10-K 1 cffn-20130930x10k.htm CFFN SEPTEMBER 30, 2013 FORM 10-K cffn091310k

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 10-K

(Mark One)

þ        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2013

                                                                                 or

¨        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

     Commission file number:  001-34814

________________

Capitol Federal Financial, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Maryland

27-2631712

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer 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 ¨

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    

Yes ¨      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 ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ     No ¨

 

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. ¨  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Act. (Check one):

Large accelerated filer þ           Accelerated filer ¨            Non-accelerated filer ¨Smaller reporting company ¨

                                                                            (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).  Yes ¨ No þ

 

The aggregate market value of the voting and non-voting common 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, 2013, was $1.77 billion.

 

As of November 18, 2013, there were issued and outstanding 147,856,568 shares of the Registrant’s common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE

Part II of Form 10-K - Portions of the Annual Report to Stockholders for the year ended September 30, 2013.    Part III of Form 10-K - Portions of the proxy statement for the Annual Meeting of Stockholders for the year ended September 30, 2013.

 


 

 

 

 

 

 

 

 

 

 

Page No.

PART I

Item 1.

Business

4

 

Item 1A.

Risk Factors

37

 

Item 1B.

Unresolved Staff Comments

41

 

Item 2.

Properties

41

 

Item 3.

Legal Proceedings

41

 

Item 4.

Mine Safety Disclosures

41

 

 

 

 

 

 

 

 

 

 

PART IV

Item 15.

Exhibits and Financial Statement Schedules

45

 

 

 

 

 

 

SIGNATURES 

 

 

46

 

 

 

 

 

 

INDEX TO EXHIBITS 

 

 

47

 

 

 

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PRIVATE SECURITIES LITIGATION REFORM ACT—SAFE HARBOR STATEMENT

 

Capitol Federal Financial, Inc. (the “Company”), and 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 documents filed or furnished by the Company 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, in the Company’s press releases, 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, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control.  The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our future results to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:  

 

·

our ability to continue to maintain overhead costs at reasonable levels;  

·

our ability to continue to originate a significant volume of one- to four-family mortgage loans in our market areas or to purchase loans through correspondents;

·

our ability to invest funds in wholesale or secondary markets at favorable yields as compared to the related funding source;

·

our ability to access cost-effective funding;

·

the future earnings and capital levels of the Bank and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the ability of the Company to pay dividends in accordance with its dividend policy;

·

fluctuations in deposit flows, loan demand, and/or real estate values, as well as unemployment levels, which may adversely affect our business;

·

the credit risks of lending and investing activities, including changes in the level and direction of loan delinquencies and charge-offs, changes in property values, and changes in estimates of the adequacy of the allowance for credit losses (“ACL”);

·

results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL;

·

the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;

·

the effects of, and changes in, trade, fiscal policies and laws, and monetary and interest rate policies of the Board of Governors of the Federal Reserve System (“FRB”);  

·

the effects of, and changes in, foreign and military policies of the United States government;

·

inflation, interest rate, market and monetary fluctuations;

·

the timely development and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services;  

·

the willingness of users to substitute competitors’ products and services for our products and services;  

·

our success in gaining regulatory approval of our products and services and branching locations, when required;  

·

the impact of changes in financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection and insurance and the impact of other governmental initiatives affecting the financial services industry;

·

implementing business initiatives may be more difficult or expensive than anticipated;

·

technological changes;

·

acquisitions and dispositions;

·

changes in consumer spending and saving habits; and

·

our success at managing the risks involved in our business.

 

This list of important factors is not all inclusive.  We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.

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PART I

As used in this Form 10-K, unless we specify otherwise, “the Company,” “we,” “us,” and “our” refer to Capitol Federal Financial, Inc. a Maryland 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, Inc.  

 

Item 1.  Business

General

The Company is a Maryland corporation that was incorporated in April 2010 to be the successor corporation upon completion of our conversion from a mutual holding company form of organization to a stock form of organization.  The Bank is a wholly-owned subsidiary of the Company.  The Company’s common stock is traded on the Global Select tier of the NASDAQ Stock Market under the symbol “CFFN.”    

 

In December 2010, we completed our conversion from a mutual holding company form of organization to a stock form of organization (“the corporate reorganization”).  Capitol Federal Financial, which owned 100% of the Bank, was succeeded by Capitol Federal Financial, Inc.  As part of the corporate reorganization, Capitol Federal Financial, Inc. sold 118,150,000 shares of common stock (which represented Capitol Federal Savings Bank MHC’s ownership interest in Capitol Federal Financial) at $10.00 per share in a public stock offering.  Concurrent with the completion of the offering, shares of Capitol Federal Financial common stock owned by public stockholders were exchanged for 2.2637 shares of Capitol Federal Financial, Inc.’s common stock.  The net proceeds from the stock offering were $1.13 billion, of which 50%, or $567.4 million, was contributed to the Bank as a capital contribution as was required by the Bank’s regulator at the time.  The other 50% of the proceeds remained at Capitol Federal Financial, Inc., of which $40.0 million was contributed to the Bank’s charitable foundation, Capitol Federal Foundation, and $47.3 million was loaned to the Employee Stock Ownership Plan (“ESOP”) for its purchase of Capitol Federal Financial, Inc. shares in the stock offering.

