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

PRNewswire 29-Jan-2019 9:00 AM

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

Highlights for the quarter include:

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

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

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

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

Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased 10 basis points, from 3.46% for the prior quarter to 3.56% for the current quarter, and the average balance of interest-earning assets increased $300.8 million between the two periods.  Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 12 basis points, from 3.47% for the prior quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $141.0 million.  The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

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

The increase in interest income on the MBS portfolio was due to a 14 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, as well as a $19.7 million increase in the average balance of the portfolio.  The increase in the weighted average yield was due primarily to a decrease in net premium amortization in the current quarter, due largely to the accretion of discounts on MBS added in the CCB acquisition.  Net premium amortization of $349 thousand during the current quarter decreased the weighted average yield on the portfolio by 14 basis points.  During the prior quarter, $624 thousand of net premiums were amortized which decreased the weighted average yield on the portfolio by 25 basis points.  As of December 31, 2018, the remaining net balance of premiums on our portfolio of MBS was $3.1 million.

The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy.  Interest income on cash and cash equivalents not related to the leverage strategy decreased $399 thousand from the prior quarter due to a $90.1 million decrease in the average balance, partially offset by a 24 basis point increase in the weighted average yield, which was related to balances held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City").  Interest income on cash associated with the leverage strategy increased $900 thousand from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior quarter.  See additional discussion regarding the leverage strategy in the Financial Condition section below.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities for the current quarter increased nine basis points, from 1.39% for the prior quarter to 1.48% for the current quarter, and the average balance of interest-bearing liabilities increased $291.0 million between the two periods.  Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased eight basis points, from 1.38% for the prior quarter to 1.46% for the current quarter, and the average balance of interest-bearing liabilities would have increased $139.0 million.  The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

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

The table above includes interest expense on FHLB borrowings associated and not associated with the leverage strategy.  Interest expense on FHLB borrowings not related to the leverage strategy increased $593 thousand from the prior quarter due to a 10 basis point increase in the weighted average rate paid, to 2.20% for the current quarter, as maturing advances were replaced at higher current market rates.  Interest expense on FHLB borrowings associated with the leverage strategy increased $1.0 million from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior quarter.

Provision for Credit Losses
The Bank did not record a provision for credit losses during the current quarter or the prior quarter.  Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, it was determined that no provision for credit losses was necessary.  Net loan recoveries were $95 thousand during the current quarter compared to $119 thousand in the prior quarter.  At December 31, 2018, loans 30 to 89 days delinquent were 0.20% of total loans and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans.  At September 30, 2018, loans 30 to 89 days delinquent were 0.25% of total loans and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans.  See additional ACL discussion in the Supplemental Financial Information - Asset Quality section of this release.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard during the current quarter.  Previously, interchange network charges were reported in deposit and loan expense.  Upon adoption of the new revenue recognition accounting standard on October 1, 2018, interchange transaction fee income is reported net of interchange network charges, which totaled $944 thousand during the current quarter and $767 thousand during the prior quarter.  On a net basis, interchange fee income totaled $1.4 million for the current quarter, compared to $1.5 million for the prior quarter.

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

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

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

The Company's efficiency ratio was 46.40% for the current quarter compared to 47.87% for the prior quarter.  The change in the efficiency ratio was due primarily to higher net interest income in the current quarter compared to the prior quarter.  The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.  A lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense.

Income Tax Expense
Income tax expense was $6.6 million for the current quarter, compared to $7.8 million for the prior quarter.  The effective tax rate was 21.2% for the current quarter compared to 26.6% for the prior quarter.  In December 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted, which reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018.  In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate income tax rate.  The revaluation was a discrete item in the December 31, 2017 quarter and reduced income tax expense by $7.5 million, resulting in an effective tax rate of 2.6% for that quarter.  The effective tax rate for fiscal year 2018 was 20.2%, primarily due to the fiscal year 2018 rate including the $7.5 million discrete item noted above, which reduced the 24.5% statutory tax rate effective for that fiscal year.  Due to the Company's September 30 year end, the Company was required to use a blended statutory tax rate of 24.5% for fiscal year 2018, and the enacted tax rate of 21% will be effective for fiscal year 2019.  Although the statutory tax rate decreased to 21% for fiscal year 2019, the Company does not have the same level of discrete items reducing the rate as in the prior fiscal year.  Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.

