Capitol Federal Financial : ® Financial, Inc. Reports First Quarter Fiscal Year 2019 Results

NEWS RELEASE FOR IMMEDIATE RELEASE

January 29, 2019

CAPITOL FEDERAL® FINANCIAL, INC. REPORTS FIRST QUARTER FISCAL YEAR 2019 RESULTS

Topeka, KS - Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended December 31, 2018. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 8, 2019 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 $24.4 million;

• • basic and diluted earnings per share of $0.18;

• • net interest margin of 2.27% (2.32% excluding the effects of the leverage strategy); and

• • paid dividends of $65.4 million, or $0.475 per share.

Comparison of Operating Results for the Three Months Ended December 31, 2018 and September 30, 2018

For the quarter ended December 31, 2018, the Company recognized net income of $24.4 million, or $0.18 per share, compared to net income of $21.4 million, or $0.16 per share, for the quarter ended September 30, 2018. The increase in net income was due primarily to an increase in net interest income, which was mainly a result of a full quarter impact of the acquisition of Capital City Bancshares, Inc. ("CCB"), which was completed on August 31, 2018.

Net interest income increased $2.2 million, or 4.4%, from the prior quarter to $52.3 million for the current quarter. The net interest margin increased three basis points from 2.24% for the prior quarter to 2.27% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have increased six basis points from 2.26% for the prior quarter to 2.32% for the current quarter. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans from the CCB acquisition.

Interest and Dividend Income

The weighted average yield on total interest-earning assets for the current quarter increased 10 basis points, from 3.46% for the prior quarter to 3.56% for the current quarter, and the average balance of interest-earning assets increased $300.8 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 12 basis points, from 3.47% for the prior quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $141.0 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, 2018

September 30, 2018

Change Expressed in:DollarsPercent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME: Loans receivable

$

70,772 $

66,922 $

3,850 5.8%

Mortgage-backed securities ("MBS")

6,523

6,056

467 7.7

Federal Home Loan Bank Topeka ("FHLB") stock Cash and cash equivalents

1,971

1,847

124 6.7

1,714

1,213

501 41.3

Investment securities

1,441

1,275

166 13.0

Total interest and dividend income

$

82,421 $

77,313 $

5,108

6.6

The increase in interest income on loans receivable was due to a $195.4 million increase in the average balance of the portfolio, as well as a 10 basis point increase in the weighted average yield on the portfolio to 3.75% for the current quarter. The increases in average balance and weighted average yield were due primarily to loans added in the CCB acquisition.

The increase in interest income on the MBS portfolio was due to a 14 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, as well as a $19.7 million increase in the average balance of the portfolio. The increase in the weighted average yield was due primarily to a decrease in net premium amortization in the current quarter, due largely to the accretion of discounts on MBS added in the CCB acquisition. Net premium amortization of $349 thousand during the current quarter decreased the weighted average yield on the portfolio by 14 basis points. During the prior quarter, $624 thousand of net premiums were amortized which decreased the weighted average yield on the portfolio by 25 basis points. As of December 31, 2018, the remaining net balance of premiums on our portfolio of MBS was $3.1 million.

The table above includes interest income on cash and cash equivalents associated and not associated with the leverage strategy. Interest income on cash and cash equivalents not related to the leverage strategy decreased $399 thousand from the prior quarter due to a $90.1 million decrease in the average balance, partially offset by a 24 basis point increase in the weighted average yield, which was related to balances held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City"). Interest income on cash associated with the leverage strategy increased $900 thousand from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior quarter. See additional discussion regarding the leverage strategy in the Financial Condition section below.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities for the current quarter increased nine basis points, from 1.39% for the prior quarter to 1.48% for the current quarter, and the average balance of interest-bearing liabilities increased $291.0 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 eight basis points, from 1.38% for the prior quarter to 1.46% for the current quarter, and the average balance of interest-bearing liabilities would have increased $139.0 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, 2018

September 30, 2018

Change Expressed in:DollarsPercent

(Dollars in thousands)

INTEREST EXPENSE: Deposits

FHLB borrowings Other borrowings Total interest expense

• $ 15,725 $ 13,530 865

  14,597 $

  1,128

  7.7%

  • 11,930 1,600 13.4

  • 709 156 22.0

• $ 30,120 $

27,236 $

• 2,884 10.6

The increase in interest expense on deposits was due primarily to a six basis point increase in the weighted average rate paid, to 1.13% for the current quarter. The increase in the weighted average rate paid was due primarily to increases in the average retail/business certificate of deposit portfolio rate and money market portfolio rate, which increased nine basis points and 22 basis points, respectively. The weighted average interest rate on deposit accounts assumed in the CCB acquisition was lower than the overall deposit portfolio rate, which partially offset the increase in the weighted average rate paid on the rest of the deposit portfolio in the current quarter.

