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Press release from PR Newswire

Capitol Federal Financial, Inc. Reports Fiscal Year 2012 Results

Wednesday, October 31, 2012

Capitol Federal Financial, Inc. Reports Fiscal Year 2012 Results08:35 EDT Wednesday, October 31, 2012TOPEKA, Kan., Oct. 31, 2012 /PRNewswire/ --�Capitol Federal Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the year ended September 30, 2012.� Detailed results will be available in the Company's Annual Report on Form 10-K for the year ended September 30, 2012, which will be filed with the Securities and Exchange Commission ("SEC") on or about November 29, 2012 and posted on our website, http://ir.capfed.com.� Highlights for fiscal year 2012 include:net income of $74.5 million, basic and diluted earnings per average share outstanding of $0.47 during the current fiscal year, net interest margin of 2.01%, repurchased 12,642,502 shares of common stock at an average price of $11.78 per share, declared a special year-end dividend of $0.18 per share based on shares outstanding as of October 30, 2012.Comparison of Operating Results for the Fiscal Years Ended September 30, 2012 and 2011Net income for fiscal year 2012 was $74.5 million, compared to $38.4 million for fiscal year 2011.� The $36.1 million, or 94.0%, increase for the current year was due primarily to the prior year including a $40.0 million ($26.0 million, net of income tax benefit) contribution to the Capitol Federal Foundation (the "Foundation") in connection with the second step conversion and stock offering completed in December 2010 (the "corporate reorganization").� Additionally, net interest income increased $16.2 million, or 9.6%, from $168.7 million for the prior year to $184.9 million for the current year.� The increase in net interest income was due primarily to a decrease in interest expense of $34.9 million, or 19.6%, partially offset by a decrease in interest income of $18.8 million, or 5.4%.� The net interest margin increased 17 basis points to 2.01% for the current year, up from 1.84% for the prior year.� The increase was largely due to a decrease in the cost of the certificate of deposit portfolio, along with a decrease in costs on Federal Home Loan Bank ("FHLB") advances and other borrowings, partially offset by a decrease in interest income on loans receivable.The following table presents selected financial results and performance ratios for the Company for fiscal years 2012 and 2011.� Because of the magnitude and non-recurring nature of the $40.0 million ($26.0 million, net of income tax benefit) contribution to the Foundation in connection with the corporate reorganization, management believes it is important for comparability purposes to present selected financial results and performance ratios excluding the contribution to the Foundation.� The adjusted financial results and ratios for fiscal year 2011 are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP").For the Fiscal Year Ended September 30, 2011September 30, ActualContributionAdjusted(1)2012(GAAP)to Foundation(Non-GAAP)(Dollars in thousands, except per share data)Net income (loss)$74,513$38,403$(26,000)$64,403Operating expenses91,075132,31740,00092,317Basic earnings (loss) per share0.470.24(0.16)0.40(2)Diluted earnings (loss) per share0.470.24(0.16)0.40(2)Return on average assets0.79%0.41%(0.27)%0.68%Return on average equity3.932.20(1.49)3.69Operating expense ratio0.971.400.420.98Efficiency ratio43.55%68.30%20.65%47.65%(1)The adjusted financial results and ratios are not presented in accordance with GAAP as the amounts and ratios exclude the effect of the contribution to the Foundation, net of income tax benefit.(2)Due to rounding, the quarterly earnings per share during fiscal year 2011 do not individually add to $0.40 per share. Total interest and dividend income for fiscal year 2012 was $328.1 million, compared to $346.9 million for fiscal year 2011.� The $18.8 million, or 5.4%, decrease was primarily a result of decreases in interest income on loans receivable of $15.7 million and interest income on investment securities of $3.1 million.� The average yield on total interest-earning assets decreased 20 basis points, from 3.77% for the prior fiscal year to 3.57% for the current fiscal year, primarily as a result of a decrease in the yield on the loans receivable portfolio. Interest income on loans receivable decreased $15.7 million, or 6.2%, from $251.9 million for the prior fiscal year to $236.2 million for the current fiscal year.� The decrease was the result of a 41 basis point decrease in the weighted average yield on the portfolio to 4.49% for the current fiscal year.� The decrease in the weighted average yield was due to loan endorsements and refinances to current market rates, along with originations and purchases at rates lower than the average yield of the existing portfolio.� Interest income on investment securities decreased $3.2 million, or 16.4%, from $19.1 million for the prior fiscal year to $15.9 million for the current fiscal year.� The decrease in interest income on investment securities was a result of a $323.9 million decrease in the average balance of the portfolio.� The decrease in the average balance was due to calls and maturities not being replaced in their entirety; rather, the proceeds were used primarily to fund loan and mortgage-backed securities ("MBS") purchases and repurchase common stock.Interest expense decreased $34.9 million, or 19.6%, from $178.1 million for the prior fiscal year to $143.2 million for the current fiscal year.� The decrease in interest expense was due primarily to a $17.4 million decrease in interest expense on deposits, primarily the certificate of deposit portfolio, as well as a $9.3 million decrease in interest expense on other borrowings and an $8.3 million decrease in interest expense on FHLB advances.� The average rate paid on interest-bearing liabilities decreased 42 basis points, from 2.35% for the prior fiscal year to 1.93% for the current fiscal year.� The decrease was due primarily to a continued decrease in the cost of our certificate of deposit portfolio, as well as the renewal/prepayment of FHLB advances to lower rates and higher rate repurchase agreements maturing and being replaced with lower rate FHLB advances.Interest expense on deposits decreased $17.4 million, or 27.4%, from $63.6 million for the prior fiscal year to $46.2 million for the current fiscal year.� The decrease was due primarily to a 44 basis point decrease in the average rate paid on the certificate of deposit portfolio, to 1.60% for the current fiscal year, as the portfolio continued to reprice to lower market rates, as well as to a $166.1 million decrease in the average balance of the certificate of deposit portfolio for the current fiscal year.� Additionally, the average rate paid on our money market portfolio decreased 20 basis points to 0.32% for the fiscal year, and the average rate paid on our savings portfolio decreased 33 basis points to 0.16% for the current fiscal year.� The decrease in the average balance of the certificate of deposit portfolio was due primarily to a decrease in certificates with original terms-to-maturity of 35 months or less, including the maturity and payout of one retail certificate of deposit related to a legal settlement to which Capitol Federal Savings Bank ("the Bank") was not a party, partially offset by an increase in certificates with original terms-to-maturity of 36 months or greater. Interest expense on FHLB advances decreased $8.3 million, or 9.1%, from $90.3 million for the prior fiscal year to $82.0 million for the current fiscal year.� The decrease in expense was due to a decrease of 51 basis points in the average rate paid, from 3.79% for fiscal year 2011 to 3.28% for the current fiscal year, partially offset by a $121.3 million increase in the average balance.� The decrease in the average rate paid was due primarily to advances that were renewed/prepaid during the year.� The increase in the average balance was a result of $150.0 million of maturing repurchase agreements being replaced with FHLB advances during the current fiscal year, as rates for FHLB advances were more favorable than rates for comparable repurchase agreements.� Interest expense on other borrowings decreased $9.3 million, or 38.4%, from $24.3 million for the prior fiscal year to $15.0 million for the current fiscal year.� The decrease was primarily the result of a $226.8 million decrease in the average balance due primarily to maturing repurchase agreements, the majority of which were replaced with FHLB advances with lower rates than the maturing repurchase agreements.The Bank recorded a provision for credit losses of $2.0 million for the current fiscal year, compared to a provision for credit losses of $4.1 million for the prior fiscal year.