Capitol Federal Financial, Inc. · NASDAQ:CFFN
Capitol Federal Financial — IPO Roadshow (November 2010)
55 slides from Capitol Federal Financial's IPO roadshow presentation, Nov 17, 2010
Slide 1: Capitol Federal Financial, Inc. Investor Presentation
Capitol Federal Financial, Inc. (Proposed new Holding Company for Capitol Federal Savings Bank) Investor Presentation John B. Dicus Kent G. Townsend Joel N. Oliver NASDAQ: CFFN November 2010
Slide 2: Forward-Looking Statements
Forward-Looking Statements The Company has filed a registration statement (including a prospectus) with the Securities and Exchange Commission (the “SEC”) for the offering to which this communication relates (Registration No. 333-166578). Before you invest, you should read the prospectus d
Slide 3: Notice to Prospective Investors in the United Kingdom
Notice to Prospective Investors in the United Kingdom This presentation is being made in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, being investment professionals within the meaning of Article 19(5) of the Financial Servi
Slide 4: Notice to Prospective Investors in Korea
Notice to Prospective Investors in Korea Our securities may not be offered, sold and delivered directly or indirectly, or offered or sold to any person for reoffering or resale, directly or indirectly, in Korea or to any resident of Korea except pursuant to the applicable laws and regulations of Kor
Slide 5: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures This presentation contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures include tangible common equity, tangible
Slide 6: Offering and Investment Summary
Offering and Investment Summary 6
Slide 7: Offering Summary
Offering Summary Transaction Structure: Syndicated public offering of common stock in conjunction with second-step conversion Issuer: Capitol Federal Financial, Inc. Price Per Share: $10.00 Shares Offered: 118,150,000 (Minimum) to 159,850,000 (Maximum) Gross Proceeds: $1.18 Billion (Minimum) to $1.6
Slide 8: Pro Forma Financial Information
Pro Forma Financial Information (June 30, 2010 data from Appraisal) Minimum of Offering Range (1) Number of Shares Offered 118,150,000 Number of Shares Issued to Existing Stockholders 49,344,965 Exchange Ratio 2.2637x Pro Forma Shares Outstanding 167,494,965 Pro Forma Tangible Common Equity to Tangi
Slide 9: Company Overview
Company Overview History Founded in 1893 Reorganized into the MHC structure and completed initial public offering of $378 million in 1999 Current Statistics (1) 35 branch offices, 11 in-store locations #2 ranked deposit market share in the state of Kansas (2) 4th largest bank or thrift by total asse
Slide 10: Conversion and Offering Rationale
Conversion and Offering Rationale Eliminate concerns about the impact of regulatory reform on MHC structure MHC dividend waiver rules in doubt: if not permitted, would result in substantial decline in dividend payments to minority stockholders Second-step conversion regulations do not yet exist unde
Slide 11: Business Strategy
Business Strategy 1) Core competencies: single family portfolio lending, building core deposit base 2) Low-risk credit model: excellent asset quality metrics 3) Efficient operator: control expenses 4) Track record of building stockholder value: prudent uses of capital drive returns Cash dividends Sh
Slide 12: Financial Highlights & Stockholder Returns
Financial Highlights & Stockholder Returns Efficient income generator (September 30, 2010 data) Net income of $15.4 million and $67.8 million for the 3 months ended and 12 months ended, respectively Net interest margin of 2.06% (1) Efficiency ratio of 44.0% (1) ROAA of 0.80% (1) ROAE of 7.09% (1) Fo
Slide 13: Historical Share Repurchases & Cash Dividends
Historical Share Repurchases & Cash Dividends Cumulative Shares Repurchased Following Initial Public Offering from 2000 to 2004 Note: Shares in millions 53% of shares issued in IPO repurchased by 2004 39.3 million shares issued in IPO in 1999 30.0 25.0 20.0 15.0 10.0 5.0 0.0 20.7 20.8 20.0 12.5 11.1
Slide 14: Capital Utilization Strategies
Capital Utilization Strategies 1) Partial use of initial net proceeds Repay outstanding debentures Contribution to charitable foundation ESOP loan 2) Balance sheet growth Disciplined loan and securities purchases Market dislocation and challenged competitors will create lending opportunities Continu