 

The Bank is a federally chartered and insured savings bank headquartered in Topeka, Kansas.  The Bank is examined and regulated by the Office of the Comptroller of the Currency (the “OCC”), its primary regulator, and its deposits are insured up to applicable limits by the Deposit Insurance Fund (“DIF”), which is administered by the Federal Deposit Insurance Corporation (“FDIC”).  We primarily serve the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and a portion of the metropolitan area of greater Kansas City through 36 traditional and 10 in-store branches.  The Company, as a savings and loan holding company, is examined and regulated by the FRB.

 

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 residences.  To a lesser extent, we also originate consumer loans primarily secured by first mortgages on one- to four-family residences, multi-family and commercial real estate loans, and construction loans for one- to four-family residences, multi-family dwellings, and commercial properties.  While our primary business is the origination of one- to four-family mortgage loans funded through retail deposits, we also purchase whole one- to four-family mortgage loans from correspondent and nationwide lenders, participate in loans with other lenders that are secured by commercial real estate and commercial properties, and invest in certain investment securities and mortgage-backed securities (“MBS”) using funding from retail deposits, Federal Home Loan Bank (“FHLB”) borrowings, and repurchase agreements.  The Company is significantly affected by prevailing economic conditions including federal monetary and fiscal policies and federal regulation of financial institutions.  Retail deposit balances are influenced by a number of factors including interest rates paid on competing investment products, the level of personal income, and the personal rate of savings within our market areas.  Lending activities are influenced by the demand for housing and other loans, our loan underwriting guidelines compared to those of our competitors, as well as interest rate pricing competition from other lending institutions.  The primary sources of funds for lending activities include deposits, loan repayments, investment income, borrowings, and funds provided from operations.

 

Our revenues are derived principally from interest on loans, MBS and investment securities.  Our primary sources of funds are retail deposits, borrowings, repayments on and maturities of loans and MBS, calls and maturities of investment securities, and funds generated by operations.

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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 noninterest-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 currently have a network of 46 branches (36 traditional branches and 10 in-store branches) located in nine counties throughout the state of Kansas and two counties in Missouri.  We primarily serve the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia, and Salina, Kansas and a portion of the metropolitan area of greater Kansas CityIn addition to providing full service banking offices, we also provide our customers mobile banking, telephone banking and bill payment services, and online banking and bill payment services.  We also have a call center which operates on extended hours.

 

The Bank ranked second in deposit market share, at 7.51%, in the state of Kansas as reported in the FDIC “Summary of Deposits - Market Share Report” dated June 30, 2013.  This was a modest decrease from  our ranking and deposit market share at June 30, 2012, which was first with a deposit market share of 7.77%.  Deposit market share is measured by total deposits, without consideration for type of deposit.  We do not offer commercial deposit accounts, while many of our competitors have both commercial and retail deposits in their total deposit base. Some of our competitors also offer products and services that we do not, such as trust services and private banking, which add to their total depositsConsumers also have the ability to utilize online financial institutions and investment brokerages that are not confined to any specific market area.  Management considers our well-established retail banking network together with our reputation for financial strength and customer service to be major factors in our success at attracting and retaining customers in our market areas.

 

The Bank consistently has been one of the top one- to four-family lenders with regard to loan origination 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.

 

The Bank currently expects to open one branch in calendar year 2013.  The branch will be located in our Kansas City market area.  Management continues to consider expansion opportunities in all of our market areas.

 

Lending Practices and Underwriting Standards

General.    Originating and purchasing loans secured by one- to four-family residential properties is the Bank’s primary business, resulting in a loan concentration in residential first mortgage loans.  The Bank purchases one- to four-family loans, on a loan-by-loan basis, from a select group of correspondent lenders in 23 states.    Additionally, the Bank periodically purchases whole one- to four-family loans in bulk packages from nationwide and correspondent lenders.  The Bank also makes consumer loans, construction loans secured by residential or commercial properties, and real estate loans secured by multi-family dwellings, along with participating in loans with other lenders that are secured by commercial properties.  As a result of our one- to four-family lending activities, the Bank has a concentration of loans secured by real property located in Kansas and Missouri    

 

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.  

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Loans over $500 thousand must be underwritten by two of our highest class of 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 ALCO and/or the Board of Directors information about the creditworthiness of the borrower and the 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 value of the property must be supported by an independent appraisal report prepared in accordance with our appraisal policy.  Loans over $500 thousand are priced above our standard conforming mortgage loan rate.

 

One- to Four-Family Residential Real Estate Lending.  The Bank originates and services conventional mortgage loans, or loans not insured or guaranteed by a government agency.  The Bank also originates Federal Housing Administration (“FHA”) insured loan products which are generally sold, along with the servicing of these loans.  New loans are originated 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 fiscal years 2013 and 2012, the Bank originated and refinanced $781.5 million and $688.5 million of one- to four-family fixed-rate mortgage loans, respectively, and $68.3 million and $117.9 million of one- to four-family adjustable-rate mortgage (“ARM”) loans, respectively.  