� The $2.1 million decrease in the provision for credit losses between fiscal years was due to the continued improvement in the performance of our loan portfolio as evidenced by the decline in our loans 90 or more days delinquent or in foreclosure, and a continued decline in the level of charge-offs.� Loans 90 or more days delinquent or in foreclosure decreased $7.0 million, or 26.6%, from $26.5 million at September 30, 2011 to $19.5 million at September 30, 2012.� Net charge-offs during the current fiscal year were $2.9 million, excluding the $3.5 million of specific valuation allowances ("SVAs") charged-off during the second quarter of fiscal year 2012 as a result of implementing a loan charge-off policy change as the requirements for the Office of Comptroller of Currency ("OCC") Call Reports do not permit the use of SVAs, compared to $3.5 million of net charge-offs during the prior fiscal year.Total other expense for the current fiscal year was $91.1 million, compared to $132.3 million for the prior fiscal year.� The $41.2 million, or 31.2%, decrease was due primarily to the $40.0 million cash contribution made to the Foundation in connection with the corporate reorganization in December 2010.� We currently anticipate the following increases in other expenses during fiscal year 2013:� a) a $2.0 million increase in salaries and employee benefits as fiscal year 2013 primarily includes a full year impact of the equity plan awards made in May 2012 and September 2012, b) a $1.8 million increase in communications, information technology and occupancy expense as a result of an increase in licensing and maintenance expenses related to upgrades to our information technology infrastructure, and an increase in depreciation expense associated with the remodel of our Home Office, and c) a $600 thousand increase in advertising expense, which is due primarily to media campaigns that were delayed until fiscal year 2013.Income tax expense for the current fiscal year was $41.5 million, compared to $18.9 million for the prior fiscal year.� The $22.6 million, or 118.9%, increase in income tax expense during the current fiscal year was due primarily to the $40.0 million contribution made to the Foundation during the prior fiscal year, which resulted in $14.0 million of income tax benefit, as well as to overall higher pretax income during the current fiscal year.� The effective tax rate for the current fiscal year was 35.8% compared to 33.0% for the prior fiscal year.� Excluding a $686 thousand tax return to tax provision adjustment in the prior fiscal year, the effective tax rate for the prior fiscal year would have been 34.2%.� The additional difference in the effective tax rate between years was primarily due to the prior fiscal year having higher deductible expenses associated with the Employee Stock Ownership Plan ("ESOP"), due to the new ESOP loan in December 2010 and the $0.60 per share "welcome" dividend paid in March 2011.Comparison of Operating Results for the Quarters Ended September 30, 2012 and June 30, 2012For the quarter ended September 30, 2012, the Company recognized net income of $17.7 million, compared to net income of $18.7 million for the quarter ended June 30, 2012.� The $937 thousand, or 5.0%, decrease in net income was due primarily to an increase in other expenses of $1.2 million and a decrease in net interest income of $335 thousand, partially offset by a $878 thousand decrease in income tax expense.The net interest margin increased one basis point, from 2.00% for the prior quarter to 2.01% for the current quarter.� The increase in the net interest margin was due primarily to a decrease in the cost of our certificate of deposit portfolio and the renewal of an FHLB advance at a rate less than the existing portfolio, as well as a decrease in the rate of decline of the average yield on interest-earning assets.Total interest and dividend income for the current quarter was $79.3 million compared to $80.6 million for the prior quarter.� The $1.3 million, or 1.7%, decrease was primarily a result of a $1.7 million, or 9.2%, decrease in interest income on MBS and a $374 thousand, or 9.9%, decrease in interest income on investment securities, partially offset by a $671 thousand, or 1.2%, increase in interest income on loans receivable.� The decrease in interest income on MBS and investment securities was due primarily to decreases in the average balance of the portfolios as a large portion of the proceeds from matured and called securities were used to purchase a $342.5 million bulk loan package during the current quarter.� The increase in interest income on loans receivable was due to an increase in the average balance of the portfolio between the two periods.� The average yield on total interest-earning assets decreased three basis points, to 3.47% for the current quarter.� The decrease in the average yield was due primarily to cash flows from interest-earning assets being reinvested at lower market rates. Total interest expense for the current quarter was $33.5 million compared to $34.5 million for the prior quarter.� The $1.0 million, or 2.9%, decrease was due to a $588 thousand, or 5.3%, decrease in interest expense on deposits, and a $456 thousand, or 2.3%, decrease in interest expense on FHLB advances.� Both decreases were due primarily to a decrease in the weighted average rate paid on the portfolios.The Bank did not record a provision for credit losses during the current quarter, consistent with the prior quarter, due to the continued improvement in the performance of our loan portfolio as evidenced by the decline in our loans 90 or more days delinquent or in foreclosure, and a continued decline in the overall level of charge-offs.� Loans 90 or more days delinquent decreased $2.1 million, or 10.1%, from $21.6 million at June 30, 2012 to $19.5 million at September 30, 2012.� Net charge-offs during the current quarter were $677 thousand compared to $782 thousand in the prior quarter.Total other expense was $24.1 million for the current quarter, compared to $22.9 million for the prior quarter.� Other real estate owned ("OREO") operations expense was $826 thousand for the current quarter, compared to $780 thousand for the prior quarter.Comparison of Operating Results for the Quarters Ended September 30, 2012 and 2011For the quarter ended September 30, 2012, the Company recognized net income of $17.7 million, compared to net income of $16.8 million for the quarter ended September 30, 2011.� The $970 thousand, or 5.8%, increase in net income was due primarily to a $2.0 million increase in net interest income, partially offset by a $1.1 million increase in other expenses.Total interest and dividend income for the current quarter was $79.3 million compared to $86.6 million for the prior year quarter.� The $7.3 million, or 8.4%, decrease was due to a $3.8 million, or 6.1%, decrease in interest income on loans receivable, a $2.5 million, or 13.1%, decrease in interest income on MBS, and a $1.0 million, or 23.5%, decrease in interest income on investment securities.� The decrease in interest income on loans receivable and MBS was due to a decrease in the weighted average yields of the related portfolios.� The decrease in interest income on investment securities was due to a decrease in the average balance of the portfolio.Total interest expense decreased $9.2 million, or 21.7%, to $33.5 million for the current quarter from $42.7 million for the prior year quarter.� The decrease in interest expense was due to a $4.1 million, or 28.2%, decrease in interest expense on deposits, a $3.3 million, or 14.4%, decrease in interest expense on FHLB advances, and a $1.9 million, or 34.7%, decrease in interest expense on other borrowings.� The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate of the portfolio, most notably on the certificate of deposit portfolio.� The decrease in interest expense on FHLB advances was also due to a decrease in the weighted average rate of the portfolio, partially offset by an increase in the average balance.� The decrease in interest expense on other borrowings was due primarily to a decrease in the average balance. The Bank did not record a provision for credit losses during the current quarter, compared to a provision of $1.7 million for the prior year quarter.� No provision was recorded in the current quarter due to the continued improvement in the performance of our loan portfolio as evidenced by the decline in our loans 90 or more days delinquent or in foreclosure, and a continued decline in the level of charge-offs.