cffn090810k.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
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þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR
15(d)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended September 30, 2008
or
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¨ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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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
Securities
registered pursuant to Section 12(b) of the Act:
Common Stock, par
value $0.01 per
share The
NASDAQ Stock Market LLC
(Title of
Class) (Name
of Each Exchange on Which Registered)
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes þ
No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15d of the Act.
Yes o
No þ
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 filing requirements for the past 90 days. Yes þ
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Act. (Check
one):
Large
accelerated filer þ Accelerated
filer o
Non-accelerated
filer o Smaller
reporting company o
(do
not check if smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yeso Noþ
The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant, computed by reference to the average of the closing bid and
asked price of such stock on the NASDAQ Stock Market as of March 31, 2008, was
$750.5 million. The exclusion from such amount of the market value of
the shares owned by any person shall not be deemed an admission by the
Registrant that such person is an affiliate of the registrant.
As of
November 14, 2008, there were issued and outstanding 74,082,168 shares of the
Registrant’s common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Parts II
and IV of Form 10-K - Portions of the Annual Report to Stockholders for the year
ended September 30, 2008. Part III of Form 10-K - Portions of the
proxy statement for the Annual Meeting of Stockholders for the year ended
September 30, 2008.
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Page No.
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PART
I
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Item
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Item
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Item
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PART
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Item
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Item
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Item
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Item 9A.
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Item
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PART
III
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Item
10.
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Directors,
Executive Officers, and
Corporate Governance
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Item
11.
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Item
12.
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Item
13.
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Item
14.
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PART IV
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Item
15.
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46
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47
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Capitol
Federal Financial (the “Company”), and its wholly-owned subsidiary, Capitol
Federal Savings Bank (“Capitol Federal Savings” or the “Bank”), may from time to
time make written or oral “forward-looking statements”, including statements
contained in the Company’s filings with the Securities and Exchange Commission
(“SEC”). These forward-looking statements may be included in this
Annual Report on Form 10-K 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:
·
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our
ability to continue to maintain overhead costs at reasonable
levels;
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·
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our
ability to continue to originate a significant volume of one- to
four-family mortgage loans in our market
area;
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·
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our
ability to acquire funds from or invest funds in wholesale or secondary
markets;
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·
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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;
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·
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fluctuations
in deposit flows, loan demand, and/or real estate values, which may
adversely affect our business;
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·
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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;
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·
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the
strength of the U.S. economy in general and the strength of the local
economies in which we conduct
operations;
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·
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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;
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·
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the
effects of, and changes in, foreign and military policies of the United
States Government;
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·
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inflation,
interest rate, market and monetary
fluctuations;
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·
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our
ability to access cost-effective
funding;
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·
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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;
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·
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the
willingness of users to substitute competitors’ products and services for
our products and services;
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·
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our
success in gaining regulatory approval of our products and services, when
required;
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·
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the
impact of changes in financial services laws and regulations, including
laws concerning taxes, banking, securities and insurance, and the impact
of other governmental initiatives affecting the financial services
industry;
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·
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implementing
business initiatives may be more difficult or expensive than
anticipated;
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·
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acquisitions
and dispositions;
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·
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changes
in consumer spending and saving habits;
and
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·
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our
success at managing the risks involved in our
business.
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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.
PART
I
As used
in this Form 10-K, 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.
General
The
Company is a federally chartered mid-tier mutual holding company incorporated in
March 1999. The Bank is a wholly-owned subsidiary of the Company,
which is majority-owned by MHC, a federally chartered mutual holding
company. The Company’s common stock is traded on the Global Select
tier of the NASDAQ Stock Market under the symbol “CFFN.”
The Bank
is the only operating subsidiary of the Company. The Bank is a
federally-chartered and insured savings bank headquartered in Topeka, Kansas and
is examined and regulated by the Office of Thrift Supervision (“OTS”), its
primary regulator. It is also regulated by the Federal Deposit
Insurance Corporation (“FDIC”). We primarily serve the entire
metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina,
Kansas and a portion of the metropolitan area of greater Kansas City through 30
traditional and nine in-store banking offices. At September 30, 2008,
we had total assets of $8.06 billion, deposits of $3.92 billion and total equity
of $871.2 million.
We have
been, and intend to continue to be, a community-oriented financial institution
offering a variety of financial services to meet the needs of the communities we
serve. We attract retail deposits from the general public and invest
those funds primarily in permanent loans secured by first mortgages on
owner-occupied, one- to four-family (“single-family") residences. We
also originate consumer loans, loans secured by first mortgages on
nonowner-occupied one- to four-family residences, permanent and construction
loans secured by one- to four-family residences, commercial real estate loans
and multi-family real estate loans. While our primary business is the
origination of one- to four-family mortgage loans funded through retail
deposits, we also purchase one- to four-family mortgage loans from correspondent
lenders located within our market areas and select market areas in Missouri and
nationwide lenders, and invest in certain investment and mortgage-related
securities (“MBS”) funded through retail deposits, advances from Federal Home
Loan Bank Topeka (“FHLB”) and other borrowings. We may originate
loans outside our market area on occasion, and most of the whole loans we
purchase are secured by properties located outside of our market
area.
Our
revenues are derived principally from interest on loans and MBS and interest and
dividends on investment securities. Our primary sources of funds are
customer deposits, borrowings, scheduled amortization and prepayments of
mortgage loans and MBS, calls and maturities of investment securities, and funds
generated by operations.
We offer
a variety of deposit accounts having a wide range of interest rates and terms,
which generally include savings accounts, money market accounts, interest
bearing and non-interest bearing checking accounts, and certificates of deposit
with terms ranging from 91 days to 96 months.
Our
executive offices are located at 700 South Kansas Avenue, Topeka, Kansas 66603,
and our telephone number at that address is (785) 235-1341.
Available
Information
Our
Internet website address is www.capfed.com. Financial information,
including our 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 website. These reports are available on our
website as soon as reasonably practicable after they are electronically filed
with or furnished to the SEC. These reports are also available on the
SEC’s website at http://www.sec.gov.
Market
Area and Competition
Our
corporate office is located in Topeka, Kansas. We have a network of
39 branches located in 8 counties throughout the State of Kansas. We
operate in three primary market areas: Johnson County, Kansas, the
city of Wichita, Kansas and the cities of Topeka and Lawrence,
Kansas. In addition to providing full service banking offices, we
also provide our customers telephone and internet banking
capabilities.
The Bank
ranked second in deposit market share in the state of Kansas as reported in the
FDIC “Summary of Deposits - Market Share Report” dated June 30,
2008. Deposit market share is measured by total deposits, without
consideration for type of deposit. We do not have commercial deposit accounts
because of our focus on retail deposits,
while
many of our competitors have both commercial and retail deposits in their total
deposit base. In recent years, the Bank has experienced a slight
decrease in market share due to the entrance of new competitors such as credit
unions, newly chartered banks (de novo institutions), and increased banking
locations by established financial institutions. Additionally,
consumers have the ability to utilize financial institutions without a
brick-and-mortar presence in our market area by way of online products and
services. Management considers our strong retail banking network and
our reputation for financial strength and customer service to be our major
strengths in attracting and retaining customers in our market
areas.
The Bank
is consistently one of the top one- to four-family lenders with regard to loan
volume in the state of Kansas. Through our strong relationships with
real estate agents and marketing efforts which reflect our reputation and
pricing, we attract mortgage loan business from walk-in customers, customers
that apply online, and existing customers. Competition in
originating one- to four-family mortgage loans primarily comes from other
savings institutions, commercial banks, credit unions, and mortgage
bankers. Other savings institutions, commercial banks, credit unions,
and finance companies provide vigorous competition in consumer
lending.
We
purchase one- to four-family mortgage loans from correspondent lenders located
within our market areas and select market areas in Missouri, and from nationwide
lenders. Purchasing loans from nationwide lenders provides geographic
diversification, reducing our exposure to concentrations of credit
risk. At September 30, 2008 loans purchased from nationwide
lenders were secured by properties located in each of the continental 48 states
and Washington, D.C. At September 30, 2008, purchases from nationwide
lenders in the following states comprised greater than 5% of total loans
purchased from nationwide lenders: Illinois 13%; Florida 8%; Arizona,
Virginia and Texas 6%.
The Bank
opened one new branch in our Wichita market area in October 2008. The
Bank has plans to open two additional branches in fiscal year 2009 located in
our market area in south Johnson County, Kansas. The Bank has
preliminary plans to open three additional branches in our market areas in
Kansas City and Wichita by September 30, 2010.
Lending
Practices and Underwriting Standards
General. The
Bank’s primary lending activity is the origination and 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 primary market areas and select market areas in
Missouri. The Bank also makes consumer loans, construction loans
secured by residential properties, commercial properties and multi-family real
estate loans secured by multi-family dwellings or commercial
properties. Historically, additional lending volume has been
generated by purchasing whole one- to four-family mortgage loans from nationwide
lenders. By purchasing loans from nationwide lenders, the Bank is
able to attain some geographic diversification and mitigate credit concentration
risks in its loan portfolio, and to help mitigate the Bank’s interest rate risk
exposure because the purchased loans are predominately adjustable-rate or
15-year fixed-rate loans.
At
September 30, 2008, our net loan portfolio totaled $5.32 billion, which
constituted 66% of our total assets. For a discussion of our market
risk associated with loans see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosure about Market Risk” in the Annual Report
to Stockholders attached as Exhibit 13 to this Annual Report on Form
10-K.
All
originated loans are generated by our own employees. Loans over $500
thousand must be underwritten by two Class V 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, assets, 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.
Under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the
maximum amount which we could have loaned to any one borrower and the borrower’s
related entities at September 30, 2008 was $121.8 million. Our
largest lending relationship to a single borrower or a group of related
borrowers at September 30, 2008 consisted of 17 multi-family real estate
projects, two single-family homes, and three commercial real estate projects
located in Kansas and Texas. Total commitments and loans outstanding
to this group of related borrowers was $50.0 million as of September 30,
2008. Most of the multi-family real estate loans qualify for the low
income housing tax credit program. We have over 30 years of
experience with this group of borrowers, who usually build and manage their
own
properties. Each
of the loans to this group of borrowers was current and performing in accordance
with repayment terms at September 30, 2008.
The
second largest lending relationship at September 30, 2008, consisted of eight
loans totaling $12.0 million. Four loans are secured by multi-family
real estate units and four are secured by single-family homes. We
have over 30 years of experience with the borrowers. All units were
built and are presently being managed by the borrowers. Each of the
loans to this group of borrowers was current and performing in accordance with
repayment terms at September 30, 2008.
The
ability of financial institutions, including us, to originate or purchase large
dollar volumes of real estate loans may be substantially reduced or restricted
under certain economic conditions, with a resultant decrease in interest income
from these assets. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Quantitative and Qualitative
Disclosure about Market Risk” in the Annual Report to Stockholders attached as
Exhibit 13 to this Annual Report on Form 10-K.
One- to
Four-Family Residential Real Estate Lending. The Bank
originates loans through referrals from real estate brokers and builders, our
marketing efforts, and our existing and walk-in customers. While the
Bank originates both adjustable and fixed-rate loans, our ability to originate
loans is dependent upon customer demand for loans in our market
areas. Demand is affected by the local housing market, competition
and the interest rate environment. During the 2008 and 2007 fiscal
years, the Bank originated and refinanced $631.8 million and $573.2 million of
one- to four-family fixed-rate mortgage loans, and $77.7 million and $104.4
million of one- to four-family adjustable-rate mortgage (“ARM”) loans,
respectively. The Bank’s one- to four-family loans are
primarily fully amortizing fixed- or adjustable-rate 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.
Our
pricing strategy for first mortgage loan products includes setting interest
rates based upon prices available in the secondary market if the Bank were to
sell them near par and that are competitive within our local lending
markets. ARM loans are offered with either a three-year, five-year or
seven-year term to the initial repricing date. After the initial
period, the interest rate for each ARM loan generally adjusts annually for the
remainder of the term of the loan. A number of different indices are
used to reprice our ARM loans.
Fixed-rate
loans secured by one- to four-family residences have contractual maturities of
up to 30 years, and are fully amortizing with payments due
monthly. However, these loans normally remain outstanding for a
substantially shorter period of time because of refinancing and other
prepayments. A significant decrease in the current level of interest
rates could considerably shorten the current expected average life of a mortgage
loan in our portfolio.
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. As a consequence of using caps, the interest rates on these
loans may not be as rate sensitive as our cost of funds. 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 ARM loans. After the initial three, five or seven
year period, the interest rate is repriced annually and the new principal and
interest payment is based on the new interest rate, remaining unpaid principal
balance and term of the ARM loan. Our ARM loans are not automatically
convertible into fixed-rate loans; however, we do allow borrowers to pay a
modification fee to convert an ARM loan to a fixed-rate
loan. ARM loans can pose different credit risks than fixed-rate
loans, primarily because as interest rates rise, the borrower’s payment also
rises, increasing the potential for default. This specific risk type
is known as repricing risk.
As of
March 2008, the Bank discontinued offering an interest-only ARM product, but
holds in its portfolio originated and purchased interest-only ARM
loans. The product was discontinued to reduce future credit risk
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. At September 30, 2008,
6% of our loan portfolio consisted of non-amortizing interest-only ARM
loans. The majority of these loans were purchased from nationwide
lenders during fiscal year 2005. These loans had an initial
interest-only term of either five or ten years, with approximately equal
distribution between the two terms. The interest-only loans we
purchased had
borrowers
with an average credit score of 737 at the time of purchase and an average
loan-to-value ratio not exceeding 80% at the time of purchase.
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, both of which are independent of the
loan origination function and 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 Bank
also purchases one- to four-family mortgage loans under agreements with
correspondent lenders located within our market areas and select market areas in
Missouri. Approved loans and their servicing rights are purchased on
a loan by loan basis. The loan is originated to our specifications
including interest rates, product description and underwriting
standards. The loans may be fixed-rate or ARM loans. The
Bank sets prices for all loan products at least once each week. The
underwriting generally is performed by a third party underwriter who is under
contract with us to use the Bank’s internal underwriting
standards. During the 2008 and 2007 fiscal years, the Bank purchased
$119.5 million and $129.1 million, respectively, of one- to four-family mortgage
loans from correspondent lenders.
Historically,
the Bank has purchased one- to four-family mortgage loans from nationwide
lenders to reduce the risk of geographic concentration and to supplement one- to
four-family ARM loan origination volume as ARM loans are not considered as
attractive to borrowers as fixed-rate mortgage loans in the Bank’s local
markets. The lender retains the servicing of these
loans. During 2008 and 2007, the Bank purchased $155 thousand and
$200 thousand, respectively, of one- to four-family mortgage loans from
nationwide lenders.
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, an approved Bank underwriter
reviews at least 25% of the loan files and the supporting documentation in the
pool. Our standard contractual agreement with the seller includes
recourse options for any breach of representation or warranty with the respect
to the loans purchased.
The
underwriting of loans purchased through correspondent lenders is generally
performed by a third party underwriter who is under contract to use a product
description supplied by the Bank that is specific to each
correspondent. The products offered by the correspondents are at
least as restrictive as the Bank’s own internal underwriting
standards. Correspondent lenders are located within the metropolitan
Kansas City market area and select market areas in Missouri. The Bank
purchases approved loans and the related servicing rights, on a loan-by-loan
basis.
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, would like to reduce their term, or 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.
Construction
Lending. 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. The Bank is
also a participant with five other banking institutions on a $42.5 million
construction loan secured by a retail shopping center in Kansas with two major
retailers. The Bank’s participant share is $15.0 million which is
disbursed as the improvements are completed. As of September 30,
2008, $6.3 million of the $15.0 million had been
disbursed. 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. At September 30, 2008, we had
$85.2 million in construction-to-permanent loans outstanding, including
undisbursed loan funds, representing almost 2% of our total loan
portfolio.
Consumer
Lending. 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. At September 30, 2008, our consumer loan portfolio
totaled $212.2 million, or 4% of our total loan portfolio.
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%. 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
with an application date prior to May 30, 2008 have monthly payments of accrued
interest and a balloon payment of unpaid principal at 120
months. Interest-only home equity lines of credit with an application
date on or after May 30, 2008 have monthly payments of accrued interest and a
balloon payment of unpaid principal at 12 months. 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. Home equity loans,
including lines of credit and home improvement loans, comprised almost 4% of our
total loan portfolio, or $203.0 million, at September 30, 2008. As of
September 30, 2008, 68% of the home equity portfolio was
adjustable-rate.
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.
Consumer
loans generally have shorter terms to maturity or reprice more frequently, which
reduces our exposure to changes in interest rates, and usually carry higher
rates of interest than do one- to four-family mortgage loans. In
addition, management believes that offering consumer loan products helps to
expand and create stronger ties to our existing customer base by increasing the
number of customer relationships and providing cross-marketing
opportunities.
Consumer
loans may entail greater risk than do one- to four-family mortgage loans,
particularly in the case of consumer loans that are secured by rapidly
depreciable assets, such as automobiles.
