UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number 333-68363
CAPITOL FEDERAL FINANCIAL
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
United States 48-1212142
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
700 Kansas Avenue, Topeka, Kansas 66603
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (785) 235-1341
--------------
Indicate by check mark whether the issuer (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 issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Transitional Small Business Format: Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock 86,307,366
------------ ------------------
Class Shares Outstanding
as of May 15, 2000
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
Capitol Federal Financial
INDEX
Page
PART I -- FINANCIAL INFORMATION Number
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000 and September 30, 1999 3
Consolidated Statements of Income for the three and six months ended 4
March 31, 2000 and March 31, 1999
Consolidated Statement of Stockholders' Equity for the six months ended 5
March 31, 2000
Consolidated Statements of Cash Flows for the six months ended March 31, 2000 6
and March 31, 1999
Notes to Consolidated Interim Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 13
Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature Page 22
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PART 1 -- FINANCIAL INFORMATION
CAPITOL FEDERAL FINANCIAL AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, September 30,
2000 1999
------------ --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 111,349 $ 22,275
Investment securities held to maturity (market value of $14,539 15,100
15,100
and $14,754)
Capital stock of Federal Home Loan Bank 120,500 68,336
Mortgage-related securities:
Available-for-sale(amortized cost of $990,430 and $1,129,995) 984,397
1,136,776
Held-to-maturity (market value of $1,545,319 and $914,820) 1,597,645
939,492
Loans held for sale, net 6,140 3,651
Loans receivable, net 4,704,045 4,291,288
Premises and equipment 24,511 24,046
Real estate owned, net 963 1,073
Accrued interest receivable 38,415 32,845
Other assets 4,141 4,433
---------- ----------
TOTAL ASSETS $7,607,206 $6,539,315
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $3,979,336 $3,899,565
Advances from Federal Home Loan Bank 2,375,000
1,345,000
Securities sold under agreement to repurchase 175,000 175,000
Advance payments by borrowers for taxes and insurance 29,223
37,422
Deferred income taxes 8,924 13,779
Accounts payable and accrued expenses 28,281 22,035
---------- ----------
Total liabilities 6,595,764 5,492,801
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value) 50,000,000 shares 0 0
authorized; none issued
Common stock ($0.01 par value) 450,000,000 authorized; 915
915
91,512,287 shares issued as of March 31, 2000 and September 30, 1999
Additional paid in capital 384,834 384,864
Retained earnings 714,652 684,761
Accumulated other comprehensive income (3,756) 4,204
Unearned compensation, Employee Stock Ownership Plan (27,240)
(28,230)
Less shares held in treasury: 5,897,921 shares at cost (57,963) 0
---------- ----------
Total stockholders' equity 1,011,442 1,046,514
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,607,206
$6,539,315
========== ==========
</TABLE>
See accompanying notes to consolidated interim financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CAPITOL FEDERAL FINANCIAL AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ --------------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans receivable $82,324 $70,236 $161,304
$140,182
Mortgage-related securities 38,708 22,827 71,675
39,070
Investment securities 230 - 470 765
Securities purchased under agreement to resell - 1,206 -
3,894
Cash and cash equivalents 893 662 1,316 1,763
Capital stock of Federal Home Loan Bank 1,722 859 3,089
1,535
------- ------- -------- --------
Total interest and dividend income 123,877 95,790 237,854
187,209
INTEREST EXPENSE:
Deposits 50,175 49,498 99,909 99,830
Borrowings 31,997 12,048 55,418 21,928
------- ------- -------- --------
Total interest expense 82,172 61,546 155,327
121,758
------- ------- -------- --------
Net interest and dividend income 41,705 34,244 82,527
65,451
Provision for loan losses 250 135 494 135
------- ------- -------- --------
Net interest and dividend income after
provision for loan losses 41,455 34,109 82,033
65,316
OTHER INCOME:
Automated teller and debit card transaction fees 1,188 889 2,439
1,762
Checking account transaction fees 735 637 1,536
1,389
Loan fees 397 467 809 996
Insurance commissions 469 455 896 799
Other, net 655 840 1,179 1,451
------- ------- -------- --------
Total other income 3,444 3,288 6,859 6,397
OTHER EXPENSES:
Salaries and employee benefits 8,063 9,833 16,292
16,193
Occupancy of premises 2,278 2,066 4,893
4,431
Office supplies and related expenses 722 820 1,553
1,570
Deposit and loan transaction fees 943 977 1,857
1,928
Advertising 720 652 1,193 1,028
Federal insurance premium 211 599 807 1,169
