On July 24, 2024, Capitol Federal Financial Inc (CFFN, Financial) released its 8-K filing reporting its third-quarter fiscal year 2024 results. Capitol Federal Financial Inc is a bank holding company that operates through its wholly-owned subsidiary bank, Capitol Federal Savings Bank. The bank is a community-oriented financial institution that offers a variety of financial services through tens of locations, primarily serving metropolitan areas within the state of Kansas. The bank performs traditional banking functions such as deposit-taking activities and investing that money in first-lien residential mortgages. It also participates in commercial real estate loans with other lenders, investing those funds in various securities. The vast majority of the bank's loan portfolio is in originated one- to four-family real estate loans. Its primary source of income is net interest income.
Performance Overview
For the quarter ended June 30, 2024, Capitol Federal Financial Inc (CFFN, Financial) reported net income of $9.6 million, or $0.07 per share, falling short of the analyst estimate of $0.11 per share. This represents a significant decline from the previous quarter's net income of $13.8 million, or $0.11 per share. The company's revenue for the quarter was $94.995 million, a slight increase from $93.289 million in the previous quarter, but still above the estimated revenue of $42.47 million.
Key Financial Metrics
The net interest margin decreased to 1.77% from 1.82% in the previous quarter, primarily due to increases in the cost and average balance of retail certificates of deposit. The company also reported a higher provision for credit losses, amounting to $1.5 million compared to $301 thousand in the prior quarter, driven largely by commercial loan growth.
| Metric | Q3 FY2024 | Q2 FY2024 | Change |
|---|---|---|---|
| Net Income | $9.6 million | $13.8 million | -30.4% |
| Earnings Per Share | $0.07 | $0.11 | -36.4% |
| Net Interest Margin | 1.77% | 1.82% | -5 bps |
| Provision for Credit Losses | $1.5 million | $301 thousand | 398.7% |
Income and Expenses
Interest and dividend income increased by 1.8% to $94.995 million, driven by higher yields on mortgage-backed securities and loans receivable. However, interest expense also rose by 5.2% to $54.671 million, primarily due to higher costs associated with retail certificates of deposit.
Non-interest income saw a modest increase of 1.4% to $4.709 million, mainly due to higher deposit service fees and insurance commissions. Non-interest expense decreased slightly by 1.7% to $27.950 million, with notable reductions in federal insurance premiums and advertising costs.
Challenges and Achievements
The company faced significant challenges this quarter, including higher income tax expenses due to the recapture of pre-1988 bad debt reserves, which negatively impacted earnings by $0.03 per share. The effective tax rate for the quarter was 38.2%, up from 20.1% in the previous quarter.
Despite these challenges, Capitol Federal Financial Inc (CFFN, Financial) maintained its commitment to shareholder returns, paying dividends of $0.085 per share and announcing a cash dividend of the same amount payable on August 16, 2024.
Financial Condition
As of June 30, 2024, the company's total assets stood at $9.60 billion, a decrease of $118.5 million from the previous quarter. The loan portfolio saw a shift from one- to four-family loans to commercial loans, with commercial loan growth of $115.4 million partially offset by a $59.9 million decrease in one- to four-family loans.
Capitol Federal Financial Inc (CFFN, Financial) continues to focus on maintaining a well-capitalized status, with stockholders' equity totaling $1.02 billion. The company repurchased $19.3 million worth of shares and paid regular quarterly cash dividends totaling $33.5 million during the current year period.
Conclusion
While Capitol Federal Financial Inc (CFFN, Financial) faced several challenges this quarter, including higher tax expenses and increased provisions for credit losses, the company remains committed to its dividend policy and maintaining a strong financial position. Investors will be closely watching how the company navigates these challenges in the coming quarters.
Explore the complete 8-K earnings release (here) from Capitol Federal Financial Inc for further details.
