Capitol Federal Financial, Inc. Reports Fiscal Year 2012 Results

TOPEKA, 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 2011

Net 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, 2011


September 30,


Actual


Contribution


Adjusted(1)


2012


(GAAP)


to Foundation


(Non-GAAP)


(Dollars in thousands, except per share data)

















Net income (loss)

$

74,513



$

38,403



$

(26,000)



$

64,403


Operating expenses


91,075




132,317




40,000




92,317


Basic earnings (loss) per share


0.47




0.24




(0.16)




0.40

(2)

Diluted earnings (loss) per share


0.47




0.24




(0.16)




0.40

(2)

















Return on average assets


0.79

%



0.41

%



(0.27)

%



0.68

%

Return on average equity


3.93




2.20




(1.49)




3.69


Operating expense ratio


0.97




1.40




0.42




0.98


Efficiency ratio


43.55

%



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, 2012

For 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 2011

For 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 SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands)






For the Three Months Ended


For the Year Ended


September 30,


September 30,


2012


2011


2012


2011

INTEREST AND DIVIDEND INCOME:












Loans receivable

$

58,218


$

62,019


$

236,225


$

251,909

MBS


16,470



18,953



71,156



71,332

Investment securities


3,409



4,456



15,944



19,077

Capital stock of FHLB


1,133



1,081



4,446



3,791

Cash and cash equivalents


75



85



280



756

Total interest and dividend income


79,305



86,594



328,051



346,865













INTEREST EXPENSE:












FHLB advances


19,403



22,660



82,044



90,298

Deposits


10,480



14,602



46,170



63,568

Other borrowings


3,569



5,467



14,956



24,265

Total interest expense


33,452



42,729



143,170



178,131













NET INTEREST INCOME


45,853



43,865



184,881



168,734













PROVISION FOR CREDIT LOSSES


--



1,650



2,040



4,060

NET INTEREST INCOME AFTER












PROVISION FOR CREDIT LOSSES


45,853



42,215



182,841



164,674













OTHER INCOME:












Retail fees and charges


3,957



4,044



15,915



15,509

Insurance commissions


559



817



2,772



3,071

Loan fees


479



584



2,113



2,449

Income from bank-owned life insurance ("BOLI")


345



476



1,478



1,824

Other income, net


489



513



1,955



2,142

Total other income


5,829



6,434



24,233



24,995













OTHER EXPENSES:












Salaries and employee benefits


11,545



11,809



44,235



44,913

Communications, information technology, and occupancy


4,407



4,030



16,334



16,051

Deposit and loan transaction costs


1,519



1,498



5,381



5,157

Regulatory and outside services


1,595



1,653



5,291



5,224

Federal insurance premium


1,135



1,078



4,444



5,222

Advertising and promotional


1,257



1,089



3,931



3,723

Contribution to the Foundation


--



--



--



40,000

Other expenses, net


2,676



1,865



11,459



12,027

Total other expenses


24,134



23,022



91,075



132,317

INCOME BEFORE INCOME TAX EXPENSE


27,548



25,627



115,999



57,352

INCOME TAX EXPENSE


9,812



8,861



41,486



18,949

NET INCOME

$

17,736


$

16,766


$

74,513


$

38,403













The following is a reconciliation of the basic and diluted earnings per share calculations for the periods noted.





























For the Three Months Ended


For the Year Ended



September 30,


September 30,



2012


2011


2012


2011



(Dollars in thousands, except per share amounts)

Net income


$

17,736


$

16,766


$

74,513


$

38,403

Income allocated to participating securities (unvested restricted stock)(1)



(43)



--



(69)



--

Net income available to common stockholders



17,693



16,766



74,444



38,403














Average common shares outstanding



150,661,205



161,389,198



157,704,473



162,432,315

Average committed ESOP shares outstanding



415,494



394,528



208,505



192,959

Total basic average common shares outstanding



151,076,699



161,783,726



157,912,978



162,625,274














Effect of dilutive restricted stock



--



3,100



--



2,747

Effect of dilutive stock options



1,895



3,740



3,422



4,644














Total diluted average common shares outstanding



151,078,594



161,790,566



157,916,400



162,632,665














Net earnings per share:













Basic


$

0.11


$

0.10


$

0.47


$

0.24

Diluted


$

0.11


$

0.10


$

0.47


$

0.24














Antidilutive stock options and restricted stock, excluded













from the diluted average common shares outstanding calculation



2,006,979



900,445



1,308,925



898,415














(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, 2012


September 30, 2011


(Dollars in thousands)

Loans 30 to 89 days delinquent

$

23,270



$

26,760


Non-performing loans


29,900

(1)



26,507


OREO


8,047




11,321


ACL balance


11,100




15,465


Non-performing loans to total loans


0.53

%



0.51

%

Non-performing assets to total assets


0.40

%



0.40

%

ACL as a percentage of total loans


0.20

%



0.30

%

ACL as a percentage of total non-performing loans


37.12

%



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,


2012


2012


2011


(Dollars in thousands)

Stockholders' equity

$

1,806,458



$

1,832,858



$

1,939,529


Equity to total assets at end of period


19.3

%



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

149,856,542



During 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.























Stock


Restricted




Fiscal Year


Options


Stock


Total



(Dollars in thousands)

2013


$

719


$

1,782


$

2,501

2014



570



1,401



1,971

2015



570



1,401



1,971

2016



239



601



840

2017



51



132



183



$

2,149


$

5,317


$

7,466











 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)








September 30,


September 30,


2012


2011

ASSETS:






Cash and cash equivalents (includes interest-earning deposits of $127,544 and $105,292)

$

141,705


$

121,070

Securities:






Available-for-sale ("AFS") at estimated fair value (amortized cost of $1,367,925 and $1,443,529)


1,406,844



1,486,439

Held-to-maturity at amortized cost (estimated fair value of $1,969,899 and $2,434,392)


1,887,947



2,370,117

Loans receivable, net (of ACL of $11,100 and $15,465)


5,608,083



5,149,734

BOLI


58,012



56,534

Capital stock of FHLB, at cost


132,971



126,877

Accrued interest receivable


26,092



29,316

Premises and equipment, net


57,766



48,423

OREO


8,047



11,321

Other assets


50,837



50,968

TOTAL ASSETS

$

9,378,304


$

9,450,799







LIABILITIES:






Deposits

$

4,550,643


$

4,495,173

Advances from FHLB, net


2,530,322



2,379,462

Other borrowings


365,000



515,000

Advance payments by borrowers for taxes and insurance


55,642



55,138

Income taxes payable


918



2,289

Deferred income tax liabilities, net


25,042



20,447

Accounts payable and accrued expenses


44,279



43,761

Total liabilities


7,571,846



7,511,270







STOCKHOLDERS' 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, respectively


1,554



1,675

Additional paid-in capital


1,292,122



1,392,567

Unearned compensation, ESOP


(47,575)



(50,547)

Retained earnings


536,150



569,127

Accumulated other comprehensive income, net of tax


24,207



26,707

Total stockholders' equity


1,806,458



1,939,529

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,378,304


$

9,450,799
















Consistent 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.















Regulatory







Requirement For




Bank


"Well-Capitalized"




Ratios


Status









Tier 1 capital



14.6

%


5.0

%

Tier 1 risk-based capital



36.5

%


6.0

%

Total risk-based capital



36.8

%


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


$

1,379,357

Unrealized gains on AFS securities



(24,179)

Other



(73)

Total Tier 1 capital



1,355,105

ACL



11,100

Total risk-based capital


$

1,366,205





Capitol 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 INFORMATION

Loan Portfolio

The 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, 2012


June 30, 2012


September 30, 2011




Average


% of




Average


% of




Average


% of


Amount


Rate


Total


Amount


Rate


Total


Amount


Rate


Total


(Dollars in thousands)

Real Estate Loans:



























One-to four-family

$

5,392,429


4.10

%


95.5

%


$

4,995,840


4.32

%


95.0

%


$

4,918,778


4.65

%


94.7

%

Multi-family and commercial


48,623


5.64



0.9




49,755


6.11



1.0




57,965


6.13



1.1


Construction


52,254


4.08



0.9




52,163


4.14



1.0




47,368


4.27



0.9


Total real estate loans


5,493,306


4.11



97.3




5,097,758


4.34



97.0




5,024,111


4.66



96.7





























Consumer Loans:



























Home equity


149,321


5.42



2.6




152,301


5.43



2.9




164,541


5.48



3.2


Other


6,529


4.77



0.1




6,744


4.76



0.1




7,224


5.10



0.1


Total consumer loans


155,850


5.39



2.7




159,045


5.40



3.0




171,765


5.46



3.3


Total loans receivable


5,649,156


4.15

%


100.0

%



5,256,803


4.37

%


100.0

%



5,195,876


4.69

%


100.0

%




























Less:



























Undisbursed loan funds


22,874









25,451









22,531







ACL


11,100









11,777









15,465







Discounts/unearned loan fees


21,468









21,246









19,093







Premiums/deferred costs


(14,369)









(11,661)









(10,947)







Total loans receivable, net

$

5,608,083








$

5,209,990








$

5,149,734


































The 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 Ended



September 30, 2012


June 30, 2012


March 31, 2012


December 31, 2011



Amount


Rate


Amount


Rate


Amount


Rate


Amount


Rate



(Dollars in thousands)


Beginning balance

$

5,256,803


4.37

%


$

5,275,296


4.45

%


$

5,282,485


4.53

%


$

5,195,876


4.69

%

Originations and refinances:
























Fixed


220,934


3.51




151,724


3.78




139,295


3.79




180,198


3.77


Adjustable


50,533


3.50




42,802


3.74




41,139


3.67




57,321


3.52


Purchases and Participations:
























Fixed


90,939


3.62




34,567


3.94




31,165


4.29




44,800


4.03


Adjustable


360,463


2.49




12,722


3.00




16,426


3.07




53,206


3.79


Repayments


(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

$

5,649,156


4.15

%


$

5,256,803


4.37

%


$

5,275,296


4.45

%


$

5,282,485


4.53

%


























For the Year Ended














September 30, 2012


September 30, 2011














Amount


Rate


Amount


Rate














(Dollars in thousands)













Beginning balance

$

5,195,876


4.69

%


$

5,209,313


5.07

%













Originations and refinances:
























Fixed


692,151


3.69




658,084


4.23














Adjustable


191,795


3.60




179,161


3.92














Purchases and Participations:
























Fixed


201,471


3.87




153,060


5.15














Adjustable


442,817


2.68




28,911


3.60














Repayments


(1,060,324)






(1,019,307)
















Principal charge-offs, net(1)


(6,012)






--
















Other(2)


(8,618)






(13,346)
















Ending balance

$

5,649,156


4.15

%


$

5,195,876


4.69

%





































(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, 2012


Balance


Credit Score


LTV


Average Loan Balance


(Dollars in thousands)

Originated

$

4,032,581


763


65

%


$

124

Correspondent purchases


575,502


761


65




326

Bulk purchases


784,346


749


67




316


$

5,392,429


761


65

%


$

147













September 30, 2011


Balance


Credit Score


LTV


Average Loan Balance


(Dollars in thousands)

Originated

$

3,986,957


763


66

%


$

123

Correspondent purchases


396,063


759


64




290

Bulk purchases


535,758


740


60




252


$

4,918,778


760


65

%


$

137












Loan Originations

The 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 Ended


For the Year Ended


September 30, 2012


September 30, 2012


Amount


Rate


% of Total


Amount


Rate


% of Total

Fixed-Rate:

(Dollars in thousands)

One- to four-family


















<= 15 years

$

101,627


3.05

%


14.0

%


$

323,357


3.30

%


21.2

%

> 15 years


209,207


3.76



28.9




566,465


3.96



37.1


Multi-family and commercial


--


--



0.0




--


--



0.0


Home equity


576


7.18



0.1




2,153


7.00



0.1


Other


463


7.98



0.1




1,647


7.35



0.1


Total fixed-rate


311,873


3.54



43.1




893,622


3.73



58.5




















Adjustable-Rate:


















One- to four-family


















<= 36 months


345,512


2.48



47.8




351,881


2.48



23.0


> 36 months


46,842


2.69



6.5




194,897


2.97



12.8


Multi-family and commercial


--


--



0.0




13,975


5.00



0.9


Home equity


18,186


4.90



2.5




71,400


4.87



4.7


Other


456


3.53



0.1




2,459


3.35



0.1


Total adjustable-rate


410,996


2.61



56.9




634,612


2.96



41.5




















Total originations, refinances and purchases

$

722,869


3.01

%


100.0

%


$

1,528,234


3.41

%


100.0

%



















Purchased/participation loans included above:

















Fixed-Rate:


















Correspondent - one- to four-family

$

90,939


3.62

%





$

200,946


3.87

%




Bulk - one- to four-family


--


--







392


3.25





Participations - commercial real estate


--


--







--


--





Participations - other


--


--







133


2.57





Total fixed-rate purchases/participations


90,939


3.62







201,471


3.87























Adjustable-Rate:


















Correspondent - one- to four-family


18,002


2.60







66,513


2.95





Bulk - one- to four-family


342,461


2.48







362,329


2.54





Participations - commercial real estate


--


--







13,975


5.00





Participations - other


--


--







--


--





Total adjustable-rate purchases/participations


360,463


2.49







442,817


2.68





Total purchased/participation loans

$

451,402


2.72

%





$

644,288


3.05

%




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, 2012


September 30, 2012








Credit








Credit


Amount


LTV


Score


Amount


LTV


Score


(Dollars in thousands)

Originations

$

135,391


75

%


762


$

470,634


75

%


765

Refinances by Bank customers


116,395


67



767



335,786


67



771

Correspondent purchases


108,941


70



767



267,459


69



768

Bulk purchases


342,461


80



757



362,721


79



757


$

703,188


75

%


761


$

1,436,600


72

%


767

















The 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, 2012






Prepayment Speed (annualized)



Principal


Including


Excluding

Term


Balance


Endorsements


Endorsements



(Dollars in thousands)







Fixed-rate one-to four-family loans:










15 years or less


$

1,059,422


29.74

%


19.81

%

More than 15 years



3,189,398


34.79



19.36





4,248,820


33.53



19.47












Adjustable-rate one-to four-family loans:










36 months or less



887,491


21.38



17.58


More than 36 months



298,236


31.50



22.14





1,185,727


23.92



18.73


Total one-to four-family loans


$

5,434,547


31.43

%


19.31

%























June 30, 2012






Prepayment Speed (annualized)



Principal


Including


Excluding

Term


Balance


Endorsements


Endorsements



(Dollars in thousands)







Fixed-rate one-to four-family loans:










15 years or less


$

1,037,753


21.46

%


15.46

%

More than 15 years



3,150,868


27.00



13.05





4,188,621


25.63



13.65












Adjustable-rate one-to four-family loans:










36 months or less



573,019


21.38



19.58


More than 36 months



275,987


25.84



12.96





849,006


22.83



17.43


Total one-to four-family loans


$

5,037,627


25.16

%


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,



2012


2012


2011



Number


Amount


Number


Amount


Number


Amount


Loans 30 to 89 Days Delinquent:

(Dollars in thousands)


One- to four-family: