TOPEKA, Kan., Aug. 4 /EMWNews/ -- Capitol Federal

Financial (Nasdaq: CFFN) (the "Company") announced results today for the

quarter ended June 30, 2008. Detailed results of the quarter are available

in the Company's Quarterly Report on Form 10-Q for the quarter ended June

30, 2008, which will be filed today and posted on our website,

http://ir.capfed.com/sec.cfm. Highlights for the quarter include:



    -- net income of $14.4 million, the third consecutive quarterly

increase and nearly twice the level of quarterly net income one year ago,






    -- diluted earnings per share of $0.20,



    -- a capital ratio of 10.95%, and



    -- the Company continues to maintain substantial access to liquidity



    On July 22, 2008, the board of directors declared a $0.50 per public

share dividend to stockholders of record as of August 1, 2008, payable on

August 15, 2008.



    Results of Operations for the Quarter Ended June 30, 2008



    Net income for the quarter ended June 30, 2008 was $14.4 million

compared to $7.3 million for the same period in the prior fiscal year. The

$7.1 million increase in net income was primarily a result of a $9.6

million decrease in interest expense and a $1.4 million increase in other

income, partially offset by a $1.6 million provision for loan loss and a

$3.9 million increase in income tax expense.



    The $9.6 million decrease in interest expense was primarily a result of

a decrease in interest expense on Federal Home Loan Bank ("FHLB") advances

and deposits, partially offset by an increase in interest expense on other

borrowings. Interest expense on FHLB advances for the current quarter was

$30.2 million compared to $37.2 million for the prior year quarter. The

$7.0 million decrease in interest expense on FHLB advances was primarily a

result of a decrease in the average balance due to maturing advances that

were not renewed, and partially due to a decrease in rate as a result of

the termination of the interest rate swaps in December 2007. Interest

expense on deposits for the current quarter was $31.2 million compared to

$37.4 million for the prior year quarter. The $6.2 million decrease in

deposit interest expense was primarily a result of a decrease in the

average rate paid on the money market and certificate portfolios due to the

portfolios repricing to lower market rates. Interest expense on other

borrowings for the current quarter was $4.7 million compared to $1.1

million for the prior year quarter. The $3.6 million increase in interest

expense on other borrowings was due to an increase in the average balance

of other borrowings due to the Bank entering into $400.0 million of

repurchase agreements during fiscal year 2008.



    Total other income for the current quarter was $7.3 million compared to

$5.9 million in the prior year quarter. The $1.4 million increase in other

income was primarily a result of an increase of $609 thousand in retail

fees and an increase of $577 thousand in income from bank-owned life

insurance ("BOLI"). Retail fees increased during the current quarter as a

result of an increase in ATM and Visa check card usage and a net increase

in checking account fees. BOLI income was $577 thousand for the current

quarter, compared to no income from BOLI in the prior year quarter, as the

Bank's BOLI purchase was made in the fourth quarter of fiscal year 2007.



    The Bank recorded a provision for loan losses of $1.6 million during

the current quarter, compared to no provision in the prior year quarter.

Based on our evaluation of the issues regarding the real estate markets,

the overall economic environment, and the increase in and composition of

our delinquencies and non-performing loans, we determined that a provision

for loan losses was prudent and warranted for the three months ended June

30, 2008.



    Results of Operations for the Nine Months Ended June 30, 2008



    Net income for the nine months ended June 30, 2008 was $35.2 million

compared to $26.0 million for the same period in the prior fiscal year. The

$9.2 million increase in net income was primarily a result of a decrease in

interest expense of $17.6 million, partially offset by a decrease in

interest and dividend income of $5.7 million.



    Total interest and dividend income for the current nine month period

was $305.6 million compared to $311.3 million for the prior year period.

The $5.7 million decrease was primarily a result of a decrease in interest

income on investments of $15.9 million, partially offset by an increase in

interest income on mortgage-related securities of $9.1 million.



    Interest expense on deposits for the current nine month period was

$104.4 million compared to $109.1 million for the same period in the prior

year. The $4.7 million decrease in interest expense was primarily a result

of a decrease in the rate on money market accounts due to a decrease in

market interest rates, partially offset by a higher weighted average rate

on the certificate of deposit portfolio in the current nine month period

compared to the same period in the prior year. During fiscal year 2007, the

Bank increased the rates offered on its certificate of deposit portfolio,

with an emphasis on the mid-term maturity category, in order to remain

competitive. This resulted in a higher weighted average certificate of

deposit portfolio rate in the current nine month period than the previous

year period as some of those certificates were outstanding during the

current nine month period.



