The Company and its wholly-owned subsidiary, the Bank, may from time to time make written or oral "forward-looking statements," including statements contained in the Company's filings with the SEC. These forward-looking statements may be included in this Quarterly Report on Form 10-Q and the exhibits attached to it, in the Company's reports to stockholders and in other communications by the Company, which are made in good faith by us pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our future results to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:

· our ability to continue to maintain overhead costs at reasonable levels;

· our ability to continue to originate a significant volume of one- to four-family mortgage loans in our market area;

· our ability to acquire funds from or invest funds in wholesale or secondary markets;

· the future earnings and capital levels of the Bank, which could affect the ability of the Company to pay dividends in accordance with its dividend policies;

· fluctuations in deposit flows, loan demand, and/or real estate values, which may adversely affect our business;

· the credit risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

· the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;

· the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

· the effects of, and changes in, foreign and military policies of the United States Government;

· inflation, interest rate, market and monetary fluctuations;

· our ability to access cost-effective funding;

· the timely development of and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services;

· the willingness of users to substitute competitors' products and services for our products and services;

· our success in gaining regulatory approval of our products and services and branching locations, when required;

· the impact of changes in financial services laws and regulations, including laws concerning taxes, banking securities and insurance and the impact of other governmental initiatives affecting the financial services industry;

· implementing business initiatives may be more difficult or expensive than anticipated;

· technological changes;

· acquisitions and dispositions;

· changes in consumer spending and saving habits; and

· our success at managing the risks involved in our business

This list of important factors is not all inclusive. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.

As used in this Form 10-Q, unless we specify otherwise, "the Company," "we," "us," and "our" refer to Capitol Federal Financial, a United States corporation. "Capitol Federal Savings," and "the Bank," refer to Capitol Federal Savings Bank, a federal savings bank and the wholly-owned subsidiary of Capitol Federal Financial. "MHC" refers to Capitol Federal Savings Bank MHC, a mutual holding company and majority-owner of Capitol Federal Financial.

The following discussion and analysis is intended to assist in understanding the financial condition and results of operations of the Company. It should be read in conjunction with the consolidated financial statements and notes presented in this report. The discussion includes comments relating to the Bank, since the Bank is wholly owned by the Company and comprises the majority of its assets and is the principal source of income for the Company. This discussion and analysis should be read in conjunction with the management discussion and analysis included in the Company's 2008 Annual Report on Form 10-K filed with the SEC.

The following summary should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations in its entirety.

Our principal business consists of attracting deposits from the general public and investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences. We also originate consumer loans, loans secured by first mortgages on non-owner-occupied one- to four-family residences, construction loans secured by one- to four-family residences, commercial real estate loans, and multi-family real estate loans. While our primary business is the origination of one- to four-family mortgage loans funded through retail deposits, we also purchase whole loans and invest in certain investment securities and MBS using FHLB advances and repurchase agreements as additional funding sources.

The Company is significantly affected by prevailing economic conditions including federal monetary and fiscal policies and federal regulation of financial institutions. Deposit balances are influenced by a number of factors including interest rates paid on competing personal investment products, the level of personal income, and the personal rate of savings within our market areas. Lending activities are influenced by the demand for housing and other loans, changing loan underwriting guidelines, as well as interest rate pricing competition from other lending institutions. The primary sources of funds for lending activities include deposits, loan repayments, investment income, borrowings, and funds provided from operations.

The Company's results of operations are primarily dependent on net interest income, which is the difference between the interest earned on loans, MBS, investment securities, and cash, and the interest paid on deposits and borrowings. Net interest income is affected by the shape of the market yield curve, the re-pricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our loans and MBS as it relates to reinvestment opportunities. On a weekly basis, management reviews deposit flows, loan demand, cash

During the third quarter of fiscal year 2009, the national economy continued to contract due to an increase in unemployment and a general decline in household wealth. The financial services industry as a whole continued to experience declines in credit quality and asset quality due largely to real estate devaluations and an increase in unemployment caused by the ongoing economic recession. The Bank has not experienced the same magnitude of adverse operational impacts felt by many financial institutions; however, we are not immune to negative consequences arising from the economic recession and sharp downturn in the housing and real estate markets nationally. We recorded a $3.1 million provision for loan losses during the current quarter. The additional provision reflects an increase in our purchased loan loss factors in the formula analysis and purchased loan specific valuation allowances and accounts for charge-offs during the quarter, primarily related to purchased loans.. We have experienced an increase in the overall balance of non-performing loans, but the balance of our non-performing loans continues to remain at low levels relative to the size of our loan portfolio.