Contribution to Foundation - 30,231 - 30,231
Other, net 1,352 826 2,571 1,723
------- ------- -------- --------
Total other expenses 14,289 46,004 29,166
58,273
------- ------- -------- --------
Income before income tax expense 30,610 (8,607) 59,726
13,440
Income tax expense 11,555 (3,266) 22,547
5,289
------- ------- -------- --------
NET INCOME $19,055 $(5,341) $37,179
$8,151
======= ======== =======
======
</TABLE>
See accompanying notes to consolidated interim financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CAPITOL FEDERAL FINANCIAL AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Other Unearned
Additional Retained Comprehen- Compen-
Common Paid-In Earnings sive sation Treasury
Stock Capital Income (ESOP) Stock
Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1999 $915 $384,864 $684,761 $4,204 $(28,230)
- $1,046,514
Comprehensive Income: - - - - - -
Net income - - 37,179 - - - 37,179
Other Comprehensive income -
Change in unrealized gains on mortgage-
related securities available-for-sale, net
of deferred taxes of $(4,854) - - - (7,960) - -
(7,960)
Total Comprehensive income
29,219
Repurchase of common stock, at cost - - - - - (57,963)
(57,963)
Common stock committed to be released for
allocation - Employee Stock Ownership
Plan - - - - 990 - 990
Decrease in fair market value of Employee
Stock Ownership Plan shares committed
to be released for allocation - (30) - - - - (30)
Dividends on common stock to stockholders
($0.21 per share) - - (7,288) - - - (7,288)
- -------------------------------------------------------------------------------------
TOTAL $915 $384,834 $714,652 $(3,756) $(27,240)
(57,963) $1,011,442
=====================================================================
================
</TABLE>
See accompanying notes to consolidated interim financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CAPITOL FEDERAL FINANCIAL AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Six Months Ended March 31,
------------------------------
2000 1999
----------- ----------
<S> <C> <C>
Net income $ 37,179 $ 8,151
Adjustments to reconcile net income to net cash provided by operating
activities:
Federal Home Loan Bank stock dividends (1,367) (1,535)
Amortization of net deferred loan origination fees (16) (5,255)
Provision for loan losses 494 135
Provision for losses on real estate owned 0 0
Net loan origination fees capitalized 1,876 5,954
Gain on sales of real estate owned, net (106) 57
Originations of loans held for sale (2,602) 500
Proceeds from sales of loans held for sale 0 12,976
Amortization and accretion of premiums and discounts on
mortgage related securities and investment securities 194 2,023
Depreciation and amortization on premises & equipment 2,034 1,637
Provision (benefit) for deferred income taxes 0 (11,488)
Termination of Pension Plan 0 1,600
Decrease in fair market value of Employee stock Ownership
Plan shares committed to be released for allocation (30) 0
Amortization of unearned compensation - ESOP 990 1,049
Changes in:
Accrued interest receivable (5,570) (1,033)
Other assets 405 (7,618)
Income taxes payable 2,971 (1,468)
Accounts payable and accrued expenses 3,282 1,863
----------- ----------
Net cash provided by operating activities 39,734 7,548
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 0 160,470
Purchases of investment securities (50,797) 0
Purchases of securities under agreement to resell 0 (1,383,410)
Principal collected on mortgage-related securities available- 139,382 316,571
for-sale
Purchases of mortgage-related securities available-for-sale 0 (1,010,909)
Principal collected on mortgage-related securities held-to- 72,836 216,068
maturity
Purchases of mortgage-related securities held-to-maturity (731,001) (178,960)
Loan originations net of principal collected on loans (180,095) (112,083)
receivable
Purchases of loans receivable (236,673) (50,731)
Purchases of premises and equipment, net (2,499) (2,756)
Proceeds from sales of real estate owned 1,866 361
----------- ----------
Net cash used in investing activities (986,981) (2,045,379)
6
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (7,288) 0
Deposits, net of payments 79,770 56,104
Proceeds from advances from Federal Home Loan Bank 1,598,000
300,000
Repayments on advances from Federal Home Loan Bank (568,000)
(300,000)
Proceeds from securities sold under agreement to repurchase 0 1,618,410
Proceeds from stock issuance, net 0 355,295
Payments for the repurchase of common stock (57,963) 0
Advance payments by borrowers for taxes and insurance (8,198) (362)
Net cash provided by financing activities 1,036,321 2,029,447
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH 89,074
(8,384)
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of Period $ 22,275 $24,454
----------- ----------
End of Period $ 111,349 $ 16,070
=========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING TRANSACTIONS:
Note received from ESOP in exchange for stock $ 30,246
==========
</TABLE>
See accompanying notes to consolidated interim financial statements.