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

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

The net interest margin increased 44 basis points, from 1.83% for the prior year quarter to 2.27% for the current quarter.  When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction.  The leverage strategy was suspended at certain times during the current quarter due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City making the transaction unprofitable.  See additional discussion regarding the leverage strategy in the Financial Condition section below.  Excluding the effects of the leverage strategy, the net interest margin would have increased 12 basis points, from 2.20% for the prior year quarter to 2.32% for the current quarter.  The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans in the CCB acquisition.

Interest and Dividend Income
The weighted average yield on total interest-earning assets increased 58 basis points, from 2.98% for the prior year quarter to 3.56% for the current quarter, while the average balance of interest-earning assets decreased $1.55 billion from the prior year quarter.  Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 28 basis points, from 3.31% for the prior year quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $226.1 million.  The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.

The increase in interest income on loans receivable was due to a $326.0 million increase in the average balance of the portfolio, as well as a 19 basis point increase in the weighted average yield on the portfolio to 3.75% for the current quarter.  The increase in the average balance was due mainly to the acquisition of CCB.  The increase in the weighted average yield was also due mainly to the addition of higher yielding loans in the CCB acquisition, as well as adjustable-rate loans repricing to higher market rates and the origination and purchase of new loans at higher market rates.

The increase in interest income on the MBS portfolio was due to a 34 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, along with a $74.8 million increase in the average balance of the portfolio.  The increase in the weighted average yield was due primarily to a decrease in the impact of net premium amortization, as well as adjustable-rate MBS repricing to higher market rates.  Net premium amortization of $349 thousand during the current quarter decreased the weighted average yield on the portfolio by 14 basis points.  During the prior year quarter, $854 thousand of net premiums were amortized, which decreased the weighted average yield on the portfolio by 37 basis points.

The decrease in dividend income on FHLB stock was due to a decrease in the average balance of FHLB stock as a result of the leverage strategy not being in place as often during the current quarter as compared to the prior year quarter.  This was partially offset by a higher dividend rate on FHLB stock during the current quarter.

The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy.  Interest income on cash and cash equivalents not related to the leverage strategy decreased $287 thousand from the prior year quarter due to a $156.9 million decrease in the average balance, partially offset by a 96 basis point increase in the weighted average yield which was related to cash balances held at the FRB of Kansas City.  Interest income on cash associated with the leverage strategy decreased $5.1 million from the prior year quarter due to a $1.70 billion decrease in the average balance, as the leverage strategy was in place less often during the current quarter.

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

Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased 19 basis points, from 1.29% for the prior year quarter to 1.48% for the current quarter, while the average balance of interest-bearing liabilities decreased $1.53 billion from the prior year quarter.  Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 17 basis points, from 1.29% for the prior year quarter to 1.46% for the current quarter, and the average balance of interest-bearing liabilities would have increased $248.1 million.  The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

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

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

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

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard as discussed in the Comparison of Operating Results for the Three Months Ended December 31, 2018 and September 30, 2018 above.  The increase in income from BOLI was primarily related to policies acquired in the CCB acquisition.  The increase in other non-interest income was due mainly to revenues from the trust asset management operations added in the CCB acquisition and, as discussed above, the Company began recording an estimate for contingent insurance commissions it expects to receive from insurance carriers as part of adopting the new revenue recognition accounting standard in the current quarter.  Additionally, the prior year quarter included a loss on the sale of loans as management tested loan sale processes for liquidity purposes and there were no loan sales in the current quarter.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

Salaries and employee benefits related to former CCB employees was approximately $1.6 million in the current quarter.  Excluding the impact of former CCB employees, salaries and employee benefits increased approximately $830 thousand from the prior year quarter.  The increase was primarily due to staff additions and salary adjustments during the prior fiscal year.  The increase in information technology and related expense was due mainly to an increase in software licensing, depreciation related to the implementation of enhancements to the Bank's information technology infrastructure, and costs related to the integration of CCB operations.  The increase in occupancy, net was due primarily to expenses related to properties acquired in the CCB acquisition.  The increase in regulatory and outside services was due mainly to audit fees related to the acquisition of CCB as well as an increase in consulting expenses.  The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition standard as discussed above.  The decrease in federal insurance premium was due primarily to a decrease in average assets as a result of a reduction in the usage of the leverage strategy.  The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB.

The Company's efficiency ratio was 46.40% for the current quarter compared to 40.26% for the prior year quarter.  The change in the efficiency ratio was due to higher non-interest expense in the current quarter compared to the prior year quarter.

