Capitol Federal Financial (CFFN, Financial) filed Quarterly Report for the period ended 2009-12-31.
Capitol Federal Financial has a market cap of $2.41 billion; its shares were traded at around $32.56 with a P/E ratio of 35.9 and P/S ratio of 5.5. The dividend yield of Capitol Federal Financial stocks is 6.1%. Capitol Federal Financial had an annual average earning growth of 33.8% over the past 5 years.CFFN is in the portfolios of Jeremy Grantham of GMO LLC.
During the quarter, the Bank swapped $194.8 million of originated fixed-rate mortgage loans with FHLMC for trading MBS. The trading MBS were sold at a gain of $6.5 million and the proceeds were reinvested into assets with an average life shorter than that of the Bank s remaining assets in an effort to reduce future interest rate risk sensitivity that could occur as a result of the high volume of refinances and modifications and likely increases in interest rates. Since December 2008, mortgage interest rates have been historically low, prompting increased demand for refinances, and loan modifications.
Loans Receivable. The loans receivable portfolio decreased $180.0 million from $5.60 billion at September 30, 2009 to $5.42 billion at December 31, 2009. The decrease in the portfolio was a result of the loan swap transaction that took place during the quarter, where $194.8 million of originated fixed-rate mortgage loans were swapped for MBS as a means of reducing future interest rate risk sensitivity. The Bank will continue to service these loans. The MBS were classified as trading securities and sold during the current quarter for a gain. The proceeds from the sale were primarily reinvested into investment securities with terms shorter than that of the loans swapped.
The Bank purchased $37.6 million of loans from nationwide lenders during the quarter, the majority of which were adjustable-rate. These loans had an average credit score of 725 and a weighted average LTV ratio of 46% at the time of purchase. At December 31, 2009, loans purchased from nationwide lenders represented 13% of our loan portfolio and were secured by properties located in 47 of the continental United States and Washington, D.C. As of December 31, 2009, the average balance of a purchased nationwide mortgage loan was approximately $350 thousand, the average balance of a purchased correspondent loan was approximately $250 thousand, and the average balance of an originated mortgage loan was approximately $125 thousand. By purchasing loans from nationwide lenders, the Bank is able to attain some geographic diversification in its loan portfolio, and help mitigate the Bank s interest rate risk exposure as the purchased loans are predominately adjustable-rate or 15-year fixed-rate loans. Although at the time these loans were purchased, they met our underwriting standards; as a result of the continued elevated levels of unemployment rates and the declines in real estate values in some of the states where we have purchased loans, we have experienced an increase in non-performing purchased loans. See additional discussion regarding non-performing purchased loans in “Asset Quality – Loans and REO.”
Included in the loan portfolio at December 31, 2009 were $243.7 million of interest-only adjustable-rate mortgage (“ARM”) loans, the majority of which were purchased from nationwide lenders during fiscal year 2005. These loans do not typically require principal payments during their initial term, and have initial interest-only terms of either five or ten years. The interest-only loans purchased had an average credit score of 737 and an average LTV ratio of 80% or less at the time of purchase. The Bank has not purchased any interest-only ARM loans since 2006 and discontinued offering the product in its local markets during 2008 to reduce future credit risk. At December 31, 2009, $233.3 million, or 96%, of interest-only loans were still in their interest-only
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Capitol Federal Financial has a market cap of $2.41 billion; its shares were traded at around $32.56 with a P/E ratio of 35.9 and P/S ratio of 5.5. The dividend yield of Capitol Federal Financial stocks is 6.1%. Capitol Federal Financial had an annual average earning growth of 33.8% over the past 5 years.CFFN is in the portfolios of Jeremy Grantham of GMO LLC.