7
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES
The accompanying consolidated interim financial statements were prepared in
accordance with accounting principles, generally accepted in the United States
of America ("GAAP"). Accordingly, they do not include information or footnotes
necessary for a complete presentation of financial position, results of
operations and cash flows in conformity with GAAP. However, all normal,
recurring adjustments which, in the opinion of management, are necessary for a
fair presentation of the consolidated interim financial statements, have been
included. These financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto for the period
ended September 30, 1999 contained in the Company's Annual Report dated for the
fiscal year ended September 30, 1999. The results for the six months ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the year ended September 30, 2000.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowances for losses on loans and
real estate owned. While management believes that these allowances are adequate,
future additions to the allowances may be necessary based on changes in economic
conditions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On March 31, 1999, Capitol Federal Financial (the "Company") completed the
reorganization of Capitol Federal Savings and Loan Association, a federally
chartered mutual savings and loan ("Capitol Federal Savings" or the "Bank"),
into the federal mutual holding company form of ownership, whereby the Bank
converted into a federally chartered stock savings bank as a wholly owned
subsidiary of the Company, and the Company became a majority-owned subsidiary of
Capitol Federal Savings MHC, a federally chartered mutual holding company (the
"MHC") (the "Reorganization"). In connection with the Reorganization, the
Company sold 37,807,183 shares of Company common stock, par value $0.01 per
share ("Company Common Stock") at $10.00 per share, which net of issuance costs
generated proceeds of $355.5 million, including shares issued to the ESOP. The
Company also issued 52,192,817 shares of Company Common Stock to the MHC. In
addition, the Company established an ESOP for the employees of the Company and
the Bank which became effective with the completion of the Reorganization.
Additional information regarding the Reorganization is included in the Company's
Registration Statement on Form S-1 filed on December 4, 1998, as amended.
8
<PAGE>
3. LOAN PORTFOLIO
The following table presents the Company's loan portfolio at the dates
indicated.
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
---------------------------- -----------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $4,474,912 94.33% $4,083,148 94.10%
Multi-family 34,777 0.73 31,114 0.72
Commercial 13,497 0.28 11,415 0.26
Construction or development 50,839 1.08 56,660 1.30
----------------------------------------------------------
Total real estate loans 4,574,025 96.42 4,182,337 96.38
Other Loans:
Consumer loans:
Savings loans 14,353 0.30 15,281 0.35
Student 18,151 0.38 16,424 0.38
Home improvement 2,319 0.05 2,072 0.05
Automobile 9,689 0.20 7,122 0.16
Home equity 124,666 2.63 115,779 2.67
Other 731 0.02 330 0.01
----------------------------------------------------------
Total consumer loans 169,909 3.58 157,008 3.62
Total other loans 169,909 3.58 157,008 3.62
----------------------------------------------------------
Total loans receivable 4,743,934 100.00% 4,339,345 100.00%
Less:
Loans in process 19,770 29,043
Deferred fees and discounts 15,253 14,607
Allowance for losses 4,866 4,407
---------- ----------
Total loans receivable, net $4,704,045 $4,291,288
========== ==========
</TABLE>
9
<PAGE>
4. NON-PERFORMING LOANS
The following table presents the Company's non-performing loans, including
non-accrual loans and real estate owned, at the dates indicated.
March 31, September 30,
2000 1999
--------- -------------
Non-accruing loans:
One-to four-family $5,188 $4,921
Multi-family --- --
Commercial real estate --- --
Construction or development --- --
Consumer 104 55
Commercial business --- ---
---------------------------
Total $5,292 $4,976
===========================
Accruing loans delinquent more than 90 days:
One- to four-family --- ---
Multi-family --- ---
Commercial real estate --- ---
Construction or development --- ---
Consumer --- ---
Commercial business --- ---
---------------------------
Total --- ---
===========================
Real Estate Owned:
One- to four-family $963 $1,073
Multi-family --- ---
Commercial real estate --- ---
Construction or development --- ---
Consumer --- ---
Commercial business --- ---
---------------------------
Total $963 $1,073
===========================
Total non-performing assets $6,255 $6,049
===========================
Total as a percentage of total assets 0.08% 0.09%
===========================
10
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
The following table presents the Company's activity for loan losses at the dates
and for the periods indicated.
<TABLE>
<CAPTION>
For the quarter ending For the six months ending
March 31, March 31,
---------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at the beginning of period $4,617 $4,081 $4,407 $4,081
Charge offs:
One- to four-family --- 33 33 33
Multi-family --- --- --- ---
Commercial real estate --- --- --- ---
Construction or development --- --- --- ---
Consumer 2 8 3 8
Commercial business --- --- --- ---
-------------------------------------------------------------
Total charge-offs 2 41 36 41
Recoveries:
One- to four-family --- --- --- ---
Multi-family --- --- --- ---
Commercial real estate --- --- --- ---
Construction or development --- --- --- ---
Consumer 1 --- 1 ---
Commercial business --- --- --- ---
-------------------------------------------------------------
Total recoveries 1 --- 1 ---
Net charge-offs 1 41 35 41
Additions charged to operations 250 135 494 135
-------------------------------------------------------------
Balance at end of period $4,866 $4,175 $4,866 $4,175
=============================================================
</TABLE>
6. DEPOSITS SAVINGS PORTFOLIO
The table below presents the Company's savings portfolio at the dates indicated.