� Loans 90 or more days delinquent decreased $7.0 million, or 26.6%, from $26.5 million at September 30, 2011 to $19.5 million at September 30, 2012.� Net charge-offs during the current quarter were $677 thousand compared to $1.0 million for the quarter ended September 30, 2011.� Total other expense was $24.1 million for the current quarter compared to $23.0 million for the prior year quarter.� The $1.1 million, or 4.8%, increase between periods was due primarily to an $810 thousand increase in other expenses, net, due primarily to a $452 thousand increase in expenses related to OREO operations.CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)(Dollars in thousands)For the Three Months EndedFor the Year Ended September 30,September 30,2012201120122011INTEREST AND DIVIDEND INCOME:Loans receivable$58,218$62,019$236,225$251,909MBS16,47018,95371,15671,332Investment securities3,4094,45615,94419,077Capital stock of FHLB1,1331,0814,4463,791Cash and cash equivalents7585280756Total interest and dividend income79,30586,594328,051346,865INTEREST EXPENSE:FHLB advances19,40322,66082,04490,298Deposits10,48014,60246,17063,568Other borrowings3,5695,46714,95624,265Total interest expense33,45242,729143,170178,131NET INTEREST INCOME45,85343,865184,881168,734PROVISION FOR CREDIT LOSSES--1,6502,0404,060NET INTEREST INCOME AFTERPROVISION FOR CREDIT LOSSES45,85342,215182,841164,674OTHER INCOME:Retail fees and charges3,9574,04415,91515,509Insurance commissions5598172,7723,071Loan fees4795842,1132,449Income from bank-owned life insurance ("BOLI")3454761,4781,824Other income, net4895131,9552,142Total other income5,8296,43424,23324,995OTHER EXPENSES:Salaries and employee benefits11,54511,80944,23544,913Communications, information technology, and occupancy4,4074,03016,33416,051Deposit and loan transaction costs1,5191,4985,3815,157Regulatory and outside services1,5951,6535,2915,224Federal insurance premium1,1351,0784,4445,222Advertising and promotional1,2571,0893,9313,723Contribution to the Foundation------40,000Other expenses, net2,6761,86511,45912,027Total other expenses24,13423,02291,075132,317INCOME BEFORE INCOME TAX EXPENSE27,54825,627115,99957,352INCOME TAX EXPENSE9,8128,86141,48618,949NET INCOME$17,736$16,766$74,513$38,403The following is a reconciliation of the basic and diluted earnings per share calculations for the periods noted. For the Three Months EndedFor the Year Ended September 30,September 30,2012201120122011(Dollars in thousands, except per share amounts)Net income$17,736$16,766$74,513$38,403Income allocated to participating securities (unvested restricted stock)(1)(43)--(69)--Net income available to common stockholders17,69316,76674,44438,403Average common shares outstanding150,661,205161,389,198157,704,473162,432,315Average committed ESOP shares outstanding415,494394,528208,505192,959Total basic average common shares outstanding151,076,699161,783,726157,912,978162,625,274Effect of dilutive restricted stock--3,100--2,747Effect of dilutive stock options 1,8953,7403,4224,644Total diluted average common shares�outstanding151,078,594161,790,566157,916,400162,632,665Net earnings per share:Basic$0.11$0.10$0.47$0.24Diluted$0.11$0.10$0.47$0.24Antidilutive stock options and restricted stock, excludedfrom the diluted average common shares outstanding calculation2,006,979900,4451,308,925898,415(1)Income allocated to participating securities (unvested restricted stock) was inconsequential for the three months and year ended September 30, 2011. Financial Condition as of September 30, 2012 Total assets decreased $72.5 million, from $9.45 billion at September 30, 2011 to $9.38 billion at September 30, 2012, due primarily to a $561.8 million decrease in the securities portfolio, partially offset by an increase of $458.3 million in loans receivable, net, and an increase in cash and cash equivalents of $20.6 million.� The $561.8 million decrease in the securities portfolio during the current fiscal year was due primarily to called and matured investment securities not being fully replaced, including $300.0 million at Capitol Federal Financial, Inc., at the holding company level.� Cash flows from the securities portfolio not reinvested were used, in part, to repurchase common stock and fund lending operations.� At September 30, 2012, Capitol Federal Financial, Inc., at the holding company level, had $308.6 million in deposit accounts with the Bank and $60.1 million in investment securities.� The net loans receivable portfolio increased $458.3 million, or 8.9%, to $5.61 billion at September 30, 2012, from $5.15 billion at September 30, 2011.� The increase in the portfolio was due primarily to an increase in one- to four-family loans resulting largely from $630.2 million of bulk and correspondent loan purchases during the current fiscal year.� Included in the $630.2 million of total purchases is $342.5 million related to one bulk loan purchase in the fourth quarter of the current fiscal year.� The purchase was funded with cash flows from the Bank's securities portfolio, using the FHLB line-of-credit to temporarily fund the purchase due to the timing of those cash flows.� The FHLB line-of-credit was repaid before September 30, 2012.� The loans are adjustable-rate mortgage loans that reprice annually at various times throughout the year.� The weighted average rate of the loans was 2.48% at the time of purchase, which was higher than the yield available on similar duration securities.� The seller of the loans has guaranteed, and has the ability, to repurchase or replace delinquent loans.The following table presents the principal balance of delinquent and non-performing loans, OREO and related ratios as of the dates shown.� In accordance with the OCC Call Report requirements, troubled debt restructurings ("TDRs") that were either nonaccrual at the time of restructuring or did not receive a credit evaluation prior to the restructuring and have not made six consecutive monthly payments per the restructured loan terms are reported as nonaccrual loans at September 30, 2012.� This change occurred during the quarter ended March 31, 2012, as it was the first quarter the Bank was required to file a Call Report.� During July 2012, the OCC provided guidance to the industry regarding loans that had been discharged under Chapter 7 bankruptcy proceedings where the borrower has not reaffirmed the debt owed to the lender.� The OCC requires that these loans be reported as TDRs and nonaccrual, regardless of their delinquency status.� As a result of this guidance, the Bank identified $4.6 million of these loans that were reported as TDRs at September 30, 2012, of which $4.3 million were performing.� The $4.6 million of loans are included in the non-performing loan amounts in the table below.� Management will continue to evaluate and monitor loans in our portfolio at September 30, 2012 that have been discharged under Chapter 7 bankruptcy.� We do not anticipate that any results from the continued evaluation of our portfolio will be material.� The allowance for credit losses ("ACL") as a percentage of total loans decreased from September 30, 2011 due primarily to the implementation of a loan charge-off policy during the quarter ended March 31, 2012 as the Call Report requirements do not permit the use of SVAs, which were included in the September 30, 2011 ACL. September 30, 2012September 30, 2011(Dollars in thousands)Loans 30 to 89 days delinquent$23,270$26,760Non-performing loans29,900(1)26,507OREO8,04711,321ACL balance11,10015,465Non-performing loans to total loans0.53%0.51%Non-performing assets to total assets0.40%0.40%ACL as a percentage of total loans0.20%0.30%ACL as a percentage of total non-performing loans37.12%58.34%(1)Included in the non-performing amount at September 30, 2012 are $1.0 million of TDRs that are also reported in the 30 to 89 days delinquent category, and $9.4 million that are currently performing in accordance with the restructured terms but are required to be reported as nonaccrual per OCC Call Report requirements.Total liabilities increased $60.6 million, from $7.51 billion at September 30, 2011 to $7.57 billion at September 30, 2012.� The increase was due primarily to a $55.5 million increase in deposits.� The increase in the deposit portfolio was due primarily to a $54.9 million increase in the checking portfolio and a $44.9 million increase in the money market portfolio, partially offset by a $52.0 million decrease in the certificate of deposit portfolio.� Additionally, during the first quarter of fiscal year 2012, a $150.0 million repurchase agreement matured and was replaced with a $150.0 million fixed-rate FHLB advance, which accounts for the majority of the balance change between periods in both portfolios.Stockholders' equity decreased $133.1 million, from $1.94 billion at September 30, 2011 to $1.81 billion at September 30, 2012.