    Interest expense on FHLB advances for the current nine month period was

$96.2 million compared to $116.5 million for the same period in the prior

year. The $20.3 million decrease in interest expense was primarily a result

of a decrease of $518.7 million in the average balance due to maturing

advances that were not renewed in their entirety.



    Interest expense on other borrowings was $10.8 million compared to $3.3

million in the same period in the prior year. The $7.5 million increase was

due to an increase in the average balance of other borrowings due to the

Bank entering into $400.0 million of repurchase agreements during fiscal

year 2008. The increase was partially offset by a decrease in the rate paid

on $53.6 million of other borrowings tied to the three month LIBOR, which

decreased between the periods.



    The Bank recorded a provision for loan losses of $1.7 million during

the current nine month period compared to a recovery of $225 thousand in

the same period in the prior year. Based on our evaluation of the issues

regarding the real estate markets, the overall economic environment, and

the increase in and composition of our delinquencies and non-performing

loans, we determined that a provision for loan losses was prudent and

warranted.



    Total other income for the current nine month period was $22.4 million

compared to $17.8 million in the same prior year period. The $4.6 million

increase in other income was due primarily to an increase in BOLI income of

$1.8 million, other income, net, of $1.2 million and retail fees of $1.1

million.



    Total other expenses for the current nine month period was $60.2

million compared to $58.0 million in the prior year period. The $2.2

million increase was due primarily to an increase in other expense, net of

$766 thousand, deposit and loan expense of $709 thousand, and salaries and

employee benefits of $518 thousand.



    Income tax expense for the current nine month period was $19.6 million

compared to $16.3 million in the prior year. The increase in income tax

expense was due to an increase in income, partially offset by a decrease in

the effective tax rate for the current nine month period to 35.8%, compared

to 38.6% for the same period in the prior year. The decrease in the

effective tax rate between periods was a result of an increase in

nontaxable income from municipal securities and BOLI, along with an

increase in pre-tax income.



    Financial Condition as of June 30, 2008



    Total assets increased from $7.68 billion at September 30, 2007 to

$7.89 billion at June 30, 2008. The $214.6 million increase in assets was

primarily attributed to a $652.4 million increase in the mortgage-related

securities portfolio, partially offset by a $379.8 million decrease in the

investment securities portfolio. The increase in the mortgage-related

securities portfolio was a result of cash flows from the investment

securities portfolio being reinvested into the mortgage-related securities

portfolio at a higher average yield, and funds from repurchase agreements

being used to purchase mortgage-related securities. The decrease in the

investment securities portfolio was also a result of calls and maturities

that were not replaced in their entirety.



    Total liabilities increased from $6.81 billion at September 30, 2007 to

$7.03 billion at June 30, 2008. The $218.3 million increase in liabilities

was primarily a result of entering into $400.0 million of repurchase

agreements, partially offset by a decrease in FHLB advances of $184.9

million. The repurchase agreements replaced certain maturing FHLB advances,

as the rate and term offerings on the repurchase agreements were more

favorable than other funding options on those dates.



    The balance of our non-performing loans increased from $7.4 million at

September 30, 2007 to $13.3 million at June 30, 2008. Our ratio of non-

performing loans to total loans increased from 0.14% at September 30, 2007

to 0.25% at June 30, 2008. Despite the increase in non-performing loans at

June 30, 2008, our non-performing loans continue to remain at low levels

relative to the size of our loan portfolio. Management does not have any

significant concerns regarding the loan and investment portfolios, as the

overall quality of the portfolios remains very high.



    Stockholders' equity decreased $3.7 million to $863.9 million at June

30, 2008, from $867.6 million at September 30, 2007. The decrease was

primarily a result of dividends paid of $31.1 million and treasury stock

purchases of $7.3 million, partially offset by net income of $35.2 million.



    Management's Discussion of Dividends



    We strive to enhance stockholder value while maintaining a strong

capital position. We continue to provide returns to stockholders through

our dividend payments. On July 22, 2008, the board of directors declared a

dividend of $0.50 per share which will be paid on August 15, 2008 to

stockholders of record on August 1, 2008. Due to Capitol Federal Savings

Bank MHC's ("MHC") waiver of dividends, the dividend of $0.50 per share

will be paid only on public shares. Our cash dividend payout policy is

continually reviewed by management and the board of directors. Dividend

payments depend upon a number of factors including the Company's financial

condition, results of operations, regulatory capital requirements of

Capitol Federal Savings Bank (the "Bank"), other regulatory limitations on

the Bank's ability to make capital distributions to the Company and the

continued waiver of dividends by MHC. Because the Company has a relatively

unique corporate structure, the reporting of certain information under

accounting principles generally accepted in the United States of America

("GAAP") is not necessarily reflective of the process considered by the

board of directors in connection with its dividend policy. At June 30,

2008, Capitol Federal Financial, at the holding company level, had $110.2

million in cash and certificates of deposit at the Bank to be used to

further the Company's general corporate and capital management strategies,

which could include the payment of dividends.






