2014

Capitol Federal Financial, Inc. Reports Second Quarter Fiscal Year 2013 Results

TOPEKA, Kan., April 29, 2013 /PRNewswire/ -- Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended March 31, 2013.  Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, which will be filed with the Securities and Exchange Commission ("SEC") on or about May 6, 2013 and posted on our website, http://ir.capfed.comFor best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

  • net income of $17.7 million,
  • basic and diluted earnings per average share outstanding of $0.12,
  • net interest margin of 1.97%,
  • repurchased 2,813,700 shares of common stock at an average price of $11.85 per share, and
  • paid dividends of $11.0 million.

Comparison of Operating Results for the Quarters Ended March 31, 2013 and December 31, 2012

Net income increased $152 thousand, or 0.9%, from $17.6 million for the quarter ended December 31, 2012 to $17.7 million for the quarter ended March 31, 2013.  The net interest margin decreased four basis points, from 2.01% for the prior quarter, to 1.97% for the current quarter primarily as a result of continued downward pressure on loan and security yields.  Decreases in the cost of funds tempered the decrease in the net interest margin, but were not enough to fully offset the impact of decreasing asset yields. 

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased nine basis points from the prior quarter to 3.33% for the current quarter and the average balance of interest-earning assets decreased $73.3 million between the two periods.  The decrease in the weighted average balance between the two periods was primarily in lower yielding assets; specifically the investment securities portfolio.  The average balance of the loan portfolio increased between the two periods; however, not enough to overcome the impact of the reduction in the loan portfolio yield between the two periods.

The following table presents the components of interest and dividend income for the time periods presented, along with the change in dollars and percent.  The decrease in interest income on loans receivable and mortgage-backed securities ("MBS") was due primarily to a decrease in the weighted average yield of each portfolio.  The decrease in interest income on investment securities was due primarily to a decrease in the average balance of the portfolio between periods.














For the Three Months Ended








March 31,


December 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




INTEREST AND DIVIDEND INCOME:












Loans receivable

$

56,936


$

58,467


$

(1,531)


(2.6)%


MBS


14,446



15,183



(737)


(4.9)


Investment securities


2,457



2,865



(408)


(14.2)


Capital stock of Federal Home Loan Bank ("FHLB")


1,105



1,128



(23)


(2.0)


Cash and cash equivalents


36



33



3


9.1


Total interest and dividend income

$

74,980


$

77,676


$

(2,696)


(3.5)%


The decrease in interest income on loans receivable was due to a 15 basis point decrease in the weighted average yield of the portfolio to 4.01% for the current quarter, partially offset by a $59.2 million increase in the average balance of the portfolio.  The decrease in the weighted average yield was due to the continued downward repricing of the existing portfolio due to endorsements and refinances, as well as to the origination and purchase of loans at rates less than the weighted average rate of the existing portfolio.  Also contributing to the decrease in the weighted average yield was a decrease in deferred fee amortization due primarily to a decrease in loan endorsement and refinance activity between periods. 

The decrease in interest income on MBS was due primarily to a 10 basis point decrease in the average yield of the portfolio, from 2.60% for the prior quarter to 2.50% for the current quarter, and partially due to a $24.8 million decrease in the average balance of the portfolio.  The decrease in the average yield of the portfolio was due primarily to purchases of MBS during the quarter with yields less than the average yield on the existing portfolio, and the decrease in the average balance was due primarily to the timing of when purchases were made. 

The decrease in interest income on investment securities was due primarily to a $113.1 million decrease in the average balance of the portfolio as a result of cash flows from calls and maturities not being replaced in their entirety; rather, the proceeds were used, in part, to fund loan activity and repay maturing repurchase agreements.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities decreased five basis points from the prior quarter to 1.66% for the current quarter and the average balance of interest-bearing liabilities increased $70.0 million between the two periods. The increase in the average balance of interest-bearing liabilities was in lower rate deposit products while the average balance of certificates of deposit decreased between the two periods.

The following table presents the components of interest expense for the time periods presented, along with the change in dollars and percent. The decrease in interest expense on FHLB advances and deposits was due primarily to a decrease in the weighted average rate paid on the portfolios, as well as to there being fewer days during the current quarter as compared to the prior quarter. 














For the Three Months Ended








March 31,


December 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




INTEREST EXPENSE:












FHLB advances

$

17,909


$

18,628


$

(719)


(3.9)%


Deposits


9,344



9,849



(505)


(5.1)


Repurchase agreements


3,407



3,569



(162)


(4.5)


Total interest expense

$

30,660


$

32,046


$

(1,386)


(4.3)%


The weighted average rate paid on FHLB advances decreased five basis points, from 2.92% for the prior quarter to 2.87% for the current quarter.  The decrease in the weighted average rate paid on FHLB advances was due primarily to the current quarter including the full impact of the renewal of a $100.0 million advance during the prior quarter, which had an effective rate of 4.85%, to a new advance with a term of four years and a fixed contractual rate of 0.78%.  The decrease in the weighted average rate paid on the deposit portfolio was due primarily to a decrease in the weighted average rate paid on the certificate of deposit portfolio.  The weighted average rate paid on the certificate of deposit portfolio decreased four basis points, from 1.41% for the prior quarter to 1.37% for the current quarter. 

