower the cost of their mortgage (through a lower interest rate) with only
the fees associated with the new mortgage or loan modification to obtain the
lower cost mortgage. In a decreasing rate environment, prepayments
increase and the average life of a mortgage shortens compared to higher rate
environments. When interest rates increase, the economic incentive
for customers to modify their mortgage debt is reduced, resulting in lower
prepayment assumptions and longer average lives.
The
Bank’s measure of its MVPE sensitivity to decreasing interest rates indicates an
increase in the MVPE at June 30, 2008 for the down 100 basis point
scenario. Because the Bank’s assets have longer average lives than
the liabilities, the market value gain of assets in this scenario is greater
than the loss on the liabilities. This gain is diminished by the
decreasing average lives of mortgage-related assets that results from increasing
principal repayments occurring in this scenario. This was not the
case in March 2008 when interest rates were lower and the MVPE decreased in the
falling interest rate scenario. At that time the difference in
average lives of assets and liabilities was not as large. The higher
prepayments in the decreasing interest rate scenario resulted in a shorter
average lives of assets relative to liabilities.
The
Bank’s MVPE declines in the rising interest rate environments. As
rates increase, the estimated fair values of the liabilities with short average
lives do not respond to rates in the same manner as the longer maturity assets,
such
as our
fixed-rate loans, which have longer average lives. The prepayment
assumptions on the fixed-rate loans in particular, and all mortgage-related
assets in general, anticipate prepayment rates in the increasing rate
environments that would likely only be realized through normal changes in
customers lives, such as divorce, death, job-related relocations, and other life
changing events. The lower prepayment assumptions extend the expected
average lives on these assets, relative to assumptions in the base case, thereby
increasing their sensitivity to changes in interest rates. The net
effect of these characteristics of short-lived liabilities and long-lived assets
is to increase the sensitivity of the Bank to changes in interest rates the more
rates increase. The sensitivity of the Bank’s MVPE increased from
March 31, 2008 primarily due to higher interest rates. This resulted
in a greater difference in the average lives of assets and liabilities at June
30, 2008 and thus greater sensitivity to rising rates.
Gap Table: The
following gap table summarizes the anticipated maturities or repricing of our
interest-earning assets and interest-bearing liabilities as of June 30, 2008,
based on the information and assumptions set forth in the notes
below. Cash flow projections for mortgage loans and mortgage-related
securities are calculated based on current interest rates. Prepayment
projections are subjective in nature, involve uncertainties and assumptions and,
therefore, cannot be determined with a high degree of accuracy. Although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react differently to changes in market interest
rates. Assumptions may not reflect how actual yields and costs
respond to market changes. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types of assets and liabilities may lag behind changes
in market interest rates. Certain assets, such as 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. For additional information
regarding the impact of changes in interest rates, see the Percentage Change in
Net Interest Income and Percentage Change in MVPE tables above.