Multi-family and
Commercial Real Estate Lending. The Bank’s multi-family and
commercial real estate loans are secured primarily by multi-family dwellings and
small commercial 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. Our multi-family and commercial
real estate loans are originated with either a fixed or adjustable interest
rate. The interest rate on adjustable-rate loans is based on a
variety of indices, generally determined through negotiation with the
borrower. While maximum maturities may extend to 30 years, these
loans frequently have shorter maturities and may not be fully amortizing,
requiring balloon payments of unamortized principal at
maturity. At September 30, 2008, multi-family and commercial
real estate loans totaled $56.1 million, or 1% of our total loan
portfolio.
We
generally do not maintain a tax or insurance escrow account for multi-family or
commercial real estate loans. In order to monitor the adequacy of
cash flows on income-producing properties of $1.5 million or more, the borrower
is notified annually to provide financial information including rental rates and
income, maintenance costs and an update of real estate property tax payments, as
well as personal financial information.
Our
multi-family and commercial real estate loans are generally large dollar loans
and involve a greater degree of credit risk than one- to four-family mortgage
loans. Such loans typically involve large balances to single
borrowers or groups of related borrowers. Because payments on
multi-family and commercial real estate loans are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the
economy. If the cash flow from the project is reduced, or if leases
are not obtained or renewed, the borrower’s ability to repay the loan may be
impaired. See “Asset Quality - Non-performing
Loans.”
Loan
Portfolio. The following table presents information concerning
the composition of our loan portfolio in dollar amounts and in percentages
(before deductions for undisbursed loan funds, unearned loan fees and deferred
costs and the allowance for loan losses) as of the dates indicated.
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
$ |
5,026,358 |
|
|
|
93.43
|
% |
|
$ |
4,992,398 |
|
|
|
93.38
|
% |
|
$ |
4,931,505 |
|
|
|
93.80
|
% |
|
$ |
5,189,006 |
|
|
|
94.44
|
% |
|
$ |
4,492,205 |
|
|
|
93.70
|
% |
Multi-family
and commercial
|
|
|
56,081 |
|
|
|
1.04 |
|
|
|
60,625 |
|
|
|
1.13 |
|
|
|
56,774 |
|
|
|
1.08 |
|
|
|
49,563 |
|
|
|
0.90 |
|
|
|
44,119 |
|
|
|
0.92 |
|
Construction
|
|
|
85,178 |
|
|
|
1.58 |
|
|
|
74,521 |
|
|
|
1.39 |
|
|
|
45,452 |
|
|
|
0.87 |
|
|
|
45,312 |
|
|
|
0.83 |
|
|
|
54,782 |
|
|
|
1.14 |
|
Total
real estate loans
|
|
|
5,167,617 |
|
|
|
96.05 |
|
|
|
5,127,544 |
|
|
|
95.90 |
|
|
|
5,033,731 |
|
|
|
95.75 |
|
|
|
5,283,881 |
|
|
|
96.17 |
|
|
|
4,591,106 |
|
|
|
95.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
4,634 |
|
|
|
0.09 |
|
|
|
5,249 |
|
|
|
0.10 |
|
|
|
6,250 |
|
|
|
0.12 |
|
|
|
8,377 |
|
|
|
0.15 |
|
|
|
9,141 |
|
|
|
0.19 |
|
Automobile
|
|
|
3,484 |
|
|
|
0.07 |
|
|
|
4,234 |
|
|
|
0.08 |
|
|
|
3,660 |
|
|
|
0.07 |
|
|
|
2,555 |
|
|
|
0.05 |
|
|
|
2,274 |
|
|
|
0.05 |
|
Home
equity
|
|
|
202,956 |
|
|
|
3.77 |
|
|
|
208,642 |
|
|
|
3.91 |
|
|
|
212,938 |
|
|
|
4.04 |
|
|
|
198,135 |
|
|
|
3.61 |
|
|
|
190,180 |
|
|
|
3.97 |
|
Other
|
|
|
1,110 |
|
|
|
0.02 |
|
|
|
905 |
|
|
|
0.01 |
|
|
|
832 |
|
|
|
0.02 |
|
|
|
1,369 |
|
|
|
0.02 |
|
|
|
1,612 |
|
|
|
0.03 |
|
Total
consumer loans
|
|
|
212,184 |
|
|
|
3.95 |
|
|
|
219,030 |
|
|
|
4.10 |
|
|
|
223,680 |
|
|
|
4.25 |
|
|
|
210,436 |
|
|
|
3.83 |
|
|
|
203,207 |
|
|
|
4.24 |
|
Commercial
business loans
|
|
|
44 |
|
|
|
-- |
|
|
|
53 |
|
|
|
-- |
|
|
|
62 |
|
|
|
-- |
|
|
|
70 |
|
|
|
-- |
|
|
|
129 |
|
|
|
-- |
|
Total
other loans
|
|
|
212,228 |
|
|
|
3.95 |
|
|
|
219,083 |
|
|
|
4.10 |
|
|
|
223,742 |
|
|
|
4.25 |
|
|
|
210,506 |
|
|
|
3.83 |
|
|
|
203,336 |
|
|
|
4.24 |
|
Total
loans receivable
|
|
|
5,379,845 |
|
|
|
100.00
|
% |
|
|
5,346,626 |
|
|
|
100.00
|
% |
|
|
5,257,473 |
|
|
|
100.00
|
% |
|
|
5,494,387 |
|
|
|
100.00
|
% |
|
|
4,794,442 |
|
|
|
100.00
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed
loan funds
|
|
|
43,186 |
|
|
|
|
|
|
|
42,481 |
|
|
|
|
|
|
|
22,605 |
|
|
|
|
|
|
|
14,803 |
|
|
|
|
|
|
|
23,623 |
|
|
|
|
|
Unearned
loan fees and deferred costs
|
|
|
10,088 |
|
|
|
|
|
|
|
9,893 |
|
|
|
|
|
|
|
9,318 |
|
|
|
|
|
|
|
10,856 |
|
|
|
|
|
|
|
18,794 |
|
|
|
|
|
Allowance
for loan losses
|
|
|
5,791 |
|
|
|
|
|
|
|
4,181 |
|
|
|
|
|
|
|
4,433 |
|
|
|
|
|
|
|
4,598 |
|
|
|
|
|
|
|
4,495 |
|
|
|
|
|
Total
loans receivable, net
|
|
$ |
5,320,780 |
|
|
|
|
|
|
$ |
5,290,071 |
|
|
|
|
|
|
$ |
5,221,117 |
|
|
|
|
|
|
$ |
5,464,130 |
|
|
|
|
|
|
$ |
4,747,530 |
|
|
|
|
|
The
following table presents the contractual maturity of our loan portfolio at
September 30, 2008, net of undisbursed loan funds. Mortgage loans
which have adjustable or renegotiable interest rates are shown as maturing in
the period during which the contract is due. The table does not
reflect the effects of possible prepayments or enforcement of due on sale
clauses.
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
and
|
|
|
Construction
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
One-
to Four-Family
|
|
|
Commercial
|
|
|
and
Development(2)
|
|
|
Consumer(3)
|
|
|
Business
|
|
|
Total
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Amounts
due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year (1)
|
|
$ |
2,098 |
|
|
|
6.78
|
% |
|
$ |
-- |
|
|
|
--
|
% |
|
$ |
35,709 |
|
|
|
5.66
|
% |
|
$ |
5,210 |
|
|
|
5.59
|
% |
|
$ |
-- |
|
|
|
--
|
% |
|
$ |
43,017 |
|
|
|
5.71
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
through five years
|
|
|
75,607 |
|
|
|
5.37 |
|
|
|
1,465 |
|
|
|
6.73 |
|
|
|
6,283 |
|
|
|
5.85 |
|
|
|
14,571 |
|
|
|
6.65 |
|
|
|
44 |
|
|
|
6.68 |
|
|
|
97,970 |
|
|
|
5.61 |
|
After
five years
|
|
|
4,948,653 |
|
|
|
5.61 |
|
|
|
54,616 |
|
|
|
6.43 |
|
|
|
-- |
|
|
|
-- |
|
|
|
192,403 |
|
|
|
6.54 |
|
|
|
-- |
|
|
|
-- |
|
|
|
5,195,672 |
|
|
|
5.65 |
|
Total
due after one year
|
|
|
5,024,260 |
|
|
|
5.61 |
|
|
|
56,081 |
|
|
|
6.44 |
|
|
|
6,283 |
|
|
|
5.85 |
|
|
|
206,974 |
|
|
|
6.55 |
|
|
|
44 |
|
|
|
6.68 |
|
|
|
5,293,642 |
|
|
|
5.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$ |
5,026,358 |
|
|
|
5.61
|
% |
|
$ |
56,081 |
|
|
|
6.44
|
% |
|
$ |
41,992 |
|
|
|
5.69
|
% |
|
$ |
212,184 |
|
|
|
6.52
|
% |
|
$ |
44 |
|
|
|
6.68
|
% |
|
|
5,336,659 |
|
|
|
5.65
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
loan fees and deferred costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,088 |
|
|
|
|
|
Allowance
for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,791 |
|
|
|
|
|
Total
loans receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,320,780 |
|
|
|
|
|
(2) Construction
loans are presented based upon the term to complete construction and net of
undisbursed loan funds.
(3) For
home equity loans, the maturity date calculated assumes the customer always
makes the required minimum payment. Interest-only home equity lines
of credit with an application date prior to May 30, 2008 assume a balloon
payment of unpaid principal at 120 months. Interest-only home equity
lines of credit with an application date on or after May 30, 2008 assume a
balloon payment of unpaid principal at 12 months. All other home
equity lines of credit assume a term of 240 months.
The
following table presents, as of September 30, 2008, the amount of loans, net of
undisbursed loan funds, due after September 30, 2009, and whether these loans
have fixed or adjustable interest rates.
|
|
Fixed
|
|
|
Adjustable
|
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Real
Estate Loans:
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
$ |
3,601,401 |
|
|
$ |
1,422,859 |
|
|
$ |
5,024,260 |
|
Multi-family
and Commercial
|
|
|
53,760 |
|
|
|
2,321 |
|
|
|
56,081 |
|
Construction
|
|
|
4,858 |
|
|
|
1,425 |
|
|
|
6,283 |
|
Consumer
|
|
|
70,358 |
|
|
|
136,616 |
|
|
|
206,974 |
|
Commercial
Business
|
|
|
44 |
|
|
|
-- |
|
|
|
44 |
|
Total
|
|
$ |
3,730,421 |
|
|
$ |
1,563,221 |
|
|
$ |
5,293,642 |
|
The
following table shows our loan originations, loan purchases and participations,
swaps, and repayment activity for the periods indicated.
|
|
Year
Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Originations by type:
|
|
|
|
|
|
|
|
|
|
Adjustable-rate:
|
|
|
|
|
|
|
|
|
|
Real
estate - one- to four-family
|
|
$ |
77,679 |
|
|
$ |
104,362 |
|
|
$ |
147,959 |
|
-
multi-family and commercial
|
|
|
1,800 |
|
|
|
-- |
|
|
|
-- |
|
Consumer
|
|
|
89,345 |
|
|
|
87,022 |
|
|
|
101,956 |
|
Total
adjustable-rate loans originated
|
|
|
168,824 |
|
|
|
191,384 |
|
|
|
249,915 |
|
Fixed-rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate - one- to four-family
|
|
|
631,765 |
|
|
|
573,239 |
|
|
|
497,458 |
|
-
multi-family and commercial
|
|
|
975 |
|
|
|
5,523 |
|
|
|
12,795 |
|
Consumer
|
|
|
19,271 |
|
|
|
33,304 |
|
|
|
51,078 |
|
Total
fixed-rate loans originated
|
|
|
652,011 |
|
|
|
612,066 |
|
|
|
561,331 |
|
Total
loans originated
|
|
|
820,835 |
|
|
|
803,450 |
|
|
|
811,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate - one- to four-family
|
|
|
119,631 |
|
|
|
129,335 |
|
|
|
329,319 |
|
-
multi-family and commercial
|
|
|
-- |
|
|
|
15,000 |
|
|
|
-- |
|
Total
loans purchased
|
|
|
119,631 |
|
|
|
144,335 |
|
|
|
329,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps and Repayments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
balance of loans related to loan swap transaction
|
|
|
-- |
|
|
|
-- |
|
|
|
(404,819 |
) |
Principal
repayments
|
|
|
(899,178 |
) |
|
|
(855,980 |
) |
|
|
(973,054 |
) |
Total
reductions
|
|
|
(899,178 |
) |
|
|
(855,980 |
) |
|
|
(1,377,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in other items, net
|
|
|
(8,069 |
) |
|
|
(2,652 |
) |
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease)
|
|
$ |
33,219 |
|
|
$ |
89,153 |
|
|
$ |
(236,914 |
) |
Asset
Quality
The
Bank’s underwriting guidelines have historically 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.
For
one-to four- family mortgage loans and home equity loans, when a borrower fails
to make a loan payment 15 days after the due date, a late charge is assessed and
a notice is mailed. All delinquent balances are reviewed by
collection personnel once the loan is 16 or more days past
due. Attempts to contact the borrower occur by personal letter and,
if no response is received, by telephone, with the purpose of establishing
repayment arrangements for the borrower to bring the loan
current. Repayment arrangements may be approved by a designated bank
officer. Once a loan becomes 90 days delinquent, a demand letter is
issued requiring the loan to be brought current or foreclosure procedures will
be implemented. Once a loan becomes 120 days delinquent, and an
acceptable repayment plan has not been established, the loan is forwarded to
legal counsel to initiate foreclosure. Different collection rules may apply for
one-to four- family mortgage loans serviced for FNMA, FHLMC and
FHLB. For all other loans, the same collection activities and time
frames occur, except demand letters are issued at 60 days and repossession
activities occur once a loan becomes 90 days delinquent.
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
for loans originated by the Bank and purchased loans. Credit scores
were updated again for the majority of our purchased loans as of August
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%
|
|
$ |
127,680 |
|
|
|
2.5
|
% |
|
$ |
140,513 |
|
|
|
2.8
|
% |
|
$ |
397,303 |
|
|
|
7.9
|
% |
|
$ |
1,755,108 |
|
|
|
34.9
|
% |
|
$ |
2,420,604 |
|
|
|
48.1
|
% |
70%
to 80%
|
|
|
114,282 |
|
|
|
2.3 |
|
|
|
136,806 |
|
|
|
2.7 |
|
|
|
407,500 |
|
|
|
8.1 |
|
|
|
1,178,585 |
|
|
|
23.5 |
|
|
|
1,837,173 |
|
|
|
36.6 |
|
More
than 80%
|
|
|
77,072 |
|
|
|
1.5 |
|
|
|
87,796 |
|
|
|
1.8 |
|
|
|
220,617 |
|
|
|
4.4 |
|
|
|
383,096 |
|
|
|
7.6 |
|
|
|
768,581 |
|
|
|
15.3 |
|
Total
|
|
$ |
319,034 |
|
|
|
6.3
|
% |
|
$ |
365,115 |
|
|
|
7.3
|
% |
|
$ |
1,025,420 |
|
|
|
20.4
|
% |
|
$ |
3,316,789 |
|
|
|
66.0
|
% |
|
$ |
5,026,358 |
|
|
|
100.0
|
% |
Delinquent
Loans. The following tables set forth our loans 30 - 89 days
delinquent by type, number and amount as of the periods presented.
|
|
Loans
Delinquent for 30-89 Days at September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated
|
|
|
125 |
|
|
$ |
13,244 |
|
|
|
149 |
|
|
$ |
13,117 |
|
|
|
230 |
|
|
$ |
14,875 |
|
Purchased
|
|
|
37 |
|
|
|
7,083 |
|
|
|
26 |
|
|
|
3,854 |
|
|
|
26 |
|
|
|
4,737 |
|
Multi-family
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
222 |
|
Consumer
|
|
|
54 |
|
|
|
782 |
|
|
|
57 |
|
|
|
761 |
|
|
|
34 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
216 |
|
|
$ |
21,109 |
|
|
|
232 |
|
|
$ |
17,732 |
|
|
|
291 |
|
|
$ |
20,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent
loans to total loans
|
|
|
|
|
|
|
0.40 |
% |
|
|
|
|
|
|
0.34 |
% |
|
|
|
|
|
|
0.39 |
% |
During
the second quarter of fiscal year 2007, the methodology for calculating the
number of days delinquent changed with the replacement of the Bank’s core
information processing system. For mortgage loans, the new system
utilizes a 30/360 calculation, which is consistent with industry
standards. The former core information processing system calculated
days delinquent based upon actual days. The method of calculating
days delinquent for home equity loans did not change with the core information
processing system replacement.
Of the
$7.1 million of 30 - 89 day delinquent purchased loans at September 30, 2008,
$2.0 million, or 28%, were purchased from one nationwide lender. The
total balance of loans purchased from this lender was $105.4 million or 2% of
the total loan portfolio. There is not believed to be a
geographic trend associated with our purchased 30 - 89 day delinquent purchased
loans.
Non-performing
Assets. The table below sets forth the number, amount and
categories of non-performing assets. Non-performing assets consist of
non-performing loans and real estate owned. Non-performing loans are
primarily loans that are 90 or more days delinquent or are in the process of
foreclosure. The amount that was included in interest income on
non-performing loans, before non-accruing status, was $150 thousand for the year
ended September 30, 2008. The amount of additional interest income
that would have been recorded on non-performing loans if they were not on
non-accruing status was $179 thousand for the year ended September 30,
2008. Real estate owned includes assets acquired in settlement of
loans.