Provision for Credit Losses

The Bank did not record a provision for credit losses during the current quarter, compared to $233 thousand recorded during the prior quarter.  The overall performance of our loan portfolio continued to improve during the current quarter as evidenced by the decline in net charge-offs and loans 90 or more days delinquent or in foreclosure.  Net charge-offs during the current quarter were $405 thousand compared to $856 thousand in the prior quarter.  Included in the current quarter and prior quarter were net charge-off amounts of $3 thousand and $369 thousand, respectively, related to loans that were discharged in a prior fiscal year under Chapter 7 bankruptcy that must be, in accordance with Office of Comptroller of Currency ("OCC") regulations, evaluated for collateral value loss, even if they are current.  Loans 90 or more days delinquent or in foreclosure decreased $865 thousand, or 4.5%, from $19.0 million at December 31, 2012 to $18.2 million at March 31, 2013.

Other Income

The following table presents the components of other income for the time periods presented, along with the change in dollars and percent.














For the Three Months Ended








March 31,


December 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




OTHER INCOME:












Retail fees and charges

$

3,521


$

3,992


$

(471)


(11.8)%


Insurance commissions


979



571



408


71.5


Loan fees


418



467



(49)


(10.5)


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


361



382



(21)


(5.5)


Other income, net


665



356



309


86.8


Total other income

$

5,944


$

5,768


$

176


3.1%


The decrease in retail fees and charges was due primarily to a decrease in debit card income, due in part to seasonality, and service charges.  The increase in insurance commissions was due largely to the receipt of annual commissions from certain insurance providers as a result of favorable claims experience during the prior year. 

Other Expense

The following table presents the components of other expense for the time periods presented, along with the change in dollars and percent.














For the Three Months Ended








March 31,


December 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




OTHER EXPENSES:












Salaries and employee benefits

$

12,155


$

12,181


$

(26)


(0.2)%


Occupancy


2,391



2,318



73


3.1


Information technology and communications


2,232



2,198



34


1.5


Regulatory and outside services


1,290



1,765



(475)


(26.9)


Deposit and loan transaction costs


1,384



1,526



(142)


(9.3)


Federal insurance premium


1,116



1,114



2


0.2


Advertising and promotional


1,004



1,032



(28)


(2.7)


Other expenses, net


1,645



2,607



(962)


(36.9)


Total other expenses

$

23,217


$

24,741


$

(1,524)


(6.2)%


The decrease in regulatory and outside services expense was due primarily to the timing of fees paid for external audit and tax preparation services. The decrease in other expenses, net was due primarily to a $638 thousand decrease in other real estate owned ("OREO") operations expense, from $670 thousand for the prior quarter, to $32 thousand for the current quarter, along with a decrease in expenses related to our low-income housing partnerships.  Over the past 12 months, OREO properties were owned by Capitol Federal Savings Bank (the "Bank"), on average, for approximately five months before they were sold.

Income Tax Expense

Income tax expense was $9.3 million for the current quarter compared to $8.9 million for the prior quarter.  The effective income tax rate for the current quarter was 34.5% compared to 33.5% for the prior quarter.  The difference in the effective income tax rate between quarters was due primarily to items impacting the prior quarter, largely the filing of the Company's income tax returns.  Management anticipates the effective tax rate for fiscal year 2013 will be approximately 34%, based on fiscal year 2013 estimates as of March 31, 2013.  This rate is lower than the prior year rate of 35.8% due primarily to higher deductible expenses associated with the Employee Stock Ownership Plan "ESOP", and higher tax credits related to our low income housing partnerships.  Additionally, pre-tax income is anticipated to be lower than the prior year, due primarily to the items outlined in other expenses in the "Comparison of Operating Results for the Six Months Ended March 31, 2013 and 2012" discussion below, which results in all items impacting the income tax rate to have a larger impact on the overall effective tax rate than in fiscal year 2012.

Comparison of Operating Results for the Six Months Ended March 31, 2013 and 2012

For the six month period ended March 31, 2013, the Company recognized net income of $35.3 million, compared to net income of $38.1 million for the six month period ended March 31, 2012.  The $2.8 million, or 7.4%, decrease in net income was due primarily to an increase in other expenses and a decrease in net interest income, partially offset by a decrease in income tax expense and provision for credit losses.  The net interest margin decreased three basis points, from 2.02% for the prior year six month period to 1.99% for the current six month period, primarily as a result of a decrease in loan and security yields which more than offset the benefit received from a decrease in the cost of funds between the two periods. 

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 27 basis points from the prior year six month period to 3.38% for the current six month period and the average balance of interest-earning assets decreased $154.6 million from the prior year six month period.  The decrease in the weighted average balance between the two periods was primarily in lower yielding assets; specifically the investment securities portfolio, where the proceeds from securities called or maturing not reinvested in the portfolio were used largely to repurchase stock, pay dividends to stockholders, and fund loan activity.  The average balance of the loan portfolio increased between the two periods; however, not enough to overcome the impact of the reduction in the loan portfolio yield.