 

Repayment

The Bank’s one- to four-family loans are primarily fully amortizing fixed-rate or ARM loans.  The contractual maturities for fixed-rate loans can be up to 30 years and the contractual maturities for ARM loans can be up to 40 years.  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.  

 

Pricing

Our pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and local competitor pricing for our local lending markets, and secondary market prices and national competitor pricing for our correspondent lending markets.  ARM loans are offered with 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.  Several different indices are used to reprice our ARM loans. 

 

Adjustable-rate loans

Current adjustable-rate one- to four-family conventional mortgage 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.  For three- and five-year ARM loans, borrowers are qualified based on the principal, interest, taxes and insurance payments at the initial rate plus the life of loan cap and the initial rate plus the first period cap, respectively.  For seven-year ARM loans, borrowers are qualified based on the principal, interest, taxes and insurance payments at either the initial rate or the fully indexed accrual rate, whichever is greater.  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 an endorsement 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 type of risk is known as repricing risk

 

The Bank no longer offers an interest-only ARM product; however it still holds in its portfolio originated and purchased interest-only ARM loans.  At the time of origination, these loans did not require principal payments for a period of up to 10 years.  For originated interest-only ARM loans, 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 originated interest-only ARM loans than on other ARM loans to offset the potential risk of payment shock at the time the loan rate reprices and/or the principal and interest payments begin.  At September 30, 2013, $59.2 million, or approximately 1% of our one- to four-family loan portfolio, consisted of non-amortizing interest-only ARM loans.  The majority of these loans were purchased from nationwide lenders during fiscal year 2005.

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Underwriting

One- to four-family loans are underwritten generally in accordance with Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”) underwriting guidelines.  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 are approved by our Board of Directors.

 

Mortgage Insurance

For a conventional mortgage with  a loan-to-value (“LTV”) ratio in excess of 80% at the time of origination, private mortgage insurance (“PMI”) is required in order to reduce the Bank’s loss exposure to 80% of either the appraised value or the purchase price of the property, whichever is less.  The Bank will lend up to 97% of the lesser of the appraised value or purchase price for conventional one- to four-family loans, provided PMI is obtained.    Management continuously monitors the claim-paying ability of our PMI counterparties.  We believe our PMI counterparties have the ability to meet potential claim obligations we may file in the foreseeable future, with the exception of Republic Mortgage Insurance Company (“RMIC”) who is currently paying 60% of the dollar amount of individual claims filed and approved as required by its regulator.  The amount of loans in our portfolio covered by PMI provided by RMIC as of September 30, 2013 was $76.5 million, of which $75.3 million was current.

 

FHA loans have mortgage insurance provided by the federal government.  The loans are up to 96.5% LTV, prior to including the FHA insuring premium, which is calculated using the lesser of the appraised value or purchase price.  The loans are originated and underwritten manually according to private investor and FHA guidelines.  The Bank offers FHA loans to accommodate customers who may not qualify for a conventional mortgage loan.  FHA loans are originated by the Bank with the intention of selling the loans on a flow basis to a private investor, with servicing released.  

 

Purchased loans

The Bank purchases one- to four-family loans, on a loan-by-loan basis, from a select group of 26 correspondent lendersAt September 30, 2013, the Bank had correspondent lending relationships in 23 states.  The loan products offered by our correspondent lenders are primarily underwritten by the Bank’s underwriters, but some are underwritten by a third party, independent of the correspondent lender, to ensure general consistency to the Bank’s underwriting standardsDuring fiscal years 2013 and 2012, the Bank purchased $585.0 million and $267.5 million, respectively, of one- to four-family loans from correspondent lenders.  We pay a premium of 0.50% to 1.0% of the loan balance and we pay 1.0% of the loan balance to purchase the servicing of these loans.

 

The Bank has an agreement with a mortgage sub-servicer to provide loan servicing for loans originated by the Bank’s correspondent lenders in certain states.  The sub-servicer has experience servicing loans in the market areas in which we purchase loans and services the loans according to the Bank’s servicing standards, which is intended to allow the Bank greater control over servicing and help maintain a standard of loan performance

 

The Bank also purchases one- to four-family loans from correspondent and nationwide lenders in bulk loan packages.  The servicing rights are generally retained by the lender/seller for the loans purchased from nationwide lenders; however, our sub-servicer services bulk loan packages purchased from nationwide lenders and certain correspondent lenders, when economically feasible.  The servicing with nationwide lenders is governed by a servicing agreement, which outlines collection policies and procedures, as well as oversight requirements, such as servicer certifications attesting to and providing proof of compliance with the servicing agreement.

 

Each loan in a bulk loan package is evaluated on criteria such as loan amount, credit scores, LTV ratios, geographic location, and debt ratios, and is required to be comparable to loans originated according to the Bank’s internal underwriting standards.  Before committing to a bulk loan purchase, 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 package.  Once the review of the specific criteria is complete and loans not meeting the Bank’s standards are removed from the package, changes are sent back to the lender/seller for acceptance and pricing.  Before the bulk loan purchase is funded, an internal Bank underwriter or a third party reviews at least 25% of the loan files to confirm loan terms, credit scores, debt service ratios, property appraisals, and other underwriting related documentation.  Our standard contractual agreement with the lender/seller includes recourse options for any breach of representation or warranty with respect to the loans purchased.  The Bank did not request any lenders/sellers to repurchase loans for breach of representation during fiscal year 2013.    