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated
|
|
|
70 |
|
|
$ |
6,488 |
|
|
|
68 |
|
|
$ |
4,941 |
|
|
|
56 |
|
|
$ |
3,534 |
|
|
|
74 |
|
|
$ |
4,471 |
|
|
|
85 |
|
|
$ |
5,375 |
|
Purchased
|
|
|
25 |
|
|
|
6,708 |
|
|
|
9 |
|
|
|
2,163 |
|
|
|
13 |
|
|
|
1,857 |
|
|
|
5 |
|
|
|
563 |
|
|
|
5 |
|
|
|
386 |
|
Commercial
real estate
|
|
|
1 |
|
|
|
28 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Consumer
|
|
|
29 |
|
|
|
442 |
|
|
|
20 |
|
|
|
248 |
|
|
|
15 |
|
|
|
218 |
|
|
|
15 |
|
|
|
124 |
|
|
|
23 |
|
|
|
310 |
|
Total
|
|
|
125 |
|
|
|
13,666 |
|
|
|
97 |
|
|
|
7,352 |
|
|
|
84 |
|
|
|
5,609 |
|
|
|
94 |
|
|
|
5,158 |
|
|
|
113 |
|
|
|
6,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated
(1)
|
|
|
36 |
|
|
|
2,228 |
|
|
|
30 |
|
|
|
2,036 |
|
|
|
34 |
|
|
|
2,401 |
|
|
|
30 |
|
|
|
1,368 |
|
|
|
38 |
|
|
|
3,634 |
|
Purchased
|
|
|
12 |
|
|
|
2,918 |
|
|
|
1 |
|
|
|
61 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
245 |
|
|
|
2 |
|
|
|
342 |
|
Construction
and development
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
273 |
|
Non
real estate consumer
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
8 |
|
|
|
1 |
|
|
|
40 |
|
|
|
-- |
|
|
|
-- |
|
Total
|
|
|
48 |
|
|
|
5,146 |
|
|
|
31 |
|
|
|
2,097 |
|
|
|
35 |
|
|
|
2,409 |
|
|
|
32 |
|
|
|
1,653 |
|
|
|
41 |
|
|
|
4,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
|
173 |
|
|
$ |
18,812 |
|
|
|
128 |
|
|
$ |
9,449 |
|
|
|
119 |
|
|
$ |
8,018 |
|
|
|
126 |
|
|
$ |
6,811 |
|
|
|
154 |
|
|
$ |
10,320 |
|
Non-performing
assets as a percentage of total assets
|
|
|
|
|
|
|
0.23 |
% |
|
|
|
|
|
|
0.12 |
% |
|
|
|
|
|
|
0.10 |
% |
|
|
|
|
|
|
0.08 |
% |
|
|
|
|
|
|
0.12 |
% |
Non-performing
loans as a percentage of total loans
|
|
|
|
|
|
|
0.26 |
% |
|
|
|
|
|
|
0.14 |
% |
|
|
|
|
|
|
0.11 |
% |
|
|
|
|
|
|
0.09 |
% |
|
|
|
|
|
|
0.13 |
% |
(1) Real
estate related consumer loans are included in the one- to four-family category
as the underlying collateral is a one- to four-family property.
We had
troubled debt restructurings of $918 thousand, $230 thousand and $186 thousand
during the years ended September 30, 2008, 2007 and 2006,
respectively. These loans are not included in the table
above. We had no troubled debt restructurings during the years ended
September 30, 2005 and 2004.
Of the
$6.7 million of non-performing purchased loans at September 30, 2008, $5.1
million, or 76%, were purchased from one nationwide lender. This is
the same nationwide lender discussed in “Delinquent Loans”
above. There is not believed to be a geographic trend associated with
our purchased non-performing loans.
At
September 30, 2008, non-performing loans with LTV ratios greater than 80%
comprised 27% of total non-performing loans. Of the non-performing
loans with LTV ratios greater than 80%, 87% 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 $458 thousand at September 30, 2008. At
origination, these loans had LTV ratios less than 80%, but based upon updated
appraisals, the LTV ratios are now in excess of 80%.
Classified
Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities considered by the OTS
to be of lesser quality, as “special mention”, “substandard”, “doubtful” or
“loss.” Assets classified as “special mention” are performing loans
on which known information about the collateral pledged or the possible credit
problems of the borrowers have caused management to have doubts as to the
ability of the borrowers to comply with present loan repayment terms and which
may result in the future inclusion of such assets in the non-performing asset
categories. An asset is considered “substandard” if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. “Substandard” assets include those
characterized by the “distinct possibility” that the insured institution will
sustain “some loss” if the deficiencies are not corrected. Assets
classified as “doubtful” have all of the weaknesses inherent as those classified
“substandard,” with the added characteristic that the weaknesses present make
“collection or liquidation in full,” on the basis of currently existing facts,
conditions and values “highly questionable and improbable.” Assets
classified as “loss” are those considered “uncollectible” and of such little
value that their continuance as assets without the establishment of a specific
loss reserve is not warranted.
When an
insured institution classifies problem assets as either special mention,
substandard or doubtful, it may establish valuation allowances in an amount
deemed prudent by management and approved by the board of
directors. General allowances may be established to recognize the
inherent risk associated with lending activities, but unlike specific
allowances, have not been allocated to specific problem assets within a
portfolio of similar assets. When an insured institution classifies
problem assets as “loss,” it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge off such amount. An institution’s determination as to the
classification of its assets and the amount of its allowance for loan losses is
subject to review by the OTS and the FDIC, which may order the establishment of
additional loss allowances.
In
connection with the filing of the Bank’s periodic reports with the OTS and in
accordance with our asset classification policy, we regularly review the problem
assets in our portfolio to determine whether any assets require classification
in accordance with applicable regulations. The following table sets
forth the carrying amounts of our assets, exclusive of general valuation and
specific allowances, classified as special mention, substandard or doubtful at
September 30, 2008.
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
(Dollars
in thousands)
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated
|
|
|
16 |
|
|
$ |
1,986 |
|
|
|
70 |
|
|
$ |
6,488 |
|
|
|
-- |
|
|
$ |
-- |
|
Purchased
|
|
|
1 |
|
|
|
281 |
|
|
|
25 |
|
|
|
6,708 |
|
|
|
-- |
|
|
|
-- |
|
Consumer
|
|
|
2 |
|
|
|
33 |
|
|
|
29 |
|
|
|
442 |
|
|
|
-- |
|
|
|
-- |
|
Commercial
business
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
28 |
|
|
|
-- |
|
|
|
-- |
|
Total
loans
|
|
|
19 |
|
|
|
2,300 |
|
|
|
125 |
|
|
|
13,666 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated
|
|
|
-- |
|
|
|
-- |
|
|
|
36 |
|
|
|
2,228 |
|
|
|
-- |
|
|
|
-- |
|
Purchased
|
|
|
-- |
|
|
|
-- |
|
|
|
12 |
|
|
|
2,918 |
|
|
|
-- |
|
|
|
-- |
|
Total
real estate owned
|
|
|
-- |
|
|
|
-- |
|
|
|
48 |
|
|
|
5,146 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
classified assets
|
|
|
19 |
|
|
$ |
2,300 |
|
|
|
173 |
|
|
$ |
18,812 |
|
|
|
-- |
|
|
$ |
-- |
|
Provision for
Loan Losses. During fiscal year 2008, management continued to
review the risk exposure of the Bank’s mortgage loan portfolio using its
established formula analysis as permitted by Statement of Financial Accounting
Standards (“SFAS”) No. 5, “Accounting for Contingencies”. In
addition, management considered other then-existing inherent risks to the loan
portfolio based upon our recent experience with non-performing purchased one- to
four-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.
A
provision for loan loss of $2.1 million was recorded during fiscal year 2008 due
to additional risks management believes are inherent in our purchased loan
portfolio as discussed above. Also see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Critical Accounting
Policies – Allowance for Loan Losses.” The majority of the $2.1
million related to general and specific valuation allowances on purchased
loans. In such cases where the real estate market values of the
underlying collateral decreased below our outstanding loan balance, we recorded
a specific allowance. The provision/recovery for loan losses is
recorded on the consolidated statement of income to bring our allowance for loan
losses to a level deemed appropriate by management.
Allowance for
Loan Losses. At September 30, 2008, our allowance for loan
losses was $5.8 million or 0.11% of the total loan portfolio and 42% of total
non-accruing loans. This compares with an allowance for loan losses
of $4.2 million or 0.08% of the total loan portfolio and 57% of total
non-accruing loans as of September 30, 2007. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies” in the Annual Report to Stockholders attached as
Exhibit 13 to this Annual Report on Form 10-K for a full discussion of the
allowance for loan losses.
Historical
net charge-offs are not necessarily indicative of the amount of net charge-offs
that the Bank will realize in the future resulting from an increase in the one-
to four-family mortgage loan portfolio. The following table provides
a recap of our allowance for loan loss activity for the periods
presented.
|
|
Year
Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
4,181 |
|
|
$ |
4,433 |
|
|
$ |
4,598 |
|
|
$ |
4,495 |
|
|
$ |
4,550 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
407 |
|
|
|
9 |
|
|
|
95 |
|
|
|
91 |
|
|
|
84 |
|
Consumer
|
|
|
34 |
|
|
|
18 |
|
|
|
37 |
|
|
|
56 |
|
|
|
77 |
|
Total
charge-offs
|
|
|
441 |
|
|
|
27 |
|
|
|
132 |
|
|
|
147 |
|
|
|
161 |
|
Recoveries
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
35 |
|
|
|
42 |
|
Net
charge-offs
|
|
|
441 |
|
|
|
27 |
|
|
|
131 |
|
|
|
112 |
|
|
|
119 |
|
Allowance
on loans in the loan swap transaction
|
|
|
-- |
|
|
|
-- |
|
|
|
(281 |
) |
|
|
-- |
|
|
|
-- |
|
Provision
(recovery)
|
|
|
2,051 |
|
|
|
(225 |
) |
|
|
247 |
|
|
|
215 |
|
|
|
64 |
|
Balance
at end of period
|
|
$ |
5,791 |
|
|
$ |
4,181 |
|
|
$ |
4,433 |
|
|
$ |
4,598 |
|
|
$ |
4,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of net charge-offs during the period to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
loans outstanding during the period (1)
|
|
|
--
|
% |
|
|
--
|
% |
|
|
--
|
% |
|
|
--
|
% |
|
|
--
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of net charge-offs during the period to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
non-performing assets
|
|
|
3.12
|
% |
|
|
0.31
|
% |
|
|
1.77
|
% |
|
|
1.31
|
% |
|
|
1.02
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
as a percentage of non-accruing loans
|
|
|
42.37
|
% |
|
|
56.87
|
% |
|
|
79.03
|
% |
|
|
89.14
|
% |
|
|
74.04
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
as a percentage of total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(end
of period)
|
|
|
0.11
|
% |
|
|
0.08
|
% |
|
|
0.08
|
% |
|
|
0.08
|
% |
|
|
0.09
|
% |
(1) Ratios
calculate to be less than 0.01%.
The
distribution of our allowance for loan losses at the dates indicated is
summarized as follows:
|
|
September
30,
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
of
Loans
|
|
|
|
|
|
of
Loans
|
|
|
|
|
|
of
Loans
|
|
|
|
|
|
of
Loans
|
|
|
|
|
|
of
Loans
|
|
|
|
|
|
in
Each
|
|
|
|
|
|
in
Each
|
|
|
|
|
|
in
Each
|
|
|
|
|
|
in
Each
|
|
|
|
|
|
in
Each
|
|
|
Amount
of
|
|
|
Category
|
|
|
Amount
of
|
|
|
Category
|
|
|
Amount
of
|
|
|
Category
|
|
|
Amount
of
|
|
|
Category
|
|
|
Amount
of
|
|
|
Category
|
|
|
Loan
Loss
|
|
|
to
Total
|
|
|
Loan
Loss
|
|
|
to
Total
|
|
|
Loan
Loss
|
|
|
to
Total
|
|
|
Loan
Loss
|
|
|
to
Total
|
|
|
Loan
Loss
|
|
|
to
Total
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
$ |
5,382 |
|
|
|
94.36
|
% |
|
$ |
3,735 |
|
|
|
94.11
|
% |
|
$ |
3,796 |
|
|
|
94.18
|
% |
|
$ |
3,866 |
|
|
|
94.78
|
% |
|
$ |
3,561 |
|
|
|
94.19
|
% |
Multi-family
|
|
|
47 |
|
|
|
0.92 |
|
|
|
48 |
|
|
|
0.95 |
|
|
|
46 |
|
|
|
0.92 |
|
|
|
203 |
|
|
|
0.74 |
|
|
|
177 |
|
|
|
0.74 |
|
Commercial
real estate
|
|
|
7 |
|
|
|
0.13 |
|
|
|
9 |
|
|
|
0.19 |
|
|
|
8 |
|
|
|
0.16 |
|
|
|
67 |
|
|
|
0.16 |
|
|
|
65 |
|
|
|
0.18 |
|
Construction
|
|
|
41 |
|
|
|
0.60 |
|
|
|
69 |
|
|
|
0.61 |
|
|
|
258 |
|
|
|
0.46 |
|
|
|
129 |
|
|
|
0.47 |
|
|
|
197 |
|
|
|
0.60 |
|
Consumer
|
|
|
314 |
|
|
|
3.99 |
|
|
|
317 |
|
|
|
4.14 |
|
|
|
321 |
|
|
|
4.28 |
|
|
|
333 |
|
|
|
3.85 |
|
|
|
488 |
|
|
|
4.29 |
|
Commercial
business
|
|
|
-- |
|
|
|
-- |
|
|
|
3 |
|
|
|
-- |
|
|
|
4 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
7 |
|
|
|
-- |
|
Total
|
|
$ |
5,791 |
|
|
|
100.00
|
% |
|
$ |
4,181 |
|
|
|
100.00
|
% |
|
$ |
4,433 |
|
|
|
100.00
|
% |
|
$ |
4,598 |
|
|
|
100.00
|
% |
|
$ |
4,495 |
|
|
|
100.00
|
% |
Investment
Activities
Federally
chartered savings institutions have the authority to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies, government-sponsored enterprises, including callable agency
securities, municipal bonds, certain certificates of deposit of insured banks
and savings institutions, certain bankers’ acceptances, repurchase agreements
and federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in investment grade commercial paper,
corporate debt securities, and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. As a member of the FHLB, the Bank is
required to maintain a specified investment in the capital stock of the
FHLB. See “Regulation - Federal Home Loan Bank System,” “Capitol
Federal Savings Bank,” and “Qualified
Thrift Lender Test” for a discussion of additional restrictions on our
investment activities.
The Chief
Investment Officer has the primary responsibility for the management of the
Bank’s investment portfolio, subject to the direction and guidance of the
ALCO. The Chief Investment Officer considers various factors when
making decisions, including the marketability, maturity, and tax consequences of
the proposed investment. The composition of the investment portfolio
will be affected by various market conditions, including the current and
anticipated slope of the yield curve, the level of interest rates, the impact on
the Bank’s interest rate risk, the trend of net deposit flows, the volume of
loan sales and the anticipated demand for funds via withdrawals, repayments of
borrowings, and loan originations and purchases.
The
general objectives of our investment portfolio are to provide liquidity when
loan demand is high, to assist in maintaining earnings when loan demand is low,
and to maximize earnings while satisfactorily managing risk, including liquidity
risk, interest rate risk, reinvestment risk, and credit
risk. Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in relation to the
return on loans. Cash flow projections are reviewed regularly and
updated to assure that adequate liquidity is
maintained. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Quantitative and Qualitative
Disclosure about Market Risk” in the Annual Report to Stockholders attached as
Exhibit 13 to this Annual Report on Form 10-K.
We
classify securities as trading, available-for-sale, or held-to-maturity at the
date of purchase. Securities that are purchased and held principally
for resale in the near future are classified as trading securities and are
reported at fair value, with unrealized gains and losses reported in the
consolidated statements of income. Available-for-sale securities are
reported at fair market value, with unrealized gains and losses reported as a
component of accumulated other comprehensive income (loss) within stockholders’
equity, net of deferred income taxes. Held-to-maturity securities are
reported at cost, adjusted for amortization of premium and accretion of
discount. We have both the ability and intent to hold the
held-to-maturity securities to maturity. Management reviews the
security portfolios quarterly for other-than-temporary impairment and records
any such impairment in the consolidated statements of income.
Investment
Securities. Our investment securities portfolio consists of
U.S. Government and agency notes, including those issued by government-sponsored
enterprises such as FNMA, FHLMC, and FHLB, taxable and non-taxable municipal
bonds and trust preferred securities. At September 30, 2008,
our investment securities portfolio totaled $142.4 million. The
portfolio consists of securities classified as held-to-maturity and
available-for-sale. See “Notes to Consolidated Financial Statements –
Note 3” in the Annual Report to Stockholders attached as Exhibit 13 to this
Annual Report on Form 10-K.
At
September 30, 2008, $61.9 million, or 44%, 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 or FHLMC.