The following table presents the components of interest and dividend income for the time periods presented, along with the change in dollars and percent. The decrease in interest income on loans receivable and MBS was due primarily to a decrease in the weighted average yield of each portfolio.  The decrease in interest income on investment securities was due primarily to a decrease in the average balance of the portfolio between periods.














For the Six Months Ended








March 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




INTEREST AND DIVIDEND INCOME:












Loans receivable

$

115,403


$

120,460


$

(5,057)


(4.2)%


MBS


29,629



36,542



(6,913)


(18.9)


Investment securities


5,322



8,752



(3,430)


(39.2)


Capital stock of FHLB


2,233



2,202



31


1.4


Cash and cash equivalents


69



145



(76)


(52.4)


Total interest and dividend income

$

152,656


$

168,101


$

(15,445)


(9.2)%


The average yield on the loans receivable portfolio decreased 54 basis points, from 4.62% for the prior year six month period to 4.08% for the current six month period.  The decrease in the weighted average yield was due to the continued downward repricing of the existing portfolio due to endorsements and refinances, as well as to the origination and purchase of loans at rates less than the weighted average rate of the existing portfolio.  The decrease in interest income on loans receivable resulting from the decrease in the average yield was partially offset by a $439.9 million increase in the average balance of the portfolio, which was primarily a result of a bulk loan purchase during the quarter ended September 30, 2012.  The average yield on the MBS portfolio decreased 48 basis points, from 3.03% during the prior year six month period to 2.55% for the current six month period.  The decrease in the average yield was due primarily to purchases of MBS between periods with yields less than the average yield on the existing portfolio.  The funds for these purchases were provided primarily from repayments and prepayments of higher yielding MBS.  The decrease in interest income on investment securities was due primarily to a $448.6 million decrease in the average balance of the portfolio, of which $257.1 million related to securities at the holding company.  The cash flows from calls and maturities of investment securities that were not reinvested in the portfolio were used to repurchase stock, pay dividends to stockholders, and fund loan activity. 

Interest Expense

The weighted average rate paid on total interest-bearing liabilities decreased 35 basis points from the prior year six month period to 1.68% for the current six month period and the average balance of interest-bearing liabilities increased $67.0 million from the prior year six month period.  The increase in the average balance of interest-bearing liabilities was largely in lower rate deposit products while the average balance of certificates of deposit decreased between the two periods.

The following table presents the components of interest expense for the time periods presented, along with the change in dollars and percent. The decrease in interest expense on FHLB advances and deposits was due primarily to a decrease in the weighted average rate paid on the portfolios.  The decrease in interest expense on repurchase agreements was due primarily to a decrease in the average balance between periods.














For the Six Months Ended








March 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




INTEREST EXPENSE:












FHLB advances

$

36,537


$

42,782


$

(6,245)


(14.6)%


Deposits


19,193



24,622



(5,429)


(22.0)


Repurchase agreements


6,976



7,857



(881)


(11.2)


Total interest expense

$

62,706


$

75,261


$

(12,555)


(16.7)%


The weighted average rate paid on FHLB advances decreased 54 basis points, from 3.44% for the prior year six month period to 2.90% for the current six month period.  The decrease in the average rate paid was due to the renewal of advances between periods to lower rates, as well as to the prepayment of an advance during the second quarter of fiscal year 2012.  The decrease in the weighted average rate paid on the deposit portfolio was primarily due a decrease in the weighted average rate paid on the certificate of deposit and money market portfolios as the portfolios continued to reprice to lower market rates.  The weighted average rate paid on the certificate of deposit portfolio decreased 32 basis points, from 1.71% for the prior year six month period to 1.39% for the current six month period.  The weighted average rate paid on the money market portfolio decreased 12 basis points, from 0.34% for the prior year six month period to 0.22% for the current six month period.  The decrease in interest expense on repurchase agreements was due primarily to a $39.5 million decrease in the average balance between periods as a result of maturing agreements not being renewed; rather, the agreements were replaced with FHLB advances.

Provision for Credit Losses

The provision for credit losses for the current six month period was $233 thousand, compared to $2.0 million for the prior year six month period.  The decrease in the provision for credit losses between periods was a result of the improvement in the performance of our loan portfolio, as evidenced by the decline in net charge-offs and loans 90 or more days delinquent or in foreclosure. Net charge-offs during the current six month period were $1.3 million, of which $372 thousand related to loans that were discharged in a prior fiscal year under Chapter 7 bankruptcy that must be, in accordance with OCC regulations, evaluated for collateral value loss, even if they are current.  Net charge-offs during the prior year six month period were $4.9 million, of which $3.5 million was related to the implementation of a loan charge-off policy during January 2012.  OCC Call Report requirements do not permit the use of specific valuation allowances, which the Bank was previously utilizing for potential loan losses, as permitted by the Bank's previous regulator.  Loans 90 or more days delinquent or in foreclosure decreased $7.1 million, or 28.1%, from $25.3 million at March 31, 2012 to $18.2 million at March 31, 2013. 

Other Income

The following table presents the components of other income for the time periods presented, along with the change in dollars and percent.