 

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During fiscal year 2013, the Bank did not complete any bulk loan purchases of one- to four-family loans, compared to $362.7 million in fiscal year 2012.  The prior year amount includes a bulk loan purchase of $342.5 million, for which the Bank has full recourse from the seller if a loan in this package goes 60 days delinquent at any point during the life of the loan.  If such an event occurs, the seller must either replace or repurchase the loan from the Bank.  During fiscal year 2013, no loans were replaced or repurchased by the seller as a result of delinquencies.

 

Loan purchases enable the Bank to attain some geographic diversification in the loan portfolio.  We have experienced some performance issues and losses on some of the bulk loans purchased prior to fiscal year 2008, the majority of which were originated between calendar years 2004 and 2006.  These loans met our underwriting standards at the time of purchase; however, as a result of the continued elevated levels of unemployment and the declines in real estate values, we have experienced an increase in non-performing loans and charge-offs/losses related to those loans, as compared to historical levels.  See additional discussion regarding non-performing purchased loans in “Asset Quality – Loans and Other Real Estate Owned.”

 

Loan endorsement program

In an effort to offset the impact of repayments and to retain our customers, existing loan customers, including customers whose loans  were purchased from a correspondent lender, have the opportunity, for a cash fee, to endorse their original loan terms to current loan terms being offered.  Customers whose loans have been sold to third parties, or have been delinquent on their contractual loan payments during the previous 12 months, or are currently in bankruptcy, are ineligible to participate in the program.  The Bank does not solicit customers for this program, but considers it a valuable opportunity to retain customers who, based on our initial underwriting criteria, could likely obtain similar financing elsewhere.  During fiscal years 2013 and 2012, we endorsed $487.0 million and $868.6 million of one- to four-family loans, respectively.

 

Loan sales

Conventional one- to four-family loans may be sold on a bulk basis for portfolio restructuring or on a flow basis as loans are originated to reduce interest rate risk and/or maintain a certain liquidity position.  The Bank generally retains the servicing on these loans.  ALCO determines the criteria upon which conventional one- to four-family loans are to be originated as held-for-sale or held-for-investment.  Conventional one- to four-family loans originated as held-for-sale are to be sold in accordance with policies set forth by ALCO.  Conventional one- to four-family loans originated as held-for-investment are generally not sold unless a specific segment of the portfolio is identified for asset restructuring purposes.  Generally, the Bank will continue to service these loans.  The Bank did not sell any conventional one- to four-family loans during fiscal years 2013 and 2012.

 

As noted above, FHA loans are originated with the intention of selling the loans on a flow basis with servicing released. The Bank sold $6.9 million and $6.3 million of FHA loans during fiscal years 2013 and 2012, respectively.

 

Construction Lending.    The Bank also originates and purchases construction-to-permanent loans primarily secured by one- to four-family residential real estate.  Bank policy permits a limited amount of construction loans secured by multi-family dwellings and commercial real estate.  The underwriting details for multi-family dwelling and commercial real estate are presented in the “Multi-family and Commercial Real Estate Lending” below.  At September 30, 2013, we had $77.7 million in construction-to-permanent loans outstanding, including undisbursed loan funds, representing approximately 1% of our total loan portfolio.  Of the $77.7 million in construction-to-permanent loans outstanding at September 30, 2013, $63.2 million, or approximately 81%, related to one- to four-family residential real estate.

 

The majority of the one- to four-family construction loans are secured by property located within the Bank’s Kansas City market area.  Construction loans are obtained by homeowners who will occupy the property when construction is complete.  Construction loans to builders for speculative purposes are not permitted.  The application process includes submission of complete plans, specifications, and costs of the project to be constructed.  All construction loans are manually underwritten using the Bank’s internal underwriting standards. 

 

The Bank’s one- to four-family construction-to-permanent loan program combines the construction loan and the permanent loan into one loan allowing the borrower to secure the same interest rate throughout the construction period and the permanent loan.  The interest rate and loan products offered on the one- to four-family construction-to-permanent loan program are the same as what is offered for non-construction-to-permanent one- to four-family loans.  The loan term is longer than the non-construction one- to four-family loans due to consideration for the construction period, which is generally between 12 and 18 months.

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Construction draw requests and the supporting documentation are reviewed and approved by management.  The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided.  The Bank charges a 1% fee at closing, based on the loan amount, for these administrative requirements.  Interest is billed and collected monthly based on the amount of funds disbursed.  Once the construction period is complete, the payment method is changed from interest-only to an amortized principal and interest payment for the remaining term of the loan

 

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 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, 2013, our consumer loan portfolio totaled $140.7 million, or approximately 2% of our total loan portfolio

 