� The decrease was due primarily to the repurchase of $149.0 million of common stock and the payment of $63.8 million of dividends, partially offset by net income of $74.5 million.In December 2011, the Company announced that the Board of Directors approved the repurchase of up to $193.0 million of the Company's common stock.� The Company began repurchasing common stock during the second fiscal quarter and, as of September 30, 2012, had repurchased 12,642,502 shares at an average price of $11.78, or $149.0 million.� Subsequent to September 30, 2012 through October 12, 2012, the Company repurchased 728,600 shares at an average price of $11.92 per share, bringing the total number of shares repurchased during calendar year 2012 to 13,371,102 at an average price paid of $11.79 per share, or $157.7 million in total.The $63.8 million of dividends paid during fiscal year 2012 consisted of four regular quarterly dividends totaling $47.6 million and a special dividend of $16.2 million related to fiscal year 2011 earnings, per the Company's dividend policy.� On October 18, 2012, the Company declared a regular quarterly cash dividend of $0.075 per share, or approximately $11.2 million, payable on November 16, 2012.� On October 30, 2012, the Company declared a special year-end dividend of $0.18 per share, or approximately $26.9 million, payable on December 7, 2012 to stockholders of record as of the close of business on November 23, 2012.��The special year-end dividend is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of Capitol Federal Financial, Inc. for fiscal years 2012 and 2011, the first two years after the second-step stock conversion was completed in December 2010.� The $0.18 per share special year-end dividend was determined by taking the difference between total earnings for fiscal year 2012 and total regular quarterly dividends paid during fiscal year 2012, divided by the number of shares outstanding as of October 30, 2012.� Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, the Bank's regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.The following table presents the balance of stockholders' equity and related information as of the dates presented.September 30, June 30, September 30, 201220122011(Dollars in thousands)Stockholders' equity$1,806,458$1,832,858$1,939,529Equity to total assets at end of period19.3%19.5%20.5%The following table presents a reconciliation of total and net shares outstanding as of September 30, 2012.� �Total shares outstanding 155,379,739�Less unallocated ESOP shares and unvested restricted stock(5,523,197)�Net shares outstanding 149,856,542During fiscal year 2012, grants of stock options and restricted stock were made under the 2012 Equity Incentive Plan.� The following table presents the future compensation expense expected to be recognized during each fiscal year presented as a result of the grants during the 2012 fiscal year.� The Company recognized $1.1 million of compensation expense during the current fiscal year related to grants during the current fiscal year.StockRestrictedFiscal YearOptionsStockTotal(Dollars in thousands)2013$719$1,782$2,50120145701,4011,97120155701,4011,9712016239601840201751132183$2,149$5,317$7,466�CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands)September 30, September 30, 20122011ASSETS:Cash and cash equivalents (includes interest-earning deposits of $127,544 and $105,292)$141,705$121,070Securities:Available-for-sale ("AFS") at estimated fair value (amortized cost of $1,367,925 and $1,443,529)1,406,8441,486,439Held-to-maturity at amortized cost (estimated fair value of $1,969,899 and $2,434,392)1,887,9472,370,117Loans receivable, net (of ACL of $11,100 and $15,465)5,608,0835,149,734BOLI58,01256,534Capital stock of FHLB, at cost132,971126,877Accrued interest receivable26,09229,316Premises and equipment, net57,76648,423OREO8,04711,321Other assets50,83750,968TOTAL ASSETS$9,378,304$9,450,799LIABILITIES:Deposits$4,550,643$4,495,173Advances from FHLB, net2,530,3222,379,462Other borrowings365,000515,000Advance payments by borrowers for taxes and insurance55,64255,138Income taxes payable9182,289Deferred income tax liabilities, net25,04220,447Accounts payable and accrued expenses44,27943,761Total liabilities7,571,8467,511,270STOCKHOLDERS' EQUITY:Preferred stock ($0.01 par value) 100,000,000 shares authorized; none issued----Common stock ($0.01 par value) 1,400,000,000 shares authorized; 155,379,739 and 167,498,133 shares issued and outstanding as of September 30, 2012 and September 30, 2011, respectively1,5541,675Additional paid-in capital1,292,1221,392,567Unearned compensation, ESOP(47,575)(50,547)Retained earnings536,150569,127Accumulated other comprehensive income, net of tax24,20726,707Total stockholders' equity1,806,4581,939,529TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,378,304$9,450,799Consistent with our goal to operate a sound and profitable financial institution, we actively seek to maintain a "well-capitalized" status for the Bank in accordance with regulatory standards.� As of September 30, 2012, the Bank exceeded all regulatory capital requirements.� The following table presents the Bank's regulatory capital ratios at September 30, 2012 based upon regulatory guidelines. RegulatoryRequirement ForBank"Well-Capitalized"RatiosStatusTier 1 capital14.6%5.0%Tier 1 risk-based capital36.5%6.0%Total risk-based capital36.8%10.0%A reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of September 30, 2012 is as follows (dollars in thousands): Total Bank equity as reported under GAAP$1,379,357Unrealized gains on AFS securities(24,179)Other(73)Total Tier 1 capital1,355,105ACL11,100Total risk-based capital$1,366,205Capitol Federal Financial, Inc. is the holding company for Capitol Federal Savings Bank.� Capitol Federal Savings Bank has 46 branch locations in Kansas and Missouri.� Capitol Federal Savings Bank is one of the largest residential lenders in the State of Kansas.� News and other information about the Company can be found on the Internet at the Bank's website, http://www.capfed.com.Except for the historical information contained in this press release, the matters discussed may be deemed to be forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies and other governmental initiatives affecting the financial services industry, fluctuations in interest rates, demand for loans in the Company's market area, the future earnings and capital levels of Capitol Federal Savings Bank, which would affect the ability of the Capitol Federal Financial, Inc. to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in Capitol Federal Financial, Inc.'s SEC reports.� Actual results in future periods may differ materially from those currently expected.� These forward-looking statements represent Capitol Federal Financial, Inc.'s judgment as of the date of this release.� Capitol Federal Financial, Inc. disclaims, however, any intent or obligation to update these forward-looking statements.SUPPLEMENTAL FINANCIAL INFORMATIONLoan PortfolioThe following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for undisbursed loan funds, unearned loan fees and deferred costs, and the ACL) as of the dates indicated. �The average rate of the portfolio decreased 22 basis points from 4.37% at June 30, 2012 to 4.15% at September 30, 2012 due primarily to the purchase and origination of loans during the quarter with rates less than the average rate of the existing portfolio. �The average rate of the portfolio decreased 54 basis points from 4.69% at September 30, 2011 to 4.15% at September 30, 2012 due primarily to the endorsement of loans at current market rates, as well as the purchase and origination of loans during the year with rates less than the average rate of the existing portfolio. September 30, 2012June 30, 2012September 30, 2011Average% of Average% of Average% of AmountRateTotalAmountRateTotalAmountRateTotal(Dollars in thousands)Real Estate Loans:One-to four-family$5,392,4294.10%95.5%$4,995,8404.32%95.0%$4,918,7784.65%94.7%Multi-family and commercial48,6235.640.949,7556.111.057,9656.131.1Construction52,2544.080.952,1634.141.047,3684.270.9Total real estate loans5,493,3064.1197.35,097,7584.3497.05,024,1114.6696.7Consumer Loans:Home equity149,3215.422.6152,3015.432.9164,5415.483.2Other6,5294.770.16,7444.760.17,2245.100.1Total consumer loans155,8505.392.7159,0455.403.0171,7655.463.3Total loans receivable5,649,1564.15%100.0%5,256,8034.37%100.0%5,195,8764.69%100.0%Less:Undisbursed loan funds22,87425,45122,531ACL11,10011,77715,465Discounts/unearned loan fees 21,46821,24619,093Premiums/deferred costs(14,369)(11,661)(10,947)Total loans receivable, net$5,608,083$5,209,990$5,149,734The following table summarizes the activity in the loan portfolio for the periods indicated, excluding changes in loans in process, deferred fees, and ACL.