    The earnings per share amounts in the following table are presented in

accordance with GAAP.  Included in the GAAP earnings per share calculations

are the average shares held by MHC.  It is expected that MHC will continue to

waive future dividends except to the extent dividends are needed to fund its

continuing operations.







                                    Three Months Ended      Nine Months Ended

                                         June 30,               June 30,

                                    2008          2007      2008         2007

                              (Dollars in thousands, except per share amounts)



    Net income                     $14,355      $7,289     $35,195     $25,996



    Average common shares

     outstanding                72,832,039  72,846,007  72,870,800  72,743,849

    Average committed ESOP

     shares outstanding            101,374     101,374      50,778      50,779

    Total basic average

     common shares outstanding  72,933,413  72,947,381  72,921,578  72,794,628



    Effect of dilutive RRP shares    5,240       5,234       4,295       5,987

    Effect of dilutive stock

     options                        82,132      90,298      58,784     143,210



    Total diluted average

     common shares outstanding  73,020,785  73,042,913  72,984,657  72,943,825



    Net earnings per share:

         Basic                       $0.20       $0.10       $0.48       $0.36

         Diluted                     $0.20       $0.10       $0.48       $0.36







    Because of the waiver of dividends by MHC, the inclusion of shares held by

MHC understates earnings available to be paid out through dividends to public

stockholders of CFFN stock.  The following table is presented to provide a

better understanding of the information the board of directors reviews when

considering the amount of dividends to declare.  The table presents basic and

diluted earnings per share, excluding shares held by MHC from the earnings per

share calculation.  The following information is not presented in accordance

with GAAP.







                                Three Months Ended        Nine Months Ended

                                     June 30,                  June 30,

                                2008         2007         2008         2007

                             (Dollars in thousands, except per share amounts)



    Net income                $14,355       $7,289       $35,195      $25,996



    Basic average common

     shares outstanding    72,933,413   72,947,381    72,921,578   72,794,628

    Average shares held

     by MHC               (52,192,817) (52,192,817)  (52,192,817) (52,192,817)

    Total adjusted basic

     average shares

     held by public

     stockholders          20,740,596   20,754,564    20,728,761   20,601,811



    Effect of dilutive

     RRP shares                 5,240        5,234         4,295        5,987

    Effect of dilutive stock

     options                   82,132       90,298        58,784      143,210

    Total adjusted diluted

     average shares

     held by public

     stockholders          20,827,968   20,850,096    20,791,840   20,751,008



    Net earnings per share,

     available to public

     stockholders:

        Basic                  $0.69         $0.35         $1.70        $1.26

        Diluted                $0.69         $0.34         $1.69        $1.25





    The following table shows the number of shares eligible to receive

dividends at June 30, 2008. The unvested shares in the ESOP receive

dividends that are recorded through compensation expense. MHC has waived

its right to dividends.








    Total voting shares outstanding at September 30, 2007         74,258,977

    Treasury stock acquisitions                                     (225,042)

    RRP grants                                                        10,000

    Options exercised                                                 23,683

    Total voting shares outstanding at June 30, 2008              74,067,618

    Unvested shares in ESOP                                       (1,209,832)

    Shares held by MHC                                           (52,192,817)

    Total shares eligible to receive dividends at June 30, 2008

     (public shares)                                              20,664,969





    Capitol Federal Financial is the holding company for Capitol Federal

Savings Bank. Capitol Federal Savings Bank has 39 branch locations in

Kansas, nine of which are in-store branches. Capitol Federal Savings Bank

employs 673 full time equivalent employees in the operation of its business

and is one of the largest residential lenders in the State of Kansas.



    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, 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 could affect the ability of the Company to pay

dividends in accordance with its dividend policies, competition, and other

risks detailed from time to time in the Company's SEC reports. Actual

strategies and results in future periods may differ materially from those

currently expected. These forward-looking statements represent the

Company's judgment as of the date of this release. The Company disclaims,

however, any intent or obligation to update these forward-looking

statements.