For the Six Months Ended








March 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




OTHER INCOME:












Retail fees and charges

$

7,513


$

8,018


$

(505)


(6.3)%


Insurance commissions


1,550



1,343



207


15.4


Loan fees


885



1,135



(250)


(22.0)


BOLI


743



799



(56)


(7.0)


Other income, net


1,021



1,029



(8)


(0.8)


Total other income

$

11,712


$

12,324


$

(612)


(5.0)%


The decrease in retail fees and charges was due primarily to a decrease in service charges and debit card income.  The decrease in loan fees was due primarily to a decrease in servicing fees received from sold loans as a result of a decrease in our sold loan portfolio.  The increase in insurance commissions was due largely to the receipt of annual commissions from certain insurance providers as a result of favorable claims experience during the prior year.

Other Expense

The following table presents the components of other expense for the time periods presented, along with the change in dollars and percent.














For the Six Months Ended








March 31,


Change Expressed in:



2013


2012


Dollars


Percent



(Dollars in thousands)




OTHER EXPENSES:












Salaries and employee benefits

$

24,336


$

21,173


$

3,163


14.9%


Occupancy expense


4,709



4,170



539


12.9


Information technology and communications


4,430



3,664



766


20.9


Regulatory and outside services


3,055



2,548



507


19.9


Deposit and loan transaction costs


2,910



2,505



405


16.2


Federal insurance premium


2,230



2,176



54


2.5


Advertising and promotional


2,036



1,751



285


16.3


Other expenses, net


4,252



6,049



(1,797)


(29.7)


Total other expenses

$

47,958


$

44,036


$

3,922


8.9%


The increase in salaries and employee benefits expense was due primarily to compensation expense on unallocated ESOP shares related to the $0.52 True Blue® dividend paid in December 2012, along with stock option and restricted stock grants in May 2012 and September 2012.  The increase in occupancy expense was due largely to an increase in depreciation expense and real estate taxes associated with the remodel of our home office.  The increase in information technology and communications expense was primarily related to maintenance and licensing expenses.  The increase in regulatory and outside services was due largely to professional services, along with the timing of fees paid for external audit and tax preparation services.  The increase in deposit and loan transaction costs was primarily related to loan activity.  The decrease in other expenses, net, was due primarily to a decrease in OREO operations expense, a decrease in office supplies and related expenses, and a recovery of valuation allowance expense on the mortgage-servicing rights asset compared to an impairment expense in the prior year. 

We currently anticipate the following increases in other expenses during the full fiscal year 2013, as compared to the full fiscal year 2012:  (1) a $4.8 million increase in salaries and employee benefits due primarily to an estimated $2.7 million in compensation expense on unallocated ESOP shares as a result of the True Blue® and special year-end dividends paid and $1.4 million resulting from a full year's impact of equity plan awards made in May 2012 and September 2012; (2) a $2.6 million increase in information technology and communications expense and occupancy expense as a result of an increase in licensing and maintenance expenses related to upgrades to our information technology infrastructure and an increase in depreciation expense associated with the remodel of our home office; and (3) a $1.1 million increase in advertising expense, which is due primarily to media campaigns that were delayed until fiscal year 2013.  We currently anticipate that the preceding increases in other expenses will be partially offset by an estimated $1.0 million decrease in other expenses, net, due primarily to decreases in OREO operations expense.

The final ESOP loan payment associated with the shares acquired in our initial public offering in March 1999 will be made on September 30, 2013.  As a result, salaries and employee benefits expense is currently anticipated to decrease approximately $4.5 million in fiscal year 2014, as compared to fiscal year 2013.  Additionally, we do not currently anticipate additional compensation expense on unallocated ESOP shares in fiscal year 2014, which would result in an additional decrease in salaries and employee benefit expense of $3.0 million, when compared to fiscal year 2013.

Income Tax Expense

Income tax expense was $18.2 million for the current six month period compared to $21.0 million for the prior year six month period.  The decrease in expense between periods was due primarily to a decrease in pretax income.  The effective tax rate for the current six month period was 34.0% compared to 35.5% for the prior year six month period.



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)














For the Three Months Ended


For the Six Months Ended


March 31,


December 31,


March 31,


2013


2012


2013


2012

INTEREST AND DIVIDEND INCOME:












Loans receivable

$

56,936


$

58,467


$

115,403


$

120,460

MBS


14,446



15,183



29,629



36,542

Investment securities


2,457



2,865



5,322



8,752

Capital stock of FHLB


1,105



1,128



2,233



2,202

Cash and cash equivalents


36



33



69



145

Total interest and dividend income


74,980



77,676



152,656



168,101













INTEREST EXPENSE:












FHLB advances


17,909



18,628



36,537



42,782

Deposits


9,344



9,849



19,193



24,622

Repurchase agreements


3,407



3,569



6,976



7,857

Total interest expense


30,660



32,046



62,706



75,261













NET INTEREST INCOME


44,320



45,630



89,950



92,840













PROVISION FOR CREDIT LOSSES


--



233



233



2,040

NET INTEREST INCOME AFTER












PROVISION FOR CREDIT LOSSES


44,320



45,397



89,717



90,800













OTHER INCOME:












Retail fees and charges


3,521



3,992



7,513



8,018

Insurance commissions


979



571



1,550



1,343

Loan fees


418



467



885



1,135

BOLI


361



382



743



799

Other income, net


665



356



1,021



1,029

Total other income


5,944



5,768



11,712



12,324













OTHER EXPENSES:












Salaries and employee benefits


12,155



12,181



24,336



21,173

Occupancy


2,391



2,318



4,709



4,170

Information technology and communications


2,232



2,198



4,430



3,664

Regulatory and outside services


1,290



1,765



3,055



2,548

Deposit and loan transaction costs


1,384



1,526



2,910



2,505

Federal insurance premium


1,116



1,114



2,230



2,176

Advertising and promotional


1,004



1,032



2,036



1,751

Other expenses, net


1,645



2,607



4,252



6,049

Total other expenses


23,217



24,741



47,958



44,036

INCOME BEFORE INCOME TAX EXPENSE


27,047



26,424



53,471



59,088

INCOME TAX EXPENSE


9,332



8,861



18,193



20,984

NET INCOME

$

17,715


$

17,563


$

35,278


$

38,104

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















For the Three Months Ended


For the Six Months Ended


March 31,


December 31,


March 31,


2013


2012


2013


2012


(Dollars in thousands, except per share data)

Net income

$

17,715


$

17,563


$

35,278


$

38,104

Income allocated to participating securities (unvested restricted stock)


(51)



(60)



(111)



--

Net income available to common stockholders

$

17,664


$

17,503


$

35,167


$

38,104













Average common shares outstanding


145,242,074



147,881,207



146,576,142



161,752,544

Average committed ESOP shares outstanding


139,531



1,500



69,757



70,130

Total basic average common shares outstanding


145,381,605



147,882,707



146,645,899



161,822,674













Effect of dilutive restricted stock


--



--



--



3,169

Effect of dilutive stock options


113



102



107



3,848













Total diluted average common shares outstanding


145,381,718



147,882,809



146,646,006



161,829,691













Net earnings per share:












Basic

$

0.12


$

0.12


$

0.24


$

0.24

Diluted

$

0.12


$

0.12


$

0.24


$

0.24













Antidilutive stock options and restricted stock, excluded












from the diluted average common shares












outstanding calculation


2,463,165



2,471,473



2,466,339



883,608

Financial Condition as of March 31, 2013

Total assets increased $15.4 million, from $9.38 billion at September 30, 2012 to $9.39 billion at March 31, 2013, due primarily to a $107.2 million increase in the loan portfolio and a $97.5 million increase in other assets, partially offset by a $95.6 million decrease in the securities portfolio and a $93.1 million decrease in cash and cash equivalents.  The net increase in the loan portfolio was due primarily to one- to four-family loan originations and correspondent purchases outpacing principal repayments during the current six month period.  As of March 31, 2013, the Bank had 26 active correspondent lending relationships in 21 states.  The increase in other assets was due primarily to a $100.0 million FHLB advance commitment, which settled in early April 2013.  Of the $95.6 million decrease in the securities portfolio, $60.0 million related to securities at the holding company level, the proceeds from which were used to pay dividends to stockholders and repurchase stock.  The remaining cash flows from the securities portfolio which were not reinvested, along with cash were used, in part, to fund loan activity and repay $50 million of repurchase agreements that matured during the current quarter.  At March 31, 2013, Capitol Federal Financial, Inc., at the holding company level, had $206.3 million on deposit at the Bank. 

Economic conditions in the Bank's local market areas have a significant impact on the ability of borrowers to repay loans and the value of the collateral securing these loans.  As of March 2013, the unemployment rate was 5.6% for Kansas and 6.7% for Missouri, compared to the national average of 7.6% based on information from the Bureau of Economic Analysis.  The unemployment rate remains low in our market areas, relative to the national average, due to diversified industries within our market areas, primarily in the Kansas City metropolitan statistical area.  Our Kansas City market area, which comprises the largest segment of our loan portfolio and deposit base, has an average household income of approximately $79 thousand per annum, based on 2012 estimates from the American Community Survey, which is a statistical survey by the U.S. Census Bureau.  The average household income in our combined market areas is approximately $68 thousand per annum, with 92% of the population at or above the poverty level, also based on the 2012 estimates from the American Community Survey. The Federal Housing Finance Agency price index for Kansas and Missouri has not experienced significant fluctuations during the past 10 years, unlike other market areas of the United States, which indicates relative stability historically in property values in our local market areas. 

As a portfolio lender focused on delivering outstanding customer service while acquiring quality assets, the ability of our borrowers to repay has always been paramount in our business model.  Although we continue to evaluate the recently issued "qualified mortgage" rules by the Consumer Financial Protection Bureau, we currently anticipate that the impact to our overall book of business will generally be minimal.  