Income Tax Expense
Income tax expense was $6.6 million for the current quarter compared to $860 thousand for the prior year quarter.  The effective tax rate was 21.2% for the current quarter compared to 2.6% for the prior year quarter.  The increase in the effective tax rate compared to the prior year quarter was due mainly to the Tax Act being signed into law in December 2017.  In accordance with GAAP, the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate tax rate.  The revaluation reduced income tax expense by $7.5 million in the prior year quarter, resulting in an effective tax rate of 2.6% for the prior year quarter.

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

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

Financial Condition as of December 31, 2018

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

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

The Bank is continuing to manage the size and mix of its loan portfolio, while managing liquidity levels as measured by the ratio of securities and cash to total assets, to a target level of approximately 15%.  The ratio of securities and cash to total assets was 14.2% at December 31, 2018.  The size of the loan portfolio has been managed by controlling correspondent loan volume primarily through the rates offered to correspondent lenders.  Management intends to continue to manage the size and mix of the loan portfolio by utilizing cash flows from the correspondent loan portfolio to fund commercial loan growth.  During the current quarter, the commercial loan portfolio grew by $48.2 million, or 8%, while the correspondent one-to four-family loan portfolio decreased by $14.3 million, or 1%, and the bulk purchased one-to four-family loan portfolio decreased by $13.9 million, or 5%.  Given the balance of total assets, it is unlikely that net loan growth will substantially increase in the current environment.  Generally, over the past few years, cash flows from the securities portfolio have been used primarily to purchase loans and in part to pay down FHLB advances.  By moving cash from lower yielding assets to higher yielding assets and repaying higher costing liabilities, we have been able to maintain our net interest margin.  In addition to the repayment of securities, the Bank has emphasized growth in the deposit portfolio in part to pay down term borrowings.  In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital.  At December 31, 2018, this ratio was 13.1%.

The Bank continued, at times, to utilize a leverage strategy to increase earnings during the current quarter.  The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB.  The borrowings were repaid prior to quarter end, or earlier if the strategy was suspended.  The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 7.3% during the current quarter, were deposited at the FRB of Kansas City.  Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes.  Net income attributable to the leverage strategy was $14 thousand during the current quarter, compared to $8 thousand during the quarter ended September 30, 2018 and $767 thousand during the quarter ended December 31, 2017.  The decrease compared to the December 31, 2017 quarter was due mainly to the strategy being suspended at certain times as a result of the large negative interest rate spread during the current quarter, which would have resulted in the strategy not being profitable.  Management continues to monitor the net interest rate spread and overall profitability of the strategy.  It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

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

Stockholders' equity was $1.35 billion at December 31, 2018 compared to $1.39 billion at September 30, 2018.  The $45.7 million decrease was due primarily to the payment of $65.4 million in cash dividends, partially offset by net income of $24.4 million.  The cash dividends paid during the current quarter totaled $0.475 per share and consisted of a $0.39 per share cash true-up dividend related to fiscal year 2018 earnings per the Company's dividend policy and a regular quarterly cash dividend of $0.085 per share.  On January 22, 2019, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on February 15, 2019 to stockholders of record as of the close of business on February 1, 2019.

At December 31, 2018, Capitol Federal Financial, Inc., at the holding company level, had $90.4 million on deposit at the Bank.  For fiscal year 2019, it is the intent of the Board of Directors and management to continue the payout of 100% of the Company's earnings to its stockholders.  Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.

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

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

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

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards.  As of December 31, 2018, the Bank and Company exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at December 31, 2018.

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

Capitol Federal Financial, Inc. is the holding company for the Bank.  The Bank has 58 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas.  News and other information about the Company can be found at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions.  The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements.  Forward-looking statements involve risks and uncertainties, including the possibility that expected cost savings, synergies and other benefits from the acquisition of CCB might not be realized within the anticipated time frames or at all, and the possibility that costs or difficulties relating to integration matters might be greater than expected, changes in economic conditions in the Company's market area, changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities, other governmental initiatives affecting the financial services industry, changes in accounting principles, policies or guidelines, fluctuations in interest rates, demand for loans in the Company's market area, the future earnings and capital levels of the Bank, which would affect the ability of the Company to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in documents filed or furnished by the Company with the SEC.  Actual results may differ materially from those currently expected.  These forward-looking statements represent the Company's judgment as of the date of this release.  The Company disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

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

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.

Loan Activity:  The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs.  Loans that were paid-off as a result of refinances and loans that were sold are included in repayments.  Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement.  The endorsed balance and rate are included in the ending loan portfolio balance and rate.  Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal.

The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement and commercial renewal activity, along with associated weighted average rates and percent of total.  Loan originations, purchases, and refinances are reported together.  The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.  The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination, and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.