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
--------------------------------------------------------------------
Amount Percent of Total Amount Percent of Total
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Demand deposits $ 319,894 8.04% $ 278,722 7.15%
Passbook and passcard 120,818 3.04 123,479 3.17
Money market select 342,176 8.60 322,660 8.27
Cash fund 193,165 4.85 201,275 5.16
Certificates 3,003,283 75.47 2,973,429 76.25
--------------------------------------------------------------------
Total deposits $3,979,336 100.00% $3,899,565 100.00%
=====================================================================
====
</TABLE>
11
<PAGE>
7. EARNINGS PER SHARE
Earnings per share for the quarter ended March 31, 2000 were $0.22 per share and
$0.43 per share year-to-date. The Company accounts for the 3,024,574 shares
acquired by its Employee Stock Ownership Plan ("ESOP") in accordance with
Statement of Position 93-6; shares controlled by the ESOP are not considered in
the weighted average shares outstanding until the shares are committed for
allocation to an employee's individual account. The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share calculations.
Three Months Ended Six Months Ended
March 31, 2000 March 31, 2000
------------------ -----------------
Net Income $ 19,055 $ 37,179
Weighted average common shares 84,458,128 86,207,728
Allocated ESOP shares 252,602 227,256
----------- ------------
Total basic and diluted weighted
average common shares 84,710,730 86,434,984
=========== ============
Net earnings per share
Basic $ 0.22 $ 0.43
Diluted $ 0.22 $ 0.43
8. EQUITY
At March 31, 2000, the Bank exceeded all minimum regulatory requirements for a
well capitalized institution, with tangible capital at 12.5% and risk-based
capital of 29.5%. The Company declared an $0.11 per share dividend on April 18,
2000 to holders of record on May 5, 2000, payable on May 19, 2000. During the
quarter ended March 31, 2000 the Company purchased 3,557,921 shares of its
publicly traded stock in the open market at an average cost of $9.53 per share.
At March 31, 2000, the Ccompany had 5,897,921 shares of treasury stock. Book
value per share at March 31, 2000 was $12.20. At March 31, 2000 there were
82,892,250 shares outstanding.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133. "Accounting for Derivative
Instruments and instruments including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and hedging
activities. The Statement requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Statement is effective for the Company's
financial statements for the fiscal year ending September 30, 2000. The adoption
of this Statement is not expected to have material impact on the Company's
consolidated financial statements.
10. COMPREHENSIVE INCOME
The only component of other comprehensive income is the change in the estimated
fair value of mortgage-related securities available-for-sale. This component of
comprehensive loss was $6.1 million for the three months ended March 31, 2000
and $8.0 million for the six months ended March 31, 2000.
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company and its Subsidiaries are named
defendants in various lawsuits and counter claims. In the opinion of management,
after consultation with legal counsel, none of the suits will have a materially
adverse effect on the financial position or results of the Company.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS
OF OPERATIONS
Except for the historical information contained in this filing, the matters
discussed may be deemed to be forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, that involve risks and
uncertainties, including changes in economic conditions in the Company's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Company's market area, competition, and other
risks detailed from time to time in the Company's SEC reports. Actual strategies
and results in future periods may differ materially from those currently
expected. These forward-looking statements represent the Company's judgment as
of the date of this release. The Company disclaims, however, any intent or
obligation to update these forward-looking statements.
The following discussion is intended to assist in understanding the financial
condition and results of operations of Capitol Federal Financial. The discussion
includes comments relating to Capitol Federal Savings Bank since the Bank is
wholly owned by Capital Federal Financial and comprises the majority of assets
and sources of income for the Company.
FINANCIAL CONDITION
ASSETS. For the six month period ended March 31, 2000, total assets of the
Company increased $1.07 billion, or 16.43%, from $6.54 billion at September 30,
1999 to $7.61 billion at March 31, 2000. The increase from September 30, 1999
was primarily due to the growth in the Company's loan and mortgage-related
securities portfolio. This increase in total assets was distributed as follows:
o $412.8 million, or 9.6%, increase in net loans receivable which increased
from $4.29 billion at September 30, 1999 to $4.70 billion at March 31,
2000.
o $505.8 million increase in mortgage-related securities, or 24.34%, which
increased from $2.08 billion at September 30, 1999 to $2.58 billion at
March 31, 2000.
Total one- to four-family loan originations for the quarter ended March 31, 2000
were $186.5 million; and were $392.7 million year to date. Refinancing of loans
already serviced by the Bank were 5.8% of loan originations for the quarter and
6.1 % year to date. Fixed-rate loan originations accounted for 44.7% of
originations for the quarter and 49.6% year to date. Loans purchased totaled
$86.6 million for the quarter ending March 31, 2000 and $236.7 million year to
date, all of which were adjustable rate. Total originations of consumer loans
for the quarter ended March 31, 2000 were $32.9 million, and $67.3 million year
to date. The Company expanded its capital utilization plan, during the quarter
ended March 31, 2000 by purchasing $323.2 million of mortgage-related securities
at a spread of 120 basis points over the cost of funding, year-to-date purchases
totaled $718.3 million of mortgage related securities at a spread of 116 basis
points over the cost of funding. Mortgage-related securities purchased during
the quarter and year-to-date were all fixed rate.
LIABILITIES. Deposits increased $79.8 million, or 2.01%, from $3.90 billion at
September 30, 1999, to $3.98 billion at March 31, 2000. This increase was
attributable to $88.1 million of interest credits during the six month period.