� Loans that were paid-off as a result of refinances are included in repayments.� Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement.� The endorsed balance and rate are, however, included in the ending loan portfolio balance and rate. For the Three Months EndedSeptember 30, 2012June 30, 2012March 31, 2012December 31, 2011AmountRateAmountRateAmountRateAmountRate(Dollars in thousands)Beginning balance $5,256,8034.37%$5,275,2964.45%$5,282,4854.53%$5,195,8764.69%Originations and refinances:Fixed220,9343.51151,7243.78139,2953.79180,1983.77Adjustable50,5333.5042,8023.7441,1393.6757,3213.52Purchases and Participations:Fixed90,9393.6234,5673.9431,1654.2944,8004.03Adjustable360,4632.4912,7223.0016,4263.0753,2063.79Repayments(327,972)(256,221)(228,203)(247,928)Principal charge-offs, net(1)(677)(782)(4,546)(7)Other(2)(1,867)(3,305)(2,465)(981)Ending balance$5,649,1564.15%$5,256,8034.37%$5,275,2964.45%$5,282,4854.53%For the Year EndedSeptember 30, 2012September 30, 2011AmountRateAmountRate(Dollars in thousands)Beginning balance $5,195,8764.69%$5,209,3135.07%Originations and refinances:Fixed692,1513.69658,0844.23Adjustable191,7953.60179,1613.92Purchases and Participations:Fixed201,4713.87153,0605.15Adjustable442,8172.6828,9113.60Repayments(1,060,324)(1,019,307)Principal charge-offs, net(1)(6,012)--Other(2)(8,618)(13,346)Ending balance$5,649,1564.15%$5,195,8764.69%(1)Principal charge-offs, net represent potential loss amounts that reduce the unpaid principal balance of a loan.(2)"Other" consists of transfers to OREO, endorsement fees advanced and reductions in commitments.�The following table presents the principal balance, weighted average credit score, loan-to-value ("LTV") ratio, and the average principal balance for our one- to four-family loans at the dates presented.� Credit scores are typically updated during the last month of the quarter and are obtained from a nationally recognized consumer rating agency.� The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent bank appraisal or broker price opinion. �In most cases, the most recent appraisal was obtained at the time of origination.September 30, 2012BalanceCredit ScoreLTVAverage Loan Balance(Dollars in thousands)Originated$4,032,58176365%$124Correspondent purchases575,50276165326Bulk purchases784,34674967316$5,392,42976165%$147September 30, 2011BalanceCredit ScoreLTVAverage Loan Balance(Dollars in thousands)Originated$3,986,95776366%$123Correspondent purchases396,06375964290Bulk purchases535,75874060252$4,918,77876065%$137Loan OriginationsThe following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity.� During the quarter ended September 30, 2012, the Bank endorsed $161.0 million of one- to four-family loans, which reduced the average rate on those loans by 110 basis points. �During fiscal year 2012, the Bank endorsed $868.6 million of one- to four-family loans, which reduced the average rate on those loans by 112 basis points.� Effective during the June 30, 2012 quarter, the Bank no longer offers the option to advance the fee to endorse a loan.� Loan originations, purchases and refinances are reported together.� The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.� The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination. �For the Three Months EndedFor the Year EndedSeptember 30, 2012September 30, 2012AmountRate% of TotalAmountRate% of TotalFixed-Rate:(Dollars in thousands)One- to four-family<= 15 years $101,6273.05%14.0%$323,3573.30%21.2%> 15 years209,2073.7628.9566,4653.9637.1Multi-family and commercial----0.0----0.0Home equity5767.180.12,1537.000.1Other4637.980.11,6477.350.1Total fixed-rate 311,8733.5443.1893,6223.7358.5Adjustable-Rate:One- to four-family<= 36 months345,5122.4847.8351,8812.4823.0> 36 months46,8422.696.5194,8972.9712.8Multi-family and commercial----0.013,9755.000.9Home equity18,1864.902.571,4004.874.7Other4563.530.12,4593.350.1Total adjustable-rate410,9962.6156.9634,6122.9641.5Total originations, refinances and purchases$722,8693.01%100.0%$1,528,2343.41%100.0%Purchased/participation loans included above:Fixed-Rate:Correspondent - one- to four-family$90,9393.62%$200,9463.87%Bulk - one- to four-family----3923.25Participations - commercial real estate--------Participations - other----1332.57Total fixed-rate purchases/participations90,9393.62201,4713.87Adjustable-Rate:Correspondent - one- to four-family18,0022.6066,5132.95Bulk - one- to four-family342,4612.48362,3292.54Participations - commercial real estate----13,9755.00Participations - other--------Total adjustable-rate purchases/participations360,4632.49442,8172.68Total purchased/participation loans$451,4022.72%$644,2883.05%The following table presents the origination, refinance and purchase activity in our one- to four-family loan portfolio, excluding endorsement activity, for the quarter and year ended September 30, 2012. For the Three Months Ended For the Year Ended September 30, 2012September 30, 2012Credit Credit AmountLTVScoreAmountLTVScore(Dollars in thousands)Originations$135,39175%762$470,63475%765Refinances by Bank customers116,39567767335,78667771Correspondent purchases108,94170767267,45969768Bulk purchases342,46180757362,72179757$703,18875%761$1,436,60072%767The following tables present the annualized prepayment speeds of our one- to four-family loan portfolio, including construction and non-performing loans, for the quarters ended September 30, 2012 and June 30, 2012.� The terms presented in the tables below represent the original terms for our fixed-rate loans, and current terms to repricing for our adjustable-rate loans.� Loan refinances are considered a prepayment and are included in the prepayment speeds presented below.� The annualized prepayment speeds are presented with and without endorsements. September 30, 2012Prepayment Speed (annualized)Principal IncludingExcludingTermBalanceEndorsementsEndorsements(Dollars in thousands)Fixed-rate one-to four-family loans:15 years or less$1,059,42229.74%19.81%More than 15 years3,189,39834.7919.364,248,82033.5319.47Adjustable-rate one-to four-family loans:36 months or less887,49121.3817.58More than 36 months298,23631.5022.141,185,72723.9218.73Total one-to four-family loans$5,434,54731.43%19.31%June 30, 2012Prepayment Speed (annualized)Principal IncludingExcludingTermBalanceEndorsementsEndorsements(Dollars in thousands)Fixed-rate one-to four-family loans:15 years or less$1,037,75321.46%15.46%More than 15 years3,150,86827.0013.054,188,62125.6313.65Adjustable-rate one-to four-family loans:36 months or less573,01921.3819.58More than 36 months275,98725.8412.96849,00622.8317.43Total one-to four-family loans$5,037,62725.16%14.28%Asset Quality The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO at the dates indicated. �Correspondent purchased loans are included with originated loans and bulk purchased loans are reported as purchased loans.� Non-performing loans are nonaccrual loans that are 90 or more days delinquent, are in the process of foreclosure, or TDRs that are required to be reported as nonaccrual due to OCC Call Report requirements. Loans Delinquent for 30 to 89 Days at:September 30, June 30, September 30, 201220122011NumberAmountNumberAmountNumberAmountLoans 30 to 89 Days Delinquent:(Dollars in thousands)One- to four-family:Originated145$14,948138$14,658178$19,710Purchased397,695378,463346,199Multi-family and commercial------------Construction------------Consumer Loans:Home equity285213152643759Other16106131281492228$23,270219$23,775269$26,76030 to 89 days delinquent loans to total loans receivable, net0.41%0.46%0.52%Non-Performing Loans and OREO at:September 30, June 30, September 30, 201220122011NumberAmountNumberAmountNumberAmount(Dollars in thousands)Loans 90 or More Days Delinquent or in Foreclosure:One- to four-family:Originated91$8,60794$9,326106$12,375Purchased4310,4474711,7924613,749Consumer Loans:Home equity193692150521380Other4275203315719,45016721,64317626,507Nonaccrual TDRs less than 90 Days Delinquent:(1)One- to four-family:Originated819,501284,201----Purchased1481--------Consumer Loans23468--------10510,450284,201----Total non-performing loans26229,90019525,84417626,507Non-performing loans as a percentage of total loans 0.53%0.50%0.51%OREO:One- to four-family:Originated(2)605,466747,497746,942Purchased61,17251,007122,877Consumer Loans:Home equity1919----Other------------Other(3)11,40011,40011,502688,047819,9138711,321Total non-performing assets330$37,947276$35,757263$37,828Non-performing assets as a percentage of total assets0.40%0.38%0.40%(1)Included in the nonaccrual amount at September 30, 2012 are $1.0 million of TDRs that are also reported in the 30 to 89 days delinquent category and $9.4 million that are currently performing in accordance with the restructured terms but are required to be reported as nonaccrual per OCC Call Report requirements.