Slide 15: Share Repurchases
Share Repurchases Will utilize cash at holding company for share repurchases following expiration of regulatory prohibition (1) 50% of net proceeds to be retained by holding company (estimated $425 million (2) at minimum of appraisal range after initial uses of proceeds) Board will establish share r
Slide 16: Illustrative Cash Dividends
Illustrative Cash Dividends Example Per Share Amount 1) Quarterly cash dividends per share (1) $0.075 Annual quarterly cash dividends per share (2) $0.30 2) Special annual cash dividend For first two fiscal years following offering, intend to pay remaining net income in excess of quarterly dividends
Slide 17: Disciplined Acquisition Strategy
Disciplined Acquisition Strategy Will analyze acquisition opportunities for potential stockholder value creation against other capital utilization options Regulatory reform impact on potential target institutions Primary focus of acquisition opportunities: Located within current footprint or in surr
Slide 18: Experienced Board and Management Team
Experienced Board and Management Team A key to CFFN’s success has been its long-tenured and engaged executive officers Following the offering, Board and management will own approximately 4.5 million shares (1) John B. Dicus Kent G. Townsend Rick C. Jackson Chief Executive Officer EVP, Chief Fin
Slide 19: Branch Franchise & Market Characteristics
Branch Franchise & Market Characteristics 46 locations46 locations (3) (3) Branches located primarily in major $95.4 million average $95.4 million average deposits per location deposits per location metropolitan areas of Eastern Kansas Drives efficiency ratio Drives ratio Median household income in
Slide 20: Loan Portfolio
Loan Portfolio Loan Portfolio as of September 30, 2010 Loan Portfolio Characteristics (at 9/30/10) Primary lending activity is the 1% 4% 1% origination and purchase of 1-4 family residential loans 17% 1-4 family residential and home equity loans comprise approximately 98% of total loans Weighted ave
Slide 21: Asset Quality Trends
Asset Quality Trends Strong underwriting standards and full-documentation loans have maintained credit quality metrics consistently below peers At September 30, 2010, non-performing loans totaled $32.0 million or 0.62% of total loans; $4.0 million net charge-offs since September 30, 2009 and $6.5 mi
Slide 22: Successful Track Record of Loan Purchases
Successful Track Record of Loan Purchases Required to meet strict underwriting standards and undergo detailed loan file review Provides geographic diversification and helps mitigate interest rate risk Servicers are monitored regularly Loans purchased in fiscal YTD 2010 had an avg. credit score of 72
Slide 23: Funding Sources
Funding Sources Total Deposits as of September 30, 2010 Funding Mix Characteristics (at 9/30/10) 11% Core deposits (1) comprised 80% of total 20% deposits of $4.4 billion 5% Total borrowings of $3.0 billion $1.2 billion unused borrowing capacity at 22% FHLB $1.6 billion of securities were also avail
Slide 24: Cost Control Metrics
Cost Control Metrics 80.0% 73.0% 75.0% 70.3% 68.9% 70.0% 66.9% 65.3% 65.0% 61.1% 60.0% 55.0% 59.6% 50.0% 45.0% 49.9% 48.0% 45.6% 40.0% 44.0% 41.2% 35.0% 30.0% 2005 2006 2007 2008 2009 2010 Efficiency Ratio (1) CFFN Peers (2) Operating Expense / Average Total Assets 2005 2006 2007 2008 2009 2010 CFFN
Slide 25: Securities Portfolio
Securities Portfolio Securities Portfolio as of September 30, 2010 Securities Portfolio Characteristics (at 9/30/10) 3% $2.9 billion securities portfolio (3) 30% Approximately 54% of the investment portfolio consisted of pass-through mortgage-backed securities issued by 43% Fannie Mae and Freddie Ma
Slide 26: Interest Rate Risk Management
Interest Rate Risk Management Manages interest rate risk on a whole-bank basis, not based on individual portfolios Offset long-term residential mortgage assets with shorter maturity investments Offset generally short-term deposit funding with longer term borrowings Maximize earnings stability Monthl
Slide 27: Weighted Average Life of Portfolios
Weighted Average Life of Portfolios Weighted Average Life by Portfolio Total Interest Earning Assets Total Interest Bearing Liabilities 4.45 yrs 4.45 yrs 3.93 yrs 3.93 yrs 3.13 yrs 3.13 yrs 3.25 yrs 3.25 yrs 8.00 6.65 6.64 7.00 6.00 4.67 4.58 4.52 5.00 3.99 4.00 3.19 3.12 3.00 2.00 1.53 1.28 0.82 1.
