Capitol Federal Financial, Inc.CFFN
Capitol Federal Financial, Inc. Income Taxes Disclosure
INCOME TAXES
Income tax expense (benefit) for the years ended September 30, 2025, 2024, and 2023 consisted of the following:
| 2025 | 2024 | 2023 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 12,086 | $ | 12,153 | $ | 6,789 | |||||||||||
| State | 830 | 394 | 1,435 | ||||||||||||||
| 12,916 | 12,547 | 8,224 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 1,534 | 1,316 | (39,209) | ||||||||||||||
| State | 546 | 2,230 | (6,311) | ||||||||||||||
| 2,080 | 3,546 | (45,520) | |||||||||||||||
| $ | 14,996 | $ | 16,093 | $ | (37,296) | ||||||||||||
The Company's effective tax rates were 18.1%, 29.7%, and 26.8% for the years ended September 30, 2025, 2024, and 2023, respectively. The differences between such effective rates and the statutory Federal income tax rate computed on income before income tax expense resulted from the following:
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Federal income tax expense | |||||||||||||||||||||||||||||||||||
| computed at statutory Federal rate | $ | 17,434 | 21.0 | % | $ | 11,362 | 21.0 | % | $ | (29,180) | 21.0 | % | |||||||||||||||||||||||
| Increases (decreases) in taxes resulting from: | |||||||||||||||||||||||||||||||||||
| State taxes, net of Federal tax effect | 1,903 | 2.3 | 2,497 | 4.8 | (5,412) | 3.9 | |||||||||||||||||||||||||||||
| Federal tax credits, net | (2,414) | (2.9) | (2,244) | (4.2) | (2,303) | 1.6 | |||||||||||||||||||||||||||||
| State tax law enactment | (857) | (1.0) | — | — | — | — | |||||||||||||||||||||||||||||
| ESOP related expenses, net | (435) | (0.5) | (448) | (0.8) | (652) | 0.5 | |||||||||||||||||||||||||||||
| Pre-1988 bad debt recapture | — | — | 5,406 | 10.0 | — | — | |||||||||||||||||||||||||||||
| Other | (635) | (0.8) | (480) | (1.1) | 251 | (0.2) | |||||||||||||||||||||||||||||
| $ | 14,996 | 18.1 | % | $ | 16,093 | 29.7 | % | $ | (37,296) | 26.8 | % | ||||||||||||||||||||||||
State tax law enactment - During the current fiscal year, the State of Kansas enacted a change in the tax law that is effective October 1, 2027 for the Company and the Bank. The State of Kansas is changing the way it attributes taxable income to the State, specifically, changing from a three-factor apportionment (property, payroll and receipts) to a single, revenue-based method. Most of the Bank's property and payroll are located in Kansas, but a large amount of its revenue generating activities, predominantly loan interest income, are outside of Kansas. Therefore, the Bank is expecting a decrease in income apportioned to Kansas starting in fiscal year 2028 due to the tax law change. Upon the tax law enactment, the Bank remeasured its state deferred tax assets and liabilities expected as of October 1, 2027. The Bank recorded an $857 thousand reduction in net state income tax expense during the year end September 30, 2025 related to this tax law change.
Pre-1988 bad debt recapture - Prior to the Small Business Job Protection Act (the "1996 Act"), the Bank was permitted to deduct, up to a specified formula limit, a certain percentage of income as bad debts, for which the Bank was not required to establish a deferred tax liability. The difference between actual bad debts and the formula limit bad debt amount ("excess reserves") was recorded in the Bank's retained earnings. As a result of the 1996 Act, savings institutions, like the Bank, were required to use the specific charge-off method in computing bad debts on their tax returns beginning with their 1996 Federal tax returns. The 1996 Act required the recapture of excess reserves over the base year, which was September 30, 1988 for the Bank. The excess reserves established prior to September 30, 1988 are to remain in retained earnings ("pre-1988 bad debt reserves") subject to recapture by the Bank on the occurrence of certain distributions in excess of current earnings and profits accumulated in tax years beginning after December 31, 1951 ("accumulated earnings and profits"). For tax purposes, if current and accumulated earnings and profits are negative, distributions from the Bank to Capitol Federal Financial, Inc. would be deemed to be drawn out of the Bank's pre-1988 bad debt reserve requiring a payment of income tax at the then-current rate by the Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distributions ("pre-1988 bad debt recapture").
The net loss associated with the strategic securities transaction ("securities strategy") that was recognized in fiscal year 2023 net income was recognized in the Company's fiscal year 2024 income tax return due to the sale of the securities occurring in October 2023 (in fiscal 2024). Consequently, the Company reported a taxable net loss on its fiscal year 2024 income tax return, resulting in negative current and accumulated earnings and profits for the Bank for fiscal year 2024. This required the Bank to draw upon the pre-1988 bad debt reserves for distributions from the Bank to the Company during fiscal year 2024 which resulted in income tax expense in fiscal year 2024 equivalent to the distributions paid by the Bank times the Bank's current statutory tax rate of 21%. During the year ended September 30, 2024, the Bank recorded $5.4 million of income tax expense related to these distributions. During the current fiscal year, the Bank reached a point where there was sufficient taxable income to replenish the Bank's accumulated earnings and profits to a positive level. Therefore, the distributions from the Bank to the Company during the current fiscal year were not taxable as distributions from pre-1988 bad debt reserves. The Bank estimates its pre-1988 bad debt reserves to be $75.9 million at September 30, 2025, which equates to an unrecorded deferred tax liability of $15.9 million at September 30, 2025.