During
fiscal year 2008, our investment securities portfolio decreased $381.8 million
from $524.2 million at September 30, 2007 to $142.4 million at September 30,
2008. The decrease was a result of $614.0 million of maturities and
calls, partially offset by security purchases of $234.4 million. Of
the $234.4 million of purchases during fiscal year 2008, $230.5 million, or 98%,
were fixed-rate and had a weighted average yield of 3.96% and a weighted average
life of approximately one year. See “Notes to Consolidated Financial
Statements – Note 3” in the Annual Report to Stockholders attached as Exhibit 13
to this Annual Report on Form 10-K.
Mortgage-Related
Securities. Our MBS portfolio consists primarily of securities
issued by government-sponsored enterprises such as FNMA and FHLMC. The principal
and interest payments of MBS issued by FNMA and FHLMC are collateralized by the
underlying mortgage assets with principal and interest payments guaranteed by
the agencies.
The
underlying mortgage assets are conforming mortgages that comply with FNMA and
FHLMC underwriting guidelines, as applicable, and are therefore not considered
subprime. At September 30, 2008, our MBS portfolio totaled $2.23
billion. A small portion of the MBS portfolio consists of non-agency
collateralized mortgage obligations (“CMOs”). CMOs are special types
of pass-through debt securities in which the stream of principal and interest
payments on the underlying mortgages or MBS are used to create investment
classes with different maturities and, in some cases, different amortization
schedules, as well as a residual interest, with each such class possessing
different risk characteristics. At September 30, 2008, we held CMOs
totaling $7.3 million, none of which qualified as high risk mortgage securities
as defined under OTS regulations. Our CMOs are currently classified
as both held-to-maturity and available-for-sale. We do not purchase
residual interest bonds.
During
fiscal year 2008, our MBS portfolio increased $820.1 million from $1.41 billion
at September 30, 2007, to $2.23 billion at September 30, 2008. The
increase in the portfolio was primarily a result of cash flows from the
investment securities portfolio being reinvested into this portfolio and funds
from repurchase agreements being used to purchase MBS. Of the $1.33
billion of MBS purchased during fiscal year 2008, $785.2 million were fixed-rate
with a weighted average life of 4.62 years and a weighted average yield of 4.94%
and $545.2 million were adjustable-rate with a weighted average yield of 4.81%
and an average of 4.91 years until their first repricing
opportunity. See “ Notes to Consolidated Financial Statements – Note
4” in the Annual Report to Stockholders attached as Exhibit 13 to
this Annual Report on Form 10-K.
MBS
generally yield less than the loans that underlie such securities because of the
servicing fee retained by the servicer and the cost of payment guarantees or
credit enhancements that reduce credit risk. However, MBS are
generally more liquid than individual mortgage loans and may be used to
collateralize certain borrowings and public unit depositors of the
Bank. In general, MBS issued or guaranteed by FNMA and FHLMC are
weighted at no more than 20% for risk-based capital purposes compared to the 50%
risk-weighting assigned to most non-securitized mortgage loans. On
October 7, 2008, the OTS and other federal banking agencies proposed amendments
to existing regulations that would reduce the risk weighting for MBS issued or
guaranteed by FNMA and FHLMC from 20% to 10%.
When
securities are purchased for a price other than par, the difference between the
price paid and par is accreted to or amortized against the interest earned over
the life of the security, depending on whether a discount or premium to par is
paid. Movements in interest rates affect prepayment rates which, in
turn, affect the average lives of MBS and the speed at which the discount or
premium is accreted to or amortized against earnings.
While MBS
issued or backed by FNMA and FHLMC carry a reduced credit risk compared to whole
loans, these securities remain subject to the risk that a fluctuating interest
rate environment, along with other factors such as the geographic distribution
of the underlying mortgage loans, may alter the prepayment rate of the
underlying mortgage loans and so affect both the prepayment speed, and value, of
the securities. As noted above, the Bank, on some transactions, pays
a premium over par value for MBS purchased. Large premiums may cause
significant negative yield adjustments due to accelerated prepayments on the
underlying mortgages.
The
following table sets forth the composition of our investment and MBS portfolio,
excluding FHLB stock, at the dates indicated. Our investment
securities portfolio at September 30, 2008 did not contain securities of any
issuer with an aggregate book value in excess of 10% of our stockholders’
equity, excluding those issued by the government or its agencies. At
September 30, 2008, 2007 and 2006, the carrying value of FHLB stock was $124.4
million, $139.7 million, and $165.1million, respectively, which was in excess of
10% of our stockholders’ equity. The carrying value of our investment
in FHLB stock approximates its fair value.
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
%
of
|
|
|
Fair
|
|
|
Carrying
|
|
|
%
of
|
|
|
Fair
|
|
|
Carrying
|
|
|
%
of
|
|
|
Fair
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
Securities
|
|
$ |
-- |
|
|
|
--
|
% |
|
$ |
-- |
|
|
$ |
-- |
|
|
|
--
|
% |
|
$ |
-- |
|
|
$ |
396,904 |
|
|
|
100.00
|
% |
|
$ |
396,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS
|
|
|
1,484,055 |
|
|
|
96.77 |
|
|
|
1,484,055 |
|
|
|
402,686 |
|
|
|
79.72 |
|
|
|
402,686 |
|
|
|
556,248 |
|
|
|
74.59 |
|
|
|
556,248 |
|
U.S.
government and agency securities
|
|
|
44,188 |
|
|
|
2.88 |
|
|
|
44,188 |
|
|
|
99,705 |
|
|
|
19.74 |
|
|
|
99,705 |
|
|
|
188,264 |
|
|
|
25.25 |
|
|
|
188,264 |
|
Trust
preferred securities
|
|
|
2,655 |
|
|
|
0.17 |
|
|
|
2,655 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Municipal
investments
|
|
|
2,743 |
|
|
|
0.18 |
|
|
|
2,743 |
|
|
|
2,719 |
|
|
|
0.54 |
|
|
|
2,719 |
|
|
|
1,216 |
|
|
|
0.16 |
|
|
|
1,216 |
|
Total
securities available-for-sale
|
|
|
1,533,641 |
|
|
|
100.00 |
|
|
|
1,533,641 |
|
|
|
505,110 |
|
|
|
100.00 |
|
|
|
505,110 |
|
|
|
745,728 |
|
|
|
100.00 |
|
|
|
745,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS
|
|
|
750,284 |
|
|
|
89.00 |
|
|
|
743,764 |
|
|
|
1,011,585 |
|
|
|
70.58 |
|
|
|
995,415 |
|
|
|
1,131,634 |
|
|
|
82.50 |
|
|
|
1,101,159 |
|
U.S.
government and agency securities
|
|
|
37,397 |
|
|
|
4.43 |
|
|
|
36,769 |
|
|
|
401,431 |
|
|
|
28.00 |
|
|
|
398,598 |
|
|
|
240,000 |
|
|
|
17.50 |
|
|
|
233,525 |
|
Municipal
investments
|
|
|
55,376 |
|
|
|
6.57 |
|
|
|
55,442 |
|
|
|
20,313 |
|
|
|
1.42 |
|
|
|
20,342 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Total
securities held-to-maturity
|
|
|
843,057 |
|
|
|
100.00 |
|
|
|
835,975 |
|
|
|
1,433,329 |
|
|
|
100.00 |
|
|
|
1,414,355 |
|
|
|
1,371,634 |
|
|
|
100.00 |
|
|
|
1,334,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities
|
|
$ |
2,376,698 |
|
|
|
|
|
|
$ |
2,369,616 |
|
|
$ |
1,938,439 |
|
|
|
|
|
|
$ |
1,919,465 |
|
|
$ |
2,514,266 |
|
|
|
|
|
|
$ |
2,477,316 |
|
The
composition and maturities of the investment and MBS portfolio at September 30,
2008, excluding FHLB stock, are indicated in the following table by remaining
contractual maturity, without consideration of call features or pre-refunding
dates. Yields on tax-exempt investments are not calculated on a
taxable equivalent basis.
|
|
Less
than 1 year
|
|
|
1
to 5 years
|
|
|
5
to 10 years
|
|
|
Over
10 years
|
|
|
Total
Securities
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Fair
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
|
(Dollars
in thousands)
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS
|
|
$ |
1,109 |
|
|
|
5.99
|
% |
|
$ |
-- |
|
|
|
--
|
% |
|
$ |
40,102 |
|
|
|
5.08
|
% |
|
$ |
1,442,844 |
|
|
|
4.97
|
% |
|
$ |
1,484,055 |
|
|
|
4.97
|
% |
|
$ |
1,484,055 |
|
U.S.
government and agency securities
|
|
|
-- |
|
|
|
-- |
|
|
|
44,188 |
|
|
|
3.23 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
44,188 |
|
|
|
3.23 |
|
|
|
44,188 |
|
Trust
preferred securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,655 |
|
|
|
4.48 |
|
|
|
2,655 |
|
|
|
4.48 |
|
|
|
2,655 |
|
Municipal
investments – tax-exempt
|
|
|
-- |
|
|
|
-- |
|
|
|
387 |
|
|
|
3.54 |
|
|
|
1,131 |
|
|
|
3.70 |
|
|
|
1,225 |
|
|
|
3.90 |
|
|
|
2,743 |
|
|
|
3.77 |
|
|
|
2,743 |
|
Total
securities available-for-sale
|
|
|
1,109 |
|
|
|
5.99 |
|
|
|
44,575 |
|
|
|
3.23 |
|
|
|
41,233 |
|
|
|
5.04 |
|
|
|
1,446,724 |
|
|
|
4.97 |
|
|
|
1,533,641 |
|
|
|
4.92 |
|
|
|
1,533,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
187,807 |
|
|
|
4.64 |
|
|
|
562,477 |
|
|
|
4.48 |
|
|
|
750,284 |
|
|
|
4.52 |
|
|
|
743,764 |
|
U.S.
government and agency securities
|
|
|
12,398 |
|
|
|
5.09 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
25,000 |
|
|
|
5.76 |
|
|
|
37,398 |
|
|
|
5.54 |
|
|
|
36,769 |
|
Municipal
investments - tax exempt
|
|
|
84 |
|
|
|
3.54 |
|
|
|
6,012 |
|
|
|
3.24 |
|
|
|
32,358 |
|
|
|
3.53 |
|
|
|
16,321 |
|
|
|
3.02 |
|
|
|
54,775 |
|
|
|
3.35 |
|
|
|
54,827 |
|
Municipal
investments - taxable
|
|
|
100 |
|
|
|
4.56 |
|
|
|
300 |
|
|
|
5.07 |
|
|
|
200 |
|
|
|
5.46 |
|
|
|
-- |
|
|
|
-- |
|
|
|
600 |
|
|
|
5.11 |
|
|
|
615 |
|
Total
securities held-to-maturity
|
|
|
12,582 |
|
|
|
5.08 |
|
|
|
6,312 |
|
|
|
3.33 |
|
|
|
220,365 |
|
|
|
4.48 |
|
|
|
603,798 |
|
|
|
4.49 |
|
|
|
843,057 |
|
|
|
4.49 |
|
|
|
835,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities
|
|
$ |
13,691 |
|
|
|
5.15
|
% |
|
$ |
50,887 |
|
|
|
3.24
|
% |
|
$ |
261,598 |
|
|
|
4.57
|
% |
|
$ |
2,050,522 |
|
|
|
4.83
|
% |
|
$ |
2,376,698 |
|
|
|
4.77
|
% |
|
$ |
2,369,616 |
|
Sources
of Funds
General. Our
sources of funds are deposits, borrowings, repayment of principal and interest
on loans and MBS, interest earned on and maturities and calls of investment
securities, and funds generated from operations.
Deposits. We offer a
variety of deposit accounts having a wide range of interest rates and
terms. Our deposits consist of savings accounts, money market
accounts, interest-bearing and non-interest bearing checking accounts, and
certificates of deposit. We rely primarily upon competitive pricing
policies, marketing, and customer service to attract and retain
deposits. The flow of deposits is influenced significantly by general
economic conditions, changes in money market and prevailing interest rates, and
competition.
The
variety of deposit accounts we offer has allowed us to utilize strategic pricing
to obtain funds and to respond with flexibility to changes in consumer
demand. We endeavor to manage the pricing of our deposits in keeping
with our asset and liability management, liquidity, and profitability
objectives. Based on our experience, we believe that our deposits are
stable sources of funds. Despite this stability, our ability to
attract and maintain these deposits and the rates paid on them has been, and
will continue to be, significantly affected by market conditions.
The
following table sets forth our deposit flows during the periods
indicated. Included in the table are brokered and public unit
deposits which totaled $180.6 million, $193.0 million, and $233.5 million at
September 30, 2008, 2007 and 2006, respectively.
|
|
Year
Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Opening
balance
|
|
$ |
3,922,782 |
|
|
$ |
3,900,431 |
|
|
$ |
3,960,297 |
|
Deposits
|
|
|
7,108,677 |
|
|
|
7,168,045 |
|
|
|
7,422,475 |
|
Withdrawals
|
|
|
7,242,121 |
|
|
|
7,289,077 |
|
|
|
7,594,727 |
|
Interest
credited
|
|
|
134,545 |
|
|
|
143,383 |
|
|
|
112,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
3,923,883 |
|
|
$ |
3,922,782 |
|
|
$ |
3,900,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease)
|
|
$ |
1,101 |
|
|
$ |
22,351 |
|
|
$ |
(59,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
increase (decrease)
|
|
|
0.03
|
% |
|
|
0.57
|
% |
|
|
(1.51 |
)
% |
The
following table sets forth the dollar amount of deposits in the various types of
deposit programs we offered for the periods indicated.
|
|
|
Year
Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
|
|
|
(Dollars
in thousands)
|
|
Transactions and Savings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
|
|
|
$ |
400,461 |
|
|
|
10.21
|
% |
|
$ |
394,109 |
|
|
|
10.05
|
% |
|
$ |
402,898 |
|
|
|
10.33
|
% |
Savings
(1)
|
|
|
|
232,103 |
|
|
|
5.91 |
|
|
|
237,148 |
|
|
|
6.04 |
|
|
|
106,347 |
|
|
|
2.73 |
|
Money
market
|
|
|
|
772,323 |
|
|
|
19.68 |
|
|
|
790,277 |
|
|
|
20.15 |
|
|
|
808,910 |
|
|
|
20.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-certificates
|
|
|
|
1,404,887 |
|
|
|
35.80 |
|
|
|
1,421,534 |
|
|
|
36.24 |
|
|
|
1,318,155 |
|
|
|
33.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates (by rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00
– 0.99 |
% |
|
|
114 |
|
|
|
-- |
|
|
|
134 |
|
|
|
-- |
|
|
|
125 |
|
|
|
-- |
|
|
1.00
– 1.99 |
% |
|
|
7,426 |
|
|
|
0.19 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
2.00
– 2.99 |
% |
|
|
413,102 |
|
|
|
10.53 |
|
|
|
35,815 |
|
|
|
0.91 |
|
|
|
215,891 |
|
|
|
5.53 |
|
|
3.00
– 3.99 |
% |
|
|
935,470 |
|
|
|
23.84 |
|
|
|
225,162 |
|
|
|
5.74 |
|
|
|
541,236 |
|
|
|
13.88 |
|
|
4.00
– 4.99 |
% |
|
|
747,612 |
|
|
|
19.06 |
|
|
|
746,707 |
|
|
|
19.04 |
|
|
|
1,323,434 |
|
|
|
33.93 |
|
|
5.00
– 5.99 |
% |
|
|
414,347 |
|
|
|
10.56 |
|
|
|
1,489,706 |
|
|
|
37.98 |
|
|
|
497,453 |
|
|
|
12.75 |
|
|
6.00
– 6.99 |
% |
|
|
925 |
|
|
|
0.02 |
|
|
|
3,724 |
|
|
|
0.09 |
|
|
|
4,137 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
certificates (1)
|
|
|
|
2,518,996 |
|
|
|
64.20 |
|
|
|
2,501,248 |
|
|
|
63.76 |
|
|
|
2,582,276 |
|
|
|
66.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
$ |
3,923,883 |
|
|
|
100.00
|
% |
|
$ |
3,922,782 |
|
|
|
100.00
|
% |
|
$ |
3,900,431 |
|
|
|
100.00
|
% |
|
(1) During the second quarter of
fiscal year 2007, variable-rate retirement certificates of deposit were
reclassified to “Savings” as the new classifications for these accounts
did not have a stated maturity date as a result of changes required by the
Bank’s new core information technology processing system. The
amount of the retirement savings included in “Savings” at September 30,
2007 was $136.6 million. The amount of variable-rate
certificates of deposit included in “Certificates” at September 30, 2006
was $153.0 million.
|
The
following table sets forth the rate and maturity information for our certificate
of deposit portfolio as of September 30, 2008.
|
|
Amount
|
|
|
Rate
|
|
Certificates
maturing:
|
|
(Dollars
in Thousands)
|
|
Within
three months
|
|
$ |
494,370 |
|
|
|
4.53
|
% |
Over
three to six months
|
|
|
327,479 |
|
|
|
3.26 |
|
Over
six months to one year
|
|
|
658,537 |
|
|
|
3.43 |
|
Over
one to two years
|
|
|
631,061 |
|
|
|
4.26 |
|
Over
two to three years
|
|
|
285,932 |
|
|
|
4.02 |
|
Over
three to four years
|
|
|
99,392 |
|
|
|
3.69 |
|
Over
four to five years
|
|
|
21,278 |
|
|
|
3.79 |
|
Thereafter
|
|
|
947 |
|
|
|
4.17 |
|
|
|
$ |
2,518,996 |
|
|
|
3.91
|
% |
The
following table sets forth the maturity periods of our certificates of deposit
in amounts of $100 thousand or more at September 30, 2008.
|
|
Amount
|
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Certificates
maturing:
|
|
|
|
|
|
|
Three
months or less
|
|
$ |
177,302 |
|
|
|
4.80
|
% |
Over
three months through six months
|
|
|
66,621 |
|
|
|
3.24 |
|
Over
six months through twelve months
|
|
|
155,323 |
|
|
|
3.67 |
|
Over
twelve months
|
|
|
287,070 |
|
|
|
4.40 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
686,316 |
|
|
|
4.22
|
% |
The board
of directors has authorized the utilization of brokers to obtain deposits as a
source of funds. The Bank has entered into several relationships with
nationally recognized wholesale deposit brokerage firms to accept deposits from
these firms. Depending on market conditions, the Bank may use
brokered deposits from time to time to fund asset growth and gather deposits
that may help to manage interest rate risk. The Bank’s policies limit
the amount of brokered deposits that it may have at any time to 15% of total
deposits. The rates paid on brokered deposits plus fees are generally
equivalent to rates offered by FHLB on advances and comparable to some rates
paid on retail deposits. At September 30, 2008 and 2007, the balance
of brokered deposits was $180.6 million and $181.0 million,
respectively.
The board
of directors also has authorized the utilization of public unit deposits as a
source of funds. The Bank’s policies limit the amount of public unit
deposits that it may have at any time to 10% of total deposits. In
order to qualify to obtain such deposits, the Bank must have a branch in each
county in which it collects public unit deposits. At September 30,
2008, the Bank did not have any public unit deposits. At September
30, 2007, the balance of public unit deposits was $12.0 million.
Borrowings. Although deposits
are our main source of funds, we may utilize borrowings when, at the time of the
borrowing, they can be invested at a positive rate spread, when we desire
additional capacity to fund loan demand or when they help us meet our asset and
liability management objectives. Historically, our borrowings
primarily have consisted of advances from FHLB. From time to time, we
also utilize the line-of-credit that we maintain at FHLB.
We may
obtain advances from FHLB upon the security of our blanket pledge
agreement. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Commitments” in the Annual
Report to Stockholders attached as Exhibit 13 to this Annual Report on Form
10-K. FHLB advances may be made pursuant to several different credit
programs, each of which has its own interest rate, maturity, repayment, and
convertible features, if any. At September 30, 2008, we had $2.45
billion in FHLB advances.
During
fiscal year 2008, the Bank supplemented FHLB advances with repurchase
agreements. The repurchase agreements entail the Bank entering into
sales of securities under agreements to repurchase with selected
brokers. These agreements are recorded as financing transactions as
the Bank maintains effective control over the transferred
securities. The securities underlying the agreements continue to be
carried in the Bank’s securities portfolio. Repurchase agreements are
made at mutually agreed upon terms between counterparties and the
Bank. The use of repurchase agreements allows for the diversification
of funding sources and the use of securities that were not being leveraged as
collateral. See “Notes to Consolidated Financial Statements—Note 8”
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Commitments” in the Annual Report to Stockholders
attached as Exhibit 13 to this Annual Report on Form 10-K. At
September 30, 2008, we had $660.0 million in repurchase agreements and
securities with a market value of $742.7 million pledged as
collateral.
During
fiscal year 2008, the Bank had interest rate swaps with a notional amount of
$800.0 million hedged against an equal amount of FHLB advances. The
interest rate swaps were designated as fair value hedges and the Bank accounted
for the hedges using the shortcut method. 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 September 30, 2008, all remaining interest rate
swap agreements had matured.
In 2004,
the Company formed Capitol Federal Financial Trust I (the “Trust”), which issued
$52.0 million of variable rate cumulative trust preferred securities in a
private transaction exempt from registration under the Securities Act of
1933. The Trust used the proceeds from the sale of its trust
preferred securities and from the sale of $1.6 million of its common securities
to the Company to purchase $53.6 million of Junior Subordinated Deferrable
Interest Debentures (the “Debentures”) which are the sole assets of the
Trust. See “Notes to Consolidated Financial Statements—Note 8” in the
Annual Report to Stockholders attached as Exhibit 13 to this Annual Report on
Form 10-K.
Interest
on the Debentures is due quarterly in January, April, July and October until the
maturity date of April 7, 2034. The interest rate on the Debentures,
which is identical to the distribution rate paid on the trust securities and
resets at each interest payment, is based upon the three month LIBOR rate plus
275 basis points. Principal is due at maturity. The
Debentures are callable, in part or whole, beginning on April 7, 2009, at par,
at the option of the Company. Redemption of the Debentures by the
Company will result in redemption of a like amount of trust preferred securities
by the Trust. There are certain covenants that the Company is
required to comply with regarding the Debentures. These covenants
include a prohibition on cash dividends in the event of default or deferral of
interest on the Debentures, annual certifications to the Trust and other
covenants related to the payment of interest and principal and maintenance of
the Trust. The Company was in compliance with all the covenants at
September 30, 2008.
The
following table sets forth certain information relating to each category of
borrowings for which the average short-term balance outstanding during the
period was more than 30% of stockholders’ equity at the end of the
period. The maximum balance, average balance, and weighted average
interest rate during fiscal year 2008, 2007 and 2006 reflect all borrowings that
were scheduled to mature within one year at any month-end during fiscal year
2008, 2007 and 2006. The first maturity date for the repurchase
agreements entered into during fiscal year 2008 is during fiscal year 2010,
therefore there were no short-term repurchase agreements outstanding during
fiscal year 2008.
|
|
At
or for the Year Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
FHLB
Advances:
|
|
|
|
|
|
|
|
|
|
Balance
at September 30
|
|
$ |
620,000 |
|
|
$ |
1,125,000 |
|
|
$ |
750,000 |
|
Maximum
balance outstanding at any month-
|
|
|
|
|
|
|
|
|
|
|
|
|
end
during fiscal year
|
|
|
925,000 |
|
|
|
1,275,000 |
|
|
|
1,019,000 |
|
Average
balance
|
|
|
742,500 |
|
|
|
1,118,907 |
|
|
|
817,332 |
|
Weighted
average interest rate during the year
|
|
|
4.31 |
% |
|
|
3.95 |
% |
|
|
3.56 |
% |
Weighted
average interest rate at end of year
|
|
|
4.27 |
% |
|
|
4.23 |
% |
|
|
3.52 |
% |
Subsidiary
and Other Activities
As a
federally chartered savings bank, we are permitted by OTS regulations to invest
up to 2% of our Bank assets, or $161.5 million at September 30, 2008, in the
stock of, or as unsecured loans to, service corporation
subsidiaries. We may invest an additional 1% of our assets in service
corporations where such additional funds are used for inner-city or community
development purposes. At September 30, 2008, the Bank had one
subsidiary, Capitol Funds, Inc. As of September 30, 2008, our total
investment in this subsidiary was $4.5 million. Capitol Funds, Inc.
has a wholly owned subsidiary, Capitol Federal Mortgage Reinsurance Company
(“CFMRC”). CFMRC serves as a reinsurance company for the private
mortgage insurance companies the Bank uses in its normal course of
operations. CFMRC assumes the risk of default on loans exceeding a 5%
loss and less than a 10% loss. During fiscal 2008, Capitol Funds,
Inc. reported consolidated net income of $459 thousand which included net income
of $464 thousand from CFMRC.
REGULATION
General
The Bank,
as a federally chartered savings institution, is subject to federal regulation
and oversight by the OTS extending to all aspects of its
operations. The Bank is also subject to regulation by the FDIC, which
insures the deposits of the Bank to the maximum extent permitted by law, and to
requirements established by the Federal Reserve Board. The OTS has
primary enforcement responsibility over federally chartered savings banks and
has substantial discretion to impose enforcement action on an institution that
fails to comply with applicable regulatory requirements, particularly with
respect to its capital requirements. In addition, the FDIC has the authority to
recommend to the
Director
of the OTS that enforcement action be taken with respect to a particular
federally chartered savings bank and, if action is not taken by the Director,
the FDIC has authority to take such action under certain
circumstances. Such regulation and supervision primarily is intended
for the protection of depositors and borrowers and not for the purpose of
protecting stockholders. The investment and lending authority of
savings institutions is prescribed by federal laws and regulations, and such
institutions are prohibited from engaging in any activities not permitted by
such laws and regulations.
The Bank
must file reports with the OTS concerning its activities and financial
condition, and the OTS regularly examines the Bank and prepares reports on the
Bank’s operations, including any deficiencies. These reports are
presented to the Bank’s board of directors. The FDIC also has the
authority to examine the Bank in its role as the administrator of the Deposit
Insurance Fund (“DIF”) which is the fund established upon the merger of the
Savings Association Insurance Fund (“SAIF”) and the Bank Insurance Fund (“BIF”)
in March 2006. The Bank’s relationship with its depositors and
borrowers is also regulated to a great extent by both federal and state laws,
especially in such matters as the ownership of savings accounts and the form and
content of the Bank’s mortgage requirements. Any material change in
such regulations, whether by the FDIC, the OTS, the Federal Reserve Board,
Congress or states in which we do business, could have a material adverse impact
on MHC, the Company and the Bank and their operations.
The
description of statutory provisions and regulations applicable to federally
chartered savings associations and their holding companies presented in this
document are not intended to represent a complete description of all such
statutes and regulations.
Capitol
Federal Savings Bank MHC
MHC is a
federal mutual holding company within the meaning of Section 10(o) of the Home
Owners’ Loan Act (“HOLA”). As such, MHC is required to register with and be
subject to examination and supervision of the OTS as well as certain reporting
requirements. In addition, the OTS has enforcement authority over MHC and its
non-savings institution subsidiaries, if any. Among other things, this authority
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the financial safety, soundness or stability of the
Bank.
A mutual
holding company is permitted to, among other things:
·
|
invest
in the stock of a savings
institution;
|
·
|
acquire
a mutual institution through the merger of such institution into a savings
institution subsidiary of such mutual holding
company;
|
·
|
merge
with or acquire another mutual holding company of a savings
institution;
|
·
|
acquire
non-controlling amounts of the stock of savings institutions and savings
institution holding companies, subject to certain
restrictions;
|
·
|
invest
in a corporation, the capital stock of which is available for purchase by
a savings institution under Federal law or under the law of any state
where a subsidiary savings institution has its home
office;
|
·
|
furnish
or perform management services for a savings institution subsidiary of
such company;
|
·
|
hold,
manage or liquidate assets owned or acquired from a savings institution
subsidiary of such company;
|
·
|
hold
or manage properties used or occupied by a savings institution subsidiary
of such company; and
|
·
|
act
as a trustee under deed or trust.
|
In
addition, a mutual holding company may engage in the activities of a multiple
savings and loan holding company, which are permissible by statute, and the
activities of financial holding companies under the Bank Holding Company Act of
1956, as amended, subject to prior approval by the OTS.
Capitol
Federal Financial
The
purpose and powers of the Company are to pursue any or all of the lawful
objectives of a federal mutual holding company and to exercise any of the powers
accorded to a mutual holding company.
If the
Bank fails the qualified thrift lender test, within one year of such failure MHC
and the Company must register as, and will become subject to, the restrictions
applicable to bank holding companies. The activities authorized for a
bank holding company are more limited than are the activities authorized for a
savings and loan holding company. If the Bank fails the test a second
time, MHC and the Company must immediately register as, and become subject to,
the restrictions applicable to a bank holding company. See “Qualified
Thrift Lender Test.”
MHC and
the Company must obtain approval from the OTS before acquiring control of any
other savings institution. Interstate acquisitions are permitted
based on specific state authorization or in a supervisory acquisition of a
failing savings institution.
Recent
Legislative and Regulatory Initiatives to Address Financial and Economic
Crises
The U.S.
Congress, the Treasury Department and the federal banking regulators, including
the FDIC, have taken broad action since early September 2008 to address
volatility in the U.S. banking system.
The
Emergency Economic Stabilization Act of 2008 (“EESA”) authorizes the Treasury
Department to purchase from financial institutions and their holding companies
up to $700 billion in mortgage loans, MBS and certain other financial
instruments, including debt and equity securities issued by financial
institutions and their holding companies in a troubled asset relief program
(“TARP”). The purpose of TARP is to restore confidence and stability
to the U.S. banking system and to encourage financial institutions to increase
their lending to customers and to each other. The Treasury Department
has allocated $250 billion towards the TARP Capital Purchase Program
(“CPP”). Under the CPP, Treasury will purchase debt or equity
securities from participating institutions. The TARP also will
include direct purchases or guarantees of troubled assets of financial
institutions. Participants in the CPP are subject to executive
compensation limits and are encouraged to expand their lending and mortgage loan
modifications. The Company’s board of directors has determined not to
participate in the CPP.
EESA also
increased FDIC deposit insurance on most accounts from $100 thousand to $250
thousand. This increase is in place until December 31, 2009 and is
not covered by deposit insurance premiums paid by the banking
industry.
Following
a systemic risk determination, the FDIC established its Temporary Liquidity
Guarantee Program (“TLGP”) in October 2008. Under the interim rule
for the TLGP, there are two parts to the program: the Debt Guarantee Program
(“DGP”) and the Transaction Account Guarantee Program
(“TAGP”). Eligible entities continue to participate unless they
opt out on or before December 18, 2008.
For the
DGP, eligible entities are generally U.S. bank holding companies, savings and
loan holding companies, and FDIC-insured institutions. Under the DGP,
the FDIC guarantees senior unsecured debt of an eligible entity issued on or
after October 14, 2008 and not later than June 30, 2009. The
guarantee is effective through the earlier of the maturity date or June 30,
2012. The DGP coverage limit is generally 125% of the eligible
entity’s eligible debt outstanding on September 30, 2008 and scheduled to mature
on or before June 30, 2009. The nonrefundable DGP fee is 75 basis
points (annualized) for covered debt outstanding during the period from November
13, 2008 until the earlier of maturity or June 30, 2012. Eligible debt of a
participating entity becomes covered when and as issued until the coverage limit
is reached, except that participating entities could elect to have the option of
issuing non-guaranteed debt maturing after June 30, 2012 without regard to the
guarantee limit by notifying the FDIC of the election by December 18, 2008 and
agreeing to pay a separate fee. The Bank and the Company
participate in the DGP and elected the non-guaranteed debt option.
For the
TAGP, eligible entities are FDIC-insured institutions. Under the TAGP, the FDIC
provides unlimited deposit insurance coverage through December 31, 2009 for
noninterest-bearing transaction accounts (typically business checking accounts)
and certain funds swept into noninterest-bearing savings
accounts. NOW accounts and money market deposit accounts are not
covered. Participating institutions pay fees of 10 basis points
(annualized) on the balance of each covered account in excess of $250 thousand
during the period from November 13, 2008 through December 31,
2009. The Bank participates in the TAGP.
Capitol
Federal Savings Bank
The OTS
has extensive authority over the operations of savings
institutions. As part of this authority, the Bank is required to file
periodic reports with the OTS, is subject to periodic examinations by the OTS,
and also may be examined by the FDIC. The last regular OTS
examination of the Bank was as of June 30, 2008. All savings
institutions are subject to a semi-annual assessment to fund the operations of
the OTS, based upon the savings institution’s total assets, supervisory
condition, and the complexity of the savings institution’s
operations. The Bank’s OTS assessment for the fiscal year ended
September 30, 2008 was $1.3 million.
The OTS
also has extensive enforcement authority over all savings institutions and their
holding companies, including the Bank, the Company and MHC. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders, and to initiate
injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the
OTS. Except under certain circumstances, public disclosure of final
enforcement actions by the OTS is required.
The Bank
derives its lending and investment authority from HOLA, as amended, and the
regulations of the OTS thereunder. Under these laws and regulations, the Bank
may invest in mortgage loans secured by residential and non-residential real
estate, commercial and consumer loans, certain types of debt securities, and
certain other assets. In addition, the investment, lending, and branching
authority of the Bank is prescribed by federal laws and the Bank is prohibited
from engaging in any activities not permitted by such laws. For
instance, no savings institution may invest in non-investment grade corporate
debt securities. In addition, the permissible level of investment by
federal institutions in loans secured by non-residential real property may not
exceed 400% of total capital, except with approval of the OTS. The OTS
regulations authorize federally chartered savings associations to branch
nationwide. This permits federal savings and loan associations with interstate
networks to more easily diversify their loan portfolios and lines of business
geographically. All of the Bank’s branches are located in Kansas and Missouri.
The Bank is in compliance with the noted restrictions.
The
Bank’s general permissible lending limit for loans-to-one-borrower is equal to
15% of unimpaired capital and surplus (except for loans fully secured by certain
readily marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At September 30, 2008, the Bank’s
lending limit under this restriction was $121.8 million. The Bank is in
compliance with the loans-to-one-borrower limitation.
