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Dec 31, 2022
Capitol Federal Q1 2023 Earnings Report
Capitol Federal Financial's financial performance decreased in Q1 2023, with net income and net interest margin declining due to lower net interest income and increased borrowing and deposit costs.
Key Takeaways
Capitol Federal Financial, Inc. reported a decrease in net income for the quarter ended December 31, 2022, compared to both the previous quarter and the same quarter last year. The decrease was primarily due to lower net interest income and a provision for credit losses, despite an increase in interest income on loans receivable and cash equivalents.
Net income was $16.2 million, or $0.12 per share, a decrease from $19.5 million in the previous quarter and $22.2 million in the prior year quarter.
Net interest margin decreased to 1.61%, down from 1.71% in the previous quarter and 1.99% in the prior year quarter.
Annualized loan growth was 17.1%, driven by growth in the correspondent one-to four-family and commercial loan portfolios.
The company recorded a provision for credit losses of $3.7 million, compared to a provision of $1.1 million in the previous quarter and a recovery of $3.4 million in the prior year quarter.
Capitol Federal
Capitol Federal
Forward Guidance
Management anticipates continued net interest margin compression and plans to implement a new core processing system by September 2023.
Positive Outlook
- Loan growth is occurring at market interest rates that are higher than the overall loan portfolio rate.
- Management plans to continue using shorter term advances, as necessary, with the anticipation that when rates begin to decrease, those borrowings can be repriced to lower cost alternatives.
- The digital transformation is expected to better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences.
- Information technology and related expense is expected to decrease approximately $3 million from fiscal year 2023 levels due to a reduction in professional service costs in fiscal year 2024.
- The effective tax rate for fiscal year 2023 is anticipated to be approximately 19%.
Challenges Ahead
- Net interest margin compression is anticipated to continue, and the margin may compress more in the near term.
- Higher loan rates have made homes less affordable and reduced the turnover of housing inventory.
- The shift to higher-costing borrowings and the pace at which the interest rate increase is occurring for liabilities is more than offsetting the benefit of the higher loan rates.
- Management anticipates information technology and related expenses will be approximately $6.5 million higher in fiscal year 2023 compared to fiscal year 2022.
- Salaries and employee benefits are expected to be approximately $3.5 million higher in fiscal year 2023 due primarily to merit increases and salary adjustments.