One Big Beautiful Bill Act ("OBBBA") - On July 4, 2025, the H.R. 1 - OBBBA was enacted into law. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others being phased in through 2027. The Company is currently evaluating the effect the OBBBA will have on the Company's consolidated financial condition and results of operations.
Deferred income tax assets and liabilities - The table below presents the components of the net deferred income tax assets (liabilities) as of September 30, 2025 and 2024. The net deferred tax assets of $21.8 million presented in the table below as of September 30, 2025 was composed of the $23.8 million of federal deferred tax assets, net and $2.1 million of state deferred tax liabilities, net.
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Deferred income tax assets: | |||||||||||
| Federal tax credit carry forward | $ | 22,305 | $ | 12,813 | |||||||
| Net operating loss carry forward | 15,286 | 30,459 | |||||||||
| ACL | 5,048 | 4,837 | |||||||||
| Lease liabilities | 2,209 | 2,156 | |||||||||
| Salaries, deferred compensation and employee benefits | 1,954 | 1,431 | |||||||||
| ESOP compensation | 1,480 | 1,522 | |||||||||
| Reserve for off-balance sheet credit exposures | 1,313 | 1,451 | |||||||||
| Net purchase discounts related to acquired loans | 86 | 116 | |||||||||
| Low income housing partnerships | 1 | 6 | |||||||||
| Other | 648 | 829 | |||||||||
| Gross deferred income tax assets | 50,330 | 55,620 | |||||||||
| Valuation allowance | (42) | (27) | |||||||||
| Gross deferred income tax asset, net of valuation allowance | 50,288 | 55,593 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| FHLB stock dividends | 16,929 | 18,871 | |||||||||
| Unrealized gain on AFS securities | 4,795 | 6,382 | |||||||||
| Premises and equipment | 2,104 | 2,317 | |||||||||
| Lease right-of-use assets | 2,061 | 2,043 | |||||||||
| ACL | 1,854 | 2,741 | |||||||||
| Unrealized gain on interest rate swaps | 224 | 508 | |||||||||
| Deposit intangible | 64 | 200 | |||||||||
| Other | 487 | 553 | |||||||||
| Gross deferred income tax liabilities | 28,518 | 33,615 | |||||||||
| Net deferred tax assets | $ | 21,770 | $ | 21,978 | |||||||
The gross federal and state net operating loss amount at September 30, 2025 related to the $15.3 million net operating loss carry forward deferred tax asset was $63.1 million, which will carry forward indefinitely. In addition, the Company had a deferred tax asset of $22.3 million as of September 30, 2025 related to federal tax credits that will not be utilized on the Company's fiscal year 2025 federal tax return due to income tax return income limitations. The majority of the federal tax credits relate to low income housing tax credits. Federal tax credits carry forward for 20 years.
The State of Kansas allows for a bad debt deduction on savings and loan institutions' privilege tax returns of up to 5% of Kansas taxable income. Due to the low level of net loan charge-offs experienced by the Bank historically, at times, the Bank's bad debt deduction on the Kansas privilege tax return has been in excess of actual net charge-offs, resulting in a state deferred tax liability, which is presented separately from the federal deferred tax asset related to ACL.
The Company assesses the available positive and negative evidence surrounding the recoverability of its deferred tax assets and applies its judgment in estimating the amount of the valuation allowance necessary under the circumstances. At September 30, 2025 and 2024, the Company had a valuation allowance of $42 thousand and $27 thousand, respectively, related to the net operating losses generated by the Company's consolidated Kansas corporate income tax return as management believes there will not be sufficient taxable income to fully utilize these deferred tax assets before they begin to expire in 2028 and thereafter. For this reason, a valuation allowance was recorded for the related amounts at September 30, 2025 and 2024. No additional valuation allowances were recorded for the Company's other deferred tax assets as management believes it is more likely than not that these amounts will be realized through the reversal of the Company's existing taxable temporary differences and projected future taxable income.
For the years ended September 30, 2025, 2024, and 2023, the Company had no unrecognized tax benefits.
The Company files income tax returns in the U.S. federal jurisdiction and the state of Kansas, as well as other states where it has either established a nexus under an economic nexus theory or has exceeded enumerated nexus thresholds based on the amount of loan interest income derived from sources within a given state. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by tax authorities for fiscal years ending before 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Nov 26, 2025 | Showing above |
| 2024 | Nov 27, 2024 | |
| 2023 | Nov 29, 2023 | |
| 2022 | Nov 23, 2022 | |
| 2021 | Nov 24, 2021 | |
| 2020 | Nov 25, 2020 | |
| 2019 | Nov 27, 2019 | |
| 2018 | Nov 29, 2018 | |
| 2017 | Nov 29, 2017 | |
| 2016 | Nov 29, 2016 | |
| 2015 | Nov 25, 2015 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.