The Company recognized net income of $15.5 million for the quarter ended June 30, 2009, compared to net income of $18.1 million for the quarter ended March 31, 2009. The decrease in net income between the periods was primarily due to the $3.8 million ($2.4 million on an after-tax basis) Federal Deposit Insurance Corporation ("FDIC") special assessment at June 30, 2009 and a $1.3 million increase in the regular quarterly deposit insurance premiums. Recent bank failures have depleted the Deposit Insurance Fund (the "DIF") below the required reserve ratio which resulted in the FDIC increasing deposit insurance premiums and charging a five basis point special assessment at June 30, 2009 based upon total assets less Tier 1 capital. The authority for the FDIC to impose any additional special assessments terminates January 1, 2010. See additional discussion regarding the FDIC assessments in the section entitled "Liquidity and Capital Resources."

Since December 2008, mortgage rates have, at various points in time, declined to record lows in response to the Federal Reserve's purchase of U.S. agency debt and MBS, which has spurred an increased demand for our loan modification program and mortgage refinances. Additionally, originations during fiscal year 2009 have generally been at rates lower than the overall loan portfolio rate. As a result of modifications and refinances, approximately 20% of our mortgage loan portfolio has repriced to lower market rates during fiscal year 2009. Our loan modification program allows existing loan customers, whose loans have not been sold to third parties and who have been current on their contractual loan payments for the previous 12 months, the opportunity to modify their original loan terms to current loan terms being offered. During fiscal year 2009, we have modified $1.07 billion and refinanced $207.3 million of our originated loans. The weighted average interest rate reduction for the modified loans is approximately 88 basis points. In an effort to mitigate the net interest income impact of the loan modifications, refinances and loan originations at rates lower than the overall portfolio, the Bank refinanced $875.0 million of FHLB advances during fiscal year 2009. As a result of refinancing the FHLB advances, the Bank was able to lower its contractual interest rate on the refinanced advances by 224 basis points, from 5.65% to 3.41%. See additional discussion regarding the FHLB advance refinance in "Notes to Financial Statements - Note 6
- FHLB Advances." Due to the positive gap position of the Bank, our interest-earning assets are repricing faster than our interest-bearing liabilities. If interest rates were to increase, this would likely result in net interest income expansion in future periods as our interest-earning assets will reprice upward faster than our interest-bearing liabilities.

The Bank continues to maintain access to liquidity in excess of forecasted needs by diversifying its funding sources and maintaining a strong retail oriented deposit portfolio. We believe the turmoil in the credit and equity markets has made deposit products in strong financial institutions, like the Bank, desirable for many customers. In response to the economic recession, households have increased their personal savings rate which we believe has contributed to our growth in deposits during fiscal year 2009. We believe that our strong capital position (the Bank's tangible equity ratio at June 30, 2009 was 9.8% - see tangible equity to GAAP equity reconciliation in "Liquidity and Capital Resources - Regulatory Capital"), lending policies, and underwriting standards have helped position us to better withstand these adverse economic conditions. In addition, the investments of the Bank are primarily government-agency backed securities which are highly liquid and have not been credit impaired, and are therefore available as collateral for additional borrowings or for sale if the need or unforeseen conditions warrant. See additional discussion regarding liquidity in the section entitled "Liquidity and Capital Resources."

In fiscal year 2009, the Bank has opened three branches in our market areas in Kansas City and Wichita, and has preliminary plans to open three additional branches in those same market areas during fiscal year 2010.

Company and financial information, including press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our investor relations website, http://ir.capfed.com. SEC filings are available on our website immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov.

Our most critical accounting policies are the methodologies used to determine the allowance for loan losses and other-than-temporary declines in the value of securities. These policies are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could cause reported results to differ materially. These critical accounting policies and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting policies and an explanation of the methods and assumptions underlying their application.

Allowance for Loan Losses. Management maintains an allowance for loan losses to absorb known and inherent losses in the loan portfolio based upon ongoing quarterly assessments of the loan portfolio. Our methodology for assessing the appropriateness of the allowance for loan losses consists of a formula analysis for general valuation allowances and specific valuation allowances for identified problem loans and portfolio segments. The allowance for loan losses is maintained through provisions for loan losses which are charged to income. The provision for loan losses is established after considering the results of management's quarterly assessment of the allowance for loan losses.