Certificate accounts increased in balance over the period by $29.9 million.
Borrowings increased from September 30, 1999 by $1.03 billion, or 76.6% and were
used primarily to fund the purchase of mortgage-related securities and the
purchase of loans. The average rate paid on the borrowings year-to-date was
5.81%. Generally, the borrowings have a ten year life and a call option on the
anniversary date at three or five years.
EQUITY. Total stockholders' equity decreased $35.1 million, or (3.34)%, from
$1.05 billion at September 30, 1999, to $1.01 billion at March 31, 2000. The
decrease was attributable to the purchase of Capitol Federal Financial stock
totaling $58.0 million, dividends paid of $7.3 million, and a change from a $4.2
million gain to a $3.8 million loss on securities available-for-sale, offset by
year-to-date earnings of $37.2 million.
13
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND
1999
GENERAL. For the three months ended March 31, 2000, the Company recognized net
income of $19.1 million, compared to net loss of $5.3 million for the three
months ended March 31, 1999. In conjunction with the Bank's conversion from
mutual to stock form on March 31, 1999, $30.2 million of the proceeds were used
to fund the Capitol Federal Foundation. Also in conjunction with the conversion,
the Company recognized the expense of terminating the existing pension plan of
$1.6 million and the establishment of the ESOP and accrued ESOP benefits of $1.0
million. Excluding the conversion related expenses, net income for the three
months ended March 31, 1999 was $15.0 million. The Company's efficiency ratio
for the three months ended March 31, 2000 was 31.68% compared to 35.01% for the
quarter ended March 31, 1999, excluding conversion related expenses.
NET INTEREST INCOME. Net interest income for the three months ended March 31,
2000 was $41.7 million, an increase of $7.5 million, or 21.9% from the same
period last year. The increase was primarily the result of an increase of $1.69
billion in the balance of loans receivable and mortgage-related securities from
$5.59 billion at March 31, 1999 to $7.29 billion at March 31, 2000 while total
interest bearing liabilities increased $1.90 billion from $4.63 billion at March
31, 1999 to $6.53 billion at March 31, 2000. The net interest margin decreased
12 basis points from 2.47% for the quarter ended March 31, 1999 to 2.35% for the
quarter ended March 31, 2000. The Company's net interest rate spread decreased
20 basis points from 1.80% for the quarter ended March 31, 1999 to 1.60% for the
quarter ended March 31, 2000.
INTEREST AND DIVIDEND INCOME. Interest income for the three months ended March
31, 2000 was $123.9 million, up from $95.8 million for the same period in fiscal
year 1999. The largest component of interest income is interest on loans.
Interest on loans increased from $70.2 million for the three months ended March
31, 1999 to $82.3 million for the three months ended March 31, 2000. This
increase of $12.1 million was the result of an increase in the average balance
of loans which was partially offset by a decrease in the average yield earned.
The average balance of loans receivable increased $790.7 million to $4.60
billion for the three months ended March 31, 2000 compared to $3.81 billion for
the same period one year ago, while the average yield on loans decreased 22
basis points to 7.16% for the quarter ended March 31, 2000 from 7.38% for the
quarter ended March 31, 1999. The yield on loans receivable at March 31, 2000
was 7.20%. The increase in interest on loans was supplemented by an increase in
interest on mortgage-related securities. Interest income on mortgage-related
securities increased $15.9 million from $22.8 million for the quarter ended
March 31, 1999 to $38.7 million for the quarter ended March 31, 2000. The
average balance of mortgage-related securities increased $793.1 million from
$1.52 billion at March 31, 1999 to $2.32 billion at March 31, 2000, while the
average yield increased from 5.99% for the quarter ended March 31, 1999 to 6.68%
for the quarter ended March 31, 2000. The yield on mortgage-related securities
at March 31, 2000 was 6.88%. Investment securities income for the quarter ended
March 31, 2000 was $230,000. The average balance of investment securities for
the quarter ended March 31, 2000 was $15.1 million compared to $1.3 million for
the quarter ended March 31, 1999. Dividends earned on capital stock of the
Federal Home Loan Bank was $1.7 million for the quarter ended March 31, 2000,
compared to $859,000 for the same period in fiscal year 1999. The increase is
due to the increased amount of stock held by the Bank in accordance with the
terms of advances from the Federal Home Loan Bank, Topeka ("FHLB").
