Business context and reporting period
Capitol Federal Financial, Inc. filed this Form 10-K for the fiscal year ended September 30, 2013. The company is a bank holding company whose wholly owned Capitol Federal Savings Bank primarily gathers retail deposits and originates or purchases residential mortgage loans in Kansas and nearby markets. The filing was signed November 29, 2013.
Financial and operating metrics
| Metric | FY 2013 / September 30, 2013 | Comparison or detail |
|---|---|---|
| Total loans receivable | $6.012 billion | Up $362.6 million from $5.649 billion a year earlier; net loans were $5.959 billion. |
| Loan mix | 95.5% one- to four-family; 97.7% real estate overall | Consumer loans were $140.7 million, or 2.3% of loans. |
| Deposits | $4.611 billion | Up $60.8 million year over year. Certificates of deposit were 55.2% of deposits. |
| Borrowings | $2.53 billion FHLB advances; $320.0 million repurchase agreements | FHLB advances were at par; repos were about 3% of total assets. |
| Investment and mortgage-backed securities | $740.3 million investment securities; $2.05 billion MBS | Down $221.5 million and $285.2 million, respectively, from September 30, 2012. |
| Credit quality | $26.4 million non-performing loans; $30.3 million non-performing assets | Non-performing loans were 0.44% of loans; non-performing assets were 0.33% of total assets. |
| Credit loss allowance | $8.8 million | 0.15% of loans and 33.4% of non-performing loans; FY 2013 provision was a negative $1.1 million. |
| Capital | Bank Tier 1 leverage ratio 14.8%; Tier 1 risk-based ratio 35.6%; total risk-based ratio 35.9% | Bank was considered well-capitalized under then-current OCC rules. |
The supplied filing text does not provide clear values for total revenue, net income, net interest margin, earnings per share, or operating cash flow. The consolidated financial statements and MD&A are incorporated by reference, but their detailed figures are not included in the supplied text. Liquidity ratios and a specific liquidity balance are likewise not clearly provided.
Material changes versus the prior comparable period
- Loans receivable grew 6.4%, driven mainly by originations and correspondent purchases exceeding principal repayments. One- to four-family correspondent purchases were $585.0 million, versus $267.5 million in the prior year’s discussion; no bulk loan purchases were made in FY 2013, compared with $362.7 million in FY 2012.
- Non-performing loans declined to $26.4 million from $31.8 million, while non-performing assets fell to $30.3 million from $39.9 million. Net charge-offs fell to $1.2 million from $6.4 million.
- The allowance declined to $8.8 million from $11.1 million, alongside the negative provision for credit losses. Management attributed the decline to lower net charge-offs, improved or stabilized property values in some markets, and older losses rolling out of the allowance model.
- Deposits increased $60.8 million, compared with a $55.5 million increase in FY 2012. The share of certificates of deposit declined to 55.2% from 56.5%.
- Investment and MBS balances contracted as maturities, calls, and principal cash flows exceeded purchases and were used largely to fund loan growth, dividends, and share repurchases.
Outlook, risks, contingencies, and unusual items
- No quantified earnings or revenue guidance is provided. Management anticipated the Bank would remain well-capitalized under the Basel III rules taking effect in 2015 and meet the capital conservation buffer requirement.
- Interest-rate risk is material: the portfolio is heavily weighted to long-term, fixed-rate residential mortgages, while deposit liabilities generally reprice over shorter periods. Rate changes may also affect prepayments, MBS values, and AFS-related equity.
- Geographic and asset concentration are significant: approximately 66% of loans were secured by Kansas property and 17% by Missouri property; residential mortgages represented 95.5% of loans. Local economic weakness, unemployment, or falling property values could impair borrowers and collateral.
- Legacy bulk-purchased loans, particularly loans originated in 2004–2006, have experienced elevated delinquency and losses. Of $9.6 million of bulk-purchased loans 90 or more days delinquent or in foreclosure, 99% were originated in 2004 or 2005.
- At September 30, 2013, $76.5 million of loans were covered by PMI from Republic Mortgage Insurance Company; $75.3 million were current. RMIC was paying 60% of approved claims, as required by its regulator.
- New consumer mortgage rules, generally effective January 10, 2014, and Basel III capital requirements were expected to increase compliance demands and could affect costs, underwriting, lending volumes, dividends, and repurchases.
- The Bank received a $10.8 million rebate in June 2013 of excess prepaid FDIC assessments. It paid $4.0 million in FDIC premiums and $507,000 in FICO assessments during the fiscal year.
- The Company completed its prior $193.0 million repurchase authorization in FY 2013 and announced a new $175.0 million program in November 2012. No shares were repurchased in the quarter ended September 30, 2013; $129.6 million remained under the program at quarter-end. The filing reports a declared $0.18-per-share special year-end dividend after fiscal year-end.
- Management said pending ordinary-course legal actions were unlikely to have a material adverse effect. The filing identifies no unresolved SEC staff comments and reports effective disclosure controls.
Important facts for investors to verify
- Review the incorporated annual report for audited revenue, net income, earnings per share, net interest margin, cash flows, and detailed liquidity data; these figures are not clear in the supplied text.
- Assess the allowance and reserve coverage against the delinquency, non-performing loan, TDR, and legacy bulk-purchased loan disclosures, particularly after the negative provision.
- Check the full interest-rate sensitivity and liquidity analysis, including the effect of rate changes on fixed-rate mortgages, deposits, borrowings, and securities.
- Confirm the timing and terms of the special dividend, ongoing dividend capacity, remaining repurchase authorization, and any limits on Bank capital distributions.
- Track implementation of Basel III and mortgage regulatory changes, as well as the Bank’s reported capital position under the new requirements.