(2)Real estate related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.(3)Other represents a single property the Bank purchased for a potential branch site but now intends to sell.The following table presents the activity for the ACL and related ratios at the dates and for the periods indicated.� In January 2012, management implemented a loan charge-off policy as OCC Call Report requirements do not permit the use of SVAs, which the Bank was previously utilizing for potential loan losses, as permitted by our previous regulator.� As a result of the implementation of the charge-off policy, $3.5 million of SVAs were charged-off during the March 31, 2012 quarter, which are reflected in the activity for the year ended September 30, 2012.� These charge-offs did not impact the provision for credit losses, and therefore had no additional income statement impact, as the amounts were expensed in previous periods.� For the Three Months Ended For the Year Ended September 30, September 30, 2012201120122011(Dollars in thousands)Balance at beginning of period$11,777$14,856$15,465$14,892Charge-offs:One- to four-family loans--originated78115892414One- to four-family loans--purchased5349225,1862,928Multi-family and commercial loans--------Construction--------Home equity84--330133Other consumer loans342712Total charge-offs6991,0416,4353,487Recoveries:One- to four-family loans--originated16--16--One- to four-family loans--purchased2--8--Multi-family and commercial loans--------Construction--------Home equity4--6--Other consumer loans--------Recoveries22--30--Net charge-offs6771,0416,4053,487Provision for loan losses--1,6502,0404,060Balance at end of period$11,100$15,465$11,100$15,465Ratio of net charge-offs during the period to average loans outstanding during the period0.01%0.02%0.12%0.07%Ratio of net charge-offs during the period to average non-performing assets1.842.7416.918.75ACL to non-performing loans at period end37.1258.34ACL to loans receivable, net at period end0.200.30Securities PortfolioThe following table presents the distribution of our MBS and investment securities portfolios, at amortized cost, at the dates indicated.� The majority of the MBS and investment portfolios are composed of securities issued by U.S. government sponsored enterprises ("GSEs").� The weighted average life ("WAL") is the estimated remaining maturity (in years) after projected prepayment speeds and projected call option assumptions have been applied.� Yields on tax-exempt securities are not calculated on a taxable equivalent basis. �September 30, 2012June 30, 2012September 30, 2011BalanceYieldWALBalanceYieldWALBalanceYieldWAL(Dollars in thousands)Fixed-rate securities:MBS$1,505,4802.85%3.1$1,630,1972.93%3.7$1,476,6603.51%4.2GSE debentures907,3861.140.81,135,9431.150.81,380,0281.090.9Municipal bonds47,7692.942.053,3462.952.059,6223.022.3Total fixed-rate securities2,460,6352.222.22,819,4862.212.52,916,3102.362.6Adjustable-rate securities:MBS792,3252.655.8845,2582.726.3893,6552.857.1Trust preferred securities2,9121.6524.72,9321.7225.03,6811.6025.7Total adjustable-rate securities795,2372.645.9848,1902.726.4897,3362.857.2Total securities portfolio, at amortized cost$3,255,8722.33%3.1$3,667,6762.33%3.4$3,813,6462.47%3.7The following table provides a summary of the activity in our portfolio of MBS for the periods presented.� The yields and WALs for purchases are presented as recorded at the time of purchase.� The yields for the beginning balances are as of the last day of the period previous to the period presented and the yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented.� The beginning and ending WAL is the estimated remaining maturity (in years) after projected prepayment speeds have been applied.For the Three Months EndedSeptember 30, 2012June 30, 2012March 31, 2012December 31, 2011AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL(Dollars in thousands)Beginning balance - carrying value$2,510,6592.86%4.6$2,626,5442.91%5.1$2,405,6853.10%5.0$2,412,0763.26%5.3Maturities and repayments(175,776)(152,162)(142,937)(152,322)Net amortization of premiums/(discounts)(1,875)(1,625)(1,550)(1,507)Purchases:Fixed------41,5101.914.4313,4811.864.5126,4982.124.2Adjustable------------52,8671.696.322,8872.204.5Change in valuation on AFS securities(66)(3,608)(1,002)(1,947)Ending balance - carrying value$2,332,9422.78%4.0$2,510,6592.86%4.6$2,626,5442.91%5.1$2,405,6853.10%5.0For the Year Ended September 30,20122011AmountYieldWALAmountYieldWAL(Dollars in thousands)Beginning balance - carrying value$2,412,0763.26%5.3$1,607,8644.00%3.6Maturities and repayments(623,197)(480,139)Net amortization of premiums/(discounts)(6,557)(3,270)Purchases:Fixed481,4891.934.4919,7782.874.3Adjustable75,7541.845.7377,9572.495.1Change in valuation on AFS securities(6,623)(10,114)Ending balance - carrying value$2,332,9422.78%4.0$2,412,0763.26%5.3The following tables provide a summary of the activity of investment securities for the periods presented.� The yields and WALs for purchases are presented as recorded at the time of purchase.� The yields for the beginning balances are as of the last day of the period previous to the period presented and the yields for the ending balances are as of the last day of the period presented.� The beginning and ending WALs represent the estimated remaining maturity (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.For the Three Months EndedSeptember 30, 2012June 30, 2012March 31, 2012December 31, 2011AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL(Dollars in thousands)Beginning balance - carrying value$1,195,5891.23%0.9$1,253,9371.22%1.5$1,294,4621.25%1.0$1,444,4801.17%1.0Maturities and calls(309,012)(112,150)(328,306)(424,991)Net amortization of premiums/(discounts)(331)(553)(663)(558)Purchases:��Fixed75,1900.802.252,1410.983.0290,0151.003.4273,9551.292.2Change in valuation on AFS securities4132,214(1,571)1,576Ending balance - carrying value$961,8491.23%1.0$1,195,5891.23%0.9$1,253,9371.22%1.5$1,294,4621.25%1.0For the Year Ended September 30,20122011AmountYieldWALAmountYieldWAL(Dollars in thousands)Beginning balance - carrying value$1,444,4801.17%1.0$1,332,6561.47%0.8Maturities and calls(1,174,459)(1,357,283)Net amortization of premiums/(discounts)(2,105)(4,830)Purchases:��Fixed691,3011.092.81,472,1371.111.5Change in valuation on AFS securities2,6321,800Ending balance - carrying value$961,8491.23%1.0$1,444,4801.17%1.0Deposit PortfolioThe following table presents the amount, average rate and percentage of total deposits for checking, savings, money market, retail certificates of deposit, and public units/brokered deposits at the dates presented.� September 30, 2012June 30, 2012September 30, 2011Average% ofAverage% ofAverage% ofAmountRate�TotalAmountRate�TotalAmountRate�Total(Dollars in thousands)Checking$606,5040.04%13.3%$607,3910.08%13.2%$551,6320.08%12.3%Savings260,9330.115.8263,2470.145.7253,1840.415.6Money market 1,110,9620.2524.41,098,9310.3024.01,066,0650.3523.7Retail certificates of deposit2,295,9411.4950.42,347,1951.5651.12,434,1871.9154.2Public units/brokered deposits276,3030.986.1275,6730.976.0190,1051.314.2$4,550,6430.89%100.0%$4,592,4370.95%100.0%$4,495,1731.21%100.0%As of September 30, 2012, certificates of deposit were scheduled to mature as follows:� Amount DueMore thanMore than1 year1 year to2 years to 3More thanor less2 yearsyears3 yearsTotal(Dollars in thousands)0.00 ? 0.99%$793,901$179,089$27,734$5,000$1,005,7241.00 ? 1.99%229,00091,574238,002242,169800,7452.00 ? 2.99%166,680194,685259,50043,120663,9853.00 ? 3.99%70,64617,3497,24752395,7654.00 ? 4.99%5,420269255816,025$1,265,647$482,966$532,738$290,893$2,572,244Weighted average rate1.07%1.67%1.95%1.71%1.44%Weighted average maturity (in years)0.51.52.53.91.5Weighted average maturity for the retail certificate of deposit portfolio (in years)1.5BorrowingsThe following table presents the maturity of FHLB advances, at par, and repurchase agreements as of September 30, 2012.� The balance of FHLB advances excludes the deferred gains on the interest rate swaps terminated during a prior fiscal year and deferred prepayment penalties.