The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or there is no first mortgage, which have interest rates that can adjust monthly based upon changes in the Prime rate, to a maximum of 18%.  Our policy during fiscal years 2013 and 2012 was that a home equity line, together with the existing first mortgage, could be up to 90% of the collateral value of the property at the time of origination.  Approximately 68%, or $75.7 million, of our home equity lines at September 30, 2013 were originated with a payment requirement of 1.5% of the outstanding loan balance per month, but have no stated term-to-maturity and no repayment period.  Repaid principal may be re-advanced at any time, not to exceed the original credit limit of the loan.  Approximately 28%, or $30.7 million, of our home equity lines at September 30, 2013 were originated with a seven year draw period with a 10 year repayment term and typically a payment requirement of 1.5% of the outstanding loan balance per month during the draw period, with an amortizing payment during the repayment period.  Repaid principal may be re-advanced at any time during the draw period, not to exceed the original credit limit of the loan.  We also offer interest-only home equity lines of credit.  These loans have a maximum term of 12 months and require monthly payments of accrued interest, and a balloon payment at maturity.  At September 30, 2013, approximately 4%, or $4.4 million, of our home equity lines were interest-only.  Closed-end home equity loans may be originated up to 95% of the value of the property securing the loans, taking into consideration the existing first mortgage.  The term-to-maturity of closed-end home equity loans may be up to 20 years.  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 closed-end loans, comprised approximately 96% of our consumer loan portfolio, or $135.0 million, at September 30, 2013; of that amount,  82% 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 the applicant’s 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 credit risk and changes in interest rates, and usually carry higher rates of interest than do one- to four-family loans.  However, consumer loans may entail greater credit risk than do one- to four-family loans, particularly in the case of consumer loans that are secured by rapidly depreciable assets, such as automobiles.  In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are likely to be affected by adverse personal circumstances.  Furthermore, the application of various federal and state laws, including bankruptcy and state insolvency laws, may limit the amount which can be collected on these loans.  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

 

Multi-family and Commercial Real Estate LendingAt September 30, 2013, the Bank’s multi-family and commercial real estate loans totaled $50.4 million, or approximately 1% of our total loan portfolio.  These loans are originated by the Bank or are in participation with a lead bank, and are secured primarily by multi-family dwellings or commercial real estateAdditionally, the Bank originates or participates with a lead bank in construction loans related to commercial properties.  At September 30, 2013, construction loans related to commercial properties totaled  $14.5 million.  At September 30, 2013, the balance of multi-family, commercial real estate loans, and construction loans related to commercial properties that were in participation with a lead bank was $30.3 million.

9

 


 

Multi-family and commercial real estate loans, including construction loans related to commercial properties, are granted based on the income producing potential of the property and the financial strength of the borrower and guarantors.  At the time of origination, LTV ratios on these loans cannot 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.  Appraisals on properties securing originated loans are performed by independent state certified fee appraisers approved by the Board of Directors.  These loans are originated with either a fixed or adjustable interest rate.  The interest rate on ARM loans is based on a variety of indices, generally determined through negotiation with the borrower or determined by the lead bank.  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

 

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 with a principal balance 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 for the guarantors.

 

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 loans.  Such loans typically involve large balances to single borrowers or groups of related borrowers.  Because payments on these 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 economy or the real estate market.  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 become impaired

 

 

10

 


 

Loan Portfolio.  The following table presents the composition of our loan portfolio as of the dates indicated.  Total loans receivable increased $362.6 million, from $5.65 billion at September 30, 2012 to $6.01 billion at September 30, 2013.  The increase in the loan portfolio was due primarily to originations and correspondent one- to four-family loan purchases outpacing principal repayments between periods.  The growth in the loan portfolio was primarily funded with cash flows from the securities portfolio.  When we purchase a one- to four- family loan from a correspondent lender, we pay a premium of 0.50% to 1.0% of the loan balance and we pay 1.0% of the loan balance to purchase the servicing of the loan.  These amounts are included in “Premiums/deferred costs” in the following table

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

2013

 

2012

 

2011

 

2010

 

2009

 

 

Amount

 

Percent

  

Amount

 

Percent

  

Amount

 

Percent

  

 

Amount

 

Percent

  

Amount

 

Percent

 

 

(Dollars in thousands)

Real Estate Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

$

5,743,047 

 

95.5 

%

 

$

5,392,429 

 

95.5 

%

 

$

4,918,778 

 

94.7 

%

 

$

4,915,651 

 

94.4 

%

 

$

5,321,935 

 

94.2 

%

Multi-family and commercial

 

 

50,358 

 

0.9 

 

 

 

48,623 

 

0.9 

 

 

 

57,965 

 

1.1 

 

 

 

66,476 

 

1.3 

 

 

 

80,493 

 

1.4 

 

Construction

 

 

77,743 

 

1.3 

 

 

 

52,254 

 

0.9 

 

 

 

47,368 

 

0.9 

 

 

 

33,168 

 

0.6 

 

 

 

39,535 

 

0.7 

 

Total real estate loans

 

 

5,871,148 

 

97.7 

 

 

 

5,493,306 

 

97.3 

 

 

 

5,024,111 

 

96.7 

 

 

 

5,015,295 

 

96.3 

 

 

 

5,441,963 

 

96.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

135,028 

 

2.2 

 

 

 

149,321 

 

2.6 

 

 

 

164,541 

 

3.2 

 

 

 

186,347 

 

3.6 

 

 

 

195,557 

 

3.5 

 

Other

 

 

5,623 

 