All loans that are not impaired, as defined in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15" and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, an Amendment of FASB Statement No. 114," are included in a formula analysis, as permitted by SFAS No. 5, "Accounting for Contingencies." Each quarter, the loan portfolio is segregated into categories in the formula analysis based upon certain risk characteristics such as loan type (one- to four-family, multi-family, etc.), interest payments (fixed-rate, adjustable-rate), loan source (originated or purchased), and payment status (i.e. current or number of days delinquent). Loss factors are assigned to each category in the formula analysis based on management's assessment of the potential risk inherent in each category. The greater the risks associated with a particular category, the higher the loss factor. Loss factors increase as individual loans become classified, delinquent, the foreclosure process begins or as economic and market conditions and trends warrant.

Management considers quantitative and qualitative factors when determining the appropriateness of the allowance for loan losses. Such factors include changes in underwriting standards, the trend and composition of delinquent and non-performing loans, results of foreclosed property transactions, historical charge-offs, the current status and trends of local and national economies and housing markets, changes in interest rates, and loan portfolio growth and concentrations. Our allowance for loan loss methodology is applied in a consistent manner; however, the methodology can be modified in response to changing conditions.

The loss factors applied in the formula analysis are periodically reviewed by management to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. The review considers such factors as the trends and composition of delinquent and non-performing loans, the results of foreclosed property transactions, and the status and trends of the local and national economies and housing markets. Our allowance for loan loss methodology permits modifications to any loss factor used in the computation of the formula analysis in the event that, in management's judgment, significant factors which affect the collectibility of the portfolio or any category of the loan portfolio, as of the evaluation date, are not reflected in the current loss factors. Management's evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with a specific problem loan or portfolio segments. As such, the amounts actually observed with respect to these losses can vary significantly from the estimated amounts. By assessing the estimated losses inherent in our loan portfolio on a quarterly basis, management can adjust specific and inherent loss estimates based upon more current information.

The Bank has been experiencing an increase in delinquencies, non-performing loans, net loan charge-offs and losses on foreclosed property transactions, primarily on purchased loans, as a result of the decline in housing and real estate markets, as well as the ongoing economic recession. During the quarter ended March 31, 2009, management noted measurable differences in the performance and loss experience, with respect to the ultimate disposition of the underlying collateral, of our originated and purchased loan portfolios. As a result, loss factors on 30-89 day delinquent loans were modified based on whether the loan is an originated or purchased loan. The loss factors for purchased loans were modified higher than the loss factors associated with originated loans to account for the performance difference between the two portfolios. Management believes this modification to the formula analysis will result in a more accurate estimate of the inherent losses in the 30-89 day delinquent loan portfolio.

Additionally, during the quarter ended March 31, 2009, the real estate market factors used to calculate estimated current loan-to-value ("LTV") ratios in the formula analysis were modified as a result of management's quarterly analysis. The real estate market factors used in the formula analysis are based on a nationally recognized source of indices that management believes will more accurately reflect the current market value of the underlying collateral and therefore allocate loans to a more appropriate LTV category in the formula analysis. The factors are updated in the formula analysis each quarter to reflect current market activity.

Specific valuation allowances are established in connection with individual loan reviews of specifically identified problem loans and the asset classification process, including the procedures for impairment recognition under SFAS No. 114 and SFAS No. 118. Evaluations of loans for which full collectability is not reasonably assured include evaluation of the estimated fair value of the underlying collateral based upon current appraisals, real estate broker values or listing prices. Additionally, trends and composition of non-performing loans, results of foreclosed property transactions and current status and trends in economic and market conditions are also evaluated. During the quarter ended March 31, 2009, management noted the updated estimated fair values obtained from loan servicers when a loan became 90 days delinquent were not always an accurate representation of the fair value of the collateral once it was sold. The decline in fair value between the date the loan became 90 days delinquent and the time the property was sold was due to the continued decline in real estate values between those points in time, as it often takes several months for a loan to work through the foreclosure process. As a result of the analysis, management began applying market value adjustments to non-performing purchased loans as of March 31, 2009 to more accurately estimate the fair values of the underlying collateral based upon recent trends. The adjustments are determined based on the location of the underlying collateral, recent losses recognized on foreclosed property transactions and trends of non-performing purchased loans entering REO. Specific valuations on non-performing loans were established if the adjusted estimated fair value was less than the current loan balance. Management intends to evaluate the appropriateness of the market value adjustments each quarter. The market value adjustments will continue to be applied to non-performing loans until the real estate markets and economy improve to such a level that the adjustments are no longer necessary.