The following table presents delinquent and non-performing loans, OREO, allowance for credit losses ("ACL") and related ratios as of the dates shown.  In accordance with the OCC Call Report requirements, troubled debt restructurings ("TDRs") that were either nonaccrual at the time of restructuring or did not receive a credit evaluation prior to the restructuring and have not made six consecutive monthly payments per the restructured loan terms are reported as nonaccrual loans.  During July 2012, the OCC provided guidance to the industry regarding loans that had been discharged under Chapter 7 bankruptcy proceedings where the borrower has not reaffirmed the debt owed to the lender.  The OCC requires that these loans be reported as TDRs and nonaccrual, even if they are current.  Our balance of loans 90 or more days delinquent or in foreclosure continues to improve; however, implementation of the above noted OCC guidance has kept our balance of non-performing loans relatively elevated.  The principal balance of loans required by the OCC to be reported as nonaccrual, even if they are current, was $8.2 million, $12.4 million, and $5.1 million at March 31, 2013, September 30, 2012, and March 31, 2012, respectively. 














March 31, 2013


September 30, 2012


March 31, 2012


(Dollars in thousands)

Loans 30 to 89 days delinquent

$

24,785



$

23,270



$

21,735














Loans 90 or more days delinquent or in foreclosure


18,156




19,450




25,264


Nonaccrual loans less than 90 days delinquent(1)


8,187




12,374




5,105


Total non-performing loans


26,343




31,824




30,369


OREO


6,682




8,047




11,799


Total non-performing assets


33,025




39,871




42,168














ACL balance


10,072




11,100




12,559














Non-performing loans to total loans


0.46%




0.57%




0.58%


Non-performing assets to total assets


0.35%




0.43%




0.44%


ACL as a percentage of total loans


0.18%




0.20%




0.24%


ACL as a percentage of total non-performing loans


38.23%




34.88%




41.35%




(1)

Represents loans required to be reported as nonaccrual by the OCC regardless of delinquency status.  At March 31, 2013, September 30, 2012, and March 31, 2012, this amount was comprised of $975 thousand, $1.2 million, and $635 thousand, respectively, of loans that were 30 to 89 days delinquent and $7.2 million, $11.2 million, and $4.5 million, respectively, of loans that were current.

Total liabilities increased $178.9 million, from $7.57 billion at September 30, 2012, to $7.75 billion at March 31, 2013 due primarily to a $142.9 million increase in deposits and a $100.0 million FHLB advance commitment, partially offset by the repayment of $50.0 million of repurchase agreements that matured during the current quarter.  The increase in the deposit portfolio was due primarily to an $81.8 million increase in the checking portfolio, a $45.4 million increase in the money market portfolio, and a $20.3 million increase in the savings portfolio, partially offset by a $4.6 million decrease in the certificate of deposit portfolio.  The decrease in the certificate of deposit portfolio was due primarily to a decrease in floating rate certificates of deposit, partially offset by an increase in public unit deposits.  Additionally, fixed-rate retail certificates of deposit decreased slightly and there was a shift in this portfolio from certificates of deposit with a term of 30 months or less to those with a term of 36 months or more, primarily to 36 and 60 month terms. The $100.0 million FHLB advance commitment settled in early April 2013.  The FHLB advance has a six year term and a fixed contractual rate of 1.29%.  Proceeds from the FHLB advance will largely be used to replace the $50.0 million of repurchase agreements that matured and also fund upcoming maturities of repurchase agreements. 

Stockholders' equity decreased $163.5 million, from $1.81 billion at September 30, 2012 to $1.64 billion at March 31, 2013.  The decrease was due primarily to the payment of $125.3 million of dividends and the repurchase of $72.0 million of stock, partially offset by net income of $35.3 million.

The $125.3 million of dividends paid during the current six month period consisted of a $0.52 per share, or $76.5 million, True Blue® dividend, an $0.18 per share, or $26.6 million, special year-end dividend related to fiscal year 2012 earnings, per the Company's dividend policy, and two regular quarterly dividends of $0.075 per share each, totaling $0.15 per share, or $22.2 million.  On April 17, 2013, the Company declared a regular quarterly cash dividend of $0.075 per share, or approximately $10.8 million, payable on May 17, 2013 to stockholders of record as of the close of business on May 3, 2013.  Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, the Bank's 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 December 2011, the Company announced that its Board of Directors approved the repurchase of up to $193.0 million of the Company's common stock.  The Company began repurchasing common stock during the second quarter of fiscal year 2012 and completed the plan during the current quarter, having repurchased 16,360,654 shares at an average price of $11.80 per share.  In November 2012, the Company announced its Board of Directors approved a new $175.0 million stock repurchase program to commence upon the completion of the aforementioned $193.0 million repurchase plan.  As of March 31, 2013, 2,359,430 shares had been repurchased under the new plan at an average price of $11.86 per share, or $28.0 million.  Subsequent to March 31, 2013 and through April 12, 2013, the Company repurchased 343,536 shares at an average price of $11.91 per share.  The new plan, under which $142.9 million remained available as of April 12, 2013, has no expiration date. 

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














March 31, 2013


September 30, 2012


March 31, 2012


(Dollars in thousands)

Stockholders' equity

$

1,643,007



$

1,806,458



$

1,912,472


Equity to total assets at end of period


17.5%




19.3%




20.0%


The following table presents a reconciliation of total and net shares outstanding as of March 31, 2013. 





