Capitol Federal Financial, Inc. (NASDAQ:CFFN) is a savings and loan holding company that operates through its wholly-owned subsidiary, Capitol Federal Savings Bank. The bank provides a range of banking and financial services, including residential and commercial real estate lending, consumer lending, and deposit products, primarily in Kansas and Missouri.
Business Overview
Capitol Federal Financial, Inc. was founded in 1893 and is headquartered in Topeka, Kansas. The company operates through a network of 54 branch locations and 63 ATMs across Kansas and Missouri. The bank's primary lending focus is on one- to four-family residential real estate loans, which accounted for approximately 81% of the total loan portfolio as of March 31, 2024. The company also originates and purchases commercial real estate loans, commercial and industrial loans, and consumer loans, including home equity loans and lines of credit.In addition to its lending activities, Capitol Federal Financial provides a variety of deposit products, including checking accounts, savings accounts, money market accounts, and certificates of deposit. The bank also offers insurance services, trust and investment management services, and other financial products and services to its customers.
Financials
For the fiscal year ended September 30, 2023, Capitol Federal Financial reported annual operating cash flow of $47,531,000, and annual free cash flow of $41,250,000. These financial results reflect the challenges the company has faced in the current economic environment.In the most recent quarter ended March 31, 2024, the company reported net income of $13,762,000, or $0.11 per diluted share, compared to net income of $14,189,000, or $0.11 per diluted share, in the same quarter of the prior year. Total revenue for the quarter was $97,932,000, a decrease of 2.3% compared to the prior-year quarter.
The decrease in net income and revenue was primarily due to a decline in net interest income, which was partially offset by a decrease in the provision for credit losses. Net interest margin, a key profitability metric, increased to 1.82% in the current quarter, compared to 1.56% in the prior-year quarter, due to the company's efforts to manage its interest rate risk and optimize its funding sources.
Loan Portfolio and Asset Quality
As of March 31, 2024, Capitol Federal Financial's total loan portfolio was $7,892,732,000, with one- to four-family residential loans accounting for 81.6% of the portfolio. The company's commercial loan portfolio, which includes commercial real estate, commercial and industrial, and construction loans, represented 17.1% of the total loan portfolio.The company's asset quality remains strong, with nonperforming assets (nonaccrual loans and other real estate owned) at 0.09% of total assets as of March 31, 2024. The allowance for credit losses was $24,634,000, or 0.31% of total loans, at the end of the quarter.
Liquidity
Capitol Federal Financial maintains a strong liquidity position, with cash and cash equivalents of $443,513,000 and available-for-sale securities of $842,950,000 as of March 31, 2024. The company's total deposits were $6,141,711,000, and its borrowings were $2,351,022,000 at the end of the quarter.The company's capital ratios remain well above the regulatory requirements for a well-capitalized institution. As of March 31, 2024, the bank's Tier 1 leverage ratio was 9.1%, and its total risk-based capital ratio was 16.3%.
Risks and Challenges
Capitol Federal Financial faces several risks and challenges that could impact its future performance, including:1. Interest rate risk: The company's profitability is sensitive to changes in interest rates, which can affect the yield on its interest-earning assets and the cost of its interest-bearing liabilities.
2. Competition: The company operates in a highly competitive banking environment, with competition from both traditional banks and non-bank financial institutions.
3. Regulatory environment: The banking industry is subject to extensive regulation, and changes in laws and regulations could impact the company's operations and profitability.
4. Economic conditions: The company's performance is closely tied to the economic conditions in its primary markets of Kansas and Missouri, which could be affected by factors such as unemployment, real estate values, and consumer spending.