INTEREST EXPENSE. Interest expense increased for the quarter ended March 31,
2000 to $82.2 million from $61.5 million for the same period in 1999. For the
quarter ended March 31, 2000 interest expense on deposits was $50.2 million
compared to $49.5 million for the quarter ended March 31, 1999, an increase of
$677,000. The increase was due to an increase in interest rates paid on
short-term deposits, an increase in the rate paid on money market accounts, and
certificates of deposit maturing and renewing into higher rate, shorter term
accounts. The average balance of deposits during the quarter ended March 31,
2000 was $3.93 billion compared to $3.95 billion for the quarter ended March 31,
1999, a decrease of $16.6 million, or (0.1)%. The average rate paid on deposits
for the quarter ended March 31, 2000 was 5.12% compared to 5.02% for the quarter
ended March 31, 1999, an increase of 10 basis points. At March 31, 2000, the
average cost of deposits was 5.17%. Interest expense on borrowings for the
14
<PAGE>
quarter ended March 31, 2000 was $32.0 million compared to $12.0 million for the
quarter ended March 31, 1999, an increase of $20.0 million, or 166.7%. The
average balance of borrowings for the quarter ended March 31, 2000 was $2.15
billion compared to $875.0 million for the quarter ended March 31, 1999, an
increase of $1.27 billion, or 148.6%. The increase is due to additional
long-term fixed rate, callable advances from the FHLB and short-term advances
being taken out during the quarter primarily to fund the purchase of
mortgage-related securities, and the origination and purchase of loans. The
average cost of the borrowings for the quarter ended March 31, 2000 was 5.89%
compared to 5.51% for the quarter ended March 31, 1999. The average rate paid on
borrowings at March 31, 2000 was 6.02%.
PROVISION FOR LOAN LOSSES. During the quarter ended March 31, 2000, the
provision for loan losses was $250,000 an increase of $115,400, compared to
$134,600 for the quarter ended March 31, 1999. Based upon our allowance
methodology, the $250,000 provision was primarily due to the $165.2 million net
increase in the balance of one-to four-family real estate mortgages over the
previous quarter, which resulted in additional provision of $138,000. The
balance of cConstruction loans increased $5.5 million over the previous quarter,
which resulted in additional provision of $52,000. Assets classified as
substandard increased $927,000 over the previous quarter, which resulted in
additional provision of $60,000. The 3.8% increase in one-to four-family real
estate mortgages resulted from loan origination activity of $186.5 million and
loan purchases of $86.6 million during the current quarter, primarily offset by
principal repayments and loan payoffs. The assessment of the estimated losses
inherent in the loan portfolio resulting from the allowance methodology,
specific allowances for identified problem loans and portfolio segments,
indicated that for the current quarter the charge to the provision expense is
adequate.
NONINTEREST INCOME. Total noninterest income for the quarter ended March 31,
2000 was $3.4 million, up from $3.3 million for the quarter ended March 31,
1999. There were no significant changes in noninterest income for any category
for the quarter ended March 31, 1999 compared to the quarter ended March 31,
2000.
NONINTEREST EXPENSE. Total noninterest expense increased $1.2 million to $14.3
million for the quarter ended March 31, 2000 compared to $13.1 million for the
same period in 1999, excluding conversion related expenses. The increase in
noninterest expense was the result of increases in personnel, occupancy and
other expenses offset by a decrease in federal insurance premiums. Personnel and
occupancy increases were primarily the result of costs associated with the ESOP
and the operation of three new branch locations.
INCOME TAX EXPENSE. Income tax expense increased from $9.2 million for the
quarter ended March 31, 1999, excluding the conversion related benefit, to $11.6
million for the quarter ended March 31, 2000. The increase is due primarily to
an increase in pre-tax earnings.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31,
2000 AND 1999
GENERAL. For the six months ended March 31, 2000, the Company recognized net
income of $37.2 million compared to net income of $28.5 million for the six
months ended March 31, 1999, excluding conversion related expenses. The
efficiency ratio, for the six months ended March 31, 2000 was 32.65% compared to
35.38% for the six months ended March 31, 1999, exclusive of the conversion
related expenses.
NET INTEREST INCOME. Net interest income for the six months ended March 31, 2000
was $82.5 million compared to $65.5 million for the six months ended March 31,
1999, an increase of $17.0 million, or 26.0%. The net interest rate spread
decreased 10 basis points from 1.74% at March 31, 1999 to 1.64% at March 31,
2000.
INTEREST AND DIVIDEND INCOME. Interest income for the six months ended March 31,
2000 was $237.9 million, up from $187.2 million for the six months ended March
31, 1999. The largest component of interest income is interest on loans
receivable. Interest on loans increased from $140.2 million for the six months
ended March 31, 1999 to $161.3 million for the six months ended March 31, 2000.
This increase of $21.1 million was the result of an increase in the average
balance of loans receivable, which was partially offset by a decrease in the
average yield earned. The average balance of loans increased $733.6
15
<PAGE>
million to $4.51 billion for the six months ended March 31, 2000 from $3.78
billion for the six months ended March 31, 1999. The average yield on loans
decreased 28 basis points from 7.43% for the six months ended March 31, 1999 to
7.15% for the six months ended March 31, 2000. Interest on mortgage-related
securities increased by $32.6 million, or 83.4%, from $39.1 million for the six
months ended March 31, 1999 to $71.7 million for the six months ended March 31,
2000, primarily as a result of an increase in the average balance of
mortgage-related securities. The average balance of mortgage-related securities
increased $873.7 million, or 66.7%, from $1.31 billion for the six months ended
March 31, 1999 to $2.18 billion for the six months ended March 31, 2000, while
the average yield for the six months ended March 31, 2000 was 6.56%, up from
5.96% for the six months ended March 31, 1999. Dividends earned on capital stock
of the FHLB was $3.1 million for the six months ended March 31, 2000, compared
to $1.5 million for the same period in fiscal year 1999. The increase is due to
the increas in stock held by the bank in accordance with the terms of advances
from the FHLB.