0.1 

 

 

 

6,529 

 

0.1 

 

 

 

7,224 

 

0.1 

 

 

 

7,671 

 

0.1 

 

 

 

9,430 

 

0.2 

 

Total consumer loans

 

 

140,651 

 

2.3 

 

 

 

155,850 

 

2.7 

 

 

 

171,765 

 

3.3 

 

 

 

194,018 

 

3.7 

 

 

 

204,987 

 

3.7 

 

Total loans receivable

 

 

6,011,799 

 

100.0 

%

 

 

5,649,156 

 

100.0 

%

 

 

5,195,876 

 

100.0 

%

 

 

5,209,313 

 

100.0 

%

 

 

5,646,950 

 

100.0 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undisbursed loan funds

 

 

42,807 

 

 

 

 

 

22,874 

 

 

 

 

 

22,531 

 

 

 

 

 

15,489 

 

 

 

 

 

20,649 

 

 

 

ACL

 

 

8,822 

 

 

 

 

 

11,100 

 

 

 

 

 

15,465 

 

 

 

 

 

14,892 

 

 

 

 

 

10,150 

 

 

 

Discounts/unearned loan fees

 

 

23,057 

 

 

 

 

 

21,468 

 

 

 

 

 

19,093 

 

 

 

 

 

22,267 

 

 

 

 

 

23,549 

 

 

 

Premiums/deferred costs

 

 

(21,755)

 

 

 

 

 

(14,369)

 

 

 

 

 

(10,947)

 

 

 

 

 

(11,537)

 

 

 

 

 

(11,363)

 

 

 

Total loans receivable, net

 

$

5,958,868 

 

 

 

 

$

5,608,083 

 

 

 

 

$

5,149,734 

 

 

 

 

$

5,168,202 

 

 

 

 

$

5,603,965 

 

 

 

 

11

 


 

The following table presents the contractual maturity of our loan portfolio, along with associated weighted average rates, at September 30, 2013.  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

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

Multi-family and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to Four-Family

 

Commercial

 

Construction(2)

 

Home Equity(3)

 

Other

 

Total

 

 

Amount

 

  Rate  

 

Amount

 

  Rate  

 

Amount

 

  Rate  

 

Amount

 

  Rate  

 

Amount

 

  Rate  

 

Amount

 

  Rate  

 

 

(Dollars in thousands)

Amounts due:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within one year(1)

 

$

1,191 

 

4.83 

%

 

$

1,903 

 

5.45 

%

 

$

35,238 

 

3.60 

%

 

$

1,061 

 

5.95 

%

 

$

855 

 

3.89 

%

 

$

40,248 

 

3.79 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After one year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over one to two

 

 

1,956 

 

5.45 

 

 

 

--

 

0.00 

 

 

 

42,505 

 

3.66 

 

 

 

2,617 

 

4.70 

 

 

 

1,037 

 

6.35 

 

 

 

48,115 

 

3.85 

 

Over two to three

 

 

6,150 

 

5.29 

 

 

 

3,073 

 

5.00 

 

 

 

--

 

-- 

 

 

 

1,334 

 

5.80 

 

 

 

867 

 

4.08 

 

 

 

11,424 

 

5.18 

 

Over three to five

 

 

71,255 

 

4.90 

 

 

 

1,969 

 

5.02 

 

 

 

--

 

-- 

 

 

 

1,839 

 

5.46 

 

 

 

2,723 

 

3.73 

 

 

 

77,786 

 

4.88 

 

Over five to ten

 

 

263,523 

 

4.10 

 

 

 

39,794 

 

5.13 

 

 

 

--

 

-- 

 

 

 

11,615 

 

5.89 

 

 

 

141 

 

8.66 

 

 

 

315,073 

 

4.30 

 

Over ten to fifteen

 

 

1,481,910 

 

3.46 

 

 

 

266 

 

6.25 

 

 

 

--

 

-- 

 

 

 

40,150 

 

5.72 

 

 

 

--

 

-- 

 

 

 

1,522,326 

 

3.52 

 

After fifteen years

 

 

3,917,062 

 

3.85 

 

 

 

3,353 

 

6.39 

 

 

 

--

 

-- 

 

 

 

76,412 

 

4.93 

 

 

 

--

 

-- 

 

 

 

3,996,827 

 

3.87 

 

Total due after one year

 

 

5,741,856 

 

3.77 

 

 

 

48,455 

 

5.21 

 

 

 

42,505 

 

3.66 

 

 

 

133,967 

 

5.26 

 

 

 

4,768 

 

4.51 

 

 

 

5,971,551 

 

3.82 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals loans

 

$

5,743,047 

 

3.77 

%

 

$

50,358 

 

5.22 

%

 

$

77,743 

 

3.63 

%

 

$

135,028 

 

5.26 

%

 

$

5,623 

 

4.41 

%

 

 

6,011,799 

 

3.82 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undisbursed loan funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42,807 

 

 

 

ACL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,822 

 

 

 

Discounts/unearned loan fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,057 

 

 

 

Premiums/deferred costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,755)

 

 

 

Total loans receivable, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,958,868 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes demand loans, loans having no stated maturity, and overdraft loans.