On
October 4, 2006, the OTS and other federal bank regulatory authorities published
the Interagency Guidance on Nontraditional Mortgage Product Risks (“the
Guidance”). The Guidance describes sound practices for managing risk,
as well as marketing, originating, and servicing nontraditional mortgage
products, which include, among other things, interest-only loans. The Guidance
sets forth supervisory expectations with respect to loan terms and underwriting
standards, portfolio and risk management practices and consumer
protection. For example, the Guidance indicates that originating
interest-only loans with reduced documentation is considered a layering of risk,
and that institutions are expected to demonstrate mitigating factors to support
their underwriting decision and the borrower’s repayment capacity. On
June 29, 2007, the OTS and other federal bank regulatory agencies issued a final
Statement on Subprime Mortgage Lending (“the Statement”) to address the growing
concerns facing the subprime mortgage market, particularly with respect to
rapidly rising subprime default rates that may indicate borrowers do not have
the ability to repay adjustable-rate subprime loans originated by financial
institutions. In particular, the agencies expressed concern in the
Statement that current underwriting practices do not take into account that many
subprime borrowers are not prepared for “payment shock” and that the current
subprime lending practices compound risk for financial
institutions. The Statement describes the prudent safety and
soundness and consumer protection standards that financial institutions should
follow to ensure borrowers obtain loans that they can afford to
repay. These standards include a fully indexed, fully amortized
qualification for borrowers and cautions on risk-layering features, including an
expectation that stated income and reduced documentation should be accepted only
if there are documented mitigating factors that clearly minimize the need for
verification of a borrower’s repayment capacity. Consumer protection
standards include clear and balanced product disclosures to customers and limits
on prepayment penalties that allow for a reasonable period of time, typically at
least 60 days, for borrowers to refinance prior to the expiration of the initial
fixed interest rate period without penalty. The Statement also
reinforces the April 17, 2007 Interagency Statement on Working with Mortgage
Borrowers, in which the federal bank regulatory agencies encouraged institutions
to work constructively with residential borrowers who are financially unable or
reasonably expected to be unable to meet their contractual payment obligations
on their home loans.
We have
evaluated the Guidance and the Statement to determine our compliance and, as
necessary, modified our risk management practices, underwriting guidelines and
consumer protection standards. See “Lending Activities” for a
discussion of our loan product offerings and related underwriting
standards.
Insurance
of Accounts and Regulation by the FDIC
The Bank
is a member of the DIF, which is administered by the FDIC. Deposits
are insured up to the applicable limits by the FDIC and such insurance is backed
by the full faith and credit of the United States Government. Under
new legislation referred to above, during the period from October 3, 2008
through December 31, 2009, the basic deposit insurance limit is $250 thousand,
instead of the $100 thousand limit in effect earlier.
The FDIC
assesses deposit insurance premiums on all FDIC-insured institutions quarterly
based on annualized rates for four risk categories and other factors. Each
institution is assigned to a risk category based on its capital, supervisory
ratings and other factors. For calendar years 2007 and 2008, for Risk Category
I, the category for well capitalized institutions that are financially sound
with only a few minor weaknesses, the rates are five to seven basis
points. For Risk Categories II, III and IV, which present
progressively greater risks to the DIF, the current rates are 10, 28 and 43
basis points, respectively. The Bank is a Category I
institution.
Due to
the recent decrease to the DIF’s reserve ratio, the FDIC has announced a
proposed rule that would increase premiums. Under the proposal, for the first
quarter of calendar year 2009, the rates for Risk Category I institutions would
range between 12 and 14 basis points, and the rates for Risk Categories II
through IV would be 17, 35 and 50 basis points, respectively.
For
subsequent quarters, the FDIC proposes new initial base assessment rates, new
evaluation methods for Risk Category I institutions with more than $10 billion
in assets, and three new risk factors used to determine the total base
assessment rate for every institution (after adjustment for mergers and
acquisitions). The proposed initial base assessment rates are:
for Risk Category I, 10 to 14 basis points; for Risk Category II, 20 basis
points; for Risk Category III, 30 basis points; and for Risk Category IV, 45
basis points. The first factor is the use of brokered
deposits. For Risk Category I institutions, this factor would cause
an increase over the initial base rate for an institution with brokered deposits
over a threshold level used to fund rapid growth. For Risk Categories
II through IV, the brokered deposits risk factor would increase an institution’s
assessment if brokered deposits exceeded 10% of domestic deposits, regardless of
growth. The second new risk factor is the ratio of an institution’s
unsecured debt (and, for institutions with less than $10 billion in assets, a
certain amount of Tier 1 capital) to domestic deposits. This factor
could cause a decrease to the assessment. The third new risk factor
is the ratio of an institution’s secured debt to domestic
deposits. If the ratio is greater than 15%, the assessment rate will
increase. After adjustments for these risk factors, the total base
assessment rates would be: for Risk Category I, 8 to 21 basis points; for Risk
Category II, 18 to 40 basis points; for Risk Category III, 28 to 55 basis
points; and for Risk Category IV, 43 to 77.5 basis points. The
proposed rule also includes authority for the FDIC to make certain further
increases to rates in the future without formal rulemaking. When the final rule
on new assessment rates is promulgated, assessment rates could be higher than in
the proposed rule.
An
institution (or its successor) insured by the FDIC on December 31, 1996 which
had previously paid assessments is eligible for certain credits against deposit
insurance assessments. Due to this credit, the Bank had a minimal
amount of FDIC premium expense for fiscal year 2008. Based upon
current assessment rates, management estimates the credit will be exhausted in
the second quarter of fiscal year 2010. As a result of recent
failures of FDIC-insured institutions and the depletion of the reserve ratio, in
October 2008 the FDIC proposed a recapitalization plan to restore the reserve
ratio back to 1.25% within 5 years. The effective date of the
proposed plan is January 1, 2009, and management estimates it would result in a
substantial increase in assessed premiums for the Bank. The increase
in premiums would be partially offset by an acceleration in the use of the
credits referred to above, which management estimates would be fully exhausted
in the third quarter of fiscal year 2009 under the proposed assessment
rules.
The Bank,
like other former DIF-insured institutions and BIF-insured institutions, is
required to pay a Financing Corporation (“FICO”) assessment in order to fund the
interest on bonds issued to resolve thrift failures in the 1980s. For
the fourth quarter of fiscal year 2008, the annual rate for this assessment was
1.12 basis points for each $100 in domestic deposits. These
assessments, which may be revised, will continue until the bonds mature in 2017
through 2019.
Regulatory
Capital Requirements
Federally
insured savings institutions, such as the Bank, are required to maintain a
minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio or core
capital requirement and a risk-based capital requirement applicable to such
savings institutions. These capital requirements must be generally as
stringent as the comparable capital requirements for national
banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual institutions on a case-by-case
basis.
As a
result of the prompt corrective action regulations, to be adequately
capitalized, a savings institution must have a ratio of core capital to total
assets of at least 4% (unless its supervisory condition permits 3%), a ratio of
core capital to risk-weighted assets of at least 4% and a ratio of total capital
to risk-weighted assets of at least 8%. To be well capitalized, these
ratios must be at least 5%, 6% and 10%, respectively. On September
30, 2008, the Bank had core capital of $806.7 million, total risk-based capital
of $801.9 million and risk-weighted assets of $3.49 billion. It had a
core capital ratio of 10.0%, a core capital to risk-weighted assets ratio of
23.1% and a total risk weighted capital ratio of 23.0%.
Core
capital generally consists of common stockholders’ equity and retained earnings,
and noncumulative perpetual preferred stock and related surplus, adjusted for
such items as certain intangible assets, disallowed servicing assets and
accumulated gains/losses on available-for-sale securities, net of deferred
taxes. At September 30, 2008, the Bank had $2.4 million of
technology-based intangible assets and $511 thousand of disallowed servicing
assets, which were all deducted from core capital, and $6.0 million of
accumulated losses on available-for-sale securities, net of deferred taxes,
which were added to core capital.
Total
risk-based capital consists of core capital, as defined above, plus
supplementary capital, less certain assets including equity
investments. Supplementary capital consists of certain permanent and
maturing capital instruments that do not qualify as core capital and allowances
for loan and lease losses up to a maximum of 1.25% of risk-weighted
assets. Supplementary capital may be used to satisfy the risk-based
requirement only to the extent of core capital. The OTS is also
authorized to require a savings institution to maintain an additional amount of
total capital to account for concentration of credit risk and the risk of
non-traditional activities. At September 30, 2008, the Bank had $5.0
million of allowances for loan losses, which was less than 1.25% of
risk-weighted assets. At September 30, 2008, the Bank had $9.8
million of equity investments in low income housing investments deducted from
total capital.
In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet items, are multiplied by a risk weight, ranging from 0% to
100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan-to-value ratio of not more than 80% at origination unless
insured to such ratio by an approved insurer.
The
Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) requires that
the OTS and other federal banking agencies revise their risk-based capital
standards, with appropriate transition rules, to ensure that they take into
account interest rate risk (“IRR”), concentration of risk, and the risks of
non-traditional activities. The OTS regulations do not include a specific IRR
component of the risk-based capital requirement. However, the OTS
monitors the IRR of individual institutions through a variety of means,
including an analysis of the change in net portfolio value
(“NPV”). NPV is defined as the net present value of the expected
future cash flows of an entity’s assets and liabilities and, therefore,
hypothetically represents the value of an institution’s net
worth. The OTS has also used this NPV analysis as part of its
evaluation of certain applications or notices submitted by thrift institutions.
In addition, OTS Thrift Bulletin 13a provides guidance on the management of IRR
and the responsibility of boards of directors in that area. The OTS,
through its general oversight of the safety and soundness of savings
associations, retains the right to impose minimum capital requirements on
individual institutions to the extent the institution is not in compliance with
certain written guidelines established by the OTS regarding NPV
analysis. The OTS has not imposed any such requirements on the
Bank.
Under the
prompt corrective action regulations established by FDICIA, the OTS and the FDIC
are authorized and, under certain circumstances required, to take certain
actions against savings institutions that fail to meet their capital
requirements. The OTS generally is required to take action to
restrict the activities of any institution that is less than adequately
capitalized. Any such institution must submit a capital restoration
plan and until such plan is approved by the OTS may not increase its assets,
acquire another institution, establish a branch or engage in any new activities,
and generally may not make capital distributions. The OTS may also
impose additional restrictions to significantly undercapitalized
institutions.
As a
condition to the approval of the capital restoration plan, any company
controlling an undercapitalized institution must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution’s
achievement of its capital requirements.
Any
savings institution that fails to comply with its capital plan or has core
capital or core capital to risk-weighted assets ratios of less than 3% or a
total capital to risk-weighted assets ratio of less than 6% and is considered
“significantly undercapitalized” must be made subject to one or more additional
specified actions and operating restrictions which may cover all aspects of its
operations and may include a forced merger or acquisition of the
institution. An institution that becomes “critically
undercapitalized” because it has a tangible equity to total assets ratio of 2%
or less is subject to further mandatory restrictions on its activities in
addition to those applicable to significantly undercapitalized
institutions. In addition, the OTS must appoint a receiver, or
conservator with the concurrence of the FDIC, for a savings institution, with
certain limited exceptions, within 90 days after it becomes critically
undercapitalized.
The OTS
generally is authorized to reclassify an institution into a lower capital
category and impose the restrictions applicable to such category if the
institution is engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The
imposition by the OTS or the FDIC of any of these measures on the Bank may have
a substantial adverse effect on its operations and
profitability.
Safety
and Soundness Standards
Pursuant
to the requirements of FDICIA, as amended by the Riegle Community Development
and Regulatory Improvement Act of 1994, each federal banking agency, including
the OTS, has adopted guidelines establishing general standards relating to
internal controls, information and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, asset quality,
earnings and compensation, fees and benefits. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an
unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director, or principal stockholder.
In
addition, the OTS adopted regulations to require a savings bank that is given
notice by the OTS that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the OTS. If, after being so
notified, a savings bank fails to submit an acceptable compliance plan or fails
in any material respect to implement an accepted compliance plan, the OTS may
issue an order directing corrective and other actions of the types to which a
significantly undercapitalized institution is subject under the “prompt
corrective action” provisions of FDICIA. If a savings bank fails to
comply with such an order, the OTS may seek to enforce such an order in judicial
proceedings and to impose civil monetary penalties.
Limitations
on Dividends and Other Capital Distributions
OTS
regulations impose various restrictions on savings institutions with respect to
their ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account.
Generally
under OTS regulations, savings institutions, such as the Bank, may make capital
distributions during any calendar year equal to earnings of the previous two
calendar years and current year-to-date earnings. It is generally
required under OTS regulations that the Bank remain well-capitalized before and
after the proposed distribution. However, an institution deemed to be
in need of more than normal supervision by the OTS may have its dividend
authority restricted by the OTS. Savings institutions proposing to
make any capital distribution within these limits need only submit written
notice to the OTS 30 days prior to such distribution. The OTS may
object to the distribution during that 30-day period based on safety and
soundness concerns. Savings institutions that desire to make a larger
capital distribution, or are under special restrictions, or are not, or would
not be, well-capitalized following a proposed capital distribution, however,
must obtain OTS approval prior to making such distribution. See
“Regulatory Capital Requirements.”
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. 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. 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.
Anti-Money
Laundering and Customer Identification
The Bank
is subject to OTS regulations implementing the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, or the USA PATRIOT Act. The USA PATRIOT Act gives the
federal government powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing,
and broadened anti-money laundering requirements. By way of
amendments to the Bank Secrecy Act, Title III of the USA PATRIOT Act takes
measures intended to encourage information sharing among bank regulatory
agencies and law enforcement bodies. Further, certain provisions of Title III
impose affirmative obligations on a broad range of financial institutions,
including banks, thrifts, brokers, dealers, credit unions, money transfer agents
and parties registered under the Commodity Exchange Act. Title III of
the USA PATRIOT Act and the related OTS regulations impose the following
requirements with respect to financial institutions:
·
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establishment
of anti-money laundering programs;
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·
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establishment
of a program specifying procedures for obtaining identifying information
from customers seeking to open new accounts, including verifying the
identity of customers within a reasonable period of
time;
|
·
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establishment
of enhanced due diligence policies, procedures and controls designed to
detect and report money laundering;
|
·
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prohibitions
on correspondent accounts for foreign shell banks and compliance with
record keeping obligations with respect to correspondent accounts of
foreign banks.
|
Privacy
Standards
The Bank
is subject to OTS regulations implementing the privacy protection provisions of
the Gramm-Leach-Bliley Act. These regulations require the Bank to
disclose its privacy policy, including identifying with whom it shares
“non-public personal information” to customers at the time of establishing the
customer relationship and annually thereafter.
The
regulations also require the Bank to provide its customers with initial and
annual notices that accurately reflect its privacy policies and
practices. In addition, the Bank is required to provide its customers
with the ability to “opt-out” of having the Bank share their non-public personal
information with unaffiliated third parties, subject to certain
exceptions.
The Bank
is subject to regulatory guidelines establishing standards for safeguarding
customer information. The guidelines describe the agencies’
expectations for the creation, implementation and maintenance of an information
security program, which would include administrative, technical and physical
safeguards appropriate to the size and complexity of the institution and the
nature and scope of its activities. The standards set forth in the
guidelines are intended to ensure the security and confidentiality of customer
records and information, protect against any anticipated threats or hazards to
the security or integrity of such records and protect against unauthorized
access to or use of such records or information that could result in substantial
harm or inconvenience to any customer.
Qualified
Thrift Lender Test
All
savings associations, including the Bank, are required to meet a qualified
thrift lender test to avoid certain restrictions on their
operations. This test requires a savings institution to have at least
65% of its portfolio assets in qualified thrift investments (primarily
residential housing related loans and investments) on a monthly average for nine
out of every 12 months on a rolling basis. As an alternative, the
savings institution may maintain 60% of its total assets in those assets
specified in Section 7701(a)(19) of the Internal Revenue Code. At
September 30, 2008, the Bank met the test and has always met the
test.
Any
savings association that fails to meet the qualified thrift lender test must
convert to a national bank charter, unless it requalifies as a qualified thrift
lender and thereafter remains a qualified thrift lender. If such an
institution has not yet requalified or converted to a national bank, its new
investments and activities are limited to those permissible for both a savings
institution and a national bank. Such institution is limited to
national bank branching and it is subject to national bank limits for payment of
dividends. If such an institution has not requalified or converted to
a national bank within three years after the failure, it must divest all
investments and cease all activities not permissible for a national
bank. If any institution that fails the qualified thrift lender test
is controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to
all restrictions on bank holding companies. See “Regulation - Capitol
Federal Financial.”
Community
Reinvestment Act
Under the
Community Reinvestment Act (“CRA”), as implemented by OTS regulations, any
federally chartered savings bank, including the Bank, has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution’s discretion to develop the types of products and services that it
believes are best suited to its particular community. The OTS must
assess the Bank’s record of meeting the credit needs of its community and take
such record into account in its evaluation of certain applications by the
Bank.