 Total shares outstanding

149,301,782

 Less unallocated ESOP shares and unvested restricted stock

(5,126,186)

 Net shares outstanding

144,175,596

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)








March 31,


September 30,


2013


2012

ASSETS:






Cash and cash equivalents (includes interest-earning deposits of $30,975 and $127,544)

$

48,574


$

141,705

Securities:






Available-for-sale ("AFS") at estimated fair value (amortized cost of $1,216,857 and $1,367,925)


1,245,443



1,406,844

Held-to-maturity at amortized cost (estimated fair value of $2,014,843 and $1,969,899)


1,953,779



1,887,947

Loans receivable, net (of ACL of $10,072 and $11,100)


5,715,273



5,608,083

BOLI


58,756



58,012

Capital stock of FHLB, at cost


130,680



132,971

Accrued interest receivable


24,447



26,092

Premises and equipment, net


61,754



57,766

OREO


6,682



8,047

Other assets


148,330



50,837

TOTAL ASSETS

$

9,393,718


$

9,378,304







LIABILITIES:






Deposits

$

4,693,573


$

4,550,643

Advances from FHLB, net


2,634,465



2,530,322

Repurchase agreements


315,000



365,000

Advance payments by borrowers for taxes and insurance


49,959



55,642

Income taxes payable


3,199



918

Deferred income tax liabilities, net


22,500



25,042

Accounts payable and accrued expenses


32,015



44,279

Total liabilities


7,750,711



7,571,846







STOCKHOLDERS' EQUITY:






Preferred stock ($0.01 par value) 100,000,000 shares authorized; no shares issued or outstanding


--



--

Common stock ($0.01 par value) 1,400,000,000 shares authorized; 149,301,782 and 155,379,739






shares issued and outstanding as of March 31, 2013 and September 30, 2012, respectively


1,493



1,554

Additional paid-in capital


1,245,057



1,292,122

Unearned compensation, ESOP


(46,089)



(47,575)

Retained earnings


424,765



536,150

Accumulated other comprehensive income, net of tax


17,781



24,207

Total stockholders' equity


1,643,007



1,806,458

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,393,718


$

9,378,304








Consistent with our goal to operate a sound and profitable financial institution, we actively seek to maintain a "well-capitalized" status for the Bank in accordance with regulatory standards.  As of March 31, 2013, the Bank exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at March 31, 2013 based upon regulatory guidelines.










Regulatory





Requirement For



Bank


"Well-Capitalized"



Ratios


 Status

Tier 1 leverage ratio


14.5%


5.0%

Tier 1 risk-based capital


35.9%


6.0%

Total risk-based capital


36.1%


10.0%






A reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory capital amounts as of March 31, 2013 is as follows (dollars in thousands):




Total Bank equity as reported under GAAP

$

1,378,352

Unrealized gains on AFS securities


(17,781)

Total Tier 1 capital


1,360,571

ACL


10,072

Total risk-based capital

$

1,370,643

Capitol Federal Financial, Inc. is the holding company for the Bank.  The Bank has 46 branch locations in Kansas and Missouri.  The Bank is one of the largest residential lenders in the State of Kansas.  News and other information about the Company can be found on the Internet at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed may be deemed to be forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies and other governmental initiatives affecting the financial services industry, fluctuations in interest rates, demand for loans in the Company's market area, the future earnings and capital levels of Capitol Federal Savings Bank, which would affect the ability of the Capitol Federal Financial, Inc. to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in documents filed or furnished by Capitol Federal Financial, Inc. with the SEC.  Actual results may differ materially from those currently expected.  These forward-looking statements represent Capitol Federal Financial, Inc.'s judgment as of the date of this release.  Capitol Federal Financial, Inc. disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts and percentages (before deductions for undisbursed loan funds, unearned loan fees and deferred costs, and ACL) as of the dates indicated.  The average rate of the portfolio decreased 21 basis points from September 30, 2012 and 51 basis points from March 31, 2012, to 3.94% at March 31, 2013.  The decrease in the average rates from September 30, 2012 and March 31, 2012 was due primarily to the endorsement and refinance of loans at current market rates, as well as to the origination and purchase of loans between periods with rates less than the average rate of the existing portfolio.
























March 31, 2013


September 30, 2012


March 31, 2012





Average


% of




Average


% of




Average


% of



Amount


Rate


Total


Amount


Rate


Total


Amount


Rate


Total



(Dollars in thousands)

Real Estate Loans:






















One- to four-family

$

5,508,452


3.89%


95.6%


$

5,392,429


4.10%


95.5%


$

5,010,076


4.40%


95.0%


Multi-family and commercial


46,579


5.62


0.8



48,623


5.64


0.9



52,421


6.15


1.0


Construction


64,572


3.87


1.1



52,254


4.08


0.9



52,390


4.22


1.0


Total real estate loans


5,619,603


3.90


97.5



5,493,306


4.11


97.3



5,114,887


4.42


97.0
























Consumer Loans:






