(2)

Construction loans are presented based upon the term to complete construction.

(3)

For home equity loans, the maturity date calculated assumes the customer always makes the required minimum payment.  The majority of interest-only home equity lines of credit assume a balloon payment of unpaid principal at 120 months.  All other home equity lines of credit generally assume a term of 240 months.

 

 

12

 


 

The following table presents, as of September 30, 2013, the amount of loans due after September 30, 2014, and whether these loans have fixed or adjustable interest rates.

 

 

 

 

 

 

 

 

 

 

 

 

  

Fixed

  

Adjustable

  

Total

 

 

(Dollars in thousands)

Real Estate Loans:

 

 

 

 

 

 

 

 

 

One- to four-family

 

$

4,622,780 

 

$

1,119,076 

 

$

5,741,856 

Multi-family and commercial

 

 

48,455 

 

 

-- 

 

 

48,455 

Construction

 

 

33,280 

 

 

9,225 

 

 

42,505 

Consumer Loans:

 

 

 

 

 

 

 

 

 

Home equity

 

 

24,183 

 

 

109,784 

 

 

133,967 

Other

 

 

1,786 

 

 

2,982 

 

 

4,768 

Total

 

$

4,730,484 

 

$

1,241,067 

 

$

5,971,551 

 

The following table shows our loan originations and refinances, loan purchases and participations, net charge-offs, and repayment activity for the periods indicated.  Purchased loans include loans purchased from correspondent and nationwide lenders.  Construction loans originated and purchased during the periods are included in their respective categories.  The table below does not include $487.1 million, $886.9 million, and $965.1 million of loans that were endorsed during fiscal years 2013,  2012, and 2011, respectively.    

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended September 30,

 

2013 

 

2012 

 

2011 

 

(Dollars in thousands)

Originations and refinances:

 

 

 

 

 

 

 

 

One- to four-family

$

849,856 

 

$

806,420 

 

$

759,664 

Multi-family and commercial

 

3,497 

 

 

--

 

 

892 

Home equity

 

71,839 

 

 

73,553 

 

 

72,631 

Other consumer

 

2,457 

 

 

3,973 

 

 

4,058 

 

 

927,649 

 

 

883,946 

 

 

837,245 

 

 

 

 

 

 

 

 

 

Purchases and participations:

 

 

 

 

 

 

 

 

One- to four-family

 

585,025 

 

 

630,180 

 

 

181,971 

Multi-family and commercial

 

28,510 

 

 

13,975 

 

 

--

Other consumer

 

--

 

 

133 

 

 

--

 

 

613,535 

 

 

644,288 

 

 

181,971 

 

 

 

 

 

 

 

 

 

Net charge-offs(1)

 

(1,211)

 

 

(6,012)

 

 

--

Principal repayments

 

(1,170,625)

 

 

(1,060,324)

 

 

(1,019,307)

Net change in other items

 

(6,705)

 

 

(8,618)

 

 

(13,346)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in loans receivable

$

362,643 

 

$

453,280 

 

$

(13,437)

 

 

(1)

Net charge-offs represent potential loss amounts that reduce the unpaid principal balance of a loan.

13

 


 

The following table presents one- to four-family loan originations and correspondent purchases, including refinances, for the top 12 states based on volume during the fiscal year ended September 30, 2013, along with percent of total and associated weighted average rates for the year ended September 30, 2013.  

 

 

 

 

 

 

 

 

 

 

 

State

 

Amount

 

% of Total

 

Rate

 

 

(Dollars in thousands)

Kansas

 

$

801,338 

 

55.8 

%

 

3.33 

%

Missouri

 

 

357,501 

 

24.9 

 

 

3.26 

 

Texas

 

 

101,365 

 

7.1 

 

 

3.31 

 

Tennessee

 

 

54,911 

 

3.8 

 

 

3.24 

 

Oklahoma

 

 

37,273 

 

2.6 

 

 

3.30 

 

Alabama

 

 

35,383 

 

2.5 

 

 

3.17 

 

North Carolina

 

 

12,401 

 

0.9 

 

 

3.41 

 

Nebraska

 

 

7,232 

 

0.5 

 

 

3.46 

 

Massachusetts

 

 

5,592 

 

0.4 

 

 

3.12 

 

Maine

 

 

4,194 

 

0.3 

 

 

3.33 

 

Colorado

 

 

4,019 

 

0.3 

 

 

3.23 

 

Louisiana

 

 

3,181 

 

0.2 

 

 

3.40 

 

Other states

 

 

10,491 

 

0.7 

 

 

3.32 

 

 

 

$

1,434,881 

 

100.0 

%

 

3.30 

%

 

 

 

Asset Quality – Loans and Other Real Estate Owned (“OREO”)

The Bank’s traditional underwriting guidelines have provided the Bank with generally low delinquencies and low levels of non-performing assets compared to national levels.  Of particular importance is the complete and full 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.  

 

In the following asset quality discussion, unless otherwise noted, correspondent purchased loans are included with originated loans and bulk purchased loans are reported as purchased loans.