Slide 28: Investment Summary
Investment Summary Steady profitability and stockholder returns Strong earnings trend throughout the credit crisis Average annual return to stockholders since IPO of 19.0% (1) $20.47 per share in aggregate cash dividends since IPO (2) Excellent asset quality NPAs / assets ratio of 0.49% (3) Conserva
Slide 29: Appendix A: Historical Financial Summary
Appendix A: Historical Financial Summary Historical Financial Summary 29
Slide 30: Total Assets, Loans, Deposits and Equity
Total Assets Loans Receivable, Net $10,000 $6,000 $5,464 $5,604 $8,487 $5,221 $5,290 $5,321 $5,168 $8,410 $8,199 $8,404 $8,055 $7,676 $5,000 $8,000 $4,000 $6,000 $3,000 $4,000 $2,000 $2,000 $1,000 $0 $0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Deposits Total Equity $5,000 $1,000 $
Slide 31: Historical Financial Summary: Capital Ratios
Historical Financial Summary Tang. Common Equity / Tang. Assets (1) Core Capital / Tang. Assets (2) 12.0% 10.5% 10.3% 11.3% 11.2% 11.3% 10.0% 10.0% 10.8% 10.0% 9.8% 11.0% 10.5% 10.3% 9.5% 10.0% 9.5% 9.1% 9.0% 9.0% 8.0% 8.5% 7.0% 8.0% 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Tier 1
Slide 32: Historical Financial Summary: Margin, Income, Returns
Historical Financial Summary Net Interest Margin Net Income 3.50% $100 3.23% 3.23% 2.99%2.97% 3.04% 3.00% 2.83% $80 $65.1 $66.3 $67.8 2.50% $60 $51.0 2.20% $48.1 2.06% 2.00% 1.87% 1.75% $40 $32.3 1.57% 1.50% 1.36% $20 1.00% $0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Return on Ave
Slide 33: Appendix B: Building Stockholder Value
Appendix B: Building Stockholder Value 33
Slide 34: Building Stockholder Value
Building Stockholder Value Earnings Per Share Tangible Book Value Per Share $1.25 $14.00 $13.11 $1.00 $0.90 $0.91 $0.93 $12.85 $13.00 $0.70 $0.75 $0.66 $11.91 $11.89 $11.88 $11.93 $12.00 $0.50 $0.44 $11.00 $0.25 $0.00 $10.00 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Dividends Per P
Slide 35: Appendix C: Disciplined Credit Administration
Appendix C: Disciplined Credit Administration 35
Slide 36: Disciplined Credit Administration
Disciplined Credit Administration Conservative loan approval authorities No individual underwriter has approval authority over $500,000, including Chief Lending Officer and Chief Executive Officer Loans in excess of $500,000 underwritten by two of CFFN’s most experienced underwriters Loans grea
Slide 37: Disciplined Credit Administration: Underwriting Standards
Disciplined Credit Administration A history of safe and sound underwriting standards Traditional underwriting standards in accordance with FHLMC and FNMA underwriting guidelines Full documentation to support applicant’s credit and income history Verification of sufficient funds to cover all fee
Slide 38: Appendix D: Repricing of Time Deposits and Wholesale Funding
Appendix D: Repricing of Time Deposits and Wholesale Funding 38
Slide 39: Repricing of Time Deposits and Wholesale Funding
Repricing of Time Deposits and Wholesale Funding Time Deposit and Wholesale Funding Repricing Schedule as of September 30, 2010 CDs Borrowings (1) Maturing: Amount Rate Amount Rate 2011 $ 1,516.7 1.97 % $ 476.0 4.42 % 2012 596.4 2.70 500.0 3.67 2013 288.8 2.61 670.0 3.74 2014 189.7 2.66 550.0 3.33 2
Slide 40: Appendix E: Demographic and Economic Profile
Appendix E: Demographic and Economic Profile 40
Slide 41: Demographic Profile
Demographic Profile Projected 2010-2015 Market / # of Total Total Market Population Median HHI Unemployment County Offices Loans (1) Deposits(2) Share (%)(2) Population(3) Growth (%)(4) Growth (%)(4) Rate (%)(5) Kansas Johnson 20 $ 2,536,769 $ 1,850,815 12.7 % 549,792 7.41 % 15.60 % 6.4 % Shawnee 7