The table above includes interest expense on FHLB borrowings associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy increased $593 thousand from the prior quarter due to a 10 basis point increase in the weighted average rate paid, to 2.20% for the current quarter, as maturing advances were replaced at higher current market rates. Interest expense on FHLB borrowings associated with the leverage strategy increased $1.0 million from the prior quarter due to the leverage strategy being in place for more days in the current quarter compared to the prior quarter.

Provision for Credit Losses

The Bank did not record a provision for credit losses during the current quarter or the prior quarter. Based on management's assessment of the allowance for credit losses ("ACL") formula analysis model and several other factors, it was determined that no provision for credit losses was necessary. Net loan recoveries were $95 thousand during the current quarter compared to $119 thousand in the prior quarter. At December 31, 2018, loans 30 to 89 days delinquent were 0.20% of total loans and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans. At September 30, 2018, loans 30 to 89 days delinquent were 0.25% of total loans and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans. See additional ACL discussion in the Supplemental Financial Information - Asset Quality section of this release.

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, 2018

September 30, 2018

Change Expressed in:DollarsPercent

(Dollars in thousands)

NON-INTEREST INCOME: Deposit service fees

$

Income from bank-owned life insurance ("BOLI") Other non-interest income

Total non-interest income

$

3,352 $ 635 1,437 5,424 $

• 4,086 $ (734) (18.0)%

• 555 80 14.4

• 1,179 258 21.9

  5,820 $

• (396) (6.8)The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard during the current quarter. Previously, interchange network charges were

reported in deposit and loan expense. Upon adoption of the new revenue recognition accounting standard on October 1, 2018, interchange transaction fee income is reported net of interchange network charges, which totaled $944 thousand during the current quarter and $767 thousand during the prior quarter. On a net basis, interchange fee income totaled $1.4 million for the current quarter, compared to $1.5 million for the prior quarter.

The increase in other non-interest income was due mainly to an increase in insurance commissions and trust asset management fees recorded. As a result of adopting the new revenue recognition accounting standard discussed above, the Company also began recording an estimate for contingent insurance commissions it expects to receive from insurance carriers. Previously, the Company recorded contingent insurance commissions as revenue when the funds were received. In addition, as part of the acquisition of CCB, the Company began offering trust asset management services. The current quarter included a full quarter of revenue from those activities.

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.

For the Three Months Ended

December 31, 2018

September 30, 2018

Change Expressed in:DollarsPercent

(Dollars in thousands)

NON-INTEREST EXPENSE: Salaries and employee benefits Information technology and related expense Occupancy, net

$

12,962 $

12,932 $

30

0.2%

4,599

3,683

916 24.9

3,252

3,064

188 6.1

Regulatory and outside services Advertising and promotional Deposit and loan transaction costs Federal insurance premium

1,766

1,790

(24) (1.3)

760

1,522

(762) (50.1)

736

1,464

(728) (49.7)

528

765

(237) (31.0)

Office supplies and related expense Other non-interest expense

459

549

(90) (16.4)

1,720

988

732 74.1

Total non-interest expense

$

26,782 $

26,757 $

25

0.1

Salaries and employee benefits related to former CCB employees was approximately $1.6 million in the current quarter compared to approximately $730 thousand in the prior quarter. Excluding the impact of former CCB employees, salaries and employee benefits decreased approximately $840 thousand from the prior quarter. The decrease was due primarily to the prior quarter including compensation expense on unallocated Employee Stock Ownership Plan ("ESOP") shares related to the True Blue Capitol dividend paid during the prior fiscal year, along with expense related to the 2018 Tax Savings Bonus Plan. Approximately half of the increase in information technology and related expenses was due to costs related to the integration of CCB operations. The remaining increase was due to depreciation related to the implementation of enhancements in the Bank's information technology infrastructure and an increase in software licensing. The increase in occupancy, net was due primarily to a full quarter of expense related to properties acquired in the CCB acquisition. The decrease in advertising and promotional was due primarily to the timing of advertising campaigns and sponsorships. The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition accounting standard discussed above. The decrease in federal insurance premium was due primarily to a decrease in average assets resulting from a reduction in the usage of the leverage strategy during the prior quarter, as federal insurance premiums are billed and paid on a quarter lag. The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB, along with an increase in other real estate owned ("OREO") operations expense.