Current
CRA regulations rate an institution based on its actual performance in meeting
community needs. In particular, the evaluation system focuses on three
tests:
·
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a
lending test, to evaluate the institution’s record of making loans in its
service areas;
|
·
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an
investment test, to evaluate the institution’s record of investing in
community development projects, affordable housing, and programs
benefiting low or moderate income individuals and businesses;
and
|
·
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a
service test, to evaluate the institution’s delivery of services through
its branches, ATMs and other
offices.
|
The CRA
also requires that CRA evaluations be public. The Bank has received a
“satisfactory” rating in its most recent CRA examination. All insured
depository institutions must publicly disclose certain agreements that are in
fulfillment of the CRA. The Bank has no such agreements in place at
this time.
Transactions
with Affiliates
Generally,
transactions between a savings institution or its subsidiaries and its
affiliates are required to be on terms as favorable to the institution as
transactions with non-affiliates. In addition, certain transactions,
such as loans to an affiliate, are restricted to a percentage of the
institution’s capital. Affiliates of the Bank include MHC, the
Company, and any company which is under common control with the
Bank. In addition, a savings institution may not lend to any
affiliate engaged in activities not permissible for a bank holding company or
acquire the securities of most affiliates. The OTS has the discretion
to treat subsidiaries of savings institutions as affiliates on a case-by-case
basis.
Section
402 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) prohibits the extension
of personal loans to directors and executive officers of issuers, with the
exception of mortgages from an insured depository institution. Certain
transactions with directors, officers or controlling persons are also subject to
restrictions under regulations enforced by the OTS. These regulations
also impose restrictions on loans to such persons and their related
interests. Among other things, such loans must generally be made on
terms and conditions substantially the same as for loans to unaffiliated
individuals. As of September 30, 2008 management believes such loans
were made under terms and conditions substantially the same as loans made to
unaffiliated individuals and otherwise complied with applicable
regulations.
Federal
Securities Law
The
common stock of the Company is registered with the SEC under the Securities
Exchange Act of 1934, as amended. The Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Securities Exchange Act of 1934.
The
Company stock held by persons who are affiliates of the Company may not be
resold without registration or unless sold in accordance with certain resale
restrictions. Affiliates are generally considered to be officers,
directors and principal stockholders. If the Company meets specified
current public information requirements, each affiliate of the Company will be
able to sell in the public market, without registration, a limited number of
shares in any three-month period.
Sarbanes-Oxley
impacts all companies with securities registered under the Securities Exchange
Act of 1934, including the Company. Sarbanes-Oxley created new
requirements in the areas of corporate governance and financial disclosure
including, among other things:
·
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increased
responsibility for Chief Executive Officers and Chief Financial Officers
with respect to the content of filings with the
SEC;
|
·
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enhanced
requirements for audit committees, including independence and disclosure
of expertise;
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·
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enhanced
requirements for auditor independence and the types of non-audit services
that auditors can provide;
|
·
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enhanced
requirements for controls and
procedures;
|
·
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accelerated
filing requirements for SEC
reports;
|
·
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disclosure
of a code of ethics; and
|
·
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increased
disclosure and reporting obligations for companies, their directors and
their executive officers.
|
Certifications
of the Chief Executive Officer and the Chief Financial Officer as required by
Sarbanes-Oxley and the resulting SEC rules can be found in the “Exhibits”
section of this Form 10-K.
Federal
Reserve System
The
Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts, primarily checking accounts. Effective October 9, 2008, as
part of the EESA, the Federal Reserve Bank is required to pay interest on
balances held to satisfy reserve requirements and on balances held in excess of
required reserve balances and clearing balances. At September 30,
2008, the Bank was in compliance with these reserve requirements. The
Bank is authorized to borrow from the Federal Reserve Bank “discount window.”
Under the administration of the discount window revised January 9, 2003, an
eligible institution need not exhaust other sources of funds before coming
to the discount window, nor are there restrictions on the purposes for which the
borrower can use primary credit.
Federal
Home Loan Bank System
The Bank
is a member of FHLB Topeka, which is one of 12 regional Federal Home Loan Banks
that administers the home financing credit function of financial
institutions. Each FHLB serves as a reserve or central bank for its
members within its assigned region and is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It
makes loans or advances to members in accordance with policies and procedures,
established by the board of directors of FHLB, which are subject to the
oversight of the Federal Housing Finance Agency.
As a
member, the Bank is required to purchase and maintain stock in
FHLB. The minimum required FHLB stock amount is 5% of the Bank’s FHLB
advances and outstanding balance on the FHLB line of credit, and 2% of the
outstanding principal of loans sold into the Mortgage Partnership Finance
("MPF") program. For the year ended September 30, 2008, the Bank had
a balance of $124.4 million in FHLB stock, which was in compliance with this
requirement. In past years, the Bank has received dividends on its
FHLB stock, although no assurance can be given that these dividends will
continue. The average yield on FHLB stock was 5.36% for fiscal year
2008. For the year ended September 30, 2008, dividends paid by FHLB
to the Bank totaled $6.9 million, which were primarily stock
dividends.
Under
federal law, FHLBs are required to provide funds for the resolution of troubled
financial institutions and for community investment and low- and moderate-income
housing. These contributions have adversely affected the level of
FHLB dividends paid and could continue to do so in the future. A
reduction in value of the Bank’s FHLB stock may result in a corresponding
reduction in the Bank’s capital.
Federal
Savings and Loan Holding Company Regulation
MHC and
the Company are unitary savings and loan holding companies within the meaning of
the HOLA. As such, MHC and the Company are registered with the OTS
and are subject to the OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over MHC, the
Company and the Bank. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
Bank.
The HOLA
prohibits a savings and loan holding company (directly or indirectly, or through
one or more subsidiaries) from acquiring another savings association or holding
company thereof without prior written approval of the OTS; acquiring or
retaining, with certain exceptions, more than 5% of a non-subsidiary savings
association, a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by the HOLA; or acquiring or
retaining control of a depository institution that is not federally
insured. In evaluating applications by holding companies to acquire
savings associations, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors.
TAXATION
Federal
Taxation
General. The
following discussion is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Company or the
Bank. For federal income tax purposes, the Company reports its income
on the basis of a taxable year ending September 30, using the accrual method of
accounting, and is generally subject to federal income taxation in the same
manner as other corporations. The Company and the Bank constitute an
affiliated group of corporations and are therefore eligible to report their
income on a consolidated basis. The Company is not currently under
audit by the Internal Revenue Service (“IRS”) and has not been audited by the
IRS during the past five years.
Bad Debt
Reserves. Pursuant to the Small Business Job Protection Act of
1996, the Bank is no longer permitted to use the reserve method of accounting
for bad debts, and has recaptured (taken into income) over a multi-year period a
portion of the balance of its tax bad debt reserve as of September 30,
1997. The full amount of such reserves has been recaptured for the
Bank. The Bank continues to utilize the reserve method in determining
its privilege tax obligation to the State of Kansas.
Corporate Alternative Minimum
Tax. In addition to the regular corporate income tax,
corporations generally are subject to an alternative minimum tax (“AMT”), in an
amount equal to 20% of alternative minimum taxable income to the extent the AMT
exceeds the corporation’s regular income tax. The AMT is available as
a credit against future regular income tax. During the past five
years, the Company paid regular corporate income tax, except in fiscal year 2007
when the Company was subject to AMT.
State
Taxation
The
earnings/losses of MHC are combined with Capitol Funds, Inc. and the Company for
purposes of filing a consolidated Kansas corporate tax return. The
Kansas corporate tax rate is 4.0%, plus a surcharge of 3.35% on earnings greater
than $50 thousand.
The Bank
files a Kansas privilege tax return. For Kansas privilege tax
purposes, for taxable years beginning after 1997, the minimum tax rate is 4.5%
of earnings, which is calculated based on federal taxable income, subject to
certain adjustments. As of September 30, 2008, the Company is
undergoing a Kansas state tax audit for the years ended September 30, 2005 and
2006. The Bank has not received notification from the state of any
potential tax liability for the years under audit. Management
believes all tax positions on the tax returns under audit are defendable and
will pursue all opportunities available in defending those tax
positions.
Employees
At
September 30, 2008, we had a total of 740 employees, including 138 part-time
employees. Our employees are not represented by any collective
bargaining group. Management considers its employee relations to be
good.
Executive
Officers of the Registrant
John C.
Dicus. Age 75 years. Mr. Dicus is Chairman of the board of
directors. He has served the Bank in various capacities since
1959. He served as President of the Bank from 1969 until
1996. He has served as Chairman of the Bank since 1989 and of the
Company since its inception in March 1999. He also served as Chief
Executive Officer of the Bank from 1989 to January 2003, and of the Company from
March 1999 until January 2003. He is the father of Mr. John B.
Dicus.
John B.
Dicus. Age 47 years. Mr. Dicus is Chief Executive Officer and
President of the Bank and the Company. He took over the
responsibilities of Chief Executive Officer effective January 1,
2003. He has served as President of the Bank since 1996 and of the
Company since its inception in March 1999. Prior to accepting the
responsibilities of CEO, he served as Chief Operating Officer of the Bank and
the Company. Prior to that, he served as the Executive Vice President
of Corporate Services for the Bank for four years. He has been with
the Bank in various other positions since 1985. He is the son of Mr.
John C. Dicus.
M. Jack
Huey. Age 59 years. Mr. Huey has served as Executive Vice President and
Chief Lending Officer of the Bank since June 2002. Since June 2002 he
has also served as President of Capitol Funds Inc., a subsidiary of the
Bank. Since August 2002, he has served as President of
CFMRC. Prior to that, he served as the Central Region Lending Officer
since joining the Bank in 1991.
Larry K.
Brubaker. Age 61 years. Mr. Brubaker has been
employed with the Bank since 1971 and currently serves as Executive Vice
President for Corporate Services, a position he has held since
1997. Prior to that, he was employed by the Bank as the Eastern
Region Manager for seven years.
R. Joe
Aleshire. Age 61 years. Mr. Aleshire has been employed with the Bank
since 1973 and currently serves as Executive Vice President for Retail
Operations, a position he has held since 1997. Prior to that, he was
employed by the Bank as the Wichita Area Manager for 17 years.
Kent G.
Townsend. Age 47 years. Mr. Townsend serves as Executive Vice President
and Chief Financial Officer of the Bank, its subsidiaries, and the
Company. Mr. Townsend also serves as Treasurer for Capitol Funds,
Inc. and CFMRC, subsidiaries of the Bank. Mr. Townsend was promoted
to Executive Vice President, Chief Financial Officer and Treasurer on September
1, 2005. Prior to that, he served as Senior Vice President, a
position he held since April 1999, and Controller of the Company, a position he
held since March 1999. He has served in similar positions with the
Bank since September 1995. He served as the Financial Planning and
Analysis Officer with the Bank for three years and other financial related
positions since joining the Bank in 1984.
Tara D. Van
Houweling. Age 35 years. Ms. Van Houweling has been
employed with the Bank and Company since May 2003 and currently serves as First
Vice President, Principal Accounting Officer and Reporting
Director. She has held the position of Reporting Director since May
2003. Prior to being employed by the Bank and Company,
Ms. Van
Houweling was the Assistant Controller for First Specialty Insurance
Corporation, a subsidiary of Employers Reinsurance Corporation, from August 2002
to May 2003. Prior to that, Ms. Van Houweling was employed by
Deloitte & Touche, LLP in the Audit Services Department as an Audit Senior
and then Audit Manager from June 1999 to August 2002.
The
following is a summary of risk factors relating to the operations of the Bank
and the Company. These risk factors are not necessarily presented in
order of significance.
Difficult market conditions have
adversely affected our industry. We are particularly exposed to downturns
in the U.S. housing market. Dramatic declines in the housing market over the
past year, with falling home prices and increasing foreclosures, unemployment
and under-employment, have negatively impacted the credit performance of
mortgage loans and resulted in significant write-downs of asset values by
financial institutions, including government-sponsored entities, major
commercial and investment banks, and regional financial institutions such as our
Company. Reflecting concern about the stability of the financial
markets generally and the strength of counterparties, many lenders and
institutional investors have reduced or ceased providing funding to borrowers,
including to other financial institutions. This market turmoil and tightening of
credit have led to an increased level of commercial and consumer delinquencies,
lack of consumer confidence, increased market volatility and widespread
reduction of business activity generally. We do not expect that the
difficult conditions in the financial markets are likely to improve in the near
future. A worsening of these conditions would likely exacerbate the adverse
effects of these difficult market conditions on us and others in the financial
institutions industry, and could result in a material decrease in our interest
income and/or a material increase in our loan losses.
Recent legislative and regulatory
initiatives to address these difficult market and economic conditions may not
stabilize the U.S. banking system. The recently enacted EESA
authorizes the U.S. Treasury Department to purchase from financial institutions
and their holding companies up to $700 billion in mortgage loans, MBS and
certain other financial instruments, including debt and equity securities issued
by financial institutions and their holding companies, under the
TARP. The purpose of TARP is to restore confidence and stability to
the U.S. banking system and to encourage financial institutions to increase
their lending to customers and to each other. The Treasury Department
has allocated $250 billion towards the TARP CPP. Under the CPP,
Treasury will purchase debt or equity securities from participating
institutions. The TARP also will include direct purchases or
guarantees of troubled assets of financial institutions. The Bank has
decided not to participate in the CPP.
EESA also
increased FDIC deposit insurance on most accounts from $100 thousand to $250
thousand. This increase is in place until December 31, 2009 and is
not covered by deposit insurance premiums paid by the banking
industry. In addition, the FDIC has implemented two temporary
programs to provide deposit insurance for the full amount of most non-interest
bearing transaction accounts through December 31, 2009 and to guarantee certain
unsecured debt of financial institutions and their holding companies through
June 2012. Financial institutions have until December 18, 2008 to opt
out of these two programs. The purpose of these legislative and
regulatory actions is to stabilize the volatility in the U.S. banking
system. The Bank will not opt out of these programs.
EESA,
TARP and the FDIC’s recent regulatory initiatives may not have the desired
effect. If the volatility in the market and the economy continues or
worsens, our business, financial condition, results of operations, access to
funds and the market price of our common stock could be materially and adversely
impacted.
Current levels of market volatility
are unprecedented. The capital and credit markets have been
experiencing volatility and disruption for more than a year. In recent months,
the volatility and disruption has reached unprecedented levels. In some cases,
the markets have produced downward pressure on stock prices and credit
availability for certain issuers without regard to those issuers’ underlying
financial strength. If current levels of market disruption and volatility
continue or worsen, there can be no assurance that we will not experience an
adverse effect, which may be material, on our ability to access capital, if
needed or desired, and on our business, financial condition and results of
operations.
Changes in interest rates could have
an adverse impact on our results of operations and financial
condition. The Company’s results of operations are primarily
dependent on net interest income, which is the difference between the interest
earned on loans, MBS, and investment securities, and the interest paid on
deposits and borrowings. Changes in interest rates could have an
adverse impact on our results of operations and financial condition because the
majority of our interest-earning assets are long-term, fixed-rate loans, while
the majority of our interest-bearing liabilities are shorter term, and therefore
subject to a greater degree of interest rate fluctuation. This type
of risk is known as interest rate risk, and is affected by prevailing economic
and competitive conditions.
The
impact of changes in interest rates on assets is generally observed on the
balance sheet and income statement in later periods than the impact of changes
on liabilities due to the duration of assets versus liabilities, and also to the
time lag between our commitment to originate or purchase a loan and the time we
fund the loan, during which time interest rates may
change. Interest-bearing liabilities tend to reflect changes in
interest rates closer to the time of market rate changes, so the difference in
timing may have an adverse effect on our net interest income.
Changes
in interest rates can also have an adverse effect on our financial condition, as
our available-for-sale securities are reported at their estimated fair value,
and therefore are impacted by fluctuations in interest rates. We
increase or decrease our stockholders’ equity by the amount of change in the
estimated fair value of the available-for-sale securities, net of deferred
taxes.
Changes
in interest rates, as they relate to customers, can also have an adverse impact
on our financial condition and results of operations. In times of
rising interest rates, default risk may increase among customers with
adjustable-rate loans. Rising interest rate environments also
entice customers with adjustable-rate loans to refinance into fixed-rate loans
which further exposes the Bank to interest rate risk (if refinanced
internally). If the loan is refinanced externally, the Bank could be
unable to reinvest cash received from the resulting prepayments at rates
comparable to existing loans, which subjects the Bank to reinvestment
risk. In decreasing interest rate environments, payments received
will likely be invested at the prevailing (decreased) market rate. An influx of
prepayments can result in an excess of liquidity, which could impact our net
interest income if profitable reinvestment opportunities are not immediately
available. Prepayment rates are based on demographics, local economic
factors, and seasonality, with the main factors affecting prepayment rates being
prevailing interest rates and competition. Fluctuations in
interest rates also affect customer demand for deposit
products. Local competition for deposit dollars could affect our
ability to attract deposits, or could result in us paying more for
deposits.
Changes
in interest rates can cause fair value fluctuations in assets and liabilities,
thereby impacting interest rate risk and capital levels. The OTS Thrift Bulletin
13a provides guidance on the management of interest rate risk through analysis
of the change in net portfolio value. Net portfolio value is defined
as the net present value of the expected future cash flows of an entity’s assets
and liabilities. The OTS oversees the general safety and soundness of
savings associations, and therefore retains the right to impose minimum capital
requirements on institutions based upon the institution’s compliance with
written standards concerning net portfolio value analysis.
For
additional information about interest rate risk, see Item 7A. Quantitative and
Qualitative Disclosures About Market Risk.
Our strategies to modify our interest
rate risk profile may be difficult to implement. The asset
management strategies are designed to decrease our interest rate risk
sensitivity. One such strategy is increasing the amount of
adjustable-rate and/or short-term assets. The Bank offers
adjustable-rate loan products and works with correspondent lenders to purchase
adjustable-rate loans as a means to achieve this strategy. However,
lower interest rates would generally create a decrease in borrower demand for
adjustable-rate assets. Additionally, there is no guarantee
that any adjustable-rate assets obtained will not prepay. We also
attempt to invest in shorter-term assets in the investment portfolio as a way to
reduce our interest rate sensitivity.
We are
also managing our liabilities to moderate our interest rate risk
sensitivity. Customer demand is primarily for short-term maturity
certificates of deposit. Using short-term liabilities to fund
long-term fixed-rate assets will generally increase the interest rate
sensitivity of any financial institution. We are using our maturing
FHLB advances and repurchase agreements to mitigate the impact of the customer
demand for long-term fixed-rate mortgages in our local markets by lengthening
the maturities of these advances and repurchase agreements, depending on the
liquidity or investment opportunities at the time we undertake additional FHLB
advances or repurchase agreements. FHLB advances and repurchase
agreements will be entered into as liquidity is needed or to fund the purchase
of assets that provide for spreads at levels acceptable to
management.
If we are
unable to originate or purchase adjustable-rate assets at favorable rates or
fund loan originations or securities purchases with long-term funding, we may
have difficulty executing this asset management strategy and/or it may result in
a reduction in profitability.
Changes in laws, government
regulation, and monetary policy may have a material effect on our results of
operations. The Bank, as a federally chartered savings
institution, is subject to federal regulation, and as a thrift institution, is
subject to oversight by the OTS extending to all aspects of its
operations. The Bank is also subject to regulation by the FDIC, which
insures the deposits of the Bank to the maximum extent permitted by law, and to
requirements established by the Federal Reserve Board. Proposals for
further regulation of the financial services industry are continually being
introduced in Congress and various state legislatures. The Bank’s
ability to lend funds, gather deposits or pay dividends is contingent upon
satisfaction of certain regulatory criteria and standards, such as capital
levels, classification of assets, and establishment of loan loss
reserves. Such regulation and supervision is intended to protect
depositors and not necessarily for the purpose of protecting
stockholders. The investment and lending authority of savings
institutions are prescribed by federal laws and regulations, and such
institutions are prohibited from engaging in any activities not permitted by
such laws and regulations. Government agencies have substantial
discretion to impose significant monetary penalties upon institutions who do not
comply with regulations. Any change in such regulations, or violation
of such regulations, whether by the FDIC, the OTS, the Federal Reserve Board,
Congress or states in which we do business, could have a material adverse impact
on MHC, the Company and the Bank and their operations.
The Company’s ability to pay
dividends is subject to the ability of the Bank to make capital distributions to
the Company and the waiver of dividends by MHC. 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, and
also on the availability of cash at the holding company level in the event
earnings are not sufficient to pay dividends according to the cash dividend
payout policy. 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. 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.
MHC owns
approximately 70% of the Company’s outstanding stock. MHC waives its
right to dividends on the shares that it owns, which means the amount of
dividends paid to public shareholders is significantly higher than it would be
if MHC accepted dividends. MHC is not required to waive dividends,
but the Company expects this practice to continue indefinitely. As
such, MHC is required to obtain a waiver from the OTS allowing it to waive its
right to dividends. The current waiver is effective through June
2009. It is expected that MHC will continue to waive future dividends
except to the extent dividends are needed to fund its continuing
operations.
The geographic concentration of our
loan portfolio and lending activities makes us vulnerable to a downturn in the
local economy. We are currently one of the largest mortgage loan
originators in the State of Kansas. Approximately 72% of our loan
portfolio is comprised of loans secured by property located in Kansas, and 14%
is comprised of loans secured by property located in
Missouri. This makes us vulnerable to a downturn in the local
economy and real estate markets. Adverse conditions in the local
economy such as inflation, unemployment, recession, or other factors beyond our
control could impact the ability of our borrowers to repay their loans, which
could impact our net interest income. Decreases in local real estate
values could adversely affect the value of the property used as collateral for
our loans, which could cause the Bank to realize a loss in the event of a
foreclosure. Currently there is not a single employer or industry in
the area on which the majority of our customers are dependent. For
additional information on the local economy, see “Item 1. Business – Market Area
and Competition.”
Strong competition may limit growth
and profitability. As previously discussed, we are one of the
largest mortgage loan originators in the State of Kansas, but we compete in the
same market areas as local, regional, and national banks, commercial banks,
credit unions, mortgage brokerage firms, investment banking firms, investment
brokerage firms, and savings institutions. We must also compete with
online investment and mortgage brokerages and online banks that are not confined
to any specific market area. Many of these competitors operate on a
national or regional level, are a conglomerate of various financial services
housed under one corporation, or otherwise have substantially greater financial
or technological resources than the Company. We compete primarily on
the basis of the interest rates offered to depositors and the terms of loans
offered to borrowers. Should we face competitive pressure to increase
deposit rates or decrease loan rates, our net interest income could be adversely
affected. Additionally, our competitors may offer products and
services that we do not or cannot provide, as certain deposit and loan products
fall outside of our accepted level of risk. The Company’s
profitability depends upon its ability to compete in its market
areas.
None.
At
September 30, 2008, we had 30 traditional branch offices and nine in-store
branch offices. The Bank owns the office building in which its home
office and executive offices are located, and 24 of its other branch offices.
The remaining 14 branch offices, including nine in-store locations, were
leased.
For
additional information regarding our lease obligations, see “Notes to
Consolidated Financial Statements - Note 6” in the Annual Report to Stockholders
attached as Exhibit 13 to this Annual Report on Form 10-K.
Management
believes that our current facilities are adequate to meet the present and
immediately foreseeable needs of the Bank and the
Company. However, we will continue to monitor customer growth
and expand our branching network, if necessary, to serve our customers’
needs.
The
Company and the Bank are involved as plaintiff or defendant in various legal
actions arising in the normal course of business. In our opinion,
after consultation with legal counsel, we believe it unlikely that such pending
legal actions will have a material adverse effect on our financial condition,
results of operations or liquidity.
No matter
was submitted to a vote of security holders, through the solicitation of proxies
or otherwise, during the quarter ended September 30, 2008.
PART
II
The
sections entitled “Stockholder Information” and “Stockholder Return Performance
Presentation” of the attached Annual Report to Stockholders for the year ended
September 30, 2008 is incorporated herein by reference.
See
“Notes to Consolidated Financial Statements—Note 1” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Regulatory
Capital” of the Annual Report to Stockholders attached as Exhibit 13 to this
Annual Report on Form 10-K 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 September
30, 2008 and additional information regarding our share repurchase
program. On May 26, 2006, the board of directors approved a
new stock repurchase program. Under the new plan, the Company may
repurchase up to 500,000 shares from time to time, depending on market
conditions and other factors, in open-market and other
transactions. The shares would be held as treasury stock for general
corporate use. The plan has no expiration date and had 186,431 shares
remaining as of September 30, 2008.
|
Total
Number of
|
Average
|
Total
Number of Shares Purchased
|
Maximum
Number
of Shares
that May
|
|
Shares
|
Price Paid
|
As
Part of Publicly
|
Yet
Be Purchased
|
Period
|
Purchased
|
per
Share
|
Announced
Plans
|
Under
the Plan
|
July
1, 2008 through
|
|
|
|
|
July
31, 2008
|
--
|
|
--
|
186,431
|
August
1, 2008 through
|
|
|
|
|
August
31, 2008
|
--
|
|
--
|
186,431
|
September
1, 2008 through
|
|
|
|
|
September
30, 2008
|
--
|
|
--
|
186,431
|
Total
|
--
|
--
|
--
|
186,431
|
The
following table presents quarterly dividends paid in calendar years 2008, 2007,
and 2006. The dollar amounts represent dividends paid during the
quarter. The 2008 special year dividend is based upon the number of
shares outstanding on the record date of November 21, 2008. All
shares outstanding presented in the table below are as of the date of record per
the dividend declaration.
|
|
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
|
|
|
20,668,519 |
|
|
|
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
|
|
|
20,881,157 |
|
|
|
20,860,278 |
|
|
|
20,432,393 |
|
Dividend
per share
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
Total
dividends paid
|
|
$ |
10,441 |
|
|
$ |
10,430 |
|
|
$ |
10,216 |
|
Special
year end dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of dividend shares
|
|
|
20,881,157 |
|
|
|
-- |
|
|
|
20,432,793 |
|
Dividend
per share
|
|
$ |
0.11 |
|
|
$ |
-- |
|
|
$ |
0.09 |
|
Total
dividends paid
|
|
$ |
2,297 |
|
|
$ |
-- |
|
|
$ |
1,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar
year-to-date dividends per share
|
|
$ |
2.11 |
|
|
$ |
2.00 |
|
|
$ |
2.09 |
|
Item
6. Selected Financial
Data
The
section entitled “Selected Consolidated Financial Data” of the attached Annual
Report to Stockholders for the fiscal years ended September 30, 2004 through
September 30, 2008 is incorporated herein by reference.
The
section entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” of the attached Annual Report to Stockholders for the
year ended September 30, 2008 is incorporated herein by reference.
The
section entitled “Management Discussion of Financial Condition and Results of
Operations-Quantitative and
Qualitative Disclosure about Market Risk” of the attached Annual Report to
Stockholders for the year ended September 30, 2008 is incorporated herein by
reference.
Item
8. Financial Statements and
Supplementary Data
The
section entitled “Consolidated Financial Statements” of the attached Annual
Report to Stockholders for the fiscal year ended September 30, 2008 is
incorporated herein by reference.
None.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, evaluated the Company’s disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act
of 1934, as amended, the “Act”) as of September 30, 2008. Based upon
their evaluation, they have concluded that as of September 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.
Management’s
report on our internal control over financial reporting is contained in the
attached Annual Report to Stockholders for the fiscal year ended September 30,
2008 and incorporated herein by reference.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d) of the
Act that occurred during the Company’s last fiscal quarter ended September 30,
2008 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
PART
III
Information
required by this item concerning the Company’s directors and compliance with
section 16(a) of the Act is incorporated herein by reference from the definitive
proxy statement for the Annual Meeting of Stockholders to be held in January
2009, a copy of which will be filed not later than 120 days after the close of
the fiscal year.
Pursuant
to General Instruction G(3), information concerning executive officers of the
Company is included in Part I, under the caption “Executive Officers” of this
Form 10-K.
Information
required by this item regarding the audit committee of the Company’s board of
directors, including information regarding the audit committee financial expert
serving on the audit committee, is incorporated herein by reference from the
definitive proxy statement for the Annual Meeting of Stockholders to be held in
January 2009, a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Code
of Ethics
We have
adopted a written code of ethics within the meaning of Item 406 of SEC
Regulation S-K that applies to our principal executive officer and senior
financial officers, and to all of our other employees and our directors, a copy
of which is available free of charge by contacting Jim Wempe, our Investor
Relations Officer, at (785) 270-6055 or from our Internet website
(www.capfed.com).
Information
required by this item concerning compensation is incorporated herein by
reference from the definitive proxy statement for the Annual Meeting of
Stockholders to be held in January 2009, a copy of which will be filed not later
than 120 days after the close of the fiscal year.
Information
required by this item concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the definitive proxy
statement for the Annual Meeting of Stockholders to be held in January 2009, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
The
following table sets forth information as of September 30, 2008 with respect to
compensation plans under which shares of our common stock may be
issued:
Equity
Compensation Plan Information
|
|
|
|
Number
of Shares
|
|
|
|
Remaining
Available
|
|
|
|
for
Future Issuance
|
|
Number
of Shares
|
|
Under
Equity
|
|
to
be issued upon
|
Weighted
Average
|
Compensation
Plans
|
|
Exercise
of
|
Exercise
Price of
|
(Excluding
Shares
|
|
Outstanding
Options,
|
Outstanding
Options,
|
Reflected
in the
|
Plan
Category
|
Warrants and
Rights
|
Warrants and
Rights
|
First
Column)
|
|
|
|
|
Equity
compensation plans approved
|
|
|
|
by
stockholders
|
403,322
|
$29.66
|
467,272(1)
|
Equity
compensation plans not approved
|
|
|
|
by
stockholders
|
N/A
|
N/A
|
N/A
|
Total
|
403,322
|
$29.66
|
467,272
|
(1) This
amount includes 165,987 shares issuable under the Company's Recognition and
Retention Plan.
Information
required by this item concerning certain relationships, related transactions and
director independence is incorporated herein by reference from the definitive
proxy statement for the Annual Meeting of Stockholders to be held in January
2009, except for
information contained under the heading “Compensation Discussion and Analysis
Report” and “Report of the Audit Committee of the Board of
Directors”, a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Information
required by this item concerning principal accountant fees and services is
incorporated herein by reference from the definitive proxy statement for the
Annual Meeting of Stockholders to be held in January 2009, a copy of which will
be filed not later than 120 days after the close of the fiscal
year.
PART
IV
(a) The
following is a list of documents filed as part of this report:
(1) Financial
Statements:
The
following financial statements are included under Part II, Item 8 of this Form
10-K:
1. Report
of Independent Registered Public Accounting Firm.
|
2. Consolidated
Balance Sheets as of September 30, 2008 and 2007.
|
3. Consolidated
Statements of Income for the Years Ended September 30, 2008, 2007 and
2006.
|
4. Consolidated
Statements of Stockholders’ Equity for the Years Ended September 30, 2008,
2007 and 2006.
|
5. Consolidated
Statements of Cash Flows for the Years Ended September 30, 2008, 2007 and
2006.
|
6. Notes
to Consolidated Financial Statements for the Years Ended September 30,
2008, 2007 and 2006.
|
(2) Financial Statement
Schedules:
All
financial statement schedules have been omitted as the information is not
required under the related instructions or is not applicable.
(3) Exhibits:
See Index to Exhibits.
Pursuant
to the requirements of Section 13 or 15(d) 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: December
1, 2008
|
By:
|
/s/ John B.
Dicus
|
|
|
|
John
B. Dicus, President and
|
|
|
|
Chief
Executive Officer
|
|
|
|
(Principal
Executive Officer)
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date
indicated.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ John B.
Dicus
|
By:
|
/s/ B. B. Andersen
|
|
John
B. Dicus, President
|
|
B.
B. Andersen, Director
|
|
and
Chief Executive Officer
|
|
Date: December
1, 2008
|
|
(Principal
Executive Officer)
|
|
|
|
Date: December
1, 2008
|
|
|
|
|
|
|
By:
|
/s/ John C. Dicus
|
By:
|
/s/ Michael T. McCoy,
M.D.
|
|
John
C. Dicus, Chairman of the Board
|
|
Michael
T. McCoy, M.D., Director
|
|
Date: December
1, 2008
|
|
Date: December
1, 2008
|
|
|
|
|
|
|
|
|
By:
|
/s/ Kent G. Townsend
|
By:
|
/s/ Marilyn S.
Ward
|
|
Kent
G. Townsend, Executive Vice President
|
|
Marilyn
S. Ward, Director
|
|
and
Chief Financial Officer
|
|
Date: December
1, 2008
|
|
(Principal
Financial Officer)
|
|
|
|
Date: December
1, 2008
|
|
|
|
|
|
|
By:
|
/s/ Jeffrey R.
Thompson
|
By:
|
/s/ Tara D. Van Houweling
|
|
Jeffrey
R. Thompson, Director
|
|
Tara
D. Van Houweling, First Vice President
|
|
Date: December
1, 2008
|
|
and
Reporting Director
|
|
|
|
(Principal
Accounting Officer)
|
By:
|
/s/ Jeffrey M.
Johnson
|
|
Date: December
1, 2008
|
|
Jeffrey
M. Johnson, Director
|
|
|
|
Date: December
1, 2008
|
|
|
|
|
|
|
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
|
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
|
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
|
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)
|
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)
|
10.4
|
|
Capitol
Federal Financial Deferred Incentive Bonus Plan, as amended, filed on
August 4, 2008 as Exhibit 10.4 to the June 30, 2008 Form
10-Q
|
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
|
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
|
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
|
10.8
|
|
Description
of Named Executive Officer Salary and Bonus
Arrangements
|
10.9
|
|
Description
of Director Fee Arrangements filed on February 5, 2007 as Exhibit 10.9 to
the
|
|
|
December
31, 2006 Form 10-Q
|
10.10
|
|
Short-term
Performance Plan
|
11
|
|
Statement
re: computation of earnings per share**
|
13
|
|
Annual
Report to Stockholders
|
14
|
|
Code
of Ethics***
|
21
|
|
Subsidiaries
of the Registrant
|
23
|
|
Consent
of Independent Registered Public Accounting Firm
|
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, Chief Executive
Officer and President, 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, 1999, 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 the 2008 Annual Report to Stockholders, filed
herewith.
***May
be obtained free of charge from the Registrant’s Investor Relations Officer by
calling (785) 270-6055 or from the Registrant’s internet website at
www.capfed.com.