Loans with an outstanding balance of $1.5 million or more are reviewed annually if secured by property in one of the following categories: multi-family (five or more units) property, unimproved land, other improved commercial property, acquisition and development of land projects, developed building lots, office building, single-use building, or retail building. Specific valuation allowances are established if the individual loan review determines a quantifiable impairment.

Assessing the adequacy of the allowance for loan losses is inherently subjective. Actual results could differ from our estimates as a result of changes in economic or market conditions. Changes in estimates could result in a material change in the allowance for loan losses. In the opinion of management, the allowance for loan losses, when taken as a whole, is adequate to absorb reasonable estimated losses inherent in our loan portfolio. However, future adjustments may be necessary if portfolio performance or economic or market conditions differ substantially from the conditions that existed at the time of the initial determinations.

Securities Impairment. Management monitors the securities portfolio for OTTI on an ongoing basis and performs a formal review quarterly. Management's OTTI evaluation process conforms to the guidance contained in EITF 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets", FSP EITF 99-20-1 "Amendments to the Impairment Guidance of EITF Issue No. 99-20", SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities", FSP FAS 115-2 and FSP FAS 124-2 "Recognition and Presentation of Other-Than Temporary Impairments". The process involves monitoring market events and other items that could impact issuers. The evaluation includes, but is not limited to such factors as: the nature of the investment, the length of time the security has had a fair value less than the cost basis, the cause(s) and severity of the loss, expectation of an anticipated recovery period, recent events specific to the issuer or industry including the issuer's financial condition and the current ability to make future payments in a timely manner, external credit ratings and recent downgrades in such ratings, the Company's intent to sell and whether it is more likely than not the Company would be required to sell prior to recovery for debt securities and changes in estimated cash flows of MBS.

Management determines whether OTTI losses should be recognized for securities by assessing all known facts and circumstances surrounding the securities. If the Company intends to sell a security or if it is more likely than not that the Company will be required to sell a security before recovery of its amortized cost basis, OTTI has occurred and the difference between amortized cost and fair value will be recognized as a loss in earnings.

If the Company does not intend to sell the security but also does not expect to recover the entire amortized cost basis of the security, an impairment loss would be recognized in earnings in the amount of the expected amortized cost basis that would not be collected (credit loss). The remaining amount of OTTI would be recognized in other comprehensive income (loss).

Total assets increased from $8.06 billion at September 30, 2008 to $8.32 billion at June 30, 2009. The $264.0 million increase in assets was primarily attributed to a $221.0 million increase in loans receivable substantially due to loan purchases. The growth in assets during fiscal year 2009 was primarily funded by growth in deposits. Deposits increased from $3.92 billion at September 30, 2008 to $4.18 billion at June 30, 2009. The $251.4 million increase was primarily in the certificate of deposit and money market portfolios. Stockholders' equity increased from $871.2 million at September 30, 2008 to $922.6 million at June 30, 2009. The $51.4 million increase was due to net income of $49.5 million during fiscal year 2009 and an increase in accumulated other comprehensive gain
(loss) of $29.5 million, partially offset by $33.6 million of dividend payments during fiscal year 2009.

The following table presents selected balance sheet data for the Company at the dates indicated.

                                                                      Balance at
                                   June 30,         March 31,       December 31,       September 30,       June 30,
                                     2009             2009              2008               2008              2008
                                                   (Dollars in thousands, except per share amounts)

Total assets                      $ 8,319,292      $ 8,269,881     $    8,157,324     $     8,055,249     $ 7,892,137
Cash and cash equivalents              74,101           52,025            143,134              87,138          86,437
Investment securities                 322,166          214,410            105,965             142,359         144,346
MBS                                 2,100,998        2,204,369          2,176,302           2,234,339       2,066,685
Loans receivable, net               5,541,731        5,377,699          5,456,569           5,320,780       5,326,061
Capital stock of FHLB                 132,071          131,278            131,230             124,406         129,172
Deposits                            4,175,251        4,116,514          3,867,304           3,923,883       3,961,543
. . .