June
30, 2008
|
|
|
|
|
|
|
|
|
|
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
|
|
$ 194,383
|
$ 416,086
|
$ 1,052,264
|
$ 632,908
|
$ 1,356,841
|
$ 3,652,482
|
Adjustable
|
|
158,228
|
519,665
|
722,166
|
96,280
|
7,582
|
1,503,921
|
Other
loans
|
|
132,464
|
23,017
|
30,525
|
11,182
|
12,699
|
209,887
|
Securities:
|
|
|
|
|
|
|
|
Non-mortgage
securities (3)
|
|
30,304
|
59,002
|
12,253
|
6,121
|
37,156
|
144,836
|
Mortgage-related
securities (4)
|
|
324,897
|
483,302
|
519,193
|
273,605
|
473,551
|
2,074,548
|
Other
interest-earning assets
|
|
61,897
|
--
|
--
|
--
|
--
|
61,897
|
Total
interest-earning assets
|
|
902,173
|
1,501,072
|
2,336,401
|
1,020,096
|
1,887,829
|
7,647,571
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Savings
(5)
|
|
122,417
|
7,200
|
16,952
|
13,416
|
72,822
|
232,807
|
Checking
(5)
|
|
10,182
|
33,647
|
76,672
|
75,658
|
223,519
|
419,678
|
Money
market (5)
|
|
36,628
|
101,031
|
186,604
|
142,563
|
344,589
|
811,415
|
Certificates
|
|
454,875
|
1,056,971
|
853,563
|
131,101
|
1,133
|
2,497,643
|
Borrowings
(6)
|
|
253,609
|
300,000
|
1,620,000
|
826,000
|
--
|
2,999,609
|
Total
interest-bearing liabilities
|
|
877,711
|
1,498,849
|
2,753,791
|
1,188,738
|
642,063
|
6,961,152
|
|
|
|
|
|
|
|
|
Excess
(deficiency) of interest-earning assets over
|
|
|
|
|
|
|
|
interest-bearing
liabilities
|
|
$ 24,462
|
$ 2,223
|
$ (417,390)
|
$ (168,642)
|
$ 1,245,766
|
$ 686,419
|
|
|
|
|
|
|
|
|
Cumulative
excess (deficiency) of interest-earning
|
|
|
|
|
|
|
|
assets
over interest-bearing liabilities
|
|
$ 24,462
|
$ 26,685
|
$ (390,705)
|
$ (559,347)
|
$ 686,419
|
|
|
|
|
|
|
|
|
|
Cumulative
excess (deficiency) of interest-earning
|
|
|
|
|
|
|
|
assets
over interest-bearing liabilities as a
|
|
|
|
|
|
|
|
percent
of total assets at June 30, 2008
|
|
0.31 %
|
0.34 %
|
(4.95)%
|
(7.09)%
|
8.70%
|
|
Cumulative
excess (deficiency) at September 30, 2007
|
|
(9.45)%
|
(11.57)%
|
(5.52)%
|
1.68 %
|
8.72%
|
|
Cumulative
excess (deficiency) at September 30, 2006
|
|
(7.91)%
|
(13.62)%
|
(13.92)%
|
(4.37)%
|
7.94%
|
|
(1) Adjustable-rate
loans are included in the period in which the rate is next scheduled to adjust
or in the period in which repayments are expected to occur prior to their next
rate adjustment, rather than in the period in which the loans are
due. Fixed-rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization and prepayment
assumptions.
(2) Balances
have been reduced for non-performing loans, which totaled $13.3 million at June
30, 2008.
(3) Based
on contractual maturities, or terms to call date or pre-refunding dates as of
June 30, 2008, and excludes the unrealized loss adjustment of $490 thousand on
AFS investment securities.
(4) Reflects
estimated prepayments of mortgage-related securities in our portfolio, and
excludes the unrealized loss adjustment of $7.9 million 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 $1.13 billion, for a cumulative one-year gap of
(14.27)% of total assets.
(6) Borrowings
exclude $1.3 million deferred gain on the terminated interest rate swaps, and
$43 thousand of capitalized debt issuance costs on other
borrowings.
The
change in the one-year gap to positive 0.34% from a negative 11.57% from
September 30, 2007 to June 30, 2008, respectively, occurred for two
reasons. The first was a reduction of liabilities repricing in the
upcoming year, caused by the termination of $575.0 million of interest rate
swaps hedging FHLB advances. These interest rate swaps effectively
converted long-term fixed-rate advances to adjustable-rate advances that
repriced monthly. Once the swaps were terminated the advances became
long-term fixed-rate liabilities that will not reprice in the upcoming
year. The second reason for the change in the one-year gap was the
decrease in interest rates, which are expected to cause an increase in the
projected cash flows in the upcoming year from mortgage loan
prepayments. This results in shorter average lives and quicker
repricing of assets than the September 30, 2007 projections.
Changes in
portfolio composition. 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 60% of these portfolios at June 30, 2008 and September 30,
2007. The WAL is the estimated remaining maturity after projected
prepayment speeds and call option assumptions have been applied. The
increase in the WAL between September 30, 2007 and June 30, 2008 was due largely
to purchasing new securities and reinvesting principal cash flows into
securities with longer WAL, to maturing securities, and to issuers of certain
securities in the portfolio exercising their option to call the security.
