Financial Performance Overview

Capitol Federal Financial, Inc., the parent company of Capitol Federal Savings Bank, reported strong financial results for the six-month period ending March 31, 2025. The company recognized net income of $30.8 million, or $0.24 per share, compared to $16.3 million, or $0.12 per share, in the prior year period.

The improvement in earnings was driven primarily by higher net interest income. The company’s net interest margin increased 13 basis points to 1.89%, as loan yields rose and the loan portfolio shifted towards higher-yielding commercial loans. Deposit costs also increased, but at a slower pace than loan yields.

The company’s efficiency ratio, which measures operating expenses as a percentage of revenue, improved to 59.23% from 74.29% in the prior year period, excluding the impact of securities losses. This was due to the growth in net interest income.

Asset and Liability Management

Total assets grew to $9.72 billion, a 7.5% annualized increase, driven by higher cash and securities balances. The loan portfolio declined slightly, as growth in commercial loans was offset by a decrease in one-to-four family mortgages.

Deposits increased 10.7% annualized to $6.37 billion, primarily through the bank’s high-yield savings account product. Borrowings decreased 3.8% to $2.14 billion as the bank paid down some FHLB advances.

Stockholders’ equity rose to $1.04 billion, and the bank maintained strong capital ratios, with a community bank leverage ratio of 9.5% as of March 31, 2025.

Loan Portfolio Performance

The bank’s asset quality remained strong, with low levels of delinquent and nonaccrual loans. Loans 30-89 days delinquent were 0.18% of total loans, and loans 90+ days delinquent or in foreclosure were 0.12% of total loans.

Net charge-offs during the period were just $107,000, reflecting the high credit quality of the loan book. The allowance for credit losses stood at $24.0 million, or 0.30% of total loans, which management believes is adequate given the risk profile.

The commercial loan portfolio continued to grow, with originations and participations totaling $298.8 million for the six-month period. Commercial real estate, commercial & industrial, and commercial construction loans now make up 21.1% of the total loan portfolio.

Funding and Liquidity

The bank maintained ample liquidity, with an estimated $2.96 billion available through its FHLB borrowing capacity and unencumbered securities. This provides flexibility to fund loan growth and manage interest rate risk.

The bank’s wholesale funding, primarily FHLB advances, had a weighted average effective rate of 3.54% and a weighted average life of 1.6 years as of March 31, 2025. Management continues to monitor opportunities to optimize the bank’s funding mix and duration.

Outlook and Strategic Initiatives

Looking ahead, the bank expects its net interest margin to continue improving, driven by further declines in deposit costs and higher yields on the loan portfolio. The bank remains focused on strategically growing its commercial banking business through technology, talent, and product enhancements.

Specific initiatives include implementing commercial loan pricing and profitability software, expanding treasury management services, and launching new digital banking capabilities for small business customers. Management believes these efforts will enable the bank to attract more commercial deposits and diversify its fee income streams.

The bank also plans to create a seamless digital experience for all customers, which should help retain and grow the deposit base. Overall, the bank is well-positioned to navigate the current economic environment and continue executing on its strategic priorities.

Conclusion

Capitol Federal Financial delivered strong financial results in the first half of fiscal year 2025, driven by improved net interest income and disciplined expense management. The bank maintained excellent asset quality, ample liquidity, and well-capitalized regulatory ratios.

Looking ahead, the bank is focused on strategically growing its commercial banking business and enhancing its digital capabilities to better serve customers and drive sustainable profitability. With a solid foundation and proactive management, Capitol Federal Financial appears well-equipped to navigate the challenges and opportunities in the banking industry.