� WeightedWeightedFHLBRepurchaseAverageAverageMaturity byAdvancesAgreementsContractualEffectiveFiscal yearAmountAmountRateRate (1)(Dollars in thousands)2013$325,000$145,0003.68%4.06%2014450,000100,0003.333.952015600,00020,0001.731.952016575,000--2.292.912017400,000--3.173.212018200,000100,0002.902.90$2,550,000$365,0002.77%3.13%(1)The effective rate includes the net impact of the amortization of deferred prepayment penalties resulting from the prepayment of certain FHLB advances and deferred gains related to the termination of interest rate swaps.The following table presents the maturity of borrowings and certificates of deposit, split between retail and public unit/brokered deposit amounts, for the next four quarters, as of September 30, 2012.WeightedWeightedPublic Unit/WeightedWeightedAverageRetailAverageBrokered AverageAverageMaturity by BorrowingsContractualCertificateContractualDepositContractualContractualQuarter EndAmountRateAmountRateAmountRateTotalRate(Dollars in thousands)December 31, 2012$100,0003.06%$268,5171.03%$92,4450.16%$460,9621.30%March 31, 201350,0003.48269,9111.1439,5420.25359,4531.37June 30, 2013250,0003.81257,3181.2226,5571.71533,8752.46September 30, 201370,0004.23304,8531.276,5040.34381,3571.80$470,0003.68%$1,100,5991.17%$165,0480.44%$1,735,6471.78%The following table presents FHLB advance activity, at par, and repurchase agreement activity for the periods shown.� The balance of FHLB advances excludes the deferred gains on the terminated interest rate swaps and deferred prepayment penalties.� Line of credit activity is excluded from the following table due to the short-term nature of the borrowings.� The effective rate includes the net impact of the amortization of deferred prepayment penalties resulting from the prepayment of certain FHLB advances and deferred gains related to the termination of interest rate swaps.� Rates on new borrowings are fixed-rate.� The weighted average maturity ("WAM") is the remaining weighted average contractual term in years.� The beginning and ending WAMs represent the remaining maturity at each date presented.� For new borrowings, the WAMs presented are as of the date of issue.For the Three Months EndedSeptember 30, 2012June 30, 2012March 31, 2012December 31, 2011Contractual Effective Contractual Effective Contractual Effective Contractual Effective AmountRateRateWAMAmountRateRateWAMAmountRateRateWAMAmountRateRateWAM(Dollars in thousands)Beginning principal balance$2,915,0002.89%3.25%2.8$2,915,0002.89%3.24%3.1$2,915,0003.19%3.46%3.0$2,915,0003.48%3.76%3.0Maturities & prepayments:FHLB advances(100,000)4.274.27------(350,000)3.223.22(100,000)3.943.94Repurchase agreements------------------(150,000)4.414.41New borrowings:FHLB advances100,0000.830.834.0--------350,0000.761.363.3250,0000.840.842.9Ending principal balance $2,915,0002.77%3.13%2.7$2,915,0002.89%3.25%2.8$2,915,0002.89%3.24%3.1$2,915,0003.19%3.46%3.0For the Year Ended September 30, 2012September 30, 2011Contractual Effective Contractual Effective AmountRateRateWAMAmountRateRateWAM(Dollars in thousands)Beginning principal balance$2,915,0003.48%3.76%3.0$2,991,0003.70%3.97%3.0Maturities & prepayments:FHLB advances(550,000)3.543.54(276,000)4.874.87Repurchase agreements(150,000)4.414.41(200,000)3.793.79New borrowings:FHLB advances700,0000.801.103.3300,0002.822.826.9Repurchase agreements--------100,0003.353.357.0Ending principal balance $2,915,0002.77%3.13%2.7$2,915,0003.48%3.76%3.0Average Rates and LivesThe following table presents the weighted average yields/rates and WALs (in years) of some of our assets and liabilities as of September 30, 2012.� Yields are presented only for investment securities and MBS, and include the amortization of fees, costs, premiums and discounts which are considered adjustments to the yield. September 30, 2012AmountYield/RateWAL(Dollars in thousands)Investment securities(1)$961,8491.23%1.0MBS(1)2,332,9422.784.0Loans receivable:(2)Fixed-rate one- to four-family:<= 15 years 1,059,4164.002.6> 15 years3,157,9094.533.6Adjustable-rate one- to four-family:<= 36 months460,4442.733.6> 36 months714,6603.262.7All other loans256,7275.171.4Total loans receivable5,649,1564.153.2Transaction deposits(3)1,978,3990.176.8Certificates of deposit2,572,2441.441.5Borrowings(4)2,915,0002.772.7(1)The WAL of investment securities and MBS is the estimated remaining maturity after projected prepayment speeds and projected call option assumptions have been applied.� (2)The WAL of the loans receivable portfolio is derived from a proprietary interest rate risk model, which takes into account prepayment speeds.(3)The WAL of transaction (checking, savings, and money market) deposits is derived from a proprietary interest rate risk model and based upon historical analysis of decay rates on deposit accounts.(4)The rate presented is the contractual rate and the amount includes FHLB advances at par value.At September 30, 2012, the Bank's one-year gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice was $2.13 billion, or 22.8% of total assets.� If we experience the magnitude of asset repricing as indicated by the one-year gap, and interest rates decrease, downward pressure may be placed on our net interest margin.� Should interest rates rise, the amount of interest-earning assets expected to reprice will likely decrease from estimated levels as borrowers and agency debt issuers have less economic incentive to modify their costs of borrowings.� If interest rates were to increase 200 basis points, the Bank's one-year gap would be $242.0 million, or 2.6% of total assets.� The significant decrease in the positive gap amount in the + 200 basis point scenario at September 30, 2012 is due to a significant decrease in the amount of assets expected to reprice if rates were to increase 200 basis points.� The amount of interest-bearing liabilities expected to reprice in a given period is not usually impacted by changes in interest rates because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty.� The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on mortgage loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder.� As interest rates decrease, borrowers have an economic incentive to refinance or endorse their loans to the lower market interest rates.� This was evident by the volume of mortgages that were endorsed or refinanced during fiscal years 2011 and 2012 as a result of the decrease in market interest rates.� Cash flows from the Bank's callable investment securities are anticipated to continue in the coming year as the issuers of these securities will likely exercise their option to call the securities in order to issue new debt securities at lower market rates.� Any decrease in the net interest margin due to interest-earning assets repricing downward will likely be partially offset by a further decrease in our cost of funds. �While the ability to lower the Bank's cost of deposits is somewhat limited by the already low cost of this portfolio, the Bank has $325.0 million of borrowings schedule to mature in the upcoming year with a weighted contractual rate of 3.68%.In addition, in September of 2012, the Federal Reserve Board announced a third round of quantitative easing by pledging to purchase an additional $40 billion of agency MBS per month, which has resulted in a significant decrease in the yields available on MBS and investment securities.� This will likely have a negative impact on the Bank's net interest rate margin over time as the yields on reinvested asset cash flows are declining at a faster pace than the rates on the Bank's liabilities.Average Balance Sheet� The following tables present the average balances of our assets, liabilities and stockholders' equity and the related annualized yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated and the weighted average yield/rate on our interest-earning assets and interest-bearing liabilities at September 30, 2012.� Average yields are derived by dividing annualized income by the average balance of the related assets and average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown.� Average outstanding balances are derived from average daily balances.