The increase in the yield between September 30, 2007 and June 30, 2008 is a
result of the purchase of securities with yields greater than that of the
overall portfolio yield.
|
|
June
30, 2008
|
|
March
31, 2008
|
|
December
31, 2007
|
|
September
30, 2007
|
|
|
|
Balance
|
|
WAL
|
|
Yield
|
|
|
Balance
|
|
WAL
|
|
Yield
|
|
|
Balance
|
|
WAL
|
|
Yield
|
|
|
Balance
|
|
WAL
|
|
Yield
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
Fixed-rate
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
bonds
|
$ 82,664
|
|
2.62
|
|
4.29
|
%
|
|
$ 41,382
|
|
0.19
|
|
5.47
|
%
|
|
$ 460,997
|
|
0.28
|
|
4.18
|
%
|
|
$ 501,057
|
|
1.51
|
|
4.56
|
%
|
|
Mortgage-related
securities
|
1,196,543
|
|
4.43
|
|
4.86
|
|
|
1,156,848
|
|
4.03
|
|
4.83
|
|
|
806,285
|
|
4.12
|
|
4.79
|
|
|
632,142
|
|
4.15
|
|
4.68
|
|
|
Municipal
bonds
|
58,303
|
|
5.22
|
|
3.39
|
|
|
47,124
|
|
5.15
|
|
3.57
|
|
|
38,949
|
|
7.06
|
|
3.66
|
|
|
23,018
|
|
5.06
|
|
3.69
|
|
|
Total
fixed-rate investments
|
1,337,510
|
|
4.35
|
|
4.76
|
|
|
1,245,354
|
|
3.94
|
|
4.80
|
|
|
1,306,231
|
|
2.85
|
|
4.54
|
|
|
1,156,217
|
|
3.02
|
|
4.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities
|
878,005
|
|
4.17
|
|
4.62
|
|
|
910,030
|
|
5.97
|
|
4.55
|
|
|
797,628
|
|
4.71
|
|
4.53
|
|
|
780,147
|
|
3.95
|
|
4.29
|
|
|
Trust
preferred securities
|
3,869
|
|
28.98
|
|
4.44
|
|
|
--
|
|
--
|
|
--
|
|
|
--
|
|
--
|
|
--
|
|
|
--
|
|
--
|
|
--
|
|
|
Total
adjustable-rate investments
|
881,874
|
|
4.28
|
|
4.62
|
|
|
910,030
|
|
5.97
|
|
4.55
|
|
|
797,628
|
|
4.71
|
|
4.53
|
|
|
780,147
|
|
3.95
|
|
4.29
|
|
|
Total
investment portfolio, at cost
|
$ 2,219,384
|
|
4.32
|
|
4.70
|
%
|
|
$ 2,155,384
|
|
4.80
|
|
4.70
|
%
|
|
$ 2,103,859
|
|
3.56
|
|
4.54
|
%
|
|
$ 1,936,364
|
|
3.40
|
|
4.48
|
%
|
The
certificate of deposit portfolio decreased $3.6 million from September 30, 2007
to June 30, 2008 and the average cost of the portfolio decreased 61 basis points
between the two reporting dates. Certificates maturing in one year or
less at June 30, 2008 were $1.51 billion with an average cost of
4.17%. The following table presents the maturity of certificates of
deposit at the dates indicated.