Slide 42: Economic Profile: Unemployment and Household Price Indices
Economic Profile Economic Profile - Unemployment (1) Economic Profile - Household Price Indices (2) 11.0% 200% 10.0% 9.6% 180% 9.0% 8.0% 160% 7.4% 7.0% 148% 6.6% 140% 138% 6.0% 134% 5.0% 120% 4.0% 100% 3.0% 2.0% 80% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005
Slide 43: Economic Profile: Eastern Kansas
Economic Profile Primarily located in Eastern Kansas Kansas Gross Domestic Product by Industry (1) markets characterized by stable economic 15.2% growth 18.1% Diversified economic drivers Kansas unemployment rate has consistently 3.6% trailed the national average (currently 6.6% 14.2% vs. 9.6% natio
Slide 44: Appendix F: Disciplined Acquisition Strategy
Appendix F: Disciplined Acquisition Strategy 44
Slide 45: Disciplined Acquisition Strategy
Disciplined Acquisition Strategy Will consider expanding the current franchise in selective markets through acquisitions of branches and deposits or acquisitions of whole financial institutions that fit with current business model Careful consideration of credit risk, compliance risk and interest ra
Slide 46: Disciplined Acquisition Strategy: Strategic and Financial Focus
Disciplined Acquisition Strategy Focus on strategic attributes of potential acquisitions: Franchise fit, attractive market characteristics Balance sheet makeup: deposit strength, asset base, capital base Social fit / cultural fit / technological fit Additive to combined employee base Focus on growth
Slide 47: Appendix G: Overview of Indicative Valuation Range
Appendix G: Overview of Indicative Valuation Range 47
Slide 48: Overview of Indicative Valuation Range
Overview of Indicative Valuation Range (June 30, 2010 data from Appraisal) Capitol Federal Financial, Inc. Minimum Midpoint Maximum 118,150,000 139,000,000 159,850,000 Shares Shares Shares Gross Proceeds of Stock Offering $ 1,181,500 $ 1,390,000 $ 1,598,500 Market Value of Shares Issued in the Excha
Slide 49: Appendix H: Transaction Structure
Appendix H: Transaction Structure 49
Slide 50: Transaction Structure
Transaction Structure Pre-Transaction Post-Transaction Capitol Federal Savings Bank MHC Public Investors Public Investors 71% 29% 100% Capitol Federal Financial Capitol Federal Financial, Inc. 100% 100% Capitol Federal Savings Bank Capitol Federal Savings Bank Pre-Transaction Ownership Post-Transact
Slide 51: Second-Step Conversion Process
Second-Step Conversion Process Current MHC structure Three-tier holding company structure Top-tier MHC owns 71% of stock of CFFN, the publicly traded mid-tier holding company Minority stockholders own remaining 29% of CFFN CFFN owns 100% of stock of Capitol Federal Savings Bank Second-step process 1
Slide 52: Appendix I: Non-GAAP Financial Measures
Appendix I: Non-GAAP Financial Measures 52
Slide 53: Non-GAAP Financial Measures
Non-GAAP Financial Measures Fiscal Year Ended September 30, 2005 2006 2007 2008 2009 2010 Tangible book value per share Book value per common share $ 11.91 $ 11.89 $ 11.88 $ 11.93 $ 12.85 $ 13.11 Effect of intangible assets per share -- -- -- -- -- -- Tangible book value per common share $ 11.91 $ 1
Slide 54: Non-GAAP Financial Measures (Pro Forma Core LTM EPS)
Non-GAAP Financial Measures (June 30, 2010 data from Appraisal) Dollars in thousands, except per share data For the twelve months June 30, 2010 Minimum Midpoint Maximum Pro forma core LTM EPS LTM Net income $ 69,231 $ 69,231$ 69,231 Less: Gain on sale of loans and securities (1) (4,682) (4,682) (4,6
Slide 55: Capitol Federal Financial, Inc.
Capitol Federal Financial, Inc. (Proposed new Holding Company for Capitol Federal Savings Bank)
Capitol Federal Financial — IPO Roadshow (November 2010) on 6ix