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Shares of Capitol Federal Financial, Inc. (CFFN - Snapshot Report) dropped 0.3% on Thursday after the company’s fiscal first-quarter 2014 earnings (ended Dec 31) of 12 cents per share missed the Zacks Consensus Estimate by a penny. However, this was in line with the year-ago figure.

Lower-than-expected results were adversely impacted by a decline in the top line, partially offset by lower operating expenses. Further, credit quality was a mixed bag while strong capital deployment activities depicted robust liquidity levels.

Capitol Federal Financial’s net income fell 1.4% year over year to $17.8 million.

Quarterly Performance

Total revenue for the reported quarter came in at $77.7 million, down 6.8% from the prior-year quarter. However, it outpaced the Zacks Consensus Estimate of $50.0 million.

Net interest income fell 3.0% year over year to $43.8 million. The decrease was mainly due to fall in interest and dividend income, partially offset by lower interest expense. Also, net interest margin declined 3 basis points to 1.98%.

Non-interest income decreased 4.6% from the year-ago quarter to $5.5 million. All the non-interest income components declined.

Non-interest expense decreased 7.9% from the year-ago quarter to $22.8 million. The fall was mainly due to decline in salaries and employee benefit expenses as well as other non-interest expenses.

Asset Quality

Asset quality was a mixed bag during the quarter. Total nonperforming assets fell 10.4% year over year to $31.4 million as of Dec 31, 2013.

Moreover, allowance for credit losses as a percentage of total loans came in at 0.15% as of Dec 31, 2013, down 4 bps. However, provision for credit losses rose significantly from $0.2 million in the prior-year quarter to $0.5 million.

Capital Deployment Activities

Capitol Federal Financial continues with its share repurchase plan of $175.0 million, which was approved in Nov 2012. As of Dec 31, 2013, the company bought back 4.4 million shares for $52.4 million at an average price of $11.89 per share.

Subsequent to Dec 31, 2013 through Jan 17, 2014, the company has repurchased 2.1 million shares at an average price of $11.99 per share. This plan has $96.9 million remaining as of Jan 17, 2014.

Performance of Other Banks

Among other companies in the same industry, Washington Federal Inc.’s (WAFD - Analyst Report) fiscal first-quarter 2014 earnings beat the Zacks Consensus Estimate, while People's United Financial Inc. (PBCT - Analyst Report) and First Niagara Financial Group Inc. (FNFG - Snapshot Report) reported earnings that were in line with the Zacks Consensus Estimate.

Our Viewpoint

Capitol Federal Financial’s conservative credit culture and solid capital position are expected to act as tailwinds. However, a still weak interest rate scenario is expected to deter any significant bottom-line improvement in the near term.

Currently, Capitol Federal Financial carries a Zacks Rank #3 (Hold).

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