|
|
June
30, 2008
|
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
September
30, 2007
|
|
|
|
Amount
|
|
Rate
|
|
|
Amount
|
|
Rate
|
|
|
Amount
|
|
Rate
|
|
|
Amount
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
Certificates
maturing within:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
to 3 months
|
$ 454,875
|
|
4.71
|
%
|
|
$ 574,897
|
|
4.84
|
%
|
|
$ 506,282
|
|
4.74
|
%
|
|
$ 358,141
|
|
4.55
|
%
|
3
to 6 months
|
489,029
|
|
4.57
|
|
|
448,972
|
|
4.74
|
|
|
573,343
|
|
4.87
|
|
|
507,072
|
|
4.77
|
|
6
months to one year
|
567,943
|
|
3.40
|
|
|
634,845
|
|
4.36
|
|
|
749,696
|
|
4.86
|
|
|
881,810
|
|
4.88
|
|
One
year to two years
|
638,300
|
|
4.10
|
|
|
508,283
|
|
4.20
|
|
|
357,331
|
|
4.45
|
|
|
400,859
|
|
4.66
|
|
After
two years
|
347,496
|
|
4.19
|
|
|
371,621
|
|
4.64
|
|
|
340,584
|
|
4.81
|
|
|
353,366
|
|
4.85
|
|
|
Total
certificates
|
$ 2,497,643
|
|
4.16
|
%
|
|
$ 2,538,618
|
|
4.54
|
%
|
|
$ 2,527,236
|
|
4.77
|
%
|
|
$ 2,501,248
|
|
4.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
maturity (in years)
|
1.03
|
|
|
|
|
0.95
|
|
|
|
|
0.90
|
|
|
|
|
0.95
|
|
|
|
John B.
Dicus, the Company’s President and Chief Executive Officer, and Kent G.
Townsend, the Company’s Executive Vice President and Chief Financial Officer,
have evaluated the Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, the “Act”)
as of June 30, 2008. Based upon their evaluation, they have concluded
that as of June 30, 2008, 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
During
the quarter ended June 30, 2008, there were no changes in the Company’s internal
control over financial reporting as defined by Rule 13a-15(d) of the Act that
have materially affected, or are reasonably likely to materially affect, the
Company’s 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.
A decline in local and national real
estate markets may impact our operations and/or financial condition.
There has been a slowdown in the housing market, both nationally and locally, as
evidenced by reports of reduced levels of new and existing home sales,
increasing inventories of houses on the market, stagnant to declining property
values, and an increase in the length of time houses remain on the market. No
assurance can be given that these conditions will not continue or worsen. If
these conditions do continue or worsen, they may result in a decrease in our
interest income or an adverse impact on our loan losses.
There
have been no other material changes to our risk factors since September 30,
2007. For a summary of other risk factors relevant to our operations,
see Part I, Item 1A in our 2007 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 June 30, 2008 and additional information regarding our share repurchase
program. Our current repurchase plan of 500,000 shares was
announced on May 26, 2006. The plan has no expiration date and had
186,431 shares remaining as of June 30, 2008. 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
|
Under
the Plan
|
April
1, 2008 through
|
|
|
|
|
April
30, 2008
|
--
|
--
|
--
|
187,931
|
May
1, 2008 through
|
|
|
|
|
May
31, 2008
|
1,500
|
--
(1)
|
1,500
|
186,431
|
June
1, 2008 through
|
|
|
|
|
June
30, 2008
|
--
|
--
|
--
|
186,431
|
Total
|
1,500
|
|
1,500
|
186,431
|
(1)
There were 1,500 shares purchased during the current quarter that were received
in exchange for the exercise of options.
Item
3. Defaults Upon Senior Securities
Not
applicable.
Item
4. Submission of Matters to a Vote of Security Holders
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: August
4,
2008
By: /s/ John B.
Dicus
John B. Dicus,
President and
Chief Executive
Officer
Date: August
4,
2008 By: /s/ Kent G.
Townsend
Kent G. Townsend,
Executive Vice President and
Chief Financial
Officer
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 November 29, 2007 as Exhibit 3(ii)
to
|
|
|
the
Annual Report on Form 10-K 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(i)
|
|
Registrant’s
Thrift Plan filed on November 29, 2007 as Exhibit 10.1(i)
to
|
|
|
the
Annual Report on Form 10-K and incorporated herein by
reference
|
10.1(ii)
|
|
Registrant’s
Stock Ownership Plan filed on November 29, 2007 as Exhibit 10.1(ii)
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
|
|
|
|
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 November
29,
|
|
|
2007
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, 2007 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 and Chief Financial
Officer
|
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, President and Chief
Executive Officer, and Kent G. Townsend, Executive Vice President and
Chief Financial Officer
|
*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.