INTEREST EXPENSE. Interest expense increased during the six month period ended
March 31, 2000 to $155.3 million from $121.8 million for the six months ending
March 31, 1999. Interest expense on deposits increased from $99.8 million for
the six months ended March 31, 1999 to $99.9 million for the six months ended
March 31, 2000, a $79,000 increase, or 0.1%. The average cost of deposits
decreased to 5.07% for the six months ended March 31, 2000 from 5.09% for the
six months ended March 31, 1999, or 2 basis points. The average balance of
deposits increased $6.1 million, from $3.92 billion for the six months ended
March 31, 1999 to $3.93 billion for the six months ended March 31, 2000.
Interest expense on borrowings increased to $55.4 million from $21.9 million, a
$33.5 million increase, or 153.0%. The average balance of borrowings increased
from $774.0 million for the six months ended March 31, 1999 to $1.88 billion for
the six months ended March 31, 2000, primarily to fund the purchase of
mortgage-related securities and loan growth. The average cost of borrowings
increased from 5.67% for the six months ended March 31, 1999 to 5.81% for the
six months ended March 31, 2000.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the six months
ended March 31, 2000 of $494,000 resulted from the assessment of the estimated
losses inherent in the loan portfolio resulting from the formula allowance,
specific allowances for identified problem loans and portfolio segments. The
provision for loan losses for the six months ended March 31, 1999 was $134,600.
NONINTEREST INCOME. Total noninterest income for the six month period ended
March 31, 2000 was $6.9 million, up slightly from the $6.4 million for the six
month period ended March 31, 1999, primarily as a result of increased fees
charged for ATM usage.
NONINTEREST EXPENSE. Total noninterest expense decreased $29.1 million to $29.2
million for the six months ended March 31, 2000, down from $58.3 million for the
six months ended March 31, 1999. The decrease in noninterest expense was
primarily due to conversion related expenses. However, exclusive of the
conversion related expenses, noninterest expense was up $3.8 million to $29.2
million for the six months ended March 31, 2000 compared to $25.4 million for
the six months ended March 31, 1999, or 15.0%. The increase was due to a $2.7
million increase in compensation related expenses, a $462,000 increase in
occupancy expense and a $848,000 increase in other expenses. Compensation
related expenses increased primarily from ESOP charges, operating three new
branch locations, and additional loan and support staff. The increase in
occupancy related expenses is primarily related to the cost of leasing three new
locations, and upgrades to computer systems. The increase in other expenses is
primarily related to the operation of a publicly traded company.
INCOME TAX EXPENSE. Income tax expense increased from $5.3 million for the six
month period ended March 31, 1999 to $22.5 million for the six months ended
March 31, 2000. Excluding conversion related expenses and the associated tax
benefit, income tax expense increase from $17.8 million for the six month period
ended March 31, 1999 to $22.5 million for the six month ended March 31, 2000.
The increase is primarily the result of an increase in pre-tax earnings.
16
<PAGE>
LIQUIDITY AND COMMITMENTS
The Bank's liquidity, represented by cash and cash equivalents and
mortgage-related securities available for sale, is a product of its operating,
investing and financing activities. The Bank's primary sources of funds are
deposits, prepayments and maturities of outstanding loans and mortgage-related
securities, maturities of investment securities and other short-term investments
and funds provided from operations. While scheduled payments from the
amortization of loans and mortgage-related securities and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. In addition, excess funds
are invested in short-term interest-earning assets, which provide liquidity to
meet lending requirements. Rrepurchase agreements and FHLB advances are utilized
to provide funds for our lending and investment activities, as a facet to
implement our capital utilization plan, and as an interest rate risk management
tool.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits or U.S. agency securities. We use our sources of
funds primarily to meet our ongoing commitments, to pay maturing certificates of
deposit and savings withdrawals, to fund loan commitments and to maintain our
portfolio of mortgage-related securities and investment securities. At March 31,
2000 the Bank had an outstanding commitment of $35.0 million, to purchase a
mortgage-related security, which it subsequently purchased. At March 31, 2000,
the total approved loan origination and purchase commitments outstanding
amounted to $387.5 million. At the same date, the unadvanced portion of
construction loans was $19.8 million. Unused home equity lines of credit were
$163.8 million as of March 31, 2000 and outstanding letters of credit totaled
$1.1 million. Certificates of deposit scheduled to mature in one year or less,
totaled $1.59 billion. Based on historical experience, management believes that
a significant portion of maturing deposits will remain with us. We anticipate
that we will continue to have sufficient funds, through deposits and borrowings,
to meet our current commitments.