Highlight of Business Operations:
The Company recognized net income of $21.0 million for the quarter ended December 31, 2009, compared to net income of $15.9 million for the quarter ended December 31, 2008. The $5.1 million increase in net income between the periods was primarily due to a decrease of $10.1 million in interest expense and an increase of $6.5 million in other income, partially offset by a $6.4 million decrease in interest and dividend income, a $2.6 million increase in the provision for loan losses, and a $1.8 million increase in income taxes due to higher earnings. The decrease in interest expense was due to a decrease in the rate on our FHLB advances due to the refinance of $875.0 million of advances during the second and third quarters of fiscal year 2009 and a decrease in interest expense on deposits due to the continued decline in the cost of our certificate of deposit and money market portfolios as a result of lower short-term market rates. The $6.5 million increase in other income was primarily due to the gain on the sale of trading securities received in conjunction with a loan swap transaction during the current quarter. The decrease in interest and dividend income was primarily a result of a decrease in the average yield of the MBS and loans receivable portfolios due to prepayments of MBS and mortgage loans with higher yields than the average portfolio yield, to adjustable-rate MBS and mortgage loans adjusting to lower market rates on their reprice dates, refinances and modifications of mortgage loans, and the origination of new mortgage loans at rates lower than the overall portfolio rate. The $2.6 million increase in the provision for loan losses primarily reflects increases in the level of certain qualitative factors in our general valuation allowance model to account for lingering negative economic conditions.During the quarter, the Bank swapped $194.8 million of originated fixed-rate mortgage loans with FHLMC for trading MBS. The trading MBS were sold at a gain of $6.5 million and the proceeds were reinvested into assets with an average life shorter than that of the Bank s remaining assets in an effort to reduce future interest rate risk sensitivity that could occur as a result of the high volume of refinances and modifications and likely increases in interest rates. Since December 2008, mortgage interest rates have been historically low, prompting increased demand for refinances, and loan modifications.
Loans Receivable. The loans receivable portfolio decreased $180.0 million from $5.60 billion at September 30, 2009 to $5.42 billion at December 31, 2009. The decrease in the portfolio was a result of the loan swap transaction that took place during the quarter, where $194.8 million of originated fixed-rate mortgage loans were swapped for MBS as a means of reducing future interest rate risk sensitivity. The Bank will continue to service these loans. The MBS were classified as trading securities and sold during the current quarter for a gain. The proceeds from the sale were primarily reinvested into investment securities with terms shorter than that of the loans swapped.
The Bank purchased $37.6 million of loans from nationwide lenders during the quarter, the majority of which were adjustable-rate. These loans had an average credit score of 725 and a weighted average LTV ratio of 46% at the time of purchase. At December 31, 2009, loans purchased from nationwide lenders represented 13% of our loan portfolio and were secured by properties located in 47 of the continental United States and Washington, D.C. As of December 31, 2009, the average balance of a purchased nationwide mortgage loan was approximately $350 thousand, the average balance of a purchased correspondent loan was approximately $250 thousand, and the average balance of an originated mortgage loan was approximately $125 thousand. By purchasing loans from nationwide lenders, the Bank is able to attain some geographic diversification in its loan portfolio, and help mitigate the Bank s interest rate risk exposure as the purchased loans are predominately adjustable-rate or 15-year fixed-rate loans. Although at the time these loans were purchased, they met our underwriting standards; as a result of the continued elevated levels of unemployment rates and the declines in real estate values in some of the states where we have purchased loans, we have experienced an increase in non-performing purchased loans. See additional discussion regarding non-performing purchased loans in “Asset Quality – Loans and REO.”
Included in the loan portfolio at December 31, 2009 were $243.7 million of interest-only adjustable-rate mortgage (“ARM”) loans, the majority of which were purchased from nationwide lenders during fiscal year 2005. These loans do not typically require principal payments during their initial term, and have initial interest-only terms of either five or ten years. The interest-only loans purchased had an average credit score of 737 and an average LTV ratio of 80% or less at the time of purchase. The Bank has not purchased any interest-only ARM loans since 2006 and discontinued offering the product in its local markets during 2008 to reduce future credit risk. At December 31, 2009, $233.3 million, or 96%, of interest-only loans were still in their interest-only
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