Home equity


137,380


5.36


2.4



149,321


5.42


2.6



153,345


5.46


2.9


Other


6,072


4.50


0.1



6,529


4.77


0.1



7,064


4.79


0.1


Total consumer loans


143,452


5.32


2.5



155,850


5.39


2.7



160,409


5.43


3.0
























Total loans receivable


5,763,055


3.94%


100.0%



5,649,156


4.15%


100.0%



5,275,296


4.45%


100.0%
























Less:






















Undisbursed loan funds


32,619







22,874







29,425






ACL


10,072







11,100







12,559






Discounts/unearned loan fees


22,149







21,468







20,844






Premiums/deferred costs


(17,058)







(14,369)







(11,710)






Total loans receivable, net

$

5,715,273






$

5,608,083






$

5,224,178






The following table presents the balance, percentage of total one- to four-family loans, weighted average credit score, loan-to-value ("LTV") ratio, and the average balance per loan for our one- to four-family loans at the dates presented.  Credit scores are typically updated during the last month of the quarter and are obtained from a nationally recognized consumer rating agency.  The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent bank appraisal or broker price opinion.  In most cases, the most recent appraisal was obtained at the time of origination.






































March 31, 2013



September 30, 2012


March 31, 2012





% of


Credit




Average





% of


Credit




Average





% of


Credit




Average


Balance


Total


Score


LTV


Balance


Balance


Total


Score


LTV


Balance


Balance


Total


Score


LTV


Balance


(Dollars in thousands)

Originated

$

4,020,666


73.0%


763


65%


$

125


$

4,032,581


74.8%


763


65%


$

124


$

3,986,957


81.0%


763


66%


$

123

Correspondent purchased


764,862


13.9


763


66



341



575,502


10.7


761


65



326



396,063


8.1


759


64



290

Bulk purchased


722,924


13.1


749


67



316



784,346


14.5


749


67



316



535,758


10.9


740


60



252


$

5,508,452


100.0%


761


65%


$

150


$

5,392,429


100.0%


761


65%


$

147


$

4,918,778


100.0%


760


65%


$

137

The following tables summarize the activity in the loan portfolio for the periods indicated, excluding changes in loans in process, deferred fees, and ACL.  Loans that were paid-off as a result of refinances are included in repayments.  Purchased loans include purchases from correspondent and nationwide lenders.  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, however, included in the ending loan portfolio balance and rate.  During the current quarter, the Bank endorsed $122.1 million of one- to four-family loans, reducing the average rate on those loans by 118 basis points.  























For the Three Months Ended




March 31, 2013


December 31, 2012


September 30, 2012


June 30, 2012



Amount


Rate


Amount


Rate


Amount


Rate


Amount


Rate



(Dollars in thousands)

Beginning balance

$

5,687,893


4.04%


$

5,649,156


4.15%


$

5,256,803


4.37%


$

5,275,296


4.45%


Originated and refinanced:





















Fixed


179,828


3.26



209,873


3.26



220,934


3.51



151,724


3.78


Adjustable


22,676


3.94



39,964


3.58



50,533


3.50



42,802


3.74


Purchased and participations:





















Fixed


119,334


3.22



88,763


3.45



90,939


3.62



34,567


3.94


Adjustable


19,145


2.64



21,434


2.70



360,463


2.49



12,722


3.00


Repayments


(262,865)





(318,332)





(327,972)





(256,221)




Principal charge-offs, net


(405)





(856)





(677)





(782)




Other(1)


(2,551)





(2,109)





(1,867)





(3,305)




Ending balance

$

5,763,055


3.94%


$

5,687,893


4.04%


$

5,649,156


4.15%


$

5,256,803


4.37%



















For the Six Months Ended



March 31, 2013


March 31, 2012



Amount


Rate


Amount


Rate




(Dollars in thousands)



Beginning balance

$

5,649,156


4.15%


$

5,195,876


4.69%


Originated and refinanced:











Fixed


389,701


3.26



319,493


3.78


Adjustable


62,640


3.71



98,460


3.58


Purchased and participations:











Fixed


208,097


3.32



75,965


4.14


Adjustable


40,579


2.67



69,632


3.62


Repayments


(581,197)





(476,131)




Principal charge-offs, net


(1,261)





(4,553)




Other(1)


(4,660)





(3,446)




Ending balance

$

5,763,055


3.94%


$

5,275,296


4.45%




(1)

 "Other" consists of transfers to OREO, endorsement fees advanced and changes in commitments.

Loan Originations

The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity.  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 Six Months Ended



March 31, 2013


March 31, 2013



Amount


Rate


% of Total


Amount


Rate


% of Total


Fixed-Rate:

(Dollars in thousands)


One- to four-family:















<= 15 years

$

105,724


2.75%


31.0%


$

218,063


2.80%


31.1%


> 15 years


192,169


3.49


56.4



373,910


3.52


53.3


Multi-family and commercial real estate


497


5.75


0.1



4,347


5.09


0.6


Home equity


542


6.16


0.1



998


6.07


0.1


Other


230


9.17


0.1



480


8.56


0.1


Total fixed-rate


299,162


3.24


87.7



597,798


3.28


85.2