CAPITAL
Consistent with our goals to operate a sound and profitable financial
organization, we actively seek to maintain a "well capitalized" institution in
accordance with regulatory standards. Total equity was $1.01 billion at March
31, 2000, or 13.3% of total assets on that date. As of March 31, 2000, the Bank
exceeded all capital requirements of the Office of Thrift Supervision. The
Bank's regulatory capital ratios at March 31, 2000 were as follows: Tier I
(leverage) capital, 12.5%; Tier I risk-based capital, 29.4%; and total
risk-based capital, 29.5%. The regulatory capital requirements to be considered
well capitalized are 5.0%, 6.0%, and 10.0%, respectively.
During the quarter ended March 31, 2000 the Company completed repurchasing
common stock after receiving regulatory approval on November 10, 1999.
Regulatory approval was granted to purchase up to 15%, or approximately 5.9
million shares, of the public shares in the open market. Through March 31, 2000,
the Company purchased 5,897,921 shares at an average cost of $9.84 per share,
for a total cost of $57,963,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies
as well as the potential impact of interest rate changes upon the market value
of the Company's portfolio, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations, Asset and Liability Management
and Market Risk" in the Company's Annual Report dated December 20, 1999.
17
<PAGE>
Part 2 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS On April 25, 2000 the
Company
filed with the SEC a Registration Statement on Form S-8 to register 3,780,718
shares of its common stock in connection with the Capitol Federal Financial 2000
Stock Option and Incentive Plan and 1,512,287 shares in connection with the
Capitol Federal Financial 2000 Recognition and Retention Plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Special Meeting of Shareholders held April 18, 2000, two matters were
presented to shareholders. Shareholders approved the Capitol Federal Financial
2000 Stock Option and Incentive Plan and the Capitol Federal Financial 2000
Recognition and Retention Plan. The votes cast as to each matter are set forth
below:
<TABLE>
<CAPTION>
Proposal Number of Votes
- ---------------------------------------------------------------------------------------------------------------
Broker
For Against Abstain Non-Votes
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Adoption of the Capitol Federal
Financial 2000 Stock Option and
Incentive Plan 68,223,802 3,653,739 356,939 0
Adoption of the Capitol Federal
Financial 2000 Recognition and
Retention Plan 67,395,305 4,475,209 363,867 0
</TABLE>
ITEM 5. OTHER INFORMATION
The Company is changing its reporting of the efficiency ratio. The Company had
excluded from total income dividends earned on the capital stock of the Federal
Home Loan Bank. The Company will begin including these dividends in total income
to more closely conform to industry standards. The efficiency ratios for fiscal
year 1999 exclude the effect of the conversion related expenses, both as
originally reported and as restated. All future filings will reflect these
changes. The following table restates the efficiency ratio.
Originally
Period Reported Restated
Fiscal year ending 1998 36.45 35.63
Quarter ending 12/98 36.50 35.78
Quarter ending 03/99 35.83 35.01
Six months ending 03/99 36.15 35.38
Quarter ending 06/99 33.96 33.28
Nine months ending 06/99 35.35 34.61
Quarter ending 09/99 35.18 34.30
Fiscal year ending 1999 35.30 34.53
Quarter ending 12/99 34.72 33.64
Quarter ending 03/2000 32.95 31.68
Six months ending 03/2000 33.83 32.65
Year to date, ending 03/2000 33.83 32.66
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
18
<PAGE>
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITOL FEDERAL FINANCIAL
Date: May 15, 2000 By: /s/ John C. Dicus
-----------------------------------
John C. Dicus, Chairman and
Chief Executive Officer
Date: May 15, 2000 By: /s/ Neil F. M. McKay
----------------------------------
19
<PAGE>
Index to Exhibits
Sequentially
Numbered Page
Exhibit Where Attached
Number Exhibits are Located
- ------- --------------------
27 Financial Data Schedule 24
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 2000 AND IS
QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 111,349
<INT-BEARING-DEPOSITS> 101,524
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 15,100
<INVESTMENTS-MARKET> 14,539
<LOANS> 4,704,045
<ALLOWANCE> 4,688
<TOTAL-ASSETS> 7,607,206
<DEPOSITS> 3,979,336
<SHORT-TERM> 0
<LIABILITIES-OTHER> 66,428
<LONG-TERM> 2,550,000
0
0
<COMMON> 915
<OTHER-SE> 384,834
<TOTAL-LIABILITIES-AND-EQUITY> 7,607,206
<INTEREST-LOAN> 161,304
<INTEREST-INVEST> 72,145
<INTEREST-OTHER> 4,405
<INTEREST-TOTAL> 237,854
<INTEREST-DEPOSIT> 99,909
<INTEREST-EXPENSE> 155,327
<INTEREST-INCOME-NET> 82,527
<LOAN-LOSSES> 494
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 29,166
<INCOME-PRETAX> 59,726
<INCOME-PRE-EXTRAORDINARY> 59,726
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,179
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 4.69
<LOANS-NON> 5,292
<LOANS-PAST> 15,618
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,407
<CHARGE-OFFS> 36
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 4,866
<ALLOWANCE-DOMESTIC> 4,866
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 24
</TABLE>