� The yields and rates include amortization of fees, costs, premiums and discounts which are considered adjustments to yields/rates. �Yields on tax-exempt securities were not calculated on a tax-equivalent basis. AtFor the Year Ended September 30, September 30, 201220122011AverageInterest� AverageInterest� Yield/OutstandingEarned/Yield/OutstandingEarned/Yield/RateBalancePaidRateBalancePaidRateAssets:(Dollars in thousands)Interest-earning assets:Loans receivable(1)4.16%$5,259,007$236,2254.49%$5,145,953$251,9094.90%MBS(2)2.782,445,95371,1562.912,044,89771,3323.49Investment securities(2)(3)1.231,243,07315,9441.281,566,93719,0771.22Capital stock of FHLB3.40129,6874,4463.43123,8173,7913.06Cash and cash equivalents0.25113,1202800.25306,9587560.25Total interest-earning assets(1)(2)3.449,190,840328,0513.579,188,562346,8653.77Other noninterest-earning assets235,852234,315Total assets$9,426,692$9,422,877Liabilities and stockholders' equity:Interest-bearing liabilities:Checking 0.04%$568,262$4210.07%$518,526$4410.09%Savings0.11258,6264080.16245,9941,2250.49Money market 0.251,096,1333,4570.321,024,5235,3070.52Certificates 1.442,610,20441,8841.602,776,29356,5952.04Total deposits0.894,533,22546,1701.024,565,33663,5681.39FHLB advances(4)3.032,507,64882,0443.282,386,38090,2983.79Repurchase agreements3.83382,35014,9563.85581,50723,4103.97Other borrowings--------27,6128553.05Total borrowings3.132,889,99897,0003.352,995,499114,5633.82Total interest-bearing liabilities1.767,423,223143,1701.937,560,835178,1312.35Other noninterest-bearing liabilities108,142118,603Stockholders' equity1,895,3271,743,439Total liabilities and�stockholders' equity$9,426,692$9,422,877(Continued)AtFor the Year Ended September 30, September 30, 201220122011AverageInterest� AverageInterest� Yield/OutstandingEarned/Yield/OutstandingEarned/Yield/RateBalancePaidRateBalancePaidRate(Dollars in thousands)Net interest income(5)$184,881$168,734Net interest rate spread(6)1.68%1.64%1.42%Net interest-earning assets$1,767,617$1,627,727Net interest margin(7)2.011.84Ratio of interest-earning assetsto interest-bearing liabilities1.241.22Selected performance ratios:Return on average assets0.79%0.41%Return on average equity3.932.20Average equity to average assets20.1118.50Operating expense ratio0.971.40Efficiency ratio43.5568.30(Concluded)(1)Calculated net of unearned loan fees and deferred costs, and undisbursed loan funds. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. Balances include loans held-for-sale ("LHFS").(2)MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts.(3)The average balance of investment securities includes an average balance of nontaxable securities of $54.5 million and $63.9 million for the years ended September 30, 2012 and September 30, 2011, respectively.(4)The balance and rate of FHLB advances are stated net of deferred gains and deferred prepayment penalties.(5)Net interest income represents the difference between interest income earned on interest-earning assets, such as loans, investment securities, and MBS, and interest paid on interest-bearing liabilities, such as deposits, FHLB advances, and other borrowings. Net interest income depends on the balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (7)Net interest margin represents net interest income as a percentage of average interest-earning assets.For the Three Months Ended September 30, 2012June 30, 2012AverageInterest� AverageInterest� OutstandingEarned/Yield/OutstandingEarned/Yield/BalancePaidRateBalancePaidRateAssets:(Dollars in thousands)Interest-earning assets:Loans receivable(1)$5,389,577$58,2184.32%$5,217,454$57,5474.41%MBS(2)2,401,40216,4702.742,551,53118,1442.84Investment securities(2)(3)1,095,6203,4091.241,229,6053,7831.23Capital stock of FHLB132,1541,1333.41130,5971,1113.42Cash and cash equivalents120,865750.2595,974600.25Total interest-earning assets(1)(2)9,139,61879,3053.479,225,16180,6453.50Other noninterest-earning assets239,183235,564Total assets$9,378,801$9,460,725Liabilities and stockholders' equity:Interest-bearing liabilities:Checking $585,070$900.06%$591,302$1150.08%Savings262,092770.12262,841950.15Money market 1,109,6277810.281,103,2498240.30Certificates 2,594,9589,5321.462,628,06710,0341.53Total deposits4,551,74710,4800.924,585,45911,0680.97FHLB advances(4)2,530,67719,4033.052,526,34919,8593.16Repurchase agreements365,0003,5693.83365,0003,5303.83Total borrowings2,895,67722,9723.152,891,34923,3893.25Total interest-bearing liabilities7,447,42433,4521.797,476,80834,4571.85Other noninterest-bearing liabilities109,84299,825Stockholders' equity1,821,5351,884,092Total liabilities and�stockholders' equity$9,378,801$9,460,725(Continued)For the Three Months Ended September 30, 2012June 30, 2012AverageInterest� AverageInterest� OutstandingEarned/Yield/OutstandingEarned/Yield/BalancePaidRateBalancePaidRate(Dollars in thousands)Net interest income(5)$45,853$46,188Net interest rate spread(6)1.68%1.65%Net interest-earning assets$1,692,194$1,748,353Net interest margin(7)2.012.00Ratio of interest-earning assets�to interest-bearing liabilities1.231.23Selected performance ratios:Return on average assets (annualized)0.76%0.79%Return on average equity (annualized)3.893.96Average equity to average assets19.4219.91Operating expense ratio (annualized)1.030.97Efficiency ratio46.7043.82(Concluded)(1)Calculated net of unearned loan fees and deferred costs, and undisbursed loan funds. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. Balance includes mortgage LHFS.(2)MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts. (3)The average balance of investment securities includes an average balance of nontaxable securities of $50.7 million and $52.5 million for the quarters ended September 30, 2012 and June 30, 2012, respectively.(4)The balance and rate of FHLB advances are stated net of deferred gains and deferred prepayment penalties.(5)Net interest income represents the difference between interest income earned on interest-earning assets, such as loans, investment securities, and MBS, and interest paid on interest-bearing liabilities, such as deposits, FHLB advances, and other borrowings. Net interest income depends on the balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. (6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.(7)Net interest margin represents net interest income as a percentage of average interest-earning assets.For the Three Months Ended September 30, 2012September 30, 2011AverageInterest� AverageInterest� OutstandingEarned/Yield/OutstandingEarned/Yield/BalancePaidRateBalancePaidRateAssets:(Dollars in thousands)Interest-earning assets:Loans receivable(1)$5,389,577$58,2184.32%$5,168,560$62,0194.80%MBS(2)2,401,40216,4702.742,326,18318,9533.26Investment securities(2)(3)1,095,6203,4091.241,534,3644,4561.16Capital stock of FHLB132,1541,1333.41125,8091,0813.41Cash and cash equivalents120,865750.25137,114850.25Total interest-earning assets(1)(2)9,139,61879,3053.479,292,03086,5943.73Other noninterest-earning assets239,183235,016Total assets$9,378,801$9,527,046Liabilities and stockholders' equity:Interest-bearing liabilities:Checking $585,070$900.06%$530,779$1100.08%Savings262,092770.12254,5152820.44Money market 1,109,6277810.281,063,4171,1120.41Certificates 2,594,9589,5321.462,672,81413,0981.94Total deposits4,551,74710,4800.924,521,52514,6021.28FHLB advances(4)2,530,67719,4033.052,414,02822,6603.72Repurchase agreements365,0003,5693.83536,4685,4673.99Total borrowings2,895,67722,9723.152,950,49628,1273.77Total interest-bearing liabilities7,447,42433,4521.797,472,02142,7292.26Other noninterest-bearing liabilities109,842113,391Stockholders' equity1,821,5351,941,634Total liabilities and�stockholders' equity$9,378,801$9,527,046(Continued)For the Three Months Ended September 30, 2012September 30, 2011AverageInterest� AverageInterest� OutstandingEarned/Yield/OutstandingEarned/Yield/BalancePaidRateBalancePaidRate(Dollars in thousands)Net interest income(5)$45,853$43,865Net interest rate spread(6)1.68%1.47%Net interest-earning assets$1,692,194$1,820,009Net interest margin(7)2.011.89Ratio of interest-earning assetsto interest-bearing liabilities1.231.24Selected performance ratios:Return on average assets (annualized)0.76%0.70%Return on average equity (annualized)3.893.45Average equity to average assets19.4220.38Operating expense ratio (annualized)1.030.97Efficiency ratio46.7045.77(Concluded)(1)Calculated net of unearned loan fees and deferred costs, and undisbursed loan funds. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. Balance includes mortgage LHFS.(2)MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts. (3)The average balance of investment securities includes an average balance of nontaxable securities of $50.7 million and $59.8 million for the quarters ended September 30, 2012 and September 30, 2011, respectively.(4)The balance and rate of FHLB advances are stated net of deferred gains and deferred prepayment penalties.(5)Net interest income represents the difference between interest income earned on interest-earning assets, such as loans, investment securities, and MBS, and interest paid on interest-bearing liabilities, such as deposits, FHLB advances, and other borrowings. Net interest income depends on the balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. (6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (7)Net interest margin represents net interest income as a percentage of average interest-earning assets.�SOURCE Capitol Federal Financial, Inc.For further information: Jim Wempe, Vice President, Investor Relations, (785) 270-6055, jwempe@capfed.com; or Kent Townsend, Executive Vice President, Chief Financial Officer and Treasurer, (785) 231-6360, ktownsend@capfed.com