 

For one- to four-family originated and correspondent 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.  Collection personnel review all delinquent loan balances more than 16 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 must be approved by a designated bank employee.  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.  Generally, when 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.  We also monitor whether mortgagors who filed for bankruptcy are meeting their obligation to pay the mortgage debt in accordance with the terms of the bankruptcy petition.  

 

For purchased loans we do not service, we monitor delinquencies using reports we receive from the servicers.  We monitor these servicer reports to ensure that the servicer is upholding the terms of the servicing agreement.  The reports generally provide total principal and interest due and length of delinquency, and are used to prepare monthly management reports and perform delinquent loan trend analysis.  Management also utilizes information from the servicers to monitor property valuations and identify the need to charge-off loan balances.  The servicers handle collection efforts per the terms of the servicing agreement.  

14

 


 

Delinquent and non-performing loans and OREO

The following table presents the Company’s 30 to 89 day delinquent loans at the dates indicated.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Delinquent for 30 to 89 Days at September 30,

 

 

2013

 

2012

 

2011

 

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

 

(Dollars in thousands)

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

164 

 

$

18,225 

 

142 

 

$

14,178 

 

172 

 

$

17,706 

 

Correspondent purchased

 

 

709 

 

 

 

770 

 

 

 

2,004 

 

Bulk purchased

37 

 

 

7,733 

 

39 

 

 

7,695 

 

34 

 

 

6,199 

 

Multi-family and commercial

-- 

 

 

-- 

 

-- 

 

 

-- 

 

-- 

 

 

-- 

 

Construction

-- 

 

 

-- 

 

-- 

 

 

-- 

 

-- 

 

 

-- 

 

Consumer Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

45 

 

 

848 

 

28 

 

 

521 

 

43 

 

 

759 

 

Other

13 

 

 

35 

 

16 

 

 

106 

 

14 

 

 

92 

 

 

264 

 

$

27,550 

 

228 

 

$

23,270 

 

269 

 

$

26,760 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 to 89 days delinquent loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to total loans receivable, net

 

 

 

0.46% 

 

 

 

 

0.41% 

 

 

 

 

0.52% 

 

 

The balance of loans 30 to 89 days delinquent increased $4.3 million from $23.3 million at September 30, 2012 to $27.6 million at September 30, 2013.  The increase was primarily in the originated loan category.    At September 30, 2013, originated one- to four-family loans 30 to 89 days delinquent had a LTV of 69% at the time of origination.  Additionally, these loans are located in Kansas and Missouri which have not experienced significant fluctuations in home prices over the past 10 years.  Loans 30 to 89 days delinquent are included in the ACL formula analysis, unless the loan has been individually evaluated for loss, in which case, any losses are charged-off.  At September 30, 2013, $18.0 million of the originated one- to four-family loans 30 to 89 days delinquent were included in the ACL formula analysis.

 

The table below presents the Company’s non-performing loans and OREO at the dates indicated.   Non-performing loans are loans that are 90 or more days delinquent or in foreclosure or nonaccrual loans less than 90 days delinquent, which are loans that are required to be reported as nonaccrual pursuant to regulatory requirements, even if the loans are current.  In accordance with regulatory requirements, troubled debt restructurings (“TDRs”) that were either nonaccrual at the time of restructuring or did not receive a credit evaluation prior to the restructuring and have not made six consecutive monthly payments per the restructured loan terms must be reported as nonaccrual loans.  Similarly, loans that have been discharged under Chapter 7 bankruptcy proceedings where the borrower has not reaffirmed the debt owed to the lender (“Chapter 7 loans”) must be reported as nonaccrual loans, even if the loans are current, until the borrower has made six consecutive monthly payments subsequent to their discharge date.  The balance of loans that are current or 30 to 89 days delinquent but are required by regulatory requirements to be reported as nonaccrual was $7.0 million at September 30, 2013At all dates presented, there  were no loans 90 or more days delinquent that were still accruing interest.  OREO primarily includes assets acquired in settlement of loans.  Over the past 12 months, OREO properties were owned by the Bank, on average, for approximately four months before the properties were sold.  Non-performing assets include non-performing loans and OREO.    

15

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

2013

 

2012

 

2011

 

2010

 

2009

 

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

 

(Dollars in thousands)

 

Loans 90 or More Days Delinquent or in Foreclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

101 

 

$

8,579 

 

86 

 

$

7,885 

 

101 

 

$

11,727 

 

105 

 

$

12,134 

 

98 

 

$

9,001 

 

Correspondent purchased

 

 

812 

 

 

 

722 

 

 

 

648 

 

 

 

750 

 

 

 

247 

 

Bulk purchased

34 

 

 

9,608 

 

43 

 

 

10,447 

 

46 

 

 

13,749 

 

60 

 

 

18,375 

 

70 

 

 

21,259 

 

Consumer Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

29 

 

 

485 

 

19 

 

 

369 

 

21 

 

 

380 

 

31 

 

 

685 

 

22 

 

 

367 

 

Other

 

 

 

 

 

27 

 

 

 

 

 

 

12 

 

 

 

45 

 

 

173 

 

 

19,489 

 

157 

 

 

19,450 

 

176 

 

 

26,507 

 

206 

 

 

31,956 

 

199 

 

 

30,919 

 

Nonaccrual TDRs less than 90 Days Delinquent(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family: