Capitol Federal Financial : ® Financial, Inc. Reports First Quarter Fiscal Year 2017 Results

NEWS RELEASE

FOR IMMEDIATE RELEASE

January 27, 2017 CAPITOL FEDERAL® FINANCIAL, INC. REPORTS FIRST QUARTER FISCAL YEAR 2017 RESULTS

Topeka, KS - Capitol Federal Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended December 31, 2016. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2016, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 9, 2017 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

• net income of $20.6 million, including $642 thousand from the leverage strategy;

• basic and diluted earnings per share of $0.15;

• annualized loan portfolio growth of 6.5%;

• net interest margin of 1.73% (2.07% excluding the effects of the leverage strategy); and

• dividends paid of $50.2 million, or $0.375 per share.

Comparison of Operating Results for the Three Months Ended December 31, 2016 and September 30, 2016

For the quarter ended December 31, 2016, the Company recognized net income of $20.6 million, or $0.15 per share, compared to net income of $20.7 million, or $0.16 per share, for the quarter ended September 30, 2016. The decrease in earnings per share was due to the decrease in net income between quarters along with an increase in average shares outstanding during the current quarter.

Capitol Federal Savings Bank (the "Bank") continued to utilize a leverage strategy to increase earnings. The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's Federal Home Loan Bank Topeka ("FHLB") line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end for regulatory purposes. The proceeds from the borrowings, net of the required FHLB stock holdings, were deposited at the Federal Reserve Bank of Kansas City. Net income attributable to the leverage strategy was $642 thousand during the current quarter, compared to $616 thousand for the prior quarter.

Net interest income decreased $426 thousand, or 0.9%, from the prior quarter to $47.3 million for the current quarter. The net interest margin decreased one basis point from 1.74% for the prior quarter to 1.73% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have decreased two basis points from 2.09% for the prior quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to an increase in interest expense on deposits and an increase in the average balance of operating cash which excludes funds related to the leverage strategy, partially offset by a decrease in interest expense on term borrowings. The positive impact on the net interest margin resulting from the shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans was offset by a decrease in the loan portfolio yield.

Interest and Dividend Income

The weighted average yield on total interest-earning assets for the current quarter increased one basis point from the prior quarter, to 2.76%, while the average balance of interest-earning assets decreased $78.5 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased one basis point from the prior quarter, to 3.20%, while the average balance would have decreased $10.0 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31,	September 30,	Change Expressed in:
2016	2016	Dollars Percent
INTEREST AND DIVIDEND INCOME:	(Dollars in thousands)
Loans receivable	$ 61,945	$ 61,516	$ 429 0.7%
Mortgage-backed securities ("MBS")	6,362	6,860	(498) (7.3)
Cash and cash equivalents	2,969	2,774	195 7.0
FHLB stock	2,939	3,044	(105) (3.4)
Investment securities	1,107	1,401	(294) (21.0)
Total interest and dividend income	$ 75,322	$ 75,595	$ (273) (0.4)

The increase in interest income on loans receivable was due to a $116.4 million increase in the average balance of the portfolio, partially offset by a four basis point decrease in the weighted average yield on the portfolio, to 3.53% for the current quarter. The loan growth was funded with cash flows from the securities portfolio and utilizing excess operating cash. The decrease in the weighted average yield was due primarily to loans repricing to lower market rates and the origination and purchase of loans at rates less than the existing portfolio rate, along with an increase in premium amortization related to correspondent loans due to both the increase in the size of the correspondent loan portfolio and repayment activity.

The decrease in interest income on MBS was due mainly to a $92.2 million decrease in the average balance of the portfolio as cash flows were used to fund loan growth and pay off a maturing FHLB advance. During the current quarter, $1.3 million of net premiums on MBS were amortized, which decreased the weighted average yield on the portfolio by 43 basis points. During the prior quarter,

$1.3 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 42 basis points. As of December 31, 2016, the remaining net balance of premiums on our portfolio of MBS was $11.9 million.

The decrease in interest income on investment securities was due primarily to a $75.2 million decrease in the average balance of the portfolio as cash flows were used to fund loan growth and pay off a maturing FHLB advance, along with a six basis point decrease in the weighted average yield on the portfolio, to 1.24% for the current quarter. The decrease in the weighted average yield was due to the prior quarter including more discount accretion than the current quarter due to the call of securities in the prior quarter.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities for the current quarter increased two basis points from the prior quarter, to 1.15%, while the average balance of interest-bearing liabilities decreased $96.8 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased one basis point from the prior quarter, to 1.30%, while the average balance would have decreased $28.3 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31,	September 30,	Change Expressed in:
2016	2016	Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE: FHLB advances	$ 13,236	$ 13,400	$ (164) (1.2)%
FHLB leverage strategy	2,881	2,862	19 0.7
Deposits	10,396	10,098	298 3.0
Repurchase agreements	1,503	1,503	- -
Total interest expense	$ 28,016	$ 27,863	$ 153 0.5

The decrease in interest expense on FHLB advances was due to an $82.2 million decrease in the average balance of the portfolio, partially offset by a five basis point increase in the weighted average rate paid during the current quarter, to 2.27%. During the current quarter, a $100.0 million advance with an effective rate of 0.78%, which was lower than the existing portfolio rate, matured and was not renewed or replaced, thereby increasing the weighted average rate paid on the portfolio.

The increase in interest expense on deposits was due primarily to a $53.9 million increase in the average balance of the deposit portfolio, along with a one basis point increase in the weighted average rate paid on the deposit portfolio, to 0.80% for the current quarter. The increase between quarters in the average balance and the weighted average rate paid was due largely to changes in the certificate of deposit portfolio.

Provision for Credit Losses

The Bank did not record a provision for credit losses during the current quarter compared to a negative provision for credit losses during the prior quarter of $750 thousand. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, management determined that no provision for credit losses was necessary in the current quarter. Net loan charge-offs were $19 thousand during the current quarter compared to $22 thousand in the prior quarter. At December 31, 2016, loans 30 to 89 days delinquent were 0.35% of total loans and loans 90 or more days delinquent or in foreclosure were 0.22% of total loans.

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31,	September 30,	Change Expressed in:
2016	2016	Dollars Percent
NON-INTEREST INCOME:	(Dollars in thousands)
Retail fees and charges	$ 3,709	$ 3,738	$ (29) (0.8)%
Income from bank-owned life insurance ("BOLI")	523	610	(87) (14.3)
Other non-interest income	1,036	1,343	(307) (22.9)
Total non-interest income	$ 5,268	$ 5,691	$ (423) (7.4)

The decrease in other non-interest income was due primarily to a decrease in insurance commissions resulting from the receipt of annual commissions from certain insurance providers during the prior quarter and no such commissions being received in the current quarter.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

NON-INTEREST EXPENSE:

For the Three Months Ended December 31, September 30, Change Expressed in: 2016 2016 Dollars Percent

(Dollars in thousands)

Salaries and employee benefits $ 10,634 $ 10,774 $ (140) (1.3)%

Information technology and communications	2,834	2,657	177	6.7
Occupancy, net	2,675	2,682	(7)	(0.3)
Deposit and loan transaction costs	1,386	1,466	(80)	(5.5)
Regulatory and outside services	1,346	1,645	(299)	(18.2)
Federal insurance premium	894	918	(24)	(2.6)
Advertising and promotional	690	1,419	(729)	(51.4)
Office supplies and related expense	437	624	(187)	(30.0)
Low income housing partnerships	-	1,057	(1,057)	(100.0)
Other non-interest expense	701	720	(19)	(2.6)
Total non-interest expense	$ 21,597	$ 23,962	$ (2,365)	(9.9)

The decrease in regulatory and outside services was due primarily to the timing of external audit fees. The decrease in advertising and promotional expense was due mainly to the timing of media campaigns and sponsorships. The decrease in office supplies and related expense was due mainly to the timing of certain expenses. The decrease in low income housing partnerships expense was due to a change in the Bank's method of accounting for those investments. The Bank had been accounting for these partnerships using the equity method of accounting as two of the Bank's officers were involved in the operational management of the low income housing partnership investment group. Effective September 30, 2016, those two Bank officers discontinued their involvement in the operational management of the investment group. On October 1, 2016, the Bank began using the proportional method of accounting for those investments rather than the equity method. As a result, the Bank no longer reports low income housing partnership expenses in non-interest expense; rather, the pretax operating losses and related tax benefits from the investments are reported as a component of income tax expense.

The Company's efficiency ratio was 41.08% for the current quarter compared to 44.85% for the prior quarter. The change in the efficiency ratio was due primarily to a decrease in non-interest expense, mainly a result of the change in the method of accounting for low income housing partnerships. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a lower level of expense.

Income Tax Expense

Income tax expense was $10.4 million for the current quarter, compared to $9.5 million for the prior quarter. The effective tax rate for the current quarter was 33.6% compared to 31.5% for the prior quarter. The increase in effective tax rate was due primarily to the change in accounting for low income housing partnerships as previously discussed. Management anticipates the effective tax rate for fiscal year 2017 will be approximately 34%, based on fiscal year 2017 estimates as of December 31, 2016.

Comparison of Operating Results for the Three Months Ended December 31, 2016 and 2015

The Company recognized net income of $20.6 million, or $0.15 per share, for the quarter ended December 31, 2016, a decrease of

$140 thousand, or 0.7%, from the quarter ended December 31, 2015. The Company's efficiency ratio was 41.08% for the current quarter compared to 44.05% for the prior year quarter. The change in the efficiency ratio was due primarily to a decrease in non- interest expense. See "Non-interest Expense" section below for additional information regarding the decrease in expense.

Net income attributable to the leverage strategy was $642 thousand during the current quarter, compared to $583 thousand for the prior year quarter. The increase was due primarily to a decrease in the Federal Deposit Insurance Corporation ("FDIC") base assessment rate, as a portion of federal insurance premiums are attributable to the leverage strategy due to the increase in average assets resulting from the strategy. The decrease in the FDIC base assessment rate was effective July 1, 2016 and was the result of the FDIC Deposit Insurance Fund reaching 1.15% of total estimated insured deposits of the banking system on June 30, 2016.