The Company's efficiency ratio was 46.40% for the current quarter compared to 47.87% for the prior quarter. The change in the efficiency ratio was due primarily to higher net interest income in the current quarter compared to the prior quarter. 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 proportionally lower level of expense.

Income Tax Expense

Income tax expense was $6.6 million for the current quarter, compared to $7.8 million for the prior quarter. The effective tax rate was 21.2% for the current quarter compared to 26.6% for the prior quarter. In December 2017, the Tax Cuts and Jobs Act (the "Tax Act")was enacted, which reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate income tax rate. The revaluation was a discrete item in the December 31, 2017 quarter and reduced income tax expense by $7.5 million, resulting in an effective tax rate of 2.6% for that quarter. The effective tax rate for fiscal year 2018 was 20.2%, primarily due to the fiscal year 2018 rate including the $7.5 million discrete item noted above, which reduced the 24.5% statutory tax rate effective for that fiscal year. Due to the Company's September 30 year end, the Company was required to use a blended statutory tax rate of 24.5% for fiscal year 2018, and the enacted tax rate of 21% will be effective for fiscal year 2019. Although the statutory tax rate decreased to 21% for fiscal year 2019, the Company does not have the same level of discrete items reducing the rate as in the prior fiscal year. Management estimates the effective income tax rate for fiscal year 2019 will be approximately 22%.

Comparison of Operating Results for the Three Months Ended December 31, 2018 and 2017

The Company recognized net income of $24.4 million, or $0.18 per share, for the quarter ended December 31, 2018 compared to net income of $31.8 million, or $0.24 per share, for the quarter ended December 31, 2017. The decrease in net income was due primarily to the prior year quarter including the impact of the enactment of the Tax Act, as well as to an increase in non-interest expense in the current quarter. These changes were partially offset by an increase in net interest income in the current quarter due primarily to the higher yielding loans added in the CCB acquisition.

The net interest margin increased 44 basis points, from 1.83% for the prior year quarter to 2.27% for the current quarter. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. The leverage strategy was suspended at certain times during the current quarter due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City making the transaction unprofitable. See additional discussion regarding the leverage strategy in the Financial Condition section below. Excluding the effects of the leverage strategy, the net interest margin would have increased 12 basis points, from 2.20% for the prior year quarter to 2.32% for the current quarter. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans in the CCB acquisition.

Interest and Dividend Income

The weighted average yield on total interest-earning assets increased 58 basis points, from 2.98% for the prior year quarter to 3.56% for the current quarter, while the average balance of interest-earning assets decreased $1.55 billion from the prior year quarter. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 28 basis points, from 3.31% for the prior year quarter to 3.59% for the current quarter, and the average balance of interest-earning assets would have increased $226.1 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,

Change Expressed in:

2018

2017

DollarsPercent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME: Loans receivable

• $ 70,772 $

  64,189 $

  6,583 10.3%

  MBS

  6,523

  5,252

  1,271 24.2

  FHLB stock

  1,971

  3,095

  (1,124) (36.3)

  Cash and cash equivalents Investment securities

  1,714

  7,114

  (5,400) (75.9)

  1,441

  994

  447 45.0

  Total interest and dividend income

• $ 82,421 $

80,644 $

1,777

2.2

The increase in interest income on loans receivable was due to a $326.0 million increase in the average balance of the portfolio, as well as a 19 basis point increase in the weighted average yield on the portfolio to 3.75% for the current quarter. The increase in the average balance was due mainly to the acquisition of CCB. The increase in the weighted average yield was also due mainly to the addition of higher yielding loans in the CCB acquisition, as well as adjustable-rate loans repricing to higher market rates and the origination and purchase of new loans at higher market rates.

The increase in interest income on the MBS portfolio was due to a 34 basis point increase in the weighted average yield on the portfolio to 2.59% for the current quarter, along with a $74.8 million increase in the average balance of the portfolio. The increase in the weighted average yield was due primarily to a decrease in the impact of net premium amortization, as well as adjustable-rate MBS