UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C.  20549


_________________





Form
10-Q


(Mark
One)


þQUARTERLY
      REPORT PURSUANT TO SECTION 13 OR
15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For
the quarterly period ended March 31, 2009





or





 ̈TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15 (d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934





Commission
file number:  000-25391


_________________





Capitol
Federal Financial


(Exact name of registrant as
specified in its charter)





United
States                                                                   48-1212142


(State or other
jurisdiction of
incorporation                                         (I.R.S.
Employer


or
organization)                                                                  Identification
No.)





700 Kansas Avenue,
Topeka,
Kansas                                                66603


(Address of
principal executive offices)       
                                       (Zip
Code)





Registrant’s
telephone number, including area code:


(785)
235-1341








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such requirements for the past
90 days.   Yes þ    No
 ̈




Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files.)   Yes  ̈    No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer, large accelerated filer, and smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
accelerated filer    þ         Accelerated
filer     ̈        Non-accelerated
filer    ̈      Smaller
Reporting Company    ̈


(do
not check if a smaller


reporting
company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes   ̈    No  þ





As
of April 27, 2009, there were 74,091,055 shares of Capitol Federal Financial
Common Stock outstanding.











1





PART I -- FINANCIAL INFORMATION
            Page
              NumberItem
      1.  Financial Statements (Unaudited):Consolidated Balance
      Sheets at March 31, 2009 and September 30, 2008
            3Consolidated
      Statements of Income for the three and six months
      endedMarch
      31, 2009 and March 31, 2008
            4Consolidated
      Statement of Stockholders’ Equity for the six months
      endedMarch
      31, 2009
            5Consolidated Statements of
      Cash Flows for the six months endedMarch
      31, 2009 and March 31, 2008
            6Notes to Consolidated
      Financial Statements
            8Item
      2.  Management’s
      Discussion and Analysis of Financial Condition
    andResults
      of Operations
            12Item
      3.  Quantitative and Qualitative Disclosure about
      Market Risk
            51Item
      4.  Controls and Procedures
            59PART
      II -- OTHER INFORMATIONItem
      1.    Legal Proceedings
            59Item
      1A. Risk
      Factors
            59Item
      2.    Unregistered Sales of Equity Securities
      and Use of Proceeds
            60Item
      3.    Defaults Upon Senior
      Securities
            60Item
      4.    Submission of Matters to a Vote of Security
      Holders
            60Item
      5.    Other Information
            60Item
      6.    Exhibits
            60Signature
      Page
            61INDEX
      TO EXHIBITS
            62





2


PART
I -- FINANCIAL INFORMATION


Item
1. Financial Statements


CAPITOL
FEDERAL FINANCIAL AND SUBSIDIARY


CONSOLIDATED BALANCE SHEETS


(Dollars
in thousands except per share data and amounts)


March
      31,
                          
                          
                          September
      30,2009
                          
                          
                          2008ASSETS:
                          
                          (Unaudited)Cash
      and cash equivalents
                          
                          $
                          52,025
                          
                          
                          $
                          87,138Investment
      securities:Available-for-sale
      (“AFS”) at market (amortized cost of $158,556 and $51,700)
                          
                          
                          156,550
                          
                          
                          
                          49,586Held-to-maturity
      (“HTM”) at cost (market value of $58,889 and $92,211)
                          
                          
                          57,860
                          
                          
                          
                          92,773Mortgage-backed
      securities (“MBS”)AFS,
      at market (amortized cost of $1,490,325 and $1,491,536)
                          
                          
                          1,531,916
                          
                          
                          
                          1,484,055HTM,
      at cost (market value of $689,454 and $743,764)
                          
                          
                          672,453
                          
                          
                          
                          750,284Loans
      receivable held-for-sale, net (“LHFS”)
                          
                          
                          146,412
                          
                          
                          
                          997Loans
      receivable, net
                          
                          
                          5,377,699
                          
                          
                          
                          5,320,780Capital
      stock of Federal Home Loan Bank (“FHLB”), at cost
                          
                          
                          131,278
                          
                          
                          
                          124,406Accrued
      interest receivable
                          
                          
                          32,564
                          
                          
                          
                          33,704Premises
      and equipment, net
                          
                          
                          33,240
                          
                          
                          
                          29,874Real
      estate owned (“REO”), net
                          
                          
                          5,824
                          
                          
                          
                          5,146Other
      assets
                          
                          
                          72,060
                          
                          
                          
                          76,506TOTAL
      ASSETS
                          
                          $
                          8,269,881
                          
                          
                          $
                          8,055,249LIABILITIES:Deposits
                          
                          $
                          4,116,514
                          
                          
                          $
                          3,923,883Advances
      from FHLB
                          
                          
                          2,411,560
                          
                          
                          
                          2,447,129Other
      borrowings, net
                          
                          
                          713,609
                          
                          
                          
                          713,581Advance
      payments by borrowers for taxes and insurance
                          
                          
                          46,433
                          
                          
                          
                          53,213Income
      taxes payable
                          
                          
                          8,011
                          
                          
                          
                          6,554Deferred
      income tax liabilities, net
                          
                          
                          24,031
                          
                          
                          
                          3,223Accounts
      payable and accrued expenses
                          
                          
                          33,332
                          
                          
                          
                          36,450Total
      liabilities
                          
                          
                          7,353,490
                          
                          
                          
                          7,184,033STOCKHOLDERS'
      EQUITY:Preferred
      stock ($0.01 par value) 50,000,000 shares authorized; none
      issued
                          
                          
                          --
                          
                          
                          
                          --Common
      stock ($0.01 par value) 450,000,000 shares authorized,
      91,512,287shares
      issued; 74,091,055  and 74,079,868 shares
      outstandingas
      of March 31, 2009 and September 30, 2008, respectively
                          
                          
                          915
                          
                          
                          
                          915Additional
      paid-in capital
                          
                          
                          449,782
                          
                          
                          
                          445,391Unearned
      compensation, Employee Stock Ownership Plan (“ESOP”)
                          
                          
                          (9,074
                          )
                          
                          
                          (10,082
                          )Unearned
      compensation, Recognition and Retention Plan (“RRP”)
                          
                          
                          (394
                          )
                          
                          
                          (553
                          )Retained
      earnings
                          
                          
                          770,186
                          
                          
                          
                          759,375Accumulated
      other comprehensive gain (loss)
                          
                          
                          24,622
                          
                          
                          
                          (5,968
                          )Less
      shares held in treasury (17,421,232 and 17,432,419 shares as
      ofMarch
      31, 2009 and September 30, 2008, respectively, at cost)
                          
                          
                          (319,646
                          )
                          
                          
                          (317,862
                          )Total
      stockholders' equity
                          
                          
                          916,391
                          
                          
                          
                          871,216TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                          
                          $
                          8,269,881
                          
                          
                          $
                          8,055,249


See
accompanying notes to consolidated interim financial statements.


<Index>


3


CAPITOL FEDERAL FINANCIAL AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF INCOME  (Unaudited)


(Dollars
and share counts in thousands except per share data)





For
      the Three Months Ended
                        
                        
                        For
      the Six Months EndedMarch
      31,
                        
                        
                        March
      31,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008INTEREST
      AND DIVIDEND INCOME:Loans
      receivable
                        
                        $
                        77,446
                        
                        
                        $
                        75,276
                        
                        
                        $
                        154,162
                        
                        
                        $
                        151,539MBS
                        
                        
                        25,088
                        
                        
                        
                        20,246
                        
                        
                        
                        51,490
                        
                        
                        
                        37,373Investment
      securities
                        
                        
                        955
                        
                        
                        
                        3,061
                        
                        
                        
                        2,281
                        
                        
                        
                        7,191Capital
      stock of FHLB
                        
                        
                        778
                        
                        
                        
                        1,864
                        
                        
                        
                        1,558
                        
                        
                        
                        3,944Cash
      and cash equivalents
                        
                        
                        68
                        
                        
                        
                        1,369
                        
                        
                        
                        117
                        
                        
                        
                        2,797Total
      interest and dividend income
                        
                        
                        104,335
                        
                        
                        
                        101,816
                        
                        
                        
                        209,608
                        
                        
                        
                        202,844INTEREST
      EXPENSE:FHLB
      advances
                        
                        
                        26,653
                        
                        
                        
                        31,796
                        
                        
                        
                        56,198
                        
                        
                        
                        65,957Deposits
                        
                        
                        24,711
                        
                        
                        
                        35,145
                        
                        
                        
                        51,496
                        
                        
                        
                        73,178Other
      borrowings
                        
                        
                        7,109
                        
                        
                        
                        3,873
                        
                        
                        
                        14,834
                        
                        
                        
                        6,080Total
      interest expense
                        
                        
                        58,473
                        
                        
                        
                        70,814
                        
                        
                        
                        122,528
                        
                        
                        
                        145,215NET
      INTEREST AND DIVIDEND INCOME
                        
                        
                        45,862
                        
                        
                        
                        31,002
                        
                        
                        
                        87,080
                        
                        
                        
                        57,629PROVISION
      FOR LOAN LOSSES
                        
                        
                        2,107
                        
                        
                        
                        119
                        
                        
                        
                        2,656
                        
                        
                        
                        119NET
      INTEREST AND DIVIDEND INCOMEAFTER
      PROVISION FOR LOAN LOSSES
                        
                        
                        43,755
                        
                        
                        
                        30,883
                        
                        
                        
                        84,424
                        
                        
                        
                        57,510OTHER
      INCOME:Retail
      fees and charges
                        
                        
                        4,031
                        
                        
                        
                        4,095
                        
                        
                        
                        8,561
                        
                        
                        
                        8,584Insurance
      commissions
                        
                        
                        873
                        
                        
                        
                        697
                        
                        
                        
                        1,364
                        
                        
                        
                        1,175Loan
      fees
                        
                        
                        597
                        
                        
                        
                        581
                        
                        
                        
                        1,166
                        
                        
                        
                        1,179Income
      from bank-owned life insurance (“BOLI”)
                        
                        
                        241
                        
                        
                        
                        612
                        
                        
                        
                        625
                        
                        
                        
                        1,233Gains
      on sale of LHFS, net
                        
                        
                        516
                        
                        
                        
                        180
                        
                        
                        
                        540
                        
                        
                        
                        257Other,
      net
                        
                        
                        678
                        
                        
                        
                        1,817
                        
                        
                        
                        1,322
                        
                        
                        
                        2,665Total
      other income
                        
                        
                        6,936
                        
                        
                        
                        7,982
                        
                        
                        
                        13,578
                        
                        
                        
                        15,093OTHER
      EXPENSES:Salaries
      and employee benefits
                        
                        
                        10,569
                        
                        
                        
                        10,273
                        
                        
                        
                        21,732
                        
                        
                        
                        20,708Occupancy
      of premises
                        
                        
                        3,770
                        
                        
                        
                        3,477
                        
                        
                        
                        7,492
                        
                        
                        
                        6,634Advertising
                        
                        
                        1,947
                        
                        
                        
                        1,386
                        
                        
                        
                        3,689
                        
                        
                        
                        2,217Deposit
      and loan transaction fees
                        
                        
                        1,418
                        
                        
                        
                        1,216
                        
                        
                        
                        2,722
                        
                        
                        
                        2,571Regulatory
      and other services
                        
                        
                        980
                        
                        
                        
                        1,459
                        
                        
                        
                        2,129
                        
                        
                        
                        3,078Other,
      net
                        
                        
                        3,311
                        
                        
                        
                        3,096
                        
                        
                        
                        6,418
                        
                        
                        
                        5,150Total
      other expenses
                        
                        
                        21,995
                        
                        
                        
                        20,907
                        
                        
                        
                        44,182
                        
                        
                        
                        40,358INCOME
      BEFORE INCOME TAX EXPENSE
                        
                        
                        28,696
                        
                        
                        
                        17,958
                        
                        
                        
                        53,820
                        
                        
                        
                        32,245INCOME
      TAX EXPENSE
                        
                        
                        10,564
                        
                        
                        
                        6,231
                        
                        
                        
                        19,836
                        
                        
                        
                        11,405NET
      INCOME
                        
                        $
                        18,132
                        
                        
                        $
                        11,727
                        
                        
                        $
                        33,984
                        
                        
                        $
                        20,840Basic
      earnings per common share
                        
                        $
                        0.25
                        
                        
                        $
                        0.16
                        
                        
                        $
                        0.46
                        
                        
                        $
                        0.29Diluted
      earnings per common share
                        
                        $
                        0.25
                        
                        
                        $
                        0.16
                        
                        
                        $
                        0.46
                        
                        
                        $
                        0.29Dividends
      declared per public share
                        
                        $
                        0.50
                        
                        
                        $
                        0.50
                        
                        
                        $
                        1.11
                        
                        
                        $
                        1.00Basic
      weighted average common shares
                        
                        
                        73,113
                        
                        
                        
                        72,875
                        
                        
                        
                        73,088
                        
                        
                        
                        72,916Diluted
      weighted average common shares
                        
                        
                        73,175
                        
                        
                        
                        72,929
                        
                        
                        
                        73,168
                        
                        
                        
                        72,973




See
accompanying notes to consolidated interim financial
statements.


4


CAPITOL FEDERAL FINANCIAL AND
SUBSIDIARY


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


(Unaudited)


(Dollars
in thousands except per share data and amounts)








AccumulatedAdditional
                  
                  
                  Unearned
                  
                  
                  Unearned
                  
                  
                  
                  
                  
                  OtherCommon
                  
                  
                  Paid-In
                  
                  
                  Compensation
                  
                  
                  Compensation
                  
                  
                  Retained
                  
                  
                  Comprehensive
                  
                  
                  TreasuryStock
                  
                  
                  Capital
                  
                  
                  (ESOP)
                  
                  
                  (RRP)
                  
                  
                  Earnings
                  
                  
                  Gain
      (Loss)
                  
                  
                  Stock
                  
                  
                  TotalBalance
      at October 1, 2008
                  
                  $
                  915
                  
                  
                  $
                  445,391
                  
                  
                  $
                  (10,082
                  )
                  
                  $
                  (553
                  )
                  
                  $
                  759,375
                  
                  
                  $
                  (5,968
                  )
                  
                  $
                  (317,862
                  )
                  
                  $
                  871,216Comprehensive
      income:Net
      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  33,984
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  33,984Changes
      in unrealized gains (losses) onsecurities
      available-for-sale,net of deferred income taxesof $18,588
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  30,590
                  
                  
                  
                  
                  
                  
                  
                  30,590Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  64,574ESOP
      activity, net
                  
                  
                  
                  
                  
                  
                  3,145
                  
                  
                  
                  1,008
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,153RRP
      activity, net
                  
                  
                  
                  
                  
                  
                  35
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  35Stock
      based compensation - stock options and RRP
                  
                  
                  
                  
                  
                  
                  150
                  
                  
                  
                  
                  
                  
                  
                  159
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  309Acquisition
      of treasury stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,426
                  )
                  
                  
                  (2,426
                  )Stock
      options exercised
                  
                  
                  
                  
                  
                  
                  1,061
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  642
                  
                  
                  
                  1,703Dividends
      on common stock to publicstockholders
      ($1.11 per public share)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (23,173
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (23,173
                  )Balance
      at March 31, 2009
                  
                  $
                  915
                  
                  
                  $
                  449,782
                  
                  
                  $
                  (9,074
                  )
                  
                  $
                  (394
                  )
                  
                  $
                  770,186
                  
                  
                  $
                  24,622
                  
                  
                  $
                  (319,646
                  )
                  
                  $
                  916,391








See
accompanying notes to consolidated interim financial statements.








<Index>





5


CAPITOL
FEDERAL FINANCIAL AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars
in thousands)


For
      the Six Months EndedMarch
      31,2009
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                        
                        $
                        33,984
                        
                        
                        $
                        20,840Adjustments
      to reconcile net income to net cash provided byoperating
      activities:FHLB
      stock dividends
                        
                        
                        (1,558
                        )
                        
                        
                        (3,944
                        )Provision
      for loan losses
                        
                        
                        2,656
                        
                        
                        
                        119Originations
      of LHFS
                        
                        
                        (863
                        )
                        
                        
                        (15,034
                        )Proceeds
      from sales of LHFS
                        
                        
                        31,631
                        
                        
                        
                        16,409Amortization
      and accretion of premiums and discounts on MBSand
      investment securities
                        
                        
                        503
                        
                        
                        
                        283Depreciation
      and amortization of premises and equipment
                        
                        
                        2,415
                        
                        
                        
                        2,537Amortization
      of deferred amounts related to FHLB advances, net
                        
                        
                        584
                        
                        
                        
                        --Common
      stock committed to be released for allocation - ESOP
                        
                        
                        4,153
                        
                        
                        
                        3,353Stock
      based compensation - stock options and RRP
                        
                        
                        309
                        
                        
                        
                        427Other,
      net
                        
                        
                        41
                        
                        
                        
                        1,239Changes
      in:Accrued
      interest receivable
                        
                        
                        1,140
                        
                        
                        
                        4,331Other
      assets
                        
                        
                        4,665
                        
                        
                        
                        (792
                        )Income
      taxes payable/receivable
                        
                        
                        4,212
                        
                        
                        
                        12,392Accounts
      payable and accrued expenses
                        
                        
                        (4,120
                        )
                        
                        
                        (2,063
                        )Net
      cash provided by operating activities
                        
                        
                        79,752
                        
                        
                        
                        40,097CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from maturities or calls of investment securities AFS
                        
                        
                        19,996
                        
                        
                        
                        99,782Purchases
      of investment securities AFS
                        
                        
                        (127,151
                        )
                        
                        
                        --Proceeds
      from maturities or calls of investment securities HTM
                        
                        
                        39,600
                        
                        
                        
                        510,108Purchases
      of investment securities HTM
                        
                        
                        (3,962
                        )
                        
                        
                        (173,843
                        )Principal
      collected on MBS AFS
                        
                        
                        119,712
                        
                        
                        
                        102,075Purchases
      of MBS AFS
                        
                        
                        (118,469
                        )
                        
                        
                        (810,881
                        )Principal
      collected on MBS HTM
                        
                        
                        77,870
                        
                        
                        
                        112,850Purchases
      of MBS HTM
                        
                        
                        --
                        
                        
                        
                        (3,389
                        )Proceeds
      from the redemption of capital stock of FHLB
                        
                        
                        3,688
                        
                        
                        
                        27,361Purchases
      of capital stock of FHLB
                        
                        
                        (9,002
                        )
                        
                        
                        (12,926
                        )Loan
      originations, net of principal collected
                        
                        
                        (84,890
                        )
                        
                        
                        (29,903
                        )Loan
      purchases, net of principal collected
                        
                        
                        (155,984
                        )
                        
                        
                        25,459Net
      deferred fee activity
                        
                        
                        490
                        
                        
                        
                        235Purchases
      of premises and equipment
                        
                        
                        (5,838
                        )
                        
                        
                        (1,445
                        )Proceeds
      from sales of REO
                        
                        
                        3,273
                        
                        
                        
                        2,168Net
      cash used in investing activities
                        
                        
                        (240,667
                        )
                        
                        
                        (152,349
                        )





(Continued)


6





For
      the Six Months EndedMarch
      31,2009
                    
                    
                    2008CASH
      FLOWS FROM FINANCING ACTIVITIES:Dividends
      paid
                    
                    
                    (23,173
                    )
                    
                    
                    (20,760
                    )Deposits,
      net of withdrawals
                    
                    
                    192,631
                    
                    
                    
                    98,184Proceeds
      from advances/line of credit from FHLB
                    
                    
                    1,261,102
                    
                    
                    
                    300,000Repayments
      on advances/line of credit from FHLB
                    
                    
                    (1,261,102
                    )
                    
                    
                    (500,000
                    )Deferred
      prepayment penalty on FHLB advances
                    
                    
                    (36,153
                    )
                    
                    
                    --Proceeds
      from repurchase agreements
                    
                    
                    --
                    
                    
                    
                    350,000Change
      in advance payments by borrowers for taxes
    and insurance
                    
                    
                    (6,780
                    )
                    
                    
                    (6,488
                    )Acquisitions
      of treasury stock
                    
                    
                    (2,426
                    )
                    
                    
                    (7,245
                    )Stock
      options exercised and excess tax benefits from stock
    options
                    
                    
                    1,703
                    
                    
                    
                    271Net
      cash provided by financing activities
                    
                    
                    125,802
                    
                    
                    
                    213,962NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                    
                    
                    (35,113
                    )
                    
                    
                    101,710CASH
      AND CASH EQUIVALENTS:Beginning
      of period
                    
                    
                    87,138
                    
                    
                    
                    162,791End
      of period
                    
                    $
                    52,025
                    
                    
                    $
                    264,501SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Income
      tax payments, net of refunds
                    
                    $
                    15,596
                    
                    
                    $
                    410Interest
      payments, net of interest credited to deposits
                    
                    $
                    71,907
                    
                    
                    $
                    70,979SUPPLEMENTAL
      DISCLOSURE OF NON-CASHINVESTING
      AND FINANCING ACTIVITIES:Loans
      transferred to REO
                    
                    $
                    5,137
                    
                    
                    $
                    2,804Purchase
      of security that will settle in a subsequent period
                    
                    $
                    1,002
                    
                    
                    $
                    56,003Repurchase
      agreements that will settle in a subsequent period
                    
                    $
                    --
                    
                    
                    $
                    (50,000
                    )Market
      value change related to fair value hedge:Interest
      rate swaps hedging FHLB advances
                    
                    $
                    --
                    
                    
                    $
                    (13,948
                    )Transfer
      of loans receivable to LHFS, net
                    
                    $
                    175,862
                    
                    
                    $
                    --








(Concluded)


See
accompanying notes to consolidated interim financial statements.


<Index>


7


Notes to Consolidated Interim Financial Statements
(Unaudited)





1.   Basis
of Financial Statement Presentation


The
accompanying consolidated financial statements of Capitol Federal Financial
(“CFFN”) and subsidiary (the “Company”) have been prepared in accordance with
generally accepted accounting principles in the United States of America
(“GAAP”) for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements.  In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included.  These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company’s 2008 Annual Report on Form 10-K filed with the
Securities and Exchange Commission (“SEC”).  Interim results are not
necessarily indicative of results for a full year.





In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting
periods.  Significant estimates include the allowance for loan losses,
other-than-temporary declines in the fair value of securities and other
financial instruments. Actual results could differ from those
estimates.  See “Item 2- Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting
Policies.”





The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, Capitol Federal Savings Bank (the “Bank”). The Bank has
a wholly owned subsidiary, Capitol Funds, Inc.  Capitol Funds, Inc.
has a wholly owned subsidiary, Capitol Federal Mortgage Reinsurance
Company.  All intercompany accounts and transactions have been
eliminated.





2.   Earnings
Per Share (“EPS”)


The Company accounts for the 3,024,574 shares acquired by its ESOP
in accordance with Statement of Position (“SOP”) 93-6 and the shares awarded
pursuant to its RRP in a manner similar to the ESOP shares.  Shares
acquired by the ESOP and shares awarded pursuant to the RRP are not considered
in the basic average shares outstanding until the shares are committed for
allocation or vested to an employee’s individual account.  The
following is a reconciliation of the numerators and denominators of the basic
and diluted EPS calculations.





For
      the Three Months Ended
                
                
                For
      the Six Months EndedMarch
      31,
                
                
                March
      31,2009(1)
                
                
                2008(2) (3)
                
                
                2009(1)
                
                
                2008(2) (3)(Dollars
      in thousands, except per share amounts)Net
      income
                
                $
                18,132
                
                
                $
                11,727
                
                
                $
                33,984
                
                
                $
                20,840Average
      common shares outstanding
                
                
                73,062,516
                
                
                
                72,824,366
                
                
                
                73,062,425
                
                
                
                72,890,074Average
      committed ESOP shares outstanding
                
                
                50,970
                
                
                
                50,964
                
                
                
                25,482
                
                
                
                25,618Total
      basic average common shares outstanding
                
                
                73,113,486
                
                
                
                72,875,330
                
                
                
                73,087,907
                
                
                
                72,915,692Effect
      of dilutive RRP shares
                
                
                4,269
                
                
                
                2,663
                
                
                
                6,535
                
                
                
                4,457Effect
      of dilutive stock options
                
                
                57,074
                
                
                
                50,953
                
                
                
                73,628
                
                
                
                53,100Total
      diluted average common shares outstanding
                
                
                73,174,829
                
                
                
                72,928,946
                
                
                
                73,168,070
                
                
                
                72,973,249Net
      EPS:Basic
                
                $
                0.25
                
                
                $
                0.16
                
                
                $
                0.46
                
                
                $
                0.29Diluted
                
                $
                0.25
                
                
                $
                0.16
                
                
                $
                0.46
                
                
                $
                0.29





8


(1)Options to purchase 55,800 shares of common stock at prices between
$38.77 per share and $43.46 per share were outstanding as of March 31, 2009, but
were not included in the computation of diluted EPS because they were
anti-dilutive for the three and six months ended March 31, 2009.





(2)Options to purchase 217,800 shares of common stock at prices between
$32.13 per share and $38.77 were outstanding as of March 31, 2008, but were not
included in the computation of diluted EPS because they were anti-dilutive for
the three and six months ended March 31, 2008.





(3)At March 31, 2008, there were 6,000 unvested RRP shares at $32.30 per
share that were excluded from the computation of diluted EPS because they were
anti-dilutive for the three months and the six months ended March 31,
2008.





3.
Fair Value Measurements


Effective
October 1, 2008, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 157 “Fair Value Measurements” which defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements. The statement applies whenever other standards require or permit
assets or liabilities to be measured at fair value.  The statement
does not require new fair value measurements, but rather provides a definition
and framework for measuring fair value which will result in greater consistency
and comparability among financial statements prepared under GAAP. The Company’s
adoption of SFAS No. 157 did not have a material impact on its financial
condition or results of operations.  The following disclosures, which
include certain disclosures which are generally not required in interim period
financial statements, are included herein as a result of the Company’s adoption
of SFAS No. 157.





The
Company uses fair value measurements to record fair value adjustments to certain
assets and to determine fair value disclosures. The Company did not have any
liabilities that were measured at fair value at March 31, 2009.  The
Company’s AFS securities are recorded at fair value on a recurring
basis.  Additionally, from time to time, the Company may be required
to record at fair value other assets or liabilities on a non-recurring basis,
such as REO, loans held-for-sale, and impaired loans. These non-recurring fair
value adjustments involve the application of lower-of-cost-or-fair value
accounting or write-downs of individual assets.





In
accordance with SFAS No. 157, the Company groups its assets at fair value
in three levels, based on the markets in which the assets are traded and the
reliability of the assumptions used to determine fair value. These levels
are:





•
            
            Level
      1 — Valuation is based upon quoted prices for identical instruments traded
      in active markets.•
            
            Level
      2 — Valuation is based upon quoted prices for similar instruments in
      active markets, quoted prices for identical or similar instruments in
      markets that are not active, and model-based valuation techniques for
      which all significant assumptions are observable in the
      market.•
            
            Level
      3 — Valuation is generated from model-based techniques that use
      significant assumptions not observable in the market. These unobservable
      assumptions reflect the Company’s own estimates of assumptions that market
      participants would use in pricing the asset or liability. Valuation
      techniques include the use of option pricing models, discounted cash flow
      models, and similar techniques. The results cannot be determined with
      precision and may not be realized in an actual sale or immediate
      settlement of the asset or liability.





9


The
Company bases its fair values on the price that would be received to sell an
asset in an orderly transaction between market participants at the measurement
date.  SFAS No. 157 requires the Company to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value.





The
following is a description of valuation methodologies used for assets measured
at fair value on a recurring basis.





AFS
Securities


The
Company’s AFS securities portfolio is carried at estimated fair value on a
recurring basis, with any unrealized gains and losses, net of taxes, reported as
accumulated other comprehensive income/loss in stockholders'
equity.  Substantially all of the securities within the AFS portfolio
consist of MBS and investment securities issued by U.S. Government sponsored
enterprises or agencies.  The fair values for all the AFS securities
are obtained from independent nationally recognized pricing services. Various
modeling techniques are used to determine pricing for the Company’s MBS and
investment securities, including option pricing and discounted cash flow models.
The inputs to these models may include benchmark yields, reported trades,
broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and
reference data.  There are some AFS securities in the AFS portfolio
that have significant unobservable input requiring the independent pricing
services to use some judgment in pricing the related
securities.  These AFS securities are classified as Level
3.  All other AFS securities are classified as Level 2.





The
following table provides the level of valuation assumption used to determine the
carrying value of the Company’s assets measured at fair value on a recurring
basis at March 31, 2009:





Quoted
      Prices in Active
                        
                        
                        Significant
      Other
                        
                        
                        SignificantCarrying
                        
                        
                        Markets
      for Identical
                        
                        
                        Observable
      Inputs
                        
                        
                        Unobservable
      InputsValue
                        
                        
                        Assets
      (Level 1)
                        
                        
                        (Level
      2)
                        
                        
                        (Level
      3) (1)(Dollars
      in thousands)AFS
      securities:Investment
      securities
                        
                        $
                        156,550
                        
                        
                        $
                        --
                        
                        
                        $
                        154,728
                        
                        
                        $
                        1,822MBS
                        
                        
                        1,531,916
                        
                        
                        
                        --
                        
                        
                        
                        1,531,916
                        
                        
                        
                        --$
                        1,688,466
                        
                        
                        $
                        --
                        
                        
                        $
                        1,686,644
                        
                        
                        $
                        1,822





(1)
The Company’s Level 3 AFS securities were immaterial as of March 31, 2009 and
had no material activity during the period ended March 31, 2009.





The
following is a description of valuation methodologies used for significant
assets measured at fair value on a non-recurring basis.





Loans
Receivable


Loans
which meet certain criteria are evaluated individually for impairment. A loan is
considered impaired when, based upon current information and events, it is
probable the Bank will be unable to collect all amounts due, including principal
and interest, according to the contractual terms of the loan
agreement.  Substantially all of the Bank’s impaired loans at March
31, 2009 are secured by real estate.  These impaired loans are
individually assessed to determine that the carrying value of the loan is not in
excess of the fair value of the collateral, less estimated selling costs. Fair
value is estimated through current appraisals, real estate brokers or listing
prices.  Fair values may be adjusted by management to reflect current
economic and market conditions and, as such, are classified as Level
3.  Impaired loans at March 31, 2009 were $22.7 million. Based on this
evaluation, the Company maintains an allowance for loan losses of $2.7 million
at March 31, 2009 for such impaired loans.





REO,
net


REO
represents real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure and is carried at the lower of cost or fair value less estimated
selling costs.  Fair value is estimated through current appraisals,
real estate brokers or listing prices.  As these properties are
actively marketed, estimated fair values may be adjusted by management to
reflect current economic and market conditions and, as such, are classified as
Level 3.  REO at March 31, 2009 was $5.8 million. During the
quarter and six months ended March 31, 2009, charge-offs to the allowance for
loan losses related to loans that were transferred to REO were $607
thousand and $697 thousand, respectively. Write downs related to REO that were
charged to other expense were $396 thousand and $640
thousandfor the quarter and six months ended March 31,
2009.


10


The
following table provides the level of valuation assumption used to determine the
carrying value of the Company’s assets measured at fair value on a non-recurring
basis at March 31, 2009:





Quoted
      Prices in Active
                      
                      
                      Significant
      Other
                      
                      
                      SignificantMarkets
      for Identical
                      
                      
                      Observable
      Inputs
                      
                      
                      Unobservable
      InputsAssets
      (Level 1)
                      
                      
                      (Level
      2)
                      
                      
                      (Level
      3)(Dollars
      in thousands)Impaired
      loans
                      
                      $
                      --
                      
                      
                      $
                      --
                      
                      
                      $
                      22,665REO,
      net
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      5,824$
                      --
                      
                      
                      $
                      --
                      
                      
                      $
                      28,489





4.  FHLB
Advances


During
the quarter ended March 31, 2009, the Bank prepaid $575.0 million of fixed-rate
FHLB advances with a weighted average interest rate of 6.35% and a weighted
average remaining term to maturity of 15 months.  The prepaid FHLB
advances were replaced with $575.0 million of fixed-rate FHLB advances, with a
weighted average contractual interest rate of 3.70% and an average term of 65
months.  This 265 basis point decrease in the contractual interest
rate resulted in a $4.9 million decrease in FHLB interest expense for the
quarter ended March 31, 2009 compared to the quarter ended March 31, 2008.The
Bank paid a $36.2 million prepayment penalty to the FHLB as a result of
prepaying the FHLB advances.  In accordance with Emerging Issues Task
Force (“EITF”) 96-19, “Debtor’s Accounting for a Modification or Exchange of
Debt Instruments”, the prepayment penalty was deferred as an adjustment to the
carrying value of the new advances since the new FHLB advances were not
“substantially different,” as defined within EITF 96-19, from the prepaid FHLB
advances.  The present value of the cash flows under the terms of the
new FHLB advances was not more than 10% different from the present value of the
cash flows under the terms of the prepaid FHLB advances (including the
prepayment penalty) and there were no embedded conversion options in the prepaid
FHLB advances or in the new FHLB advances.  The deferred prepayment
penalty will be recognized in interest expense over the life of the new FHLB
advances.  The following table presents the face value of FHLB
advances and the maturities and rates for all FHLB advances outstanding at March
31, 2009.





Weighted
                      
                      
                      WeightedFHLB
                      
                      
                      Average
                      
                      
                      AverageAdvances
                      
                      
                      Contractual
                      
                      
                      EffectiveMaturity
      by fiscal year
                      
                      Amount
                      
                      
                      Rate
                      
                      
                      Rate(Dollars
      in
      thousands)2009
                      
                      $
                      320,000
                      
                      
                      
                      4.37
                      %
                      
                      
                      4.37
                      %2010
                      
                      
                      350,000
                      
                      
                      
                      4.49
                      
                      
                      
                      4.492011
                      
                      
                      276,000
                      
                      
                      
                      4.87
                      
                      
                      
                      4.872012
                      
                      
                      350,000
                      
                      
                      
                      3.35
                      
                      
                      
                      3.352013
                      
                      
                      525,000
                      
                      
                      
                      3.72
                      
                      
                      
                      4.06Thereafter
                      
                      
                      625,000
                      
                      
                      
                      3.68
                      
                      
                      
                      4.63Total
                      
                      $
                      2,446,000
                      
                      
                      
                      3.98
                      %
                      
                      
                      4.30
                      %


11


5.  Recent
Accounting Pronouncements





In
January 2009, the Financial Accounting Standards Board (“FASB”) issued Staff
Position (“FSP”) EITF 99-20-1, “Amendments to the Impairment Guidance of EITF
Issue No. 99-20.”  FSP EITF 99-20-1 eliminates the requirement that a
security holder’s best estimate of cash flows be based upon those that “a market
participant” would use.  Instead, an other-than-temporary impairment
(“OTTI”) should be recognized as a realized loss through earnings when it is
probable there has been an adverse change in the security holder’s estimated
cash flows from previous projections.  This treatment is consistent
with the impairment model in SFAS No. 115 “Accounting for Certain Investments in
Debt and Equity Securities.”  FSP EITF 99-20-1 was effective for the
Company for the period ending December 31, 2008, and did not have a material
impact on the Company’s financial condition or results of
operations.





In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.”  FSP FAS 157-4
provides additional guidance on valuation techniques for estimating the fair
value of assets or liabilities in accordance with SFAS No. 157 “Fair Value
Measurements” when there has been a significant decrease in volume and level of
market activity.  The FSP also provides guidance on identifying
circumstances that indicate a transaction is not orderly.  As part of
the judgment involved with estimating fair value, the entity will need to
determine which valuation technique or techniques are the most appropriate, and,
within those techniques, which results are “most representative” of fair value
under market conditions.  The FSP emphasizes that the notion of exit
price in an orderly transaction (that is, not a forced liquidation or distressed
sale) between market participants at the measurement date under current market
conditions remains unchanged.  FSP FAS 157-4 is effective for interim
reporting periods after June 15, 2009, which is June 30, 2009 for the
Company.  The FSP is not expected to have a material impact on the
Company’s financial condition or results of operations.





In April
2009, the FASB issued FSP FAS 115-2, “Recognition and Presentation of
Other-Than-Temporary Impairments.” FSP FAS 115-2 amends existing OTTI guidance
for debt securities by requiring the recognition of an OTTI if an entity has the
intent to sell an impaired debt security, it is more likely than not the entity
will be required to sell the debt security before recovery, or if the entity
does not expect to recover the entire amortized cost basis of the debt
security.  The FSP also expands and increases the frequency of
existing disclosures requirements of SFAS 115, “Accounting for Certain
Investments in Debt and Equity Securities.” FSP FAS 115-2 is effective for
interim reporting periods after June 15, 2009, which is June 30, 2009 for the
Company.  FSP FAS 115-2 will affect certain interim reporting
disclosures, but is not expected to have a material impact on the Company’s
financial condition or results of operations.





In April
2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”)
Opinion No. 28-1, “Interim Disclosures About Fair Value of Financial
Instruments” which amends SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments’ and APB No. 28, “Interim Financial Reporting” to require
publicly traded companies to include fair value disclosures of its financial
instruments whenever it issues summarized financial information for interim
reporting periods.  The FSP also requires entities to disclose the
methods and significant assumptions used to estimate the fair value of financial
instruments, and to disclose significant changes in methods or assumptions used
to estimate fair values.  FSP FAS 107-1 and APB 28-1 is effective for
interim reporting periods after June 15, 2009, which is June 30, 2009 for the
Company.  The FSP will affect certain interim reporting disclosures,
but is not expected to have a material impact on the Company’s financial
condition or results of operations.








Item 2.   Management’s Discussion and Analysis of
Financial Condition and Results of Operations





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.





12


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.





13


Executive
Summary





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, permanent and 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 levels, and
changes in several market rates to assess all pricing strategies.  We
generally price our loan and deposit products based upon an analysis of our
competition and changes in market rates.  The Bank generally prices
its first mortgage loan products based upon prices available in the secondary
market while considering the demand for our products and our ability to service
customers in a timely manner.  Generally, deposit pricing is based
upon a survey of peers in the Bank’s market areas, and the need to attract
funding and retain maturing deposits.  The majority of our loans are
fixed-rate products with maturities up to 30 years, while the majority of our
deposits have maturity or reprice dates of less than two years.





During
fiscal year 2009, the financial services industry and the economy as a whole
continued to experience turmoil in the wake of steep 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 overall economic weakness and sharp downturn in
the housing and real estate markets nationally.  We have experienced
an increase in the 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.  During the current quarter, we modified our
allowance for loan loss methodology in response to the continued deterioration
of the housing and real estate markets, the increasing weakness in the overall
economy, and the trends and composition of our delinquent and non-performing
loans and losses on foreclosed property transactions, primarily related to
purchased loans. As a result of the change in our allowance for loan loss
methodology and charge-offs, primarily related to purchased loans, a $2.1
million provision for loan loss was recorded during the current
quarter.





During
late December 2008 and continuing into the second quarter of fiscal year 2009,
mortgage rates declined to record lows in response to the Federal Reserve’s
purchases of U.S. agency debt and MBS.  The decline in mortgage rates
has spurred an increased demand for our loan modification program and mortgage
refinances.  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.  The volume and magnitude of these loan modifications and
refinances will likely have a negative impact on our net interest margin in
future periods as a result of loans repricing to lower market interest
rates.  During the quarter ended March 31, 2009 we modified $568.5
million and refinanced $92.0 million of our originated loans.  The
weighted average interest rate reduction for the modified loans is approximately
88 basis points.  To help mitigate the impact to net interest income
and interest rate risk as a result of loan modifications, the Bank sold $30.1
million of modified loans during the current quarter.  The Bank is
retaining the servicing on the sold modified loans.  These modified
loans are being sold on a bulk basis, and based upon past experience, we do not
expect all modified loans held-for-sale as of the balance sheet date to be
purchased


14


by the
investor.  Loans not purchased by the investor will be transferred
back to the loans receivable portfolio at the lower of cost or
market.  Additionally, the Bank refinanced $575.0 million of FHLB
advances during the quarter also in an effort to mitigate the net interest
income impact of loan modifications and refinances and to extend
maturities.  As a result of refinancing the FHLB advances, the Bank
was able lower its FHLB advance effective interest rate 118 basis points at the
time of the refinance.  See additional discussion regarding the FHLB
advance refinance in “Notes to Financial Statements-- Note 4 – FHLB
Advances.”





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 desirable for
many customers.  We also believe that our strong capital position (the
Bank’s tangible equity ratio at March 31, 2009 was 10%), lending policies, and
underwriting standards have helped position us to withstand these adverse
economic conditions.  In addition, the investments of the Bank are
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 two branches and has plans to open two additional
branches in our Kansas City market area.  The Bank has preliminary
plans to open three additional branches in our market areas in Kansas City and
Wichita during fiscal year 2010.








Available
Information


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.








Critical
Accounting Policies





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 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.




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




15


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.  Management’s current
quarter analysis of delinquency and non-performing loan trends, results of
foreclosed property transactions and current status and trends of the local and
national economies and housing markets indicated 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 of the analysis, loss factors on 30-89 day delinquent loans were modified
based upon whether the loan is an originated or purchased loan.  Based
upon our experience with delinquent purchased loans, the loss factor for
purchased loans is higher than that of originated loans.  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, the real estate market factors used to
calculate current loan-to-value (“LTV”) ratios in the formula analysis were
adjusted as a result of management’s analysis.  The real estate market
factors used in the formula analysis are now based upon 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.




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 management’s current quarter analysis of the
results of foreclosed property transactions and the current status and trends of
national housing markets, it was noted that 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 applied market value adjustments to
non-performing purchased loans at March 31, 2009 to more accurately estimate the
fair values of the underlying collateral based upon recent
trends.  The adjustments were determined based upon the location of
the underlying collateral, 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.




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 allowance for loan losses
increased $1.4 million from $6.1 million at December 31, 2008 to $7.5 million at
March 31, 2009, primarily due to the modification to the formula analysis and
application of market value adjustments on non-performing purchased loans as
discussed above.  During the current quarter, a provision for loan
loss of $2.1 million was recorded as a




16


result of
the modifications to our allowance for loan loss methodology and current quarter
charge-offs, primarily on purchased loans.




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 continually monitors the MBS and
investment security portfolios for impairment on a security by security
basis.  Many factors are considered in determining whether the
impairment is deemed to be other-than-temporary, including, but not limited to,
the nature of the investment, the length of time the security has had a market
value less than the cost basis, the cause(s), severity of the loss, the intent
and ability of the Bank to hold the security for a period of time sufficient for
a substantial recovery of its investment, expectation of an anticipated recovery
period, recent events specific to the issuer or industry including the issuer’s
financial condition and current ability to make future payments in a timely
manner, external credit ratings and recent downgrades in such
ratings.  If management deems the decline to be other-than-temporary,
the carrying value of the security is adjusted and an impairment amount is
recorded in the consolidated statements of income.  At March 31, 2009,
no securities had been identified as other-than-temporarily
impaired.










Financial
Condition





Total
assets increased from $8.06 billion at September 30, 2008 to $8.27 billion at
March 31, 2009.  The $214.6 million increase in assets was primarily
attributed to a $202.3 million increase in loans receivable and loans receivable
held-for-sale.  Total liabilities increased from $7.18 billion at
September 30, 2008 to $7.35 billion at March 31, 2009.  The $169.5
million increase in liabilities was primarily a result of an increase in
deposits of $192.6 million, primarily in the certificate of deposit and money
market portfolios.  Stockholders’ equity increased $45.2 million to
$916.4 million at March 31, 2009, from $871.2 million at September 30,
2008.  A large component of this increase was related to an increase
in accumulated other comprehensive gain (loss) due to an increase in the market
value of AFS securities at March 31, 2009.





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





Balance
      atMarch
      31,
                
                
                December
      31,
                
                
                September
      30,
                
                
                June
      30,
                
                
                March
      31,2009
                
                
                2008
                
                
                2008
                
                
                2008
                
                
                2008(Dollars
      in thousands, except per share amounts)Selected
      Balance Sheet Data:Total
      assets
                
                $
                8,269,881
                
                
                $
                8,157,324
                
                
                $
                8,055,249
                
                
                $
                7,892,137
                
                
                $
                8,034,662Cash
      and cash equivalents
                
                
                52,025
                
                
                
                143,134
                
                
                
                87,138
                
                
                
                86,437
                
                
                
                264,501Investment
      securities
                
                
                214,410
                
                
                
                105,965
                
                
                
                142,359
                
                
                
                144,346
                
                
                
                88,597MBS
                
                
                2,204,369
                
                
                
                2,176,302
                
                
                
                2,234,339
                
                
                
                2,066,685
                
                
                
                2,076,766Loans
      receivable, net
                
                
                5,377,699
                
                
                
                5,456,569
                
                
                
                5,320,780
                
                
                
                5,326,061
                
                
                
                5,292,866Capital
      stock of FHLB
                
                
                131,278
                
                
                
                131,230
                
                
                
                124,406
                
                
                
                129,172
                
                
                
                129,170Deposits
                
                
                4,116,514
                
                
                
                3,867,304
                
                
                
                3,923,883
                
                
                
                3,961,543
                
                
                
                4,020,966Advances
      from FHLB
                
                
                2,411,560
                
                
                
                2,596,964
                
                
                
                2,447,129
                
                
                
                2,547,294
                
                
                
                2,547,588Other
      borrowings
                
                
                713,609
                
                
                
                713,595
                
                
                
                713,581
                
                
                
                453,566
                
                
                
                453,552Stockholders’
      equity
                
                
                916,391
                
                
                
                897,435
                
                
                
                871,216
                
                
                
                863,906
                
                
                
                869,106Accumulated
      other comprehensive   gain (loss)
                
                
                24,622
                
                
                
                14,263
                
                
                
                (5,968
                )
                
                
                (5,202
                )
                
                
                6,215Equity
      to total assets at end of   period
                
                
                11.1
                %
                
                
                11.0
                %
                
                
                10.8
                %
                
                
                11.0
                %
                
                
                10.8
                %Bank
      tangible equity ratio
                
                
                9.9
                %
                
                
                10.0
                %
                
                
                10.0
                %
                
                
                10.0
                %
                
                
                9.8
                %Book
      value per share
                
                $
                12.52
                
                
                $
                12.27
                
                
                $
                11.93
                
                
                $
                11.84
                
                
                $
                11.92







17


Loans Receivable.The loans receivable
portfolio increased $56.9 million from $5.32 billion at September 30, 2008 to
$5.38 billion at March 31, 2009.  The increase was primarily a result
of $191.6 million of loan purchases from nationwide lenders, partially offset by
the transfer of $175.9 million of modified loans to the LHFS
portfolio.  The loans purchased from nationwide lenders during fiscal
year 2009 had an average credit score of 745 at the time of origination and a
current weighted average LTV ratio of 50%.  The majority of the loans
are seasoned loans and were originated in years outside of the years with peak
real estate values and non-traditional underwriting
standards.  Approximately 80% were originated in 2004 or earlier and
approximately 20% were originated in 2008.  Additionally, states that
have experienced high foreclosure rates were avoided.  See additional
discussion regarding the underwriting standards for purchased loans in “Lending
Practices and Underwriting Standards.”  Loans purchased from
nationwide lenders represented 15% of the loan portfolio at March 31, 2009
compared to 14% at September 30, 2008.  As of March 31, 2009, the
average balance of a purchased nationwide mortgage loan was approximately $370
thousand while the average balance of an originated mortgage loan was
approximately $140 thousand.




Included
in the loan portfolio at March 31, 2009 were $303.8 million of interest-only
loans, which were primarily purchased from nationwide lenders during fiscal year
2005.  These loans do not typically require principal payments during
their initial term, and have initial interest-only terms of either five or ten
years.  At March 31, 2009, $295.5 million, or 97%, of these loans were
still in their interest-only payment term.  As of March 31, 2009,
$134.8 million will begin to amortize principal within two years, $21.0 million
will begin amortizing principal within two-to-five years, and the remaining
$139.7 million will begin to amortize principal within five-to-ten
years.  Loans of this type generally are considered to be of greater
risk to the lender because of the possibility that the borrower may default once
principal payments are required.  The loans had an average credit
score of 737 and an average LTV ratio of 80% or less at the time of
purchase.  The Bank has not purchased any interest-only loans since
2006.




18


The
following table presents loan origination, refinance and purchase activity for
the periods indicated.  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 Three Months EndedMarch
      31, 2009
                            
                            
                            March
      31, 2008Amount
                            
                            
                            Rate
                            
                            
                            %
      of Total
                            
                            
                            Amount
                            
                            
                            Rate
                            
                            
                            %
      of TotalFixed-Rate:
                            
                            (Dollars
      in thousands)One-
      to four-family<=
      15 years
                            
                            $
                            75,884
                            
                            
                            
                            4.82
                            %
                            
                            
                            18.70
                            %
                            
                            $
                            30,583
                            
                            
                            
                            5.30
                            %
                            
                            
                            13.16
                            %>
      15 years
                            
                            
                            226,148
                            
                            
                            
                            5.10
                            
                            
                            
                            55.74
                            
                            
                            
                            141,922
                            
                            
                            
                            5.69
                            
                            
                            
                            61.08Other
      real estate
                            
                            
                            5,971
                            
                            
                            
                            6.00
                            
                            
                            
                            1.47
                            
                            
                            
                            300
                            
                            
                            
                            6.75
                            
                            
                            
                            0.13Consumer
                            
                            
                            2,111
                            
                            
                            
                            7.75
                            
                            
                            
                            0.52
                            
                            
                            
                            4,389
                            
                            
                            
                            7.77
                            
                            
                            
                            1.90Total
      fixed-rate
                            
                            
                            310,114
                            
                            
                            
                            5.07
                            
                            
                            
                            76.43
                            
                            
                            
                            177,194
                            
                            
                            
                            5.68
                            
                            
                            
                            76.27Adjustable-Rate:One-
      to four-family<=
      36 months
                            
                            
                            50,448
                            
                            
                            
                            4.79
                            
                            
                            
                            12.43
                            
                            
                            
                            8,306
                            
                            
                            
                            5.16
                            
                            
                            
                            3.57>
      36 months
                            
                            
                            23,117
                            
                            
                            
                            5.16
                            
                            
                            
                            5.70
                            
                            
                            
                            25,070
                            
                            
                            
                            5.51
                            
                            
                            
                            10.79Consumer
                            
                            
                            22,053
                            
                            
                            
                            4.81
                            
                            
                            
                            5.44
                            
                            
                            
                            21,775
                            
                            
                            
                            6.82
                            
                            
                            
                            9.37Total
      adjustable-rate
                            
                            
                            95,618
                            
                            
                            
                            4.88
                            
                            
                            
                            23.57
                            
                            
                            
                            55,151
                            
                            
                            
                            5.97
                            
                            
                            
                            23.73Total
      originations, refinances and purchases
                            
                            $
                            405,732
                            
                            
                            
                            5.02
                            %
                            
                            
                            100.00
                            %
                            
                            $
                            232,345
                            
                            
                            
                            5.75
                            %
                            
                            
                            100.00
                            %Purchased
      loans included above:Fixed-Rate:Correspondent
                            
                            $
                            33,226
                            
                            
                            
                            5.18
                            %
                            
                            
                            
                            
                            
                            $
                            10,191
                            
                            
                            
                            5.71Adjustable-Rate:Correspondent
                            
                            
                            4,851
                            
                            
                            
                            5.12
                            
                            
                            
                            
                            
                            
                            
                            20,322
                            
                            
                            
                            5.51Nationwide
                            
                            
                            65,498
                            
                            
                            
                            4.89
                            
                            
                            
                            
                            
                            
                            
                            --
                            
                            
                            
                            --Total
      purchased loans
                            
                            $
                            103,575
                            
                            
                            
                            4.99
                            %
                            
                            
                            
                            
                            
                            $
                            30,513
                            
                            
                            
                            5.58
                            %





19





For
      the Six Months Ended
                            
                            
                            For
      the Six Months EndedMarch
      31, 2009
                            
                            
                            March
      31, 2008Amount
                            
                            
                            Rate
                            
                            
                            %
      of Total
                            
                            
                            Amount
                            
                            
                            Rate
                            
                            
                            %
      of TotalFixed-Rate:
                            
                            (Dollars
      in thousands)One-
      to four-family<=
      15 years
                            
                            $
                            103,901
                            
                            
                            
                            4.99
                            %
                            
                            
                            14.48
                            %
                            
                            $
                            57,197
                            
                            
                            
                            5.52
                            %
                            
                            
                            13.03
                            %>
      15 years
                            
                            
                            333,293
                            
                            
                            
                            5.32
                            
                            
                            
                            46.45
                            
                            
                            
                            252,043
                            
                            
                            
                            5.87
                            
                            
                            
                            57.44Other
      real estate
                            
                            
                            11,936
                            
                            
                            
                            5.94
                            
                            
                            
                            1.66
                            
                            
                            
                            300
                            
                            
                            
                            6.75
                            
                            
                            
                            0.07Consumer
                            
                            
                            5,395
                            
                            
                            
                            7.66
                            
                            
                            
                            0.75
                            
                            
                            
                            11,085
                            
                            
                            
                            8.17
                            
                            
                            
                            2.53Total
      fixed-rate
                            
                            
                            454,525
                            
                            
                            
                            5.29
                            
                            
                            
                            63.34
                            
                            
                            
                            320,625
                            
                            
                            
                            5.88
                            
                            
                            
                            73.07Adjustable-Rate:One-
      to four-family<=
      36 months
                            
                            
                            138,524
                            
                            
                            
                            4.92
                            
                            
                            
                            19.30
                            
                            
                            
                            18,046
                            
                            
                            
                            5.36
                            
                            
                            
                            4.11>
      36 months
                            
                            
                            79,039
                            
                            
                            
                            5.27
                            
                            
                            
                            11.01
                            
                            
                            
                            57,709
                            
                            
                            
                            5.70
                            
                            
                            
                            13.15Consumer
                            
                            
                            45,556
                            
                            
                            
                            4.95
                            
                            
                            
                            6.35
                            
                            
                            
                            42,430
                            
                            
                            
                            7.55
                            
                            
                            
                            9.67Total
      adjustable-rate
                            
                            
                            263,119
                            
                            
                            
                            5.03
                            
                            
                            
                            36.66
                            
                            
                            
                            118,185
                            
                            
                            
                            6.31
                            
                            
                            
                            26.93Total
      originations, refinances and purchases
                            
                            $
                            717,644
                            
                            
                            
                            5.20
                            %
                            
                            
                            100.00
                            %
                            
                            $
                            438,810
                            
                            
                            
                            6.00
                            %
                            
                            
                            100.00
                            %Purchased
      loans included above:Fixed-Rate:Correspondent
                            
                            $
                            46,975
                            
                            
                            
                            5.36
                            %
                            
                            
                            
                            
                            
                            $
                            22,277
                            
                            
                            
                            5.97
                            %Nationwide
                            
                            
                            256
                            
                            
                            
                            4.38
                            
                            
                            
                            
                            
                            
                            
                            --
                            
                            
                            
                            --Adjustable-Rate:Correspondent
                            
                            
                            11,100
                            
                            
                            
                            5.48
                            
                            
                            
                            
                            
                            
                            
                            39,947
                            
                            
                            
                            5.68Nationwide
                            
                            
                            191,313
                            
                            
                            
                            5.00
                            
                            
                            
                            
                            
                            
                            
                            155
                            
                            
                            
                            5.38Total
      purchased loans
                            
                            $
                            249,644
                            
                            
                            
                            5.09
                            %
                            
                            
                            
                            
                            
                            $
                            62,379
                            
                            
                            
                            5.79
                            %








Loan
modification activity is not included in the tables above because a new loan is
not generated at the time of modification.  During the three and six
months ended March 31, 2009, the Bank modified $568.5 million and $593.2 million
loans, respectively, with a weighted average rate change of 88 basis points and
84 basis points, respectively.




The Bank
generally prices its one- to four-family loan products based upon prices
available in the secondary market.  During the six months ended March
31, 2009, the rate on the Bank’s 30-year fixed-rate one- to four-family loans,
with no points paid by the borrower, were approximately 250 basis points above
the average 10-year Treasury rate, while the rate on the Bank’s 15-year
fixed-rate one- to four-family loans were approximately 220 basis points above
the average 10-year Treasury rate.  Even though longer-term market
interest rates decreased as a result of the Federal Reserve’s purchase of U.S.
agency debt and MBS, mortgage interest rates maintained a wider spread relative
to U.S. Treasury securities resulting in higher yields on our one- to
four-family loans.







20





The
following table summarizes the activity in the loan portfolio for the periods
indicated, excluding changes in loans in process, deferred fees and allowance
for loan losses.  Included in the three and six months ended March 31,
2009 balances are $92.0 million and $111.1 million of refinances,
respectively.  Loans that were paid-off as a result of the refinances
are included in ‘repayments’.  Loan modification activity is not
included in the activity in the following table because a new loan is not
generated at the time of modification.  See modification activity for
the three and six months ended March 31, 2009 on the previous
page.  The modified balance and rate are included in the ending loan
portfolio balance and rate.


For
      the Three Months EndedMarch
      31, 2009
                
                December
      31, 2008
                
                September
      30, 2008
                
                
                June
      30, 2008Amount
                
                
                Rate
                
                
                Amount
                
                
                Rate
                
                
                Amount
                
                
                Rate
                
                
                Amount
                
                
                Rate(Dollars
      in thousands)Beginning
      balance
                
                $
                5,506,352
                
                
                
                5.63
                %
                
                $
                5,379,845
                
                
                
                5.66
                %
                
                $
                5,389,901
                
                
                
                5.63
                %
                
                $
                5,352,278
                
                
                
                5.66
                %Originations
      and refinancesFixed
                
                
                276,888
                
                
                
                5.06
                
                
                
                130,406
                
                
                
                5.77
                
                
                
                140,565
                
                
                
                6.08
                
                
                
                213,098
                
                
                
                5.72Adjustable
                
                
                25,269
                
                
                
                4.83
                
                
                
                35,437
                
                
                
                5.23
                
                
                
                45,333
                
                
                
                5.69
                
                
                
                47,641
                
                
                
                5.82PurchasesFixed
                
                
                33,226
                
                
                
                5.18
                
                
                
                14,005
                
                
                
                5.76
                
                
                
                7,309
                
                
                
                6.12
                
                
                
                18,209
                
                
                
                5.51Adjustable
                
                
                70,349
                
                
                
                4.90
                
                
                
                132,064
                
                
                
                5.09
                
                
                
                17,225
                
                
                
                5.76
                
                
                
                14,509
                
                
                
                5.51Repayments
                
                
                (311,733
                )
                
                
                
                
                
                
                (183,532
                )
                
                
                
                
                
                
                (216,090
                )
                
                
                
                
                
                
                (254,784
                )Transfer
      of modified loans to LHFS, net
                
                
                (175,862
                )
                
                
                
                
                
                
                --
                
                
                
                
                
                
                
                --
                
                
                
                
                
                
                
                --Other(1)
                
                
                (1,691
                )
                
                
                
                
                
                
                (1,873
                )
                
                
                
                
                
                
                (4,398
                )
                
                
                
                
                
                
                (1,050
                )Ending
      balance
                
                $
                5,422,798
                
                
                
                5.50
                %
                
                $
                5,506,352
                
                
                
                5.63
                %
                
                $
                5,379,845
                
                
                
                5.66
                %
                
                $
                5,389,901
                
                
                
                5.63
                %For the Six Months EndedMarch
      31, 2009
                
                March
      31, 2008Amount
                
                
                Rate
                
                
                Amount
                
                
                Rate(Dollars
      in thousands)Beginning
      balance
                
                $
                5,379,845
                
                
                
                5.66
                %
                
                $
                5,346,626
                
                
                
                5.68
                %Originations
      and refinancesFixed
                
                
                407,294
                
                
                
                5.28
                
                
                
                298,348
                
                
                
                5.88Adjustable
                
                
                60,706
                
                
                
                5.07
                
                
                
                75,850
                
                
                
                6.65PurchasesFixed
                
                
                47,231
                
                
                
                5.35
                
                
                
                22,277
                
                
                
                5.98Adjustable
                
                
                202,413
                
                
                
                5.02
                
                
                
                40,102
                
                
                
                5.68Repayments
                
                
                (495,265
                )
                
                
                
                
                
                
                (428,304
                )Transfer
      of modified loans to LHFS, net
                
                
                (175,862
                )
                
                
                
                
                
                
                --Other(1)
                
                
                (3,564
                )
                
                
                
                
                
                
                (2,621
                )Ending
      balance
                
                $
                5,422,798
                
                
                
                5.50
                %
                
                $
                5,352,278
                
                
                
                5.66
                %





(1)“Other”consists of transfers to REO
and net fees advanced.




21


The
following table presents the Company’s loan portfolio at the dates
indicated.




March
      31, 2009
                  
                  
                  December
      31, 2008
                  
                  
                  September
      30, 2008Amount
                  
                  
                  Average
      Rate
                  
                  
                  %
      of Total
                  
                  
                  Amount
                  
                  
                  Average
      Rate
                  
                  
                  %
      of Total
                  
                  
                  Amount
                  
                  
                  Average
      Rate
                  
                  
                  %
      of Total(Dollars
      in thousands)Real Estate LoansOne-
      to four-family
                  
                  $
                  5,085,227
                  
                  
                  
                  5.49
                  %
                  
                  
                  93.77
                  %
                  
                  $
                  5,154,113
                  
                  
                  
                  5.60
                  %
                  
                  
                  93.60
                  %
                  
                  $
                  5,026,358
                  
                  
                  
                  5.61
                  %
                  
                  
                  93.43
                  %Multi-family
      and commercial
                  
                  
                  67,278
                  
                  
                  
                  6.30
                  
                  
                  
                  1.24
                  
                  
                  
                  61,353
                  
                  
                  
                  6.38
                  
                  
                  
                  1.12
                  
                  
                  
                  56,081
                  
                  
                  
                  6.44
                  
                  
                  
                  1.04Construction
      and development
                  
                  
                  63,823
                  
                  
                  
                  5.28
                  
                  
                  
                  1.18
                  
                  
                  
                  76,601
                  
                  
                  
                  5.59
                  
                  
                  
                  1.39
                  
                  
                  
                  85,178
                  
                  
                  
                  5.66
                  
                  
                  
                  1.58Total
      real estate loans
                  
                  
                  5,216,328
                  
                  
                  
                  5.50
                  
                  
                  
                  96.19
                  
                  
                  
                  5,292,067
                  
                  
                  
                  5.61
                  
                  
                  
                  96.11
                  
                  
                  
                  5,167,617
                  
                  
                  
                  5.62
                  
                  
                  
                  96.05Consumer LoansSavings
      loans
                  
                  
                  4,524
                  
                  
                  
                  5.65
                  
                  
                  
                  0.08
                  
                  
                  
                  4,497
                  
                  
                  
                  5.79
                  
                  
                  
                  0.08
                  
                  
                  
                  4,634
                  
                  
                  
                  5.95
                  
                  
                  
                  0.09Automobile
                  
                  
                  3,083
                  
                  
                  
                  6.96
                  
                  
                  
                  0.06
                  
                  
                  
                  3,307
                  
                  
                  
                  6.97
                  
                  
                  
                  0.06
                  
                  
                  
                  3,484
                  
                  
                  
                  7.00
                  
                  
                  
                  0.07Home
      equity
                  
                  
                  197,939
                  
                  
                  
                  5.67
                  
                  
                  
                  3.65
                  
                  
                  
                  205,409
                  
                  
                  
                  5.97
                  
                  
                  
                  3.73
                  
                  
                  
                  202,956
                  
                  
                  
                  6.53
                  
                  
                  
                  3.77Other
                  
                  
                  924
                  
                  
                  
                  8.27
                  
                  
                  
                  0.02
                  
                  
                  
                  1,072
                  
                  
                  
                  7.74
                  
                  
                  
                  0.02
                  
                  
                  
                  1,154
                  
                  
                  
                  7.13
                  
                  
                  
                  0.02Total
      consumer loans
                  
                  
                  206,470
                  
                  
                  
                  5.70
                  
                  
                  
                  3.81
                  
                  
                  
                  214,285
                  
                  
                  
                  5.99
                  
                  
                  
                  3.89
                  
                  
                  
                  212,228
                  
                  
                  
                  6.52
                  
                  
                  
                  3.95Total
      loans receivable
                  
                  
                  5,422,798
                  
                  
                  
                  5.50
                  %
                  
                  
                  100.00
                  %
                  
                  
                  5,506,352
                  
                  
                  
                  5.63
                  %
                  
                  
                  100.00
                  %
                  
                  
                  5,379,845
                  
                  
                  
                  5.66
                  %
                  
                  
                  100.00
                  %Less:Loans
      in process
                  
                  
                  27,058
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  33,593
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  43,186Deferred
      fees and discounts
                  
                  
                  10,577
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,053
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,088Allowance
      for loan losses
                  
                  
                  7,464
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,137
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5,791Total
      loans receivable, net
                  
                  $
                  5,377,699
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  5,456,569
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  5,320,780










22


Lending
Practices and Underwriting Standards





The
Bank’s primary lending activity is the origination of loans and the purchase of
loans from a select group of correspondent lenders.  These loans are
generally secured by first mortgages on owner-occupied, one- to four-family
residences in the Bank’s primary market areas and select market areas in
Missouri.  The Bank also makes consumer loans, construction loans
secured by residential or commercial properties, and multi-family real estate
loans secured by multi-family dwellings.  Additional lending volume
has been generated by purchasing whole one- to four-family mortgage loans from
nationwide lenders.  By purchasing loans from nationwide lenders, the
Bank is able to attain some geographic diversification in its loan portfolio,
and help mitigate the Bank’s interest rate risk exposure as the purchased loans
are predominately adjustable-rate or 15-year fixed-rate loans.  As a
result of the decline in real estate values and the economic recession, we have
experienced an increase in non-performing purchased loans.  At the
time these loans were purchased, they met our underwriting standards; however,
some are located in areas that have recently experienced high unemployment rates
and sharp declines in real estate values.  See additional discussion
regarding non-performing purchased loans in “Critical Accounting Policies –
Allowance for Loan Losses” and “Asset Quality.”  The loans purchased
during fiscal year 2009 had an average credit score of 745 and a current
weighted average LTV ratio of 50%.  See additional discussion
regarding loans purchased during fiscal year 2009 in “Financial Condition –
Loans Receivable.”





The
Bank’s one- to four-family loans are primarily fully amortizing fixed- or
adjustable-rate loans with contractual maturities of up to 30 years, except for
interest-only loans which require the payment of interest during the
interest-only period, all with payments due monthly.  Our one- to
four- family loans are generally not assumable and do not contain prepayment
penalties.  A “due on sale” clause, allowing the Bank to declare the
unpaid principal balance due and payable upon the sale of the secured property,
is generally included in the security instrument.





Current
adjustable-rate one- to four-family loans originated by the Bank generally
provide for a specified rate limit or cap on the periodic adjustment to the
interest rate, as well as a specified maximum lifetime cap and minimum rate, or
floor.  As a consequence of using caps, the interest rates on these
loans may not be as rate sensitive as our cost of funds. Negative amortization
of principal is not allowed.  Borrowers are qualified based on the
principal, interest, taxes and insurance payments at the initial rate for three,
five and seven year adjustable-rate mortgage (“ARM”) loans.  After the
initial three, five or seven year period, the interest rate is repriced annually
and the new principal and interest payment is based on the new interest rate,
remaining unpaid principal balance and term of the ARM loan.  Our ARM
loans are not automatically convertible into fixed-rate loans; however, we do
allow borrowers to pay a modification fee to convert an ARM loan to a fixed-rate
loan.  ARM loans can pose different credit risks than fixed-rate
loans, primarily because as interest rates rise, the borrower’s payment also
rises, increasing the potential for default.  This specific risk type
is known as repricing risk.





During
2008, the Bank discontinued offering an interest-only ARM product, but holds in
its portfolio originated and purchased interest-only ARM loans.  The
product was discontinued to reduce future credit risk exposure.  At
the time of origination, these loans did not require principal payments for a
period of up to ten years.  Borrowers were qualified based on a fully
amortizing payment at the initial loan rate.  The Bank was more
restrictive on debt-to-income ratios and credit scores on interest-only ARM
loans than on other ARM loans to offset the potential risk of payment shock at
the time the loan rate adjusts and/or the principal and interest payments
begin.   At March 31, 2009, 6% of our loan portfolio consisted of
non-amortizing interest-only ARM loans.  The majority of these loans
were purchased from nationwide lenders during fiscal year 2005.  These
loans had an initial interest-only term of either five or ten years, with
approximately equal distribution between the two terms.  At March 31,
2009, $8.4 million or approximately 40% of non-performing loans were
interest-only.  Non-performing interest-only loans represent
approximately 3% of the total interest-only portfolio at March 31,
2009.  See discussion regarding the allowance for loan losses in
“Critical Accounting Policies – Allowance for Loan Losses.”





One- to
four-family loans are generally underwritten using an automated underwriting
system developed by a third party.  The system’s components closely
resemble the Bank’s manual underwriting standards which are generally in
accordance with Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal
National Mortgage Association (“FNMA”) underwriting guidelines.  The
automated underwriting system analyzes the applicant’s data, with emphasis on
credit history, employment and income history, qualifying ratios reflecting the
applicant’s ability to repay, asset reserves, and loan-to-value
ratio.  Loans that do not meet the automated underwriting standards
are referred to a staff underwriter for manual underwriting.  Full
documentation to support the applicant’s credit, income, and sufficient funds to
cover all applicable fees and reserves at closing are required on all
loans.  Properties securing one- to four-family loans are appraised by
either staff appraisers or fee appraisers, both of which are independent of the
loan origination function and have been approved by the board of
directors.





For loans
with an LTV ratio in excess of 80% at the time of origination, private mortgage
insurance is required in order to reduce the Bank’s loss exposure to less than
80% of the appraised value or the purchase price of the property.  The
Bank will lend up to 97% of the lesser of the appraised value or purchase price
for one- to four-family loans provided the Bank is able to


23


obtain
private mortgage insurance.  At this time, we believe that our private
mortgage insurance counterparties have the ability to meet potential claim
obligations we may file in the foreseeable future.





The
underwriting standards of the lenders from whom the Bank purchases loans are
generally similar to the Bank’s internal underwriting standards.  “No
Doc” or “Stated Income, Stated Assets” loans are not
permitted.  Lenders are required to fully document all data sources
for each application.  Management believes these requirements reduce
the credit risk associated with these loans.  Before committing to
purchase a pool of loans from a nationwide lender, the Bank’s Chief Lending
Officer or Secondary Marketing Manager reviews specific criteria such as loan
amount, credit scores, LTV ratios, geographic location, and debt ratios of each
loan in the pool.  If the specific criteria do not meet the Bank’s
underwriting standards and compensating factors are not sufficient, then a loan
will be removed from the pool.  Once the review of the specific
criteria is complete and loans not meeting the Bank’s standards are removed from
the pool, changes are sent back to the lender for acceptance and
pricing.  Before the pool is funded, an approved Bank underwriter
reviews at least 25% of the loan files and the supporting documentation in the
pool.  Our standard contractual agreement with the lender includes
recourse options for any breach of representation or warranty with respect to
the loans purchased.







The
underwriting of loans purchased through correspondent lenders is generally
performed by a third party underwriter who is under contract to use a product
description supplied by the Bank that is specific to each
correspondent.  The products offered by the correspondents are at
least as restrictive as the Bank’s own internal underwriting
standards.  Correspondent lenders are located within the metropolitan
Kansas City market area and select market areas in Missouri.  The Bank
purchases approved loans and the related servicing rights, on a loan-by-loan
basis.





In an
effort to offset the impact of repayments and to retain our customers, the Bank
offers existing loan customers whose loans have not been sold to third parties
the opportunity to modify their original loan terms to new loan terms generally
consistent with those currently being offered.  This is a convenient
tool for customers who may have considered refinancing from an ARM loan to a
fixed-rate loan, would like to reduce their term, or take advantage of lower
rates associated with current market rates.  The program helps ensure
the Bank maintains the relationship with the customer and significantly reduces
the amount of effort required for customers to obtain current market pricing and
terms without having to refinance their loans.  The Bank charges a fee
for this service generally comparable to fees charged on new
loans.  The Bank does not solicit customers for this program, but
considers it a valuable opportunity to retain customers who, due to our strict
initial underwriting, could likely obtain similar financing
elsewhere.





The Bank
also originates construction-to-permanent loans primarily secured by one- to
four-family residential real estate.  Presently, all of the one- to
four-family construction loans are secured by property located within the Bank’s
market areas.  Construction loans are obtained primarily by homeowners
who will occupy the property when construction is complete.  The Bank
is also a participant with five other banking institutions on a construction
loan secured by a retail shopping center in Kansas with two major
retailers.  Construction loans to builders for speculative purposes
are not permitted.  The application process includes submission of
complete plans, specifications, and costs of the project to be
constructed.  These items are used as a basis to determine the
appraised value of the subject property.  All construction loans are
manually underwritten using the Bank’s internal underwriting
standards.  The construction and permanent loans are closed at the
same time allowing the borrower to secure the interest rate at the beginning of
the construction period and throughout the permanent
loan.  Construction draw requests and the supporting documentation are
reviewed and approved by management.  The Bank also performs regular
documented inspections of the construction project to ensure the funds are being
used for the intended purpose and the project is being completed according to
the plans and specifications provided.





The Bank
offers a variety of secured consumer loans, including home equity loans and
lines of credit, home improvement loans, auto loans, and loans secured by
savings deposits.  The Bank also originates a very limited amount of
unsecured loans.  The Bank does not originate any consumer loans on an
indirect basis, such as contracts purchased from retailers of goods or services
which have extended credit to their customers.  All consumer loans are
originated in the Bank’s market areas.  Home equity loans may be
originated in amounts, together with the amount of the existing first mortgage,
of up to 95% of the value of the property securing the loan.  In order
to minimize risk of loss, home equity loans that are greater than 80% of the
value of the property, when combined with the first mortgage, require private
mortgage insurance.  The term-to-maturity of home equity and home
improvement loans may be up to 20 years.  Other home equity lines of
credit have no stated term-to-maturity and require a payment of 1.5% of the
outstanding loan balance per month. Interest-only home equity lines of credit
have a maximum term of 12 months, monthly payments of accrued interest, and a
balloon payment at maturity.  Repaid principal may be re-advanced at
any time, not to exceed the original credit limit of the loan.  Other
consumer loan terms vary according to the type of collateral and the length of
the contract.  The majority of the consumer loan portfolio is
comprised of home equity lines of credit, which have interest rates that can
adjust monthly based upon changes in the prime rate, to a maximum of
18%.





The
underwriting standards for consumer loans include a determination of the
applicant’s payment history on other debts and an assessment of their ability to
meet existing obligations and payments on the proposed loan. Although
creditworthiness of the


24


applicant
is a primary consideration, the underwriting process also includes a comparison
of the value of the security in relation to the proposed loan
amount.





Consumer
loans generally have shorter terms to maturity or reprice more frequently, which
reduces our exposure to changes in interest rates, and usually carry higher
rates of interest than do one- to four-family mortgage
loans.  However, consumer loans may entail greater risk than do one-
to four-family mortgage loans, particularly in the case of consumer loans that
are secured by rapidly depreciable assets, such as
automobiles.  Management believes that offering consumer loan products
helps to expand and create stronger ties to our existing customer base by
increasing the number of customer relationships and providing cross-marketing
opportunities.





The
Bank’s multi-family and commercial real estate loans are secured primarily by
multi-family dwellings and small commercial buildings generally located in the
Bank’s market areas.  These loans are granted based on the income
producing potential of the property and the financial strength of the
borrower.  LTV ratios on multi-family and commercial real estate loans
usually do not exceed 80% of the appraised value of the property securing the
loans.  The net operating income, which is the income derived from the
operation of the property less all operating expenses, must be sufficient to
cover the payments related to the outstanding debt at the time of
origination.  The Bank generally requires personal guarantees of the
borrowers covering a portion of the debt in addition to the security property as
collateral for these loans.  Appraisals on properties securing these
loans are performed by independent state certified fee appraisers approved by
the board of directors.  Our multi-family and commercial real estate
loans are originated with either a fixed or adjustable interest
rate.  The interest rate on adjustable-rate loans is based on a
variety of indices, generally determined through negotiation with the
borrower.  While maximum maturities may extend to 30 years, these
loans frequently have shorter maturities and may not be fully amortizing,
requiring balloon payments of unamortized principal at maturity.





Our
multi-family and commercial real estate loans are generally large dollar loans
and involve a greater degree of credit risk than one- to four-family mortgage
loans.  Such loans typically involve large balances to single
borrowers or groups of related borrowers.  Because payments on
multi-family and commercial real estate loans are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the
economy.  If the cash flow from the project is reduced, or if leases
are not obtained or renewed, the borrower’s ability to repay the loan may be
impaired.  See “Asset Quality – Non-performing Loans.”





Loans
over $500 thousand must be underwritten by two Class V underwriters, which is
the highest class of underwriter.  Any loan greater than $750 thousand
must be approved by the Asset and Liability Management Committee (“ALCO”) and
loans over $1.5 million must be approved by the board of
directors.  For loans requiring ALCO and/or board of directors’
approval, lending management is responsible for presenting to the ALCO and/or
board of directors information about the creditworthiness of the borrower and
the estimated value of the subject property.  Information pertaining
to the creditworthiness of the borrower generally consists of a summary of the
borrower’s credit history, employment stability, sources of income, assets, net
worth, and debt ratios.  The estimated value of the property must be
supported by an independent appraisal report prepared in accordance with our
appraisal policy.


25


Asset
Quality




The
Bank’s traditional underwriting guidelines have provided the Bank with loans of
high quality and generally low delinquencies and low levels of non-performing
assets compared to national levels.  Of particular importance is the
complete documentation required for each loan the Bank originates and
purchases.  This allows the Bank to make an informed credit decision
based upon a thorough assessment of the borrower’s ability to repay the loan
compared to underwriting methodologies that do not require full
documentation.





The
following matrix shows the balance of one-to-four family mortgage loans
cross-referenced by LTV ratio and credit score.  The LTV ratios used
in the matrix were based on the current loan balance and the most recent bank
appraisal available, or the lesser of the purchase price or original
appraisal.  In most cases, the most recent appraisal was obtained at
the time of origination.  The LTV ratios based upon appraisals
obtained at the time of origination may not necessarily indicate the extent to
which we may incur a loss on any given loan that may go into foreclosure as the
value of the underlying collateral may have declined since the time of
origination.  Credit scores were updated in March 2009 for loans
originated by the Bank and purchased loans.  Management will continue
to update credit scores as deemed necessary based upon economic
conditions.  Per the matrix, the greatest concentration of loans fall
into the “751 and above” credit score category and have a LTV ratio of less than
70%.  The loans falling into the “less than 660” credit score category
and having LTV ratios of more than 80% comprise the lowest concentration. The
average LTV ratio of our one-to-four family mortgage loans at March 31, 2009 was
approximately 66%.


Credit
      ScoreLess
      than 660
                  
                  
                  661
      to 700
                  
                  
                  701
      to 750
                  
                  
                  751
      and above
                  
                  Total%
      of
                  
                  
                  
                  
                  
                  %
      of
                  
                  
                  
                  
                  
                  %
      of
                  
                  
                  
                  
                  
                  %
      of
                  
                  
                  
                  
                  
                  %
      ofLTV ratio
                  
                  Amount
                  
                  
                  total
                  
                  
                  Amount
                  
                  
                  total
                  
                  
                  Amount
                  
                  
                  total
                  
                  
                  Amount
                  
                  
                  total
                  
                  
                  Amount
                  
                  
                  total(Dollars
      in thousands)Less
      than 70%
                  
                  $
                  127,321
                  
                  
                  
                  2.5
                  %
                  
                  $
                  148,287
                  
                  
                  
                  2.9
                  %
                  
                  $
                  436,622
                  
                  
                  
                  8.6
                  %
                  
                  $
                  1,876,381
                  
                  
                  
                  36.9
                  %
                  
                  $
                  2,588,611
                  
                  
                  
                  50.9
                  %70%
      to 80%
                  
                  
                  113,590
                  
                  
                  
                  2.2
                  
                  
                  
                  123,483
                  
                  
                  
                  2.4
                  
                  
                  
                  369,389
                  
                  
                  
                  7.3
                  
                  
                  
                  1,133,483
                  
                  
                  
                  22.3
                  
                  
                  
                  1,739,945
                  
                  
                  
                  34.2More
      than 80%
                  
                  
                  79,085
                  
                  
                  
                  1.6
                  
                  
                  
                  77,352
                  
                  
                  
                  1.5
                  
                  
                  
                  203,550
                  
                  
                  
                  4.0
                  
                  
                  
                  396,684
                  
                  
                  
                  7.8
                  
                  
                  
                  756,671
                  
                  
                  
                  14.9Total
                  
                  $
                  319,996
                  
                  
                  
                  6.3
                  %
                  
                  $
                  349,122
                  
                  
                  
                  6.8
                  %
                  
                  $
                  1,009,561
                  
                  
                  
                  19.9
                  %
                  
                  $
                  3,406,548
                  
                  
                  
                  67.0
                  %
                  
                  $
                  5,085,227
                  
                  
                  
                  100.0
                  %


26





The
following table presents the Company’s 30 to 89 day delinquent loans,
non-performing loans, and REO at the dates indicated.  Purchased loans
include loans purchased from nationwide lenders.  Non-performing loans
consist of loans 90 or more days delinquent and loans in the process of
foreclosure.  Non-performing assets include non-performing loans and
REO.





March
      31,
                
                
                December
      31,
                
                
                September
      30,
                
                
                June
      30,
                
                
                March
      31,2009
                
                
                2008
                
                
                2008
                
                
                2008
                
                
                2008Number
                
                
                Amount
                
                
                Number
                
                
                Amount
                
                
                Number
                
                
                Amount
                
                
                Number
                
                
                Amount
                
                
                Number
                
                
                Amount(Dollars
      in thousands)Loans
      30-89 days delinquentOriginated
                
                
                157
                
                
                $
                14,120
                
                
                
                199
                
                
                $
                15,691
                
                
                
                179
                
                
                $
                14,026
                
                
                
                160
                
                
                $
                12,591
                
                
                
                146
                
                
                $
                10,552Purchased
                
                
                43
                
                
                
                9,698
                
                
                
                42
                
                
                
                9,359
                
                
                
                37
                
                
                
                7,083
                
                
                
                33
                
                
                
                6,621
                
                
                
                36
                
                
                
                8,356Non-performing
      loansOriginated
                
                
                128
                
                
                
                10,213
                
                
                
                124
                
                
                
                9,607
                
                
                
                100
                
                
                
                6,958
                
                
                
                90
                
                
                
                6,555
                
                
                
                81
                
                
                
                5,440Purchased
                
                
                45
                
                
                
                12,158
                
                
                
                32
                
                
                
                9,625
                
                
                
                25
                
                
                
                6,708
                
                
                
                26
                
                
                
                6,699
                
                
                
                19
                
                
                
                4,444REOOriginated
                
                
                48
                
                
                
                4,119
                
                
                
                38
                
                
                
                2,833
                
                
                
                36
                
                
                
                2,228
                
                
                
                31
                
                
                
                1,274
                
                
                
                38
                
                
                
                2,329Purchased
                
                
                10
                
                
                
                1,705
                
                
                
                6
                
                
                
                1,644
                
                
                
                12
                
                
                
                2,918
                
                
                
                5
                
                
                
                933
                
                
                
                2
                
                
                
                435Non-performing
      assetsas
      a percentage of total assets
                
                
                
                
                
                
                0.34
                %
                
                
                
                
                
                
                0.29
                %
                
                
                
                
                
                
                0.23
                %
                
                
                
                
                
                
                0.20
                %
                
                
                
                
                
                
                0.16
                %Non-performing
      loansas
      a percentage of total loans
                
                
                
                
                
                
                0.42
                %
                
                
                
                
                
                
                0.35
                %
                
                
                
                
                
                
                0.26
                %
                
                
                
                
                
                
                0.25
                %
                
                
                
                
                
                
                0.19
                %





Loans 30
to 89 days delinquent increased approximately $2.7 million from $21.1 million at
September 30, 2008 to $23.8 million at March 31, 2009.  At March 31,
2009, 59% of loans 30 to 89 days delinquent were secured by property located in
our market areas and 41% were purchased from nationwide
lenders.  There is not believed to be a geographic trend associated
with our purchased loans 30 to 89 days delinquent.  During the past
two quarters, on average, approximately 35% of loans that entered the 30 to 89
days delinquent category made their required loan payments and did not go back
into the 30-89 day delinquent category or paid off during this time
period.  During the same time period, on average, approximately 45% of
loans that entered the 30 to 89 days delinquent category made a portion of their
required loan payments but the loans either stayed in the 30 to 89 day
delinquent category because not all required loan payments were made or went
back into the 30-89 day delinquent category at some point during the noted time
period as the borrower once again became delinquent on their loan
payments.  Approximately 20% of the loans that entered the 30-89 days
delinquent category during the past two quarters progressed to the
non-performing loan or REO categories.





Non-performing
loans increased $8.7 million from $13.7 million at September 30, 2008 to $22.4
million at March 31, 2009.  At March 31, 2009, 46% of non-performing
loans were secured by property in our market areas and 54% were purchased from
nationwide lenders.  There is not believed to be a geographic trend
associated with our purchased non-performing loans.  The weighted
average LTV ratio of non-performing one-to-four family loans at March 31, 2009
was approximately 74% based on
the current loan balance and the most recent bank appraisal available, or the
lesser of the purchase price or original appraisal. The increase in
non-performing loans reflects the economic recession coupled with the continued
deterioration of the housing market.  The conditions in the housing
market are evidenced by declining house prices, fewer home sales, increasing
inventories of houses on the market and an increase in the length of time houses
remain on the market.  The increase in non-performing loans increased
our ratio of non-performing loans to total loans from 0.26% as of September 30,
2008 to 0.42% at March 31, 2009.


27





At March
31, 2009, non-performing loans with LTV ratios greater than 80% comprised 13% of
total non-performing loans.  Of these loans, 84% have private mortgage
insurance which substantially reduces or eliminates the Bank’s exposure to
loss.  The balance of non-performing loans with LTV ratios greater
than 80% with no private mortgage insurance was $502 thousand at March 31,
2009.  At origination, these loans had LTV ratios less than 80%, but
as a result of updating the appraisals, the LTV ratios are now in excess of
80%.





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 allowance for loan loss methodology considers a number
of quantitative and qualitative factors, including the trend and composition of
our delinquent and non-performing loans, results of foreclosed property
transactions, and the status and trends of the local and national economies and
housing markets.  See “Critical Accounting Policies – Allowance for
Loan Losses.”  The $2.1 million provision for loan loss reflects our
current quarter change in the allowance for loan loss methodology and accounts
for charge-offs during the quarter.  Although we believe we have
established and maintained the allowance for loan losses at adequate levels,
additions may be necessary if future economic or other conditions differ
substantially from the current operating environment.





The
following table presents the Company’s activity for the allowance for loan
losses and related ratios at the dates and for the periods
indicated.




For
      the Three Months Ended
                              
                              
                              For
      the Six Months EndedMarch
      31,
                              
                              
                              December
      31,
                              
                              
                              March
      31,
                              
                              
                              March
      31,2009
                              
                              
                              2008
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008(Dollars
      in thousands)
                              
                              
                              (Dollars
      in thousands)Beginning
      balance
                              
                              $
                              6,137
                              
                              
                              $
                              5,791
                              
                              
                              $
                              4,171
                              
                              
                              $
                              5,791
                              
                              
                              $
                              4,181Charge-offs:One-
      to four-family loans–originated
                              
                              
                              12
                              
                              
                              
                              10
                              
                              
                              
                              33
                              
                              
                              
                              22
                              
                              
                              
                              30One-
      to four-family loans–purchased
                              
                              
                              766
                              
                              
                              
                              182
                              
                              
                              
                              --
                              
                              
                              
                              948
                              
                              
                              
                              --Multi-family
      loans
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --Commercial
      and other loans
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --Consumer
      loans
                              
                              
                              2
                              
                              
                              
                              11
                              
                              
                              
                              7
                              
                              
                              
                              13
                              
                              
                              
                              20Total
      charge-offs
                              
                              
                              780
                              
                              
                              
                              203
                              
                              
                              
                              40
                              
                              
                              
                              983
                              
                              
                              
                              50Recoveries
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --Provision
      charged to expense
                              
                              
                              2,107
                              
                              
                              
                              549
                              
                              
                              
                              119
                              
                              
                              
                              2,656
                              
                              
                              
                              119Ending
      balance
                              
                              $
                              7,464
                              
                              
                              $
                              6,137
                              
                              
                              $
                              4,250
                              
                              
                              $
                              7,464
                              
                              
                              $
                              4,250Allowance
      for loan losses to non-performing
      loans at period end
                              
                              
                              33.36
                              %
                              
                              
                              31.91
                              %
                              
                              
                              43.00
                              %Allowance
      for loan losses to loansreceivable,
      net at period end
                              
                              
                              0.14
                              %
                              
                              
                              0.11
                              %
                              
                              
                              0.08
                              %





Historically,
our charge-offs have been low due to our low level of non-performing loans and
the amount of underlying equity in the properties collateralizing
one-to-four-family loans.  The increase in non-performing purchased
loans and the decline in real estate and housing markets have begun to result in
higher charge-offs, specifically related to purchased loans.  However,
the overall amount of charge-offs has not been significant because of our
underwriting standards and the geographic areas in which the Bank
lends.


28





The
following table presents the Company’s allocation of the allowance for loan
losses to each respective loan category at March 31, 2009 and September 30,
2008.


At
                    
                    
                    AtMarch
      31, 2009
                    
                    
                    September
      30, 2008Amount
      of
                    
                    
                    %
      of ALLL
                    
                    
                    Total
                    
                    
                    %
      of Loans
                    
                    
                    Amount
      of
                    
                    
                    %
      of ALLL
                    
                    
                    Total
                    
                    
                    %
      of LoansALLL
                    
                    
                    to
      Total ALLL
                    
                    
                    Loans
                    
                    
                    to
      Total Loans
                    
                    
                    ALLL
                    
                    
                    to
      Total ALLL
                    
                    
                    Loans
                    
                    
                    to
      Total Loans(Dollars
      in thousands)One-
      to four-family:Originated
                    
                    $
                    3,351
                    
                    
                    
                    44.9
                    %
                    
                    $
                    4,262,813
                    
                    
                    
                    78.6
                    %
                    
                    $
                    3,076
                    
                    
                    
                    53.2
                    %
                    
                    $
                    4,302,870
                    
                    
                    
                    80.0
                    %Purchased
                    
                    
                    3,695
                    
                    
                    
                    49.5
                    %
                    
                    
                    822,413
                    
                    
                    
                    15.2
                    %
                    
                    
                    2,307
                    
                    
                    
                    39.8
                    %
                    
                    
                    723,488
                    
                    
                    
                    13.5
                    %Multi-family
      and commercial
                    
                    
                    64
                    
                    
                    
                    0.8
                    %
                    
                    
                    67,278
                    
                    
                    
                    1.2
                    %
                    
                    
                    53
                    
                    
                    
                    0.9
                    %
                    
                    
                    56,081
                    
                    
                    
                    1.0
                    %Construction
      and development
                    
                    
                    36
                    
                    
                    
                    0.5
                    %
                    
                    
                    63,823
                    
                    
                    
                    1.2
                    %
                    
                    
                    41
                    
                    
                    
                    0.7
                    %
                    
                    
                    85,178
                    
                    
                    
                    1.6
                    %Consumer
                    
                    
                    318
                    
                    
                    
                    4.3
                    %
                    
                    
                    206,471
                    
                    
                    
                    3.8
                    %
                    
                    
                    314
                    
                    
                    
                    5.4
                    %
                    
                    
                    212,228
                    
                    
                    
                    3.9
                    %$
                    7,464
                    
                    
                    
                    100.0
                    %
                    
                    $
                    5,422,798
                    
                    
                    
                    100.0
                    %
                    
                    $
                    5,791
                    
                    
                    
                    100.0
                    %
                    
                    $
                    5,379,845
                    
                    
                    
                    100.0
                    %





29





Mortgage-Backed
Securities.  The balance of MBS decreased $30.0 million from
$2.23 billion at September 30, 2008 to $2.20 billion at March 31,
2009.  The following tables provide a summary of the activity in our
portfolio of MBS for the periods presented.  The yields and weighted
average life (“WAL”) for purchases are presented as recorded at the time of
purchase.  The yields for the beginning and ending balances are as of
the period presented and are generally derived from recent prepayment activity
on the securities in the portfolio as of the dates presented.  The
decrease in the yield at March 31, 2009 compared to September 30, 2008 was due
to repricing and to the purchase of securities with yields lower than the
overall portfolio.  The beginning and ending WAL is the estimated
remaining maturity after historical prepayment speeds have been
applied.  The increase in the WAL at March 31, 2009 compared to
September 30, 2008 was due to a projected slowdown in future prepayments during
the current quarter.





For
      the Three Months EndedMarch
      31, 2009
                
                
                December
      31, 2008
                
                
                September
      30, 2008
                
                
                June
      30, 2008Amount
                
                
                Yield
                
                
                WAL
                
                
                Amount
                
                
                Yield
                
                
                WAL
                
                
                Amount
                
                
                Yield
                
                
                WAL
                
                
                Amount
                
                
                Yield
                
                
                WAL(Dollars
      in thousands)Beginning
      balance
                
                $
                2,176,302
                
                
                
                4.82
                %
                
                
                5.81
                
                
                $
                2,234,339
                
                
                
                4.82
                %
                
                
                5.05
                
                
                $
                2,066,685
                
                
                
                4.76
                %
                
                
                4.32
                
                
                $
                2,076,766
                
                
                
                4.70
                %
                
                
                4.88Maturities
      and repayments
                
                
                (107,388
                )
                
                
                
                
                
                
                
                
                
                
                (90,194
                )
                
                
                
                
                
                
                
                
                
                
                (112,777
                )
                
                
                
                
                
                
                
                
                
                
                (172,376
                )Net
      amortization of     premiums/discounts
                
                
                46
                
                
                
                
                
                
                
                
                
                
                
                27
                
                
                
                
                
                
                
                
                
                
                
                23
                
                
                
                
                
                
                
                
                
                
                
                (9
                )Purchases:Fixed
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                60,137
                
                
                
                5.03
                
                
                
                4.48
                
                
                
                129,614
                
                
                
                4.64
                
                
                
                4.56Adjustable
                
                
                118,469
                
                
                
                2.68
                
                
                
                1.90
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                219,888
                
                
                
                4.99
                
                
                
                5.07
                
                
                
                50,443
                
                
                
                4.25
                
                
                
                4.04Change
      in valuation on AFS   securities:
                
                
                16,940
                
                
                
                
                
                
                
                
                
                
                
                32,130
                
                
                
                
                
                
                
                
                
                
                
                383
                
                
                
                
                
                
                
                
                
                
                
                (17,753
                )Ending
      balance
                
                $
                2,204,369
                
                
                
                4.72
                %
                
                
                5.55
                
                
                $
                2,176,302
                
                
                
                4.82
                %
                
                
                5.81
                
                
                $
                2,234,339
                
                
                
                4.82
                %
                
                
                5.05
                
                
                $
                2,066,685
                
                
                
                4.76
                %
                
                
                4.32For
      the Six Months EndedMarch
      31, 2009
                
                
                March
      31, 2008Amount
                
                
                Yield
                
                
                WAL
                
                
                Amount
                
                
                Yield
                
                
                WAL(Dollars
      in thousands)Beginning
      balance
                
                $
                2,234,339
                
                
                
                4.82
                %
                
                
                5.05
                
                
                $
                1,414,271
                
                
                
                4.46
                %
                
                
                4.04Maturities
      and repayments
                
                
                (197,582
                )
                
                
                
                
                
                
                
                
                
                
                (214,925
                )Net
      amortization of   premiums/discounts
                
                
                73
                
                
                
                
                
                
                
                
                
                
                
                (761
                )Purchases:Fixed
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                595,430
                
                
                
                4.99
                
                
                
                4.64Adjustable
                
                
                118,469
                
                
                
                2.68
                
                
                
                1.90
                
                
                
                274,843
                
                
                
                4.77
                
                
                
                4.94Change
      in valuation on AFS   securities:
                
                
                49,070
                
                
                
                
                
                
                
                
                
                
                
                7,908Ending
      balance
                
                $
                2,204,369
                
                
                
                4.72
                %
                
                
                5.55
                
                
                $
                2,076,766
                
                
                
                4.70
                %
                
                
                4.88








30








Investment
Securities.  Investment securities, which consist primarily of
agency bonds (primarily issued by FNMA, FHLMC, or FHLB) and municipal
investments, increased $72.0 million from $142.4 million at September 30, 2008
to $214.4 million at March 31, 2009.  The following tables provide a
summary of the activity of investment securities for the periods
presented.  The yields for the beginning and ending balances are as of
the periods presented.  The decrease in the yield at March 31, 2009
compared to September 30, 2008 was a result of calls and/or maturities of
securities with yields higher than the overall portfolio yield.  The
beginning and ending WAL represent the estimated remaining maturity of the
securities after projected call dates have been considered, based upon market
rates at each date presented.  The decrease in the WAL at March 31,
2009 compared to September 30, 2008 was due to issuers of certain securities in
the portfolio exercising their option to call the security, to maturing
securities, and to purchases of investment securities with WALs shorter than
that of the portfolio.





For
      the Three Months EndedMarch
      31, 2009
                  
                  
                  December
      31, 2008
                  
                  
                  September
      30, 2008
                  
                  
                  June
      30, 2008Amount
                  
                  
                  Yield
                  
                  
                  WAL
                  
                  
                  Amount
                  
                  
                  Yield
                  
                  
                  WAL
                  
                  
                  Amount
                  
                  
                  Yield
                  
                  
                  WAL
                  
                  
                  Amount
                  
                  
                  Yield
                  
                  
                  WAL(Dollars
      in thousands)Beginning
      balance
                  
                  $
                  105,965
                  
                  
                  
                  3.34
                  %
                  
                  
                  3.64
                  
                  
                  $
                  142,359
                  
                  
                  
                  3.94
                  %
                  
                  
                  6.06
                  
                  
                  $
                  144,346
                  
                  
                  
                  3.94
                  %
                  
                  
                  4.45
                  
                  
                  $
                  88,597
                  
                  
                  
                  4.48
                  %
                  
                  
                  2.78Maturities
      and calls
                  
                  
                  (22,168
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (37,428
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (119
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,009
                  )Net
      amortization of   premiums/discounts
                  
                  
                  (329
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (247
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (244
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (204
                  )Purchases:Fixed
                  
                  
                  131,229
                  
                  
                  
                  1.62
                  
                  
                  
                  1.04
                  
                  
                  
                  886
                  
                  
                  
                  4.52
                  
                  
                  
                  2.75
                  
                  
                  
                  --
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  56,669
                  
                  
                  
                  3.12
                  
                  
                  
                  1.46Adjustable
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  3,874
                  
                  
                  
                  6.58
                  
                  
                  
                  28.98Change
      in valuation of AFS   securities
                  
                  
                  (287
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  395
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,624
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (581
                  )Ending
      balance
                  
                  $
                  214,410
                  
                  
                  
                  2.16
                  %
                  
                  
                  2.32
                  
                  
                  $
                  105,965
                  
                  
                  
                  3.34
                  %
                  
                  
                  3.64
                  
                  
                  $
                  142,359
                  
                  
                  
                  3.94
                  %
                  
                  
                  6.06
                  
                  
                  $
                  144,346
                  
                  
                  
                  3.94
                  %
                  
                  
                  4.45For
      the Six Months EndedMarch
      31, 2009
                  
                  
                  March
      31, 2008Amount
                  
                  
                  Yield
                  
                  
                  WAL
                  
                  
                  Amount
                  
                  
                  Yield
                  
                  
                  WAL(Dollars
      in thousands)Beginning
      balance
                  
                  $
                  142,359
                  
                  
                  
                  3.94
                  %
                  
                  
                  6.06
                  
                  
                  $
                  524,168
                  
                  
                  
                  4.52
                  %
                  
                  
                  1.66Maturities
      and calls
                  
                  
                  (59,596
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (609,890
                  )Net
      amortization of   premiums/discounts
                  
                  
                  (576
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  478Purchases:Fixed
                  
                  
                  132,115
                  
                  
                  
                  1.64
                  
                  
                  
                  1.05
                  
                  
                  
                  173,843
                  
                  
                  
                  4.23
                  
                  
                  
                  0.94Adjustable
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Change
      in valuation of AFS   securities
                  
                  
                  108
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2
                  )Ending
      balance
                  
                  $
                  214,410
                  
                  
                  
                  2.16
                  %
                  
                  
                  2.32
                  
                  
                  $
                  88,597
                  
                  
                  
                  4.48
                  %
                  
                  
                  2.78








31


Liabilities.   Total
liabilities increased from $7.18 billion at September 30, 2008 to $7.35 billion
at March 31, 2009.  The $169.5 million increase in liabilities was
primarily a result of an increase in deposits of $192.6 million.  The
increase in deposits was a result of an increase in certificates, money market,
and checking accounts.  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.





During
the current quarter, the Bank prepaid $575.0 million of fixed-rate FHLB advances
with a weighted average contractual rate of 6.35%.  The prepaid FHLB
advances were replaced with $575.0 million of fixed-rate FHLB advances with a
weighted average contractual interest rate of 3.70%.  The Bank paid a
$36.2 million prepayment penalty to the FHLB.  The prepayment penalty
was deferred as an adjustment to the carrying value of the new advances and will
be recognized as expense over the life of the new advances, resulting in an
effective rate of 5.05% on the new advances.  See additional
discussion of the transaction in “Notes to Financial Statements-- Note 4 – FHLB
Advances.”





The
following table presents the amount, average rate and percentage of total
deposits for checking, savings, money market and certificates for the periods
presented.





At
                
                At
                
                At
                
                AtMarch
      31, 2009
                
                December
      31, 2008
                
                September
      30, 2008
                
                June
      30, 2008Average
                
                %
      of
                
                
                
                
                Average
                
                %
      of
                
                
                
                
                Average
                
                %
      of
                
                
                
                
                Average
                
                %
      ofAmount
                
                
                Rate
                
                Total
                
                Amount
                
                
                Rate
                
                Total
                
                Amount
                
                
                Rate
                
                Total
                
                Amount
                
                
                Rate
                
                Total(Dollars
      in thousands)Checking
                
                $
                448,086
                
                
                
                0.21
                %
                
                
                10.89
                %
                
                $
                429,170
                
                
                
                0.21
                %
                
                
                11.10
                %
                
                $
                400,461
                
                
                
                0.21
                %
                
                
                10.21
                %
                
                $
                419,678
                
                
                
                0.21
                %
                
                
                10.59
                %Savings
                
                
                229,905
                
                
                
                0.72
                
                
                
                5.58
                
                
                
                227,773
                
                
                
                0.87
                
                
                
                5.89
                
                
                
                232,103
                
                
                
                1.51
                
                
                
                5.91
                
                
                
                232,807
                
                
                
                1.64
                
                
                
                5.88Money
      market
                
                
                826,488
                
                
                
                1.04
                
                
                
                20.08
                
                
                
                781,832
                
                
                
                1.12
                
                
                
                20.21
                
                
                
                772,323
                
                
                
                1.48
                
                
                
                19.68
                
                
                
                811,415
                
                
                
                1.46
                
                
                
                20.48Certificates
                
                
                2,612,035
                
                
                
                3.45
                
                
                
                63.45
                
                
                
                2,428,529
                
                
                
                3.64
                
                
                
                62.80
                
                
                
                2,518,996
                
                
                
                3.91
                
                
                
                64.20
                
                
                
                2,497,643
                
                
                
                4.16
                
                
                
                63.05Total
      deposits
                
                $
                4,116,514
                
                
                
                2.46
                %
                
                
                100.00
                %
                
                $
                3,867,304
                
                
                
                2.59
                %
                
                
                100.00
                %
                
                $
                3,923,883
                
                
                
                2.91
                %
                
                
                100.00
                %
                
                $
                3,961,543
                
                
                
                3.04
                %
                
                
                100.00
                %





At March
31, 2009, $95.9 million of the $2.61 billion in certificates were brokered
deposits, compared to $180.6 million in brokered deposits at September 30,
2008.  The remaining brokered deposits will mature within one
year.  Management regularly considers brokered deposits as a source of
funding, but does not currently consider the cost of this funding source to be
balanced with investment opportunities.  As of March 31, 2009, $95.0
million in certificates were public unit deposits, compared to no public unit
deposits at September 30, 2008.  Management will continue to monitor
the wholesale deposit market for attractive opportunities.


32





Stockholders’
Equity.Stockholders’ equity increased $45.2 million from
$871.2 million at September 30, 2008 to $916.4 million at March 31,
2009.  The increase was primarily a result of an increase in
unrealized gains on AFS securities of $30.6 million and net income of $34.0
million, partially offset by dividends paid of $23.2 million.





On April
21, 2009, the board of directors approved a dividend of $0.50 per public
share.  The dividend will be paid on May 15, 2009 to stockholders of
record on May 1, 2009.  It is the board of directors’ intention to
continue to pay regular quarterly dividends of $0.50 per share for the
foreseeable future.





Dividends
from the Company are the only source of funds for MHC.  It is expected
that MHC will waive future dividends except to the extent they are needed to
fund its continuing operations.  The following table shows the number
of shares eligible to receive dividends (“public shares”) because of the waiver
of dividends by MHC at March 31, 2009.  The unvested shares in the
ESOP receive cash equal to the dividends paid on the public
shares.  The cash received is used to repay the annual debt obligation
on the loan taken out by the ESOP from the Company at the time of the
mutual-to-stock conversion of the Bank to purchase shares for the
ESOP.  These shares are held in trust for a future employee benefit,
and are therefore excluded from the calculation of public shares.





Total
      voting shares outstanding at September 30, 2008
                
                
                74,079,868Treasury
      stock acquisitions
                
                
                (56,063
                )RRP
      grants
                
                
                --Options
      exercised
                
                
                67,250Total
      voting shares outstanding at March 31, 2009
                
                
                74,091,055Unvested
      shares in ESOP
                
                
                (1,008,194
                )Shares
      held by MHC
                
                
                (52,192,817
                )Total
      shares eligible to receive dividends at March 31, 2009 (public
      shares)
                
                
                20,890,044





33


The
following table presents quarterly dividends paid in calendar years 2009, 2008,
and 2007.  The dollar amounts represent dividends paid during the
quarter.  The actual amount of dividends to be paid during the quarter
ending June 30, 2009, as declared on April 21, 2009, will be based upon the
number of shares outstanding on the record date of May 1, 2009.  All
shares outstanding presented in the table below, except for the quarter ending
June 30, 2009, are as of the date of record per the dividend
declaration.  For the purposes of the table below, the number of
dividend shares for the quarter ending June 30, 2009 is based upon shares
outstanding on April 27, 2009.  This does not represent the actual
dividend payout, but rather management’s estimate of the number of shares
eligible to receive the dividend and the total dividend payout as of April 27,
2009.





Calendar
      Year2009
                      
                      
                      2008
                      
                      
                      2007(Dollars
      in thousands, except per share amounts)Quarter
      ended March 31Number
      of dividend shares
                      
                      
                      20,874,269
                      
                      
                      
                      20,660,510
                      
                      
                      
                      20,520,793Dividend
      per share
                      
                      $
                      0.50
                      
                      
                      $
                      0.50
                      
                      
                      $
                      0.50Total
      dividends paid
                      
                      $
                      10,436
                      
                      
                      $
                      10,330
                      
                      
                      $
                      10,261Quarter
      ended June 30Number
      of dividend shares
                      
                      
                      20,890,044
                      
                      
                      
                      20,661,660
                      
                      
                      
                      20,673,933Dividend
      per share
                      
                      $
                      0.50
                      
                      
                      $
                      0.50
                      
                      
                      $
                      0.50Total
      dividends paid
                      
                      $
                      10,445
                      
                      
                      $
                      10,331
                      
                      
                      $
                      10,337Quarter
      ended September 30Number
      of dividend shares
                      
                      
                      
                      
                      
                      
                      20,668,519
                      
                      
                      
                      20,694,333Dividend
      per share
                      
                      
                      
                      
                      
                      $
                      0.50
                      
                      
                      $
                      0.50Total
      dividends paid
                      
                      
                      
                      
                      
                      $
                      10,334
                      
                      
                      $
                      10,347Quarter
      ended December 31Number
      of dividend shares
                      
                      
                      
                      
                      
                      
                      20,881,157
                      
                      
                      
                      20,860,278Dividend
      per share
                      
                      
                      
                      
                      
                      $
                      0.50
                      
                      
                      $
                      0.50Total
      dividends paid
                      
                      
                      
                      
                      
                      $
                      10,440
                      
                      
                      $
                      10,430Special
      year end dividendNumber
      of dividend shares
                      
                      
                      
                      
                      
                      
                      20,881,157
                      
                      
                      
                      --Dividend
      per share
                      
                      
                      
                      
                      
                      $
                      0.11
                      
                      
                      $
                      --Total
      dividends paid
                      
                      
                      
                      
                      
                      $
                      2,297
                      
                      
                      $
                      --Calendar
      year-to-date dividends per share
                      
                      $
                      1.00
                      
                      
                      $
                      2.11
                      
                      
                      $
                      2.00





Analysis
of Net Interest Income





Net
interest income represents the difference between interest income earned on
interest-earning assets, such as mortgage loans, investment securities, and MBS,
and interest paid on interest-bearing liabilities, such as deposits, FHLB
advances, and other borrowings.  Net interest income depends on the
balance of interest-earning assets and interest-bearing liabilities, and the
interest rates earned or paid on them.


34


Average Balance
Sheet: The following table presents the average balances of
our assets, liabilities and stockholders’ equity and the related annualized
yields and rates on our interest-earning assets and interest-bearing liabilities
for the periods indicated and the yield/rate on our interest-earning assets and
interest-bearing liabilities at March 31, 2009.  Average yields are
derived by dividing annualized income by the average balance of the related
assets and average rates are derived by dividing annualized expense by the
average balance of the related liabilities, for the periods
shown.  Average outstanding balances are derived from average daily
balances, except as noted.  The yields and rates include amortization
of fees, costs, premiums and discounts which are considered adjustments to
yields/rates. Yields on tax-exempt securities were not calculated on a
tax-equivalent basis.


At
                  
                  
                  For
      the Three Months EndedMarch
      31, 2009
                  
                  
                  March
      31, 2009
                  
                  
                  December
      31, 2008
                  
                  
                  September
      30, 2008
                  
                  
                  March
      31, 2008Average
                  
                  
                  
                  
                  
                  Average
                  
                  
                  
                  
                  
                  Average
                  
                  
                  
                  
                  
                  AverageYield/
                  
                  
                  Outstanding
                  
                  
                  Yield/
                  
                  
                  Outstanding
                  
                  
                  Yield/
                  
                  
                  Outstanding
                  
                  
                  Yield/
                  
                  
                  Outstanding
                  
                  
                  Yield/Rate
                  
                  
                  Balance
                  
                  
                  Rate
                  
                  
                  Balance
                  
                  
                  Rate
                  
                  
                  Balance
                  
                  
                  Rate
                  
                  
                  Balance
                  
                  
                  RateAssets:
                  
                  
                  
                  
                  (Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable (1)
                  
                  
                  5.54
                  %
                  
                  $
                  5,485,551
                  
                  
                  
                  5.65
                  %
                  
                  $
                  5,419,179
                  
                  
                  
                  5.66
                  %
                  
                  $
                  5,328,776
                  
                  
                  
                  5.69
                  %
                  
                  $
                  5,306,797
                  
                  
                  
                  5.67
                  %MBS(2)
                  
                  
                  4.72
                  
                  
                  
                  2,120,481
                  
                  
                  
                  4.73
                  
                  
                  
                  2,201,531
                  
                  
                  
                  4.80
                  
                  
                  
                  2,192,268
                  
                  
                  
                  4.77
                  
                  
                  
                  1,756,593
                  
                  
                  
                  4.61Investment
      securities(2)
                  
                  
                  2.16
                  
                  
                  
                  125,932
                  
                  
                  
                  3.03
                  
                  
                  
                  136,295
                  
                  
                  
                  3.89
                  
                  
                  
                  144,718
                  
                  
                  
                  3.95
                  
                  
                  
                  304,470
                  
                  
                  
                  4.02Capital
      stock of FHLB
                  
                  
                  2.39
                  
                  
                  
                  130,574
                  
                  
                  
                  2.42
                  
                  
                  
                  124,958
                  
                  
                  
                  2.48
                  
                  
                  
                  124,365
                  
                  
                  
                  4.72
                  
                  
                  
                  130,752
                  
                  
                  
                  5.73Cash
      and cash equivalents
                  
                  
                  0.24
                  
                  
                  
                  103,768
                  
                  
                  
                  0.26
                  
                  
                  
                  33,025
                  
                  
                  
                  0.58
                  
                  
                  
                  59,351
                  
                  
                  
                  1.92
                  
                  
                  
                  171,356
                  
                  
                  
                  3.16Total
      interest-earning assets (1)
      (2)
                  
                  
                  5.10
                  
                  
                  
                  7,966,306
                  
                  
                  
                  5.24
                  
                  
                  
                  7,914,988
                  
                  
                  
                  5.32
                  
                  
                  
                  7,849,478
                  
                  
                  
                  5.36
                  
                  
                  
                  7,669,968
                  
                  
                  
                  5.31Other
      noninterest-earning assets
                  
                  
                  
                  
                  
                  
                  201,462
                  
                  
                  
                  
                  
                  
                  
                  161,092
                  
                  
                  
                  
                  
                  
                  
                  151,695
                  
                  
                  
                  
                  
                  
                  
                  202,741Total
      assets
                  
                  
                  
                  
                  
                  $
                  8,167,768
                  
                  
                  
                  
                  
                  
                  $
                  8,076,080
                  
                  
                  
                  
                  
                  
                  $
                  8,001,173
                  
                  
                  
                  
                  
                  
                  $
                  7,872,709Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Savings
                  
                  
                  0.73
                  
                  
                  
                  227,431
                  
                  
                  
                  0.74
                  
                  
                  
                  229,540
                  
                  
                  
                  1.07
                  
                  
                  
                  231,986
                  
                  
                  
                  1.66
                  
                  
                  
                  228,710
                  
                  
                  
                  1.66Checking
                  
                  
                  0.21
                  
                  
                  
                  423,107
                  
                  
                  
                  0.20
                  
                  
                  
                  405,787
                  
                  
                  
                  0.21
                  
                  
                  
                  403,327
                  
                  
                  
                  0.20
                  
                  
                  
                  395,295
                  
                  
                  
                  0.21Money
      market
                  
                  
                  1.04
                  
                  
                  
                  800,155
                  
                  
                  
                  1.08
                  
                  
                  
                  775,386
                  
                  
                  
                  1.31
                  
                  
                  
                  799,408
                  
                  
                  
                  1.45
                  
                  
                  
                  810,464
                  
                  
                  
                  2.22Certificates
                  
                  
                  3.45
                  
                  
                  
                  2,529,090
                  
                  
                  
                  3.52
                  
                  
                  
                  2,473,763
                  
                  
                  
                  3.75
                  
                  
                  
                  2,485,619
                  
                  
                  
                  3.99
                  
                  
                  
                  2,531,232
                  
                  
                  
                  4.68Total
      deposits
                  
                  
                  2.46
                  
                  
                  
                  3,979,783
                  
                  
                  
                  2.52
                  
                  
                  
                  3,884,476
                  
                  
                  
                  2.73
                  
                  
                  
                  3,920,340
                  
                  
                  
                  2.94
                  
                  
                  
                  3,965,701
                  
                  
                  
                  3.56FHLB
      advances
                  
                  
                  4.30
                  
                  
                  
                  2,451,927
                  
                  
                  
                  4.40
                  
                  
                  
                  2,477,961
                  
                  
                  
                  4.72
                  
                  
                  
                  2,469,082
                  
                  
                  
                  4.73
                  
                  
                  
                  2,602,210
                  
                  
                  
                  4.88Other
      borrowings
                  
                  
                  3.96
                  
                  
                  
                  713,600
                  
                  
                  
                  3.99
                  
                  
                  
                  713,585
                  
                  
                  
                  4.24
                  
                  
                  
                  638,463
                  
                  
                  
                  4.10
                  
                  
                  
                  323,323
                  
                  
                  
                  4.74Total
      borrowings
                  
                  
                  4.22
                  
                  
                  
                  3,165,527
                  
                  
                  
                  4.31
                  
                  
                  
                  3,191,546
                  
                  
                  
                  4.61
                  
                  
                  
                  3,107,545
                  
                  
                  
                  4.60
                  
                  
                  
                  2,925,533
                  
                  
                  
                  4.86Total
      interest-bearing liabilities
                  
                  
                  3.22
                  
                  
                  
                  7,145,310
                  
                  
                  
                  3.31
                  
                  
                  
                  7,076,022
                  
                  
                  
                  3.58
                  
                  
                  
                  7,027,885
                  
                  
                  
                  3.67
                  
                  
                  
                  6,891,234
                  
                  
                  
                  4.11Other
      noninterest-bearing liabilities
                  
                  
                  
                  
                  
                  
                  114,699
                  
                  
                  
                  
                  
                  
                  
                  121,970
                  
                  
                  
                  
                  
                  
                  
                  103,332
                  
                  
                  
                  
                  
                  
                  
                  111,881Stockholders’
      equity
                  
                  
                  
                  
                  
                  
                  907,759
                  
                  
                  
                  
                  
                  
                  
                  878,088
                  
                  
                  
                  
                  
                  
                  
                  869,956
                  
                  
                  
                  
                  
                  
                  
                  869,594Total
      liabilities andstockholders’
      equity
                  
                  
                  
                  
                  
                  $
                  8,167,768
                  
                  
                  
                  
                  
                  
                  $
                  8,076,080
                  
                  
                  
                  
                  
                  
                  $
                  8,001,173
                  
                  
                  
                  
                  
                  
                  $
                  7,872,709





(Continued)


35





Net
      interest rate spread
                  
                  
                  1.88
                  %
                  
                  
                  
                  
                  
                  1.93
                  %
                  
                  
                  
                  
                  
                  1.74
                  %
                  
                  
                  
                  
                  
                  1.68
                  %
                  
                  
                  
                  
                  
                  1.20
                  %Net
      interest-earning assets
                  
                  
                  
                  
                  
                  $
                  820,996
                  
                  
                  
                  
                  
                  
                  $
                  838,966
                  
                  
                  
                  
                  
                  
                  $
                  821,593
                  
                  
                  
                  
                  
                  
                  $
                  778,734Net
      interest margin
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.30
                  %
                  
                  
                  
                  
                  
                  
                  2.08
                  %
                  
                  
                  
                  
                  
                  
                  2.03
                  %
                  
                  
                  
                  
                  
                  
                  1.62
                  %Ratio
      of interest-earning assetsto
      interest-bearing liabilities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1.11
                  
                  
                  
                  
                  
                  
                  
                  1.12
                  
                  
                  
                  
                  
                  
                  
                  1.12
                  
                  
                  
                  
                  
                  
                  
                  1.11Selected
      performance ratios:Return
      on average assets (annualized)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  0.89
                  %
                  
                  
                  
                  
                  
                  
                  0.79
                  %
                  
                  
                  
                  
                  
                  
                  0.79
                  %
                  
                  
                  
                  
                  
                  
                  0.60
                  %Return
      on average equity (annualized)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7.99
                  %
                  
                  
                  
                  
                  
                  
                  7.22
                  %
                  
                  
                  
                  
                  
                  
                  7.25
                  %
                  
                  
                  
                  
                  
                  
                  5.39
                  %Average
      equity to average assets
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  11.11
                  %
                  
                  
                  
                  
                  
                  
                  10.87
                  %
                  
                  
                  
                  
                  
                  
                  10.87
                  %
                  
                  
                  
                  
                  
                  
                  11.05
                  %





(Concluded)







(1)Calculated net of deferred loan fees, loan discounts, and loans in
process.  Non-accruing loans are included in the loans receivable
average balance with a yield of zero percent.




(2)MBS and investment securities classified as AFS are stated at amortized
cost, adjusted for unamortized purchase premiums or discounts.










36













The
following table presents selected income statement information for the quarters
indicated.




For
      the Three Months EndedMarch
      31,
                
                
                December
      31,
                
                
                September
      30,
                
                
                June
      30,
                
                
                March
      31,2009
                
                
                2008
                
                
                2008
                
                
                2008
                
                
                2008Selected
      income statement data:
                
                (Dollars
      in thousands, except per share amounts)Interest
      and dividend income:Loans
      receivable
                
                $
                77,446
                
                
                $
                76,716
                
                
                $
                75,830
                
                
                $
                74,651
                
                
                $
                75,276MBS
                
                
                25,088
                
                
                
                26,402
                
                
                
                26,153
                
                
                
                24,869
                
                
                
                20,246Investment
      securities
                
                
                955
                
                
                
                1,326
                
                
                
                1,428
                
                
                
                1,298
                
                
                
                3,061Other
      interest and dividend income
                
                
                846
                
                
                
                829
                
                
                
                1,766
                
                
                
                1,967
                
                
                
                3,233Total
      interest and dividend income
                
                
                104,335
                
                
                
                105,273
                
                
                
                105,177
                
                
                
                102,785
                
                
                
                101,816Interest
      expense:FHLB
      advances
                
                
                26,653
                
                
                
                29,545
                
                
                
                29,543
                
                
                
                30,248
                
                
                
                31,796Deposits
                
                
                24,711
                
                
                
                26,785
                
                
                
                29,083
                
                
                
                31,174
                
                
                
                35,145Other
      borrowings
                
                
                7,109
                
                
                
                7,725
                
                
                
                6,693
                
                
                
                4,682
                
                
                
                3,873Total
      interest expense
                
                
                58,473
                
                
                
                64,055
                
                
                
                65,319
                
                
                
                66,104
                
                
                
                70,814Provision
      for loan losses
                
                
                2,107
                
                
                
                549
                
                
                
                330
                
                
                
                1,602
                
                
                
                119Net
      interest and dividend income(after
      provision for loan losses)
                
                
                43,755
                
                
                
                40,669
                
                
                
                39,528
                
                
                
                35,079
                
                
                
                30,883Other
      income
                
                
                6,936
                
                
                
                6,642
                
                
                
                7,589
                
                
                
                7,345
                
                
                
                7,982Other
      expenses
                
                
                21,995
                
                
                
                22,187
                
                
                
                21,795
                
                
                
                19,836
                
                
                
                20,907Income
      tax expense
                
                
                10,564
                
                
                
                9,272
                
                
                
                9,563
                
                
                
                8,233
                
                
                
                6,231Net
      income
                
                $
                18,132
                
                
                $
                15,852
                
                
                $
                15,759
                
                
                $
                14,355
                
                
                $
                11,727Efficiency
      ratio
                
                
                41.66
                
                
                
                46.36
                
                
                
                45.94
                
                
                
                45.05
                
                
                
                53.63Basic
      earnings per share
                
                $
                0.25
                
                
                $
                0.22
                
                
                $
                0.22
                
                
                $
                0.20
                
                
                $
                0.16Diluted
      earnings per share
                
                $
                0.25
                
                
                $
                0.22
                
                
                $
                0.22
                
                
                $
                0.20
                
                
                $
                0.16Dividends
      declared per public share
                
                $
                0.50
                
                
                $
                0.61
                
                
                $
                0.50
                
                
                $
                0.50
                
                
                $
                0.50










37


Comparison
of Operating Results for the Three Months Ended March 31, 2009 and
2008




Net
income for the quarter ended March 31, 2009 was $18.1 million compared to $11.7
million for the same period in the prior fiscal year. The $6.4 million increase
in net income was primarily a result of a $12.3 million decrease in interest
expense, partially offset by a $4.3 million increase in income tax
expense.





Interest
and Dividend Income


Total
interest and dividend income for the quarter was $104.3 million compared to
$101.8 million for the prior year quarter.  The $2.5 million increase
was a result of an increase in interest income on MBS of $4.9 million and
interest income on loans receivable of $2.2 million, partially offset by a
decrease in interest income on investment securities of $2.1 million, a decrease
in interest income on cash and cash equivalents of $1.3 million, and a decrease
in dividends received on FHLB stock of $1.1 million.





Interest
income on loans receivable for the quarter was $77.4 million compared to $75.3
million for the prior year quarter.  The $2.1 million increase was a
result of a $178.8 million increase in the average balance of the loan portfolio
between the two periods, partially offset by a two basis point decrease in the
weighted average yield of the portfolio from 5.67% in the prior year quarter to
5.65% for the current quarter.  The increase in the average balance
was primarily due to loan purchases between the two periods.  The
decrease in the weighted average yield was primarily a result of the home equity
loan portfolio repricing to lower market interest rates.





Interest
income on MBS for the quarter was $25.1 million compared to $20.2 million for
the prior year quarter.  The $4.9 million increase in interest income
was due to an increase of $363.9 million in the average balance of the MBS
portfolio and to a lesser extent, an increase of 12 basis points in the weighted
average yield to 4.73% for the current quarter.  The increase in the
average portfolio balance was a result of purchases.  The funds for
the purchases came from maturities and calls of investment securities and from
new borrowings.  The weighted average yield of the MBS portfolio
increased between the two periods due to purchases of MBS at an average yield
higher than the existing portfolio between the two periods.





Interest
income on investment securities for the quarter was $955 thousand compared to
$3.1 million for the prior year quarter.  The $2.1 million decrease in
interest income was primarily a result of a decrease of $178.5 million in the
average balance of the portfolio and, to a lesser extent, a 99 basis point
decrease in the weighted average portfolio yield to 3.03% for the current
quarter.  The decrease in the average balance was a result of calls
and maturities that were not reinvested in their entirety into the investment
securities portfolio but rather were invested in the higher yielding MBS
portfolio.  The decrease in the weighted average yield of the
portfolio was attributed to maturities and calls of securities with weighted
average yields greater than the portfolio, and also due to reinvestments made at
lower yields than the overall portfolio yield.





Dividends
on FHLB stock for the quarter were $778 thousand compared to $1.9 million for
the prior year quarter.  The $1.1 million decrease was primarily due
to a 331 basis point decrease in the weighted average yield.  The
dividend rate on FHLB stock correlates to the federal funds rate, which
decreased between periods.





Interest
income on cash and cash equivalents for the quarter was $68 thousand, compared
to $1.4 million in the prior year quarter.  The decrease was due to a
290 basis point decrease in the weighted average yield, and a decrease in the
average balance of $67.6 million.  The decrease in the weighted
average yield was a result of a decrease in short-term interest rates between
periods.  The decrease in the average balance was a result of the
timing of cash being utilized to purchase MBS and to repay maturing FHLB
advances.





Interest
Expense


Interest
expense on deposits for the current quarter was $24.7 million compared to $35.1
million for the prior year quarter.  The $10.4 million decrease in
interest expense was a result of a decrease in the average rate paid on the
certificate, money market, and savings deposit portfolios due to the portfolios
repricing to lower market rates.





Interest
expense on FHLB advances for the current quarter was $26.7 million compared to
$31.8 million for the prior year quarter.  The $5.1 million decrease
in interest expense was primarily a result of a decrease in the average rate as
a result of the refinance of advances during the second quarter of fiscal year
2009 and the termination and maturity of the interest rate swap agreements
during fiscal year 2008, and due to a decrease in the average
balance.


38


See
additional discussion of the refinance of the FHLB advances in “Notes to
Financial Statements-- Note 4 – FHLB Advances.”





Interest
expense on other borrowings was $7.1 million compared to $3.9 million in the
prior year quarter.  The $3.2 million increase was due to an increase
in the average balance of other borrowings due to the Bank entering into $260.0
million of repurchase agreements between the two periods.  The
proceeds from the repurchase agreements were used to purchase MBS and to repay
maturing FHLB advances.





Provision
for Loan Losses


The Bank
recorded a provision for loan losses of $2.1 million during the current quarter,
compared to $119 thousand in the prior year quarter.  The provision
for loan losses recorded in the current quarter reflects the change in our
allowance for loan loss methodology and charge-offs during the quarter. 
See additional discussion regarding the provision for loan losses in the
sections entitled “Critical Accounting Policies – Allowance for Loan Losses” and
“Asset Quality.”





Other
Income and Expense


Total
other income for the current quarter was $6.9 million compared to $8.0 million
in the prior year quarter.  The $1.1 million decrease in other income
was primarily a result of a $1.1 million decrease in other income, net primarily
due to the redemption of shares received in the Visa, Inc. initial public
offering of $992 thousand in the prior year quarter.





Total
other expenses for the current quarter increased $1.1 million to $22.0 million,
compared to $20.9 million in the prior year quarter.  The increase was
due primarily to increases in advertising expense of $561
thousand.  The increase in advertising expense was due to expense
associated with the Bank’s new debit card rewards program and advertising
campaigns undertaken to reassure customers of the Bank’s safety and soundness in
response to current economic conditions.





Income
Tax Expense


Income
tax expense for the current quarter was $10.6 million compared to $6.2 million
in the prior year quarter.  The increase in income tax expense was
primarily due to an increase in earnings compared to the prior year
quarter.  The effective tax rate was 36.8% for the current year
quarter, compared to 34.7% for the prior year quarter.  The 210 basis
point difference in effective tax rates between the two periods was primarily a
result of a decrease in nontaxable income from BOLI, an increase in
nondeductible expenses associated with the ESOP and an increase in pre-tax
income which reduced the effective tax rate benefit of nontaxable income. In
addition, the prior year quarter included a decrease in FASB Interpretation
Number (“FIN”) 48 items due to lapses in applicable statutes of
limitations.


39


The table below presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities, comparing the quarter ended March 31,
2009 to the quarter ended March 31, 2008.  For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) changes in volume, which are changes in
the average balance multiplied by the previous year’s average rate and (2)
changes in rate, which are changes in the average rate multiplied by the average
balance from the previous year.  The net changes attributable to the
combined impact of both rate and volume have been allocated proportionately to
the changes due to volume and the changes due to rate.





Quarter
      Ended March 31,2009
      vs. 2008Increase
      (Decrease) Due toVolume
                    
                    
                    Rate
                    
                    
                    Total(Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable
                    
                    $
                    2,489
                    
                    
                    $
                    (319
                    )
                    
                    $
                    2,170MBS
                    
                    
                    4,293
                    
                    
                    
                    549
                    
                    
                    
                    4,842Investment
      securities
                    
                    
                    (1,484
                    )
                    
                    
                    (622
                    )
                    
                    
                    (2,106
                    )Capital
      stock of FHLB
                    
                    
                    (3
                    )
                    
                    
                    (1,083
                    )
                    
                    
                    (1,086
                    )Cash
      equivalents
                    
                    
                    (391
                    )
                    
                    
                    (910
                    )
                    
                    
                    (1,301
                    )Total
      interest-earning assets
                    
                    $
                    4,904
                    
                    
                    $
                    (2,385
                    )
                    
                    $
                    2,519Interest-bearing
      liabilities:Savings
                    
                    $
                    (5
                    )
                    
                    $
                    (533
                    )
                    
                    $
                    (538
                    )Checking
                    
                    
                    4
                    
                    
                    
                    --
                    
                    
                    
                    4Money
      market
                    
                    
                    (58
                    )
                    
                    
                    (2,328
                    )
                    
                    
                    (2,386
                    )Certificates
                    
                    
                    (26
                    )
                    
                    
                    (7,488
                    )
                    
                    
                    (7,514
                    )FHLB
      advances
                    
                    
                    (1,825
                    )
                    
                    
                    (3,318
                    )
                    
                    
                    (5,143
                    )Other
      borrowings
                    
                    
                    3,867
                    
                    
                    
                    (631
                    )
                    
                    
                    3,236Total
      interest-bearing liabilities
                    
                    $
                    1,957
                    
                    
                    $
                    (14,298
                    )
                    
                    $
                    (12,341
                    )Net
      change in net interest and dividend income
                    
                    $
                    2,947
                    
                    
                    $
                    11,913
                    
                    
                    $
                    14,860










Comparison
of Operating Results for the Six Months Ended March 31, 2009 and
2008




Net
income for the six months ended March 31, 2009 was $34.0 million compared to
$20.8 million for the same period in the prior fiscal year. The $13.2 million
increase in net income was primarily a result of a $22.7 million decrease in
interest expense and a $6.8 million increase in interest and dividend income,
partially offset by a $8.4 million increase in income tax expense, a $3.8
million increase in other expenses, and a $2.5 million increase in provision for
loan loss.





Interest
and Dividend Income


Total
interest and dividend income for the six months ended March 31, 2009 was $209.6
million compared to $202.8 million for the prior year period.  The
$6.8 million increase was a result of an increase in interest income on MBS of
$14.1 million and an increase in interest income on loans receivable of $2.7
million, partially offset by a decrease in interest income on investment
securities of $4.9 million, a decrease in interest income on cash and cash
equivalents of $2.7 million, and a decrease in dividends received on FHLB stock
of $2.3 million.





Interest
income on loans receivable for the six months ended March 31, 2009 was $154.2
million compared to $151.5 million for the prior year period.  The
$2.7 million increase was a result of a $143.7 million increase in
the


40


average
balance of the loan portfolio between the two periods, partially offset by a
decrease of 5 basis points in weighted average yield of the portfolio to 5.66%
for the current six month period.  The decrease in the weighted
average yield was primarily a result of the home equity loan portfolio repricing
to lower market interest rates.





Interest
income on MBS for the six months ended March 31, 2009 was $51.5 million compared
to $37.4 million for the prior year period.  The $14.1 million
increase in interest income was due to an increase of $535.3 million in the
average balance and, to a lesser extent, an increase of 16 basis points in the
weighted average yield to 4.76% for the for the current six month
period.  The increase in the average portfolio balance was a result of
purchases.  The funds for the purchases came from maturities and calls
of investment securities and from new borrowings.  The weighted
average yield of the MBS portfolio increased between the two periods due to
purchases of MBS at an average yield higher than the existing portfolio between
the two periods.





Interest
income on investment securities for the six months ended March 31, 2009 was $2.3
million compared to $7.2 million for the prior year period.  The $4.9
million decrease in interest income was primarily a result of a decrease of
$216.9 million in the average balance of the portfolio and a 65 basis point
decrease in the weighted average portfolio yield to 3.48% for the for the
current six month period.  The decrease in the average balance was a
result of calls and maturities that were not reinvested in their entirety into
the investment securities portfolio but rather into the higher yielding MBS
portfolio and also to repay maturing FHLB advances.  The decrease in
the weighted average yield of the portfolio was attributed to maturities and
calls of securities with weighted average yields greater than that of the
portfolio, and also due to reinvestments made at lower yields than the overall
portfolio yield.





Dividends
on FHLB stock for the six months ended March 31, 2009 were $1.6 million compared
to $3.9 million for the prior year period.  The $2.3 million decrease
was primarily due to a 352 basis point decrease in the weighted average
yield.  The dividend rate on FHLB stock correlates to the federal
funds rate, which decreased during the period.





Interest
income on cash and cash equivalents for the six months ended March 31, 2009 was
$117 thousand, compared to $2.8 million in the prior year period.  The
decrease was due to a 334 basis point decrease in the weighted average yield,
and a decrease in the average balance of $77.8 million.  The decrease
in the weighted average yield was a result of a decrease in short-term interest
rates during the period.  The decrease in the average balance was a
result of cash being utilized to purchase MBS and to repay maturing FHLB
advances.





Interest
Expense


Total
interest expense for the six months ended March 31, 2009 was $122.5 million,
compared to $145.2 million for the prior year period.  The $22.7
million decrease was primarily due to a decrease in interest expense on deposits
of $21.7 million.





Interest
expense on deposits for the six months ended March 31, 2009 was $51.5 million
compared to $73.2 million for the prior year period.  The $21.7
million decrease in interest expense was primarily a result of a decrease in the
average rate paid on certificate of deposit, savings, and money market
portfolios due to the portfolios repricing to lower market rates.





Interest
expense on FHLB advances for the current six month period was $56.2 million
compared to $66.0 million for the prior year period.  The $9.8 million
decrease in interest expense was primarily a result of a decrease in rate as a
result of the termination and maturity of the interest rate swap agreements
during fiscal year 2008 and to the refinance of $575.0 million of advances
during the second quarter of fiscal year 2009.  The decrease was also
due to a decrease in the average balance as a result of maturing advances that
were not renewed.  See additional discussion of the refinance of the
FHLB advances in “Notes to Financial Statements-- Note 4 – FHLB
Advances.”





Interest
expense on other borrowings was $14.8 million compared to $6.1 million in the
prior year period.  The $8.7 million increase was due to an increase
in the average balance of other borrowings due to the Bank entering into $260.0
million of repurchase agreements between the two periods.  The
proceeds from the repurchase agreement funds were used to purchase MBS and to
repay maturing FHLB advances.


41


Provision
for Loan Losses


The Bank
recorded a provision for loan losses of $2.7 million during the current six
month period, compared to a provision of $119 thousand in the prior year
period.  Of the $2.7 million, $2.1 million was recorded in the second
quarter of 2009, and reflects the changes in our allowance for loss methodology
and charge-offs during the quarter. See additional discussion regarding the
provision for loan losses in the sections entitled “Critical Accounting Policies
– Allowance for Loan Losses” and “Asset Quality.”





Other
Income and Expense


Total
other income for the current six month period was $13.6 million compared to
$15.1 million in the prior year period.  The $1.5 million decrease in
other income was primarily a result of a $1.3 million decrease in other income,
net primarily due to the redemption of shares received in the Visa, Inc. initial
public offering of $992 thousand in the prior year period and to a decrease in
income from BOLI of $608 thousand as a result of a decrease in market interest
rates.





Total
other expenses for the current six month period increased $3.8 million to $44.2
million, compared to $40.4 million in the prior year period.  The
increase was due to increases in advertising expense of $1.5 million, other
expense, net of $1.3 million, and salaries and employee benefits of $1.0
million.  The increase in advertising expense was due to advertising
campaigns undertaken to reassure customers of the Bank’s safety and soundness in
response to current economic conditions, and to expense associated with the
Bank’s new debit card rewards program.  The increase in other expense,
net was due primarily to REO operations and to an impairment and valuation
allowance taken on the MSR asset due to an increase in prepayment
speeds.  These increases were partially offset by the reversal of a
portion of the Visa, Inc. litigation liability accrued in the prior year period.
The increase in salaries and employee benefits was due to an increase in costs
associated with the ESOP as a result of a higher average CFFN stock price in the
current period compared to the prior year period.





Income
Tax Expense


Income
tax expense for the current six month period was $19.8 million compared to $11.4
million in the prior year period.  The increase in income tax expense
was primarily due to an increase in earnings compared to the prior year
period.  The effective tax rate was 36.9% for the current year period,
compared to 35.4% for the prior year period.  The 150 basis point
difference in effective tax rates between the two periods was primarily a result
of a decrease in nontaxable income from BOLI, an increase in nondeductible
expenses associated with the ESOP and an increase in pre-tax income which
reduced the effective tax rate benefit of nontaxable income.


42


The
following table presents the average balances of our assets, liabilities and
stockholders’ equity and the related annualized yields and costs on our
interest-earning assets and interest-bearing liabilities for the periods
indicated.  Average yields are derived by dividing annualized income
by the average balance of the related assets and average costs are derived by
dividing annualized expense by the average balance of the related liabilities,
for the periods shown.  Average outstanding balances are derived from
average daily balances.  The yields and costs include amortization of
fees, costs, premiums and discounts which are considered adjustments to
yields/rates.  Yields on tax-exempt securities were not calculated on
a tax-equivalent basis.





For
      the Six Months EndedMarch
      31, 2009
                
                
                March
      31, 2008Average
                
                
                
                
                
                AverageOutstanding
                
                
                Yield/
                
                
                Outstanding
                
                
                Yield/Balance
                
                
                Rate
                
                
                Balance
                
                
                RateAssets:
                
                (Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable (1)
                
                $
                5,452,000
                
                
                
                5.66
                %
                
                $
                5,308,286
                
                
                
                5.71
                %MBS(2)
                
                
                2,161,451
                
                
                
                4.76
                
                
                
                1,626,128
                
                
                
                4.60Investment
      securities(2)
                
                
                131,171
                
                
                
                3.48
                
                
                
                348,058
                
                
                
                4.13Capital
      stock of FHLB
                
                
                127,735
                
                
                
                2.45
                
                
                
                132,072
                
                
                
                5.97Cash
      and cash equivalents
                
                
                72,342
                
                
                
                0.32
                
                
                
                150,176
                
                
                
                3.66Total
      interest-earning assets (1)
      (2)
                
                
                7,944,699
                
                
                
                5.28
                
                
                
                7,564,720
                
                
                
                5.36Other
      noninterest-earning assets
                
                
                176,721
                
                
                
                
                
                
                
                203,036Total
      assets
                
                $
                8,121,420
                
                
                
                
                
                
                $
                7,767,756Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Savings
                
                $
                228,497
                
                
                
                0.91
                
                
                $
                230,832
                
                
                
                2.00Checking
                
                
                414,352
                
                
                
                0.21
                
                
                
                388,987
                
                
                
                0.21Money
      market
                
                
                787,634
                
                
                
                1.19
                
                
                
                802,383
                
                
                
                2.67Certificates
                
                
                2,501,123
                
                
                
                3.64
                
                
                
                2,517,775
                
                
                
                4.73Total
      deposits
                
                
                3,931,606
                
                
                
                2.63
                
                
                
                3,939,977
                
                
                
                3.70FHLB
      advances
                
                
                2,465,087
                
                
                
                4.56
                
                
                
                2,597,716
                
                
                
                5.04Other
      borrowings
                
                
                713,593
                
                
                
                4.11
                
                
                
                236,049
                
                
                
                5.07Total
      borrowings
                
                
                3,178,680
                
                
                
                4.46
                
                
                
                2,833,765
                
                
                
                5.04Total
      interest-bearing liabilities
                
                
                7,110,286
                
                
                
                3.45
                
                
                
                6,773,742
                
                
                
                4.26Other
      noninterest-bearing liabilities
                
                
                118,373
                
                
                
                
                
                
                
                124,776Stockholders’
      equity
                
                
                892,761
                
                
                
                
                
                
                
                869,238Total
      liabilities and stockholders’ equity
                
                $
                8,121,420
                
                
                
                
                
                
                $
                7,767,756Net
      interest rate spread
                
                
                
                
                
                
                1.83
                %
                
                
                
                
                
                
                1.10
                %Net
      interest-earning assets
                
                $
                834,413
                
                
                
                
                
                
                $
                790,978Net
      interest margin
                
                
                
                
                
                
                2.19
                %
                
                
                
                
                
                
                1.52
                %Ratio
      of interest-earning assetsto
      interest-bearing liabilities
                
                
                
                
                
                
                1.12
                
                
                
                
                
                
                
                1.12Selected
      Performance Ratios:Return
      on average assets (annualized)
                
                
                
                
                
                
                0.84
                %
                
                
                
                
                
                
                0.54
                %Return
      on average equity (annualized)
                
                
                
                
                
                
                7.61
                %
                
                
                
                
                
                
                4.80
                %Average
      equity to average assets
                
                
                
                
                
                
                10.99
                %
                
                
                
                
                
                
                11.19
                %







(1)Calculated net of deferred loan fees, loan discounts, and loans in
process.  Non-accruing loans are included in the loans receivable
average balance with a yield of zero percent.




(2)MBS
and investment securities classified as AFS are stated at amortized cost,
adjusted for unamortized purchase premiums or discounts.


43





The table
below presents the dollar amount of changes in interest income and interest
expense for major components of interest-earning assets and interest-bearing
liabilities, comparing the six months ended March 31, 2009 to the six months
ended March 31, 2008.  For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes
attributable to (1) changes in volume, which are changes in the average balance
multiplied by the previous year’s average rate and (2) changes in rate, which
are changes in the average rate multiplied by the average balance from the
previous year.  The net changes attributable to the combined impact of
both rate and volume have been allocated proportionately to the changes due to
volume and the changes due to rate.





For
      the Six Months EndedMarch
      31, 2009 vs. March 31, 2008Increase
      (Decrease) Due toVolume
                    
                    
                    Rate
                    
                    
                    Total(Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable
                    
                    $
                    3,987
                    
                    
                    $
                    (1,364
                    )
                    
                    $
                    2,623MBS
                    
                    
                    12,768
                    
                    
                    
                    1,349
                    
                    
                    
                    14,117Investment
      securities
                    
                    
                    (3,916
                    )
                    
                    
                    (994
                    )
                    
                    
                    (4,910
                    )Capital
      stock of FHLB
                    
                    
                    (126
                    )
                    
                    
                    (2,260
                    )
                    
                    
                    (2,386
                    )Cash
      and cash equivalents
                    
                    
                    (971
                    )
                    
                    
                    (1,709
                    )
                    
                    
                    (2,680
                    )Total
      interest-earning assets
                    
                    $
                    11,742
                    
                    
                    $
                    (4,978
                    )
                    
                    $
                    6,764Interest-bearing
      liabilities:Savings(1)
                    
                    $
                    (24
                    )
                    
                    $
                    (1,269
                    )
                    
                    $
                    (1,293
                    )Checking
                    
                    
                    27
                    
                    
                    
                    --
                    
                    
                    
                    27Money
      market
                    
                    
                    (197
                    )
                    
                    
                    (5,939
                    )
                    
                    
                    (6,136
                    )Certificates(1)
                    
                    
                    (398
                    )
                    
                    
                    (13,882
                    )
                    
                    
                    (14,280
                    )FHLB
      advances
                    
                    
                    (3,403
                    )
                    
                    
                    (6,356
                    )
                    
                    
                    (9,759
                    )Other
      borrowings
                    
                    
                    9,589
                    
                    
                    
                    (835
                    )
                    
                    
                    8,754Total
      interest-bearing liabilities
                    
                    $
                    5,594
                    
                    
                    $
                    (28,281
                    )
                    
                    $
                    (22,687
                    )Net
      change in net interest and dividend income
                    
                    $
                    6,148
                    
                    
                    $
                    23,303
                    
                    
                    $
                    29,451





Comparison
of Operating Results for the Three Months Ended March 31, 2009 and December 31,
2008





For the
quarter ended March 31, 2009, the Company recognized net income of $18.1
million, compared to net income of $15.9 million for the quarter ended December
31, 2008.





Interest
and Dividend Income


Total
interest and dividend income for the current quarter was $104.3 million compared
to $105.3 million for the quarter ended December 31, 2008.  The
decrease of $1.0 million was primarily a result of decreases in interest income
on MBS of $1.3 million, partially offset by an increase in loans receivable of
$730 thousand.





Interest
income on loans receivable for the current quarter was $77.4 million compared to
$76.7 million for the quarter ended December 31, 2008.  The $730
thousand increase in interest income was primarily a result of a $66.4 million
increase in the average balance of the portfolio, partially offset by a decrease
of one basis point in the weighted average yield.





Interest
income on MBS for the current quarter was $25.1 million compared to $26.4
million for the quarter ended December 31, 2008.  The $1.3 million
decrease was primarily a result of an $81.1 million decrease in the
average


44


balance
of the portfolio and a decrease in the average yield of seven basis
points.  The decrease in the average balance was a result of principal
repayments.





Interest
income on investment securities for the current quarter was $955 thousand
compared to $1.3 million for the quarter ended December 31, 2008.  The
slight decrease was primarily a result of an 86 basis point decrease in the
weighted average yield and a $10.4 million decrease in the average
balance.





Interest
Expense


Interest
expense decreased $5.6 million to $58.5 million for the current quarter from
$64.1 million for the quarter ended December 31, 2008.  The decrease
was due to a decrease in interest expense on FHLB advances of $2.9 million, a
decrease in interest expense on deposits of $2.1 million, and a decrease in
interest expense on other borrowings of $616 thousand.  The decrease
in interest expense on FHLB advances was due to a decrease in the average rate
as a result of the refinance of $575.0 million of FHLB advances during the
current quarter.  The decrease in deposit interest expense was
primarily a result of a decrease in the rate paid on the certificate of deposit
portfolio, partially offset by an increase in the average balance of deposits of
$95.3 million.  The decrease in interest expense on other borrowings
was due to a decrease of 25 basis points in the average rate due to a decrease
in the three-month LIBOR during the period.





Provision
for Loan Losses


The Bank
recorded a provision for loan losses of $2.1 million during the current quarter,
compared to a provision of $549 thousand in the quarter ended December 31,
2008.  The provision for loan losses recorded in the current quarter
reflects the change in our allowance for loan loss methodology and charge-offs
during the quarter. See additional discussion regarding the provision for
loan losses in the sections entitled “Critical Accounting Policies – Allowance
for Loan Losses” and “Asset Quality.”





Other
Income and Expense


Total
other income increased $294 thousand to $6.9 million for the current quarter
compared to $6.6 million for the quarter ended December 31, 2008.  The
increase was due primarily to an increase of $492 thousand in gains on loans
held for sale due to the sale of certain modified loans and an increase of $382
thousand in insurance commissions, partially offset by a decrease in retail fees
of $499 thousand due to a decrease in ATM, debit card, and insufficient funds
fees.





Total
other expenses for the current quarter were $22.0 million for the current
quarter, compared to $22.2 million in the prior quarter.  The decrease
was due primarily to a decrease in salaries and employee benefits of $595
thousand, partially offset by increases in advertising of $205 thousand and
other expenses, net of $204 thousand.  The decrease in salaries and
employee benefits was due to an increase in deferred payroll costs related to
SFAS 91 “Accounting for Nonrefundable Fees and Costs Associated with Originating
and Acquiring Loans and Initial Direct Costs of Leases” as a result of an
increase in loan originations.  The decrease in salaries and employee
benefits was also a result of a decrease in costs associated with the ESOP as a
result of a lower average CFFN stock price in the current period compared to the
prior period.





Income
Tax Expense


Income
tax expense for the current quarter was $10.6 million compared to $9.3 million
for the quarter ended December 31, 2008.  The effective tax rate for
each period was relatively unchanged at 36.8% for the current quarter, compared
to 36.9% for the quarter ended December 31, 2008.




45


The table
below presents the dollar amount of changes in interest income and interest
expense for major components of interest-earning assets and interest-bearing
liabilities, comparing the quarter ended March 31, 2009 to the quarter ended
December 31, 2008.  For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume, which are changes in the average balance multiplied by
the previous year’s average rate and (2) changes in rate, which are changes in
the average rate multiplied by the average balance from the previous
year.  The net changes attributable to the combined impact of both
rate and volume have been allocated proportionately to the changes due to volume
and the changes due to rate.





Quarter
      EndedMarch
      31, 2009 vs. December 31, 2008Increase
      (Decrease) Due toVolume
                    
                    
                    Rate
                    
                    
                    Total(Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable
                    
                    $
                    876
                    
                    
                    $
                    (146
                    )
                    
                    $
                    730MBS
                    
                    
                    (962
                    )
                    
                    
                    (352
                    )
                    
                    
                    (1,314
                    )Investment
      securities
                    
                    
                    (95
                    )
                    
                    
                    (276
                    )
                    
                    
                    (371
                    )Capital
      stock of FHLB
                    
                    
                    23
                    
                    
                    
                    (25
                    )
                    
                    
                    (2
                    )Cash
      and cash equivalents
                    
                    
                    57
                    
                    
                    
                    (38
                    )
                    
                    
                    19Total
      interest-earning assets
                    
                    $
                    (101
                    )
                    
                    $
                    (837
                    )
                    
                    $
                    (938
                    )Interest-bearing
      liabilities:Savings
                    
                    $
                    (8
                    )
                    
                    $
                    (260
                    )
                    
                    $
                    (268
                    )Checking
                    
                    
                    (2
                    )
                    
                    
                    --
                    
                    
                    
                    (2
                    )Money
      market
                    
                    
                    57
                    
                    
                    
                    (577
                    )
                    
                    
                    (520
                    )Certificates
                    
                    
                    417
                    
                    
                    
                    (1,701
                    )
                    
                    
                    (1,284
                    )FHLB
      advances
                    
                    
                    (229
                    )
                    
                    
                    (2,663
                    )
                    
                    
                    (2,892
                    )Other
      borrowings
                    
                    
                    --
                    
                    
                    
                    (616
                    )
                    
                    
                    (616
                    )Total
      interest-bearing liabilities
                    
                    $
                    235
                    
                    
                    $
                    (5,817
                    )
                    
                    $
                    (5,582
                    )Net
      change in net interest and dividend income
                    
                    $
                    (336
                    )
                    
                    $
                    4,980
                    
                    
                    $
                    4,644





Liquidity
and Capital Resources





Liquidity
management is both a daily and long-term function of our business
management.  The Bank’s most available liquid assets, represented by
cash and cash equivalents, available-for-sale mortgage-related and investment
securities, and short-term investment securities, are products of its operating,
investing and financing activities.  The Bank’s primary sources of
funds are deposits, FHLB advances, other borrowings, repayments on and
maturities of outstanding loans and MBS, other short-term investments, and funds
provided from operations.  While scheduled payments from the
amortization of loans and MBS and payments on short-term investments are
relatively predictable sources of funds, deposit flows and prepayments on loans
and MBS are greatly influenced by general interest rates, economic conditions
and competition and are less predictable sources of funds.  The most
significant liquidity challenge we currently face is the variability in cash
flows as a result of mortgage modification and refinance activity.  To
the extent possible, the Bank manages the cash flows of its loan and deposit
portfolios by the rates it offers customers.  Sources of funds are
used primarily to meet ongoing operations, to pay maturing certificates of
deposit and savings withdrawals, and to fund loan commitments.  At
March 31, 2009, approximately $1.55 billion of the $2.61 billion in certificates
of deposit were scheduled to mature within one year.  Included in that
amount are $95.9 million of brokered deposits and $92.0 million in public unit
deposits.  Based on past experience and our pricing strategy, we
expect that a majority of the maturing retail deposits will renew, although no
assurance can be given in this regard.  Management will continue to
monitor the wholesale deposit market for attractive opportunities.








The Bank
has paid competitive rates for its deposits while not “paying-up” in rates to
grow its deposit base beyond the Bank’s need for funding.  The Bank’s
borrowings have been used primarily to invest in U.S. government agency
securities in order to improve the earnings of the Bank and to help with the
management of its interest rate risk while maintaining its capital ratios in
excess of regulatory standards for well-capitalized financial
institutions.  In addition, the Bank’s focus on managing risk has
provided it liquidity capacity by remaining below borrowing limits at FHLB and
through the uncollateralized balance of its government agency MBS and investment
securities available as collateral for borrowings.


46




The Bank
has used FHLB advances to provide funds for lending and investment
activities.  FHLB lending guidelines set borrowing limits as part of
their underwriting standards.  At March 31, 2009, the Bank’s ratio of
the face amount of advances to total assets, as reported to the Office of Thrift
Supervision (“OTS”), was 30%.  Our advances are secured by a blanket
pledge of our loan portfolio, as collateral, supported by quarterly reporting to
FHLB Topeka.  Advances in excess of 40% of total assets, but not
exceeding 55% of total assets, may be approved by the president of FHLB Topeka
based upon a review of documentation supporting the use of the
advances.  Currently, the blanket pledge is sufficient collateral for
our outstanding FHLB advances.  It is possible that increases in our
borrowings or decreases in our loan portfolio could require the Bank to pledge
securities as collateral on the FHLB advances.  The Bank’s policy
allows borrowing from FHLB of up to 55% of total assets.




The Bank
has used repurchase agreements primarily to fund purchases of MBS and to repay
maturing FHLB advances.  The repurchase agreements are treated as
secured borrowings and are reported as a liability of the Company on a
consolidated basis.  The Bank has pledged securities with a market
value of $768.6 million as collateral.  At the maturity date of these
borrowings, the pledged securities will be delivered back to the
Bank.  The Bank may enter into additional repurchase agreements as
management deems appropriate.   At March 31, 2009, repurchase
agreements were 8% of total assets.  The Bank’s policy allows for
repurchase agreements to total up to 15% of total assets.





In 2004,
the Company issued $53.6 million in Junior Subordinated Deferrable Interest
Debentures (“Debentures”) in connection with a trust preferred securities
offering.  The Company received, net, $52.0 million from the issuance
of the Debentures and an investment of $1.6 million in Capitol Federal Financial
Trust I (the “Trust”).  The Company did not down-stream the proceeds
to be used by the Bank for Tier 1 capital because the Bank exceeded all
regulatory requirements to be a well-capitalized
institution.  Instead, the Company deposited the proceeds into
certificate accounts at the Bank to be used to further the Company’s general
corporate and capital management strategies, which could include the payment of
dividends.




At March
31, 2009, cash and cash equivalents totaled $52.0 million, a decrease of $35.1
million from September 30, 2008.  The cash was used to fund loan
originations and purchase securities.  The Company maintains access to
additional liquidity through its management of the level of borrowings from the
FHLB and counterparties of repurchase agreements through the availability of
high quality collateral for borrowings.  At March 31, 2009, $1.02
billion of securities were eligible but unused for
collateral.  Securities eligible for collateral consist of unpledged
securities with current balances of $10.0 million or greater.  The
Company also has access to the brokered deposit market but does not currently
consider the cost of this funding source to be balanced with investment
opportunities.




The Bank
is a member of the Deposit Insurance Fund (the “DIF”), which is administered by
the Federal Deposit Insurance Corporation (“FDIC”).  Deposits are
insured up to the applicable limits by the FDIC and such insurance is backed by
the full faith and credit of the United States Government.  As
insurer, the FDIC imposes deposit insurance premiums and is authorized to
conduct examinations of and to require reporting by FDIC-insured
institutions.  Recent bank failures have decreased the DIF to levels
below its required reserve ratio.  The FDIC is required to replenish
the fund by increasing deposit insurance premiums when the reserve ratio is
below $1.15 for every $100 insured.  In order to replenish the DIF,
the FDIC has increased deposit insurance premiums to a level designed to restore
the DIF to required levels within seven years, and has proposed a one-time
special assessment of 20 basis points to be collected on September 30, 2009,
based upon deposits at June 30, 2009.  The FDIC also instituted the
Transaction Account Guarantee Program (“TAGP”).  The TAGP extended the
FDIC’s insurance to full coverage of noninterest-bearing transaction accounts
for participating institutions through the end of 2009 at an annualized rate of
10 basis points on deposit balances in excess of the $250 thousand insurance
limit currently in place. The Bank is a participant in the TAGP, but does not
expect this program to have a material impact on the FDIC
assessment.  An institution (or its successor) insured by the FDIC on
December 31, 1996 which had previously paid assessments was eligible for certain
credit against deposit insurance assessments.  This credit had offset
the majority of the Bank’s FDIC premium expense in past fiscal years but it is
expected to be fully utilized during the third quarter of fiscal year
2009.  As a result of these factors, the Bank is anticipating an
increase in deposit insurance premiums in fiscal year
2009.  Management estimates the increase to be approximately $2.9
million for fiscal year 2009 not allowing for the proposed special assessment by
the FDIC.









47


It is
management’s and the board of directors’ intention to continue to pay regular
quarterly dividends of $0.50 per share for the foreseeable
future.  MHC, which owns a majority of the outstanding shares of CFFN
common stock, generally waives its right to receive dividends paid on the common
stock.  See additional discussion and calculation of public shares in
“Item 2, Management’s Discussion and Analysis – Stockholders’ Equity.” At March
31, 2009, CFFN, at the holding company level, had $113.9 million in cash and
certificates of deposit at the Bank to be used to further the Company’s general
corporate and capital management strategies, which could include the payment of
dividends.




The
long-term ability of the Company to pay dividends to its stockholders is based
primarily upon the ability of the Bank to make capital distributions to the
Company.  Under OTS safe harbor regulations, the Bank may distribute
to the Company capital not exceeding net income for the current calendar year
and the prior two calendar years.  For several periods prior to
December 31, 2008, the Bank could not distribute capital to the Company without
waivers of the safe harbor regulation, which it received.  The waiver
was recently required as a result of lower earnings in prior periods compared to
the timing of dividend payments by the Bank to the
Company.  Currently, the Bank has authorization from the OTS to
distribute capital from the Bank to the Company through the quarter ending June
30, 2009.  However, as of December 31, 2008, the Bank was no longer
required to obtain a waiver, as the Bank’s capital distributions to the Company
no longer exceeded the net income requirements noted above.




On
October 3, 2008, the Emergency Economic Stabilization Act (“EESA”) was signed
into law.  EESA authorizes the Treasury Department to purchase from
financial institutions and their holding companies up to $700 billion in
mortgage loans, MBS, and certain other financial instruments, including debt and
equity securities issued by financial institutions and their holding companies
in a Troubled Asset Relief Program (“TARP”).  The purpose of TARP is
to restore confidence and stability to the U.S. banking system and to encourage
financial institutions to increase their lending to customers and to each
other.  The Treasury Department has allocated $250 billion towards the
TARP Capital Purchase Program (“CPP”).  Under the CPP, Treasury will
purchase debt or equity securities from participating
institutions.  Since expanding lending is the primary purpose of CPP,
management and the board of directors believe the Company is already well
positioned to meet the CPP’s objective and therefore did not participate in the
CPP.  The other provisions in the EESA did not have a material impact
on the Company’s financial position, results of operations, cash flows, or
liquidity.


48


Off
Balance Sheet Arrangements, Commitments and Contractual Obligations


The
Company, in the normal course of business, makes commitments to buy or sell
assets or to incur or fund liabilities.  Commitments may include, but
are not limited to:




·
            the
      origination, purchase, or sale of
loans,


·
            the
      purchase or sale of investment securities and
  MBS,


·
            extensions
      of credit on home equity loans and construction
  loans,


·
            terms
      and conditions of operating leases,
and


·
            funding
      withdrawals of deposit accounts.





The
Company’s contractual obligations related to operating leases and debentures
have not changed significantly from September 30, 2008.  The following
table summarizes our other contractual obligations as of March 31,
2009.





Maturity
      RangeLess
      than
                    
                    
                    1 –
      3
                    
                    
                    3 –
      5
                    
                    
                    More
      thanTotal
                    
                    
                    1
      year
                    
                    
                    years
                    
                    
                    years
                    
                    
                    5
      yearsCertificates
      of Deposit
                    
                    $
                    2,612,035
                    
                    
                    $
                    1,545,581
                    
                    
                    $
                    945,691
                    
                    
                    $
                    119,767
                    
                    
                    $
                    996Weighted
      average rate
                    
                    
                    3.45
                    %
                    
                    
                    3.18
                    %
                    
                    
                    3.88
                    %
                    
                    
                    3.53
                    %
                    
                    
                    4.11
                    %FHLB
      Advances
                    
                    
                    2,446,000
                    
                    
                    
                    320,000
                    
                    
                    
                    876,000
                    
                    
                    
                    975,000
                    
                    
                    
                    275,000Weighted
      average rate
                    
                    
                    3.98
                    %
                    
                    
                    4.37
                    %
                    
                    
                    4.18
                    
                    
                    
                    3.62
                    
                    
                    
                    4.18
                    %Repurchase
      Agreements
                    
                    
                    660,000
                    
                    
                    
                    --
                    
                    
                    
                    395,000
                    
                    
                    
                    145,000
                    
                    
                    
                    120,000Weighted
      average rate
                    
                    
                    3.97
                    %
                    
                    
                    --
                    %
                    
                    
                    3.94
                    %
                    
                    
                    3.81
                    %
                    
                    
                    4.24
                    %Commitments
      to originate andpurchase
      mortgage loans
                    
                    
                    215,962
                    
                    
                    
                    215,962
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --Weighted
      average rate
                    
                    
                    5.08
                    %
                    
                    
                    5.08
                    %
                    
                    
                    --
                    %
                    
                    
                    --
                    %
                    
                    
                    --
                    %Commitments
      to fund unused homeequity
      lines of credit
                    
                    
                    271,893
                    
                    
                    
                    271,893
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --Weighted
      average rate
                    
                    
                    4.43
                    %
                    
                    
                    4.43
                    %
                    
                    
                    --
                    %
                    
                    
                    --
                    %
                    
                    
                    --
                    %Unadvanced
      portion ofconstruction
      loans
                    
                    
                    27,058
                    
                    
                    
                    27,058
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --





A
percentage of commitments to originate mortgage loans are expected to expire
unfunded, so the amounts reflected in the table above are not necessarily
indicative of future liquidity requirements.  Additionally, the Bank
is not obligated to honor commitments to fund unused home equity lines of credit
if a customer is delinquent or otherwise in violation of the loan
agreement.





The
maturity schedule for our certificate of deposit portfolio at March 31, 2009 is
located under “Item 3. Quantitative and Qualitative Disclosure About Market
Risk.”  We anticipate that we will continue to have sufficient funds,
through repayments and maturities of loans and securities, deposits and
borrowings, to meet our current commitments.




49


The
following table presents the maturity of FHLB advances at par and repurchase
agreements as of March 31, 2009.  The balance of FHLB advances
excludes the deferred gain on the terminated interest rate swaps and the
deferred prepayment penalty.  Management will continue to monitor the
Bank’s investment opportunities and balance those opportunities with the cost of
FHLB advances or other funding sources.







Weighted
                        
                        
                        WeightedFHLB
                        
                        
                        Repurchase
                        
                        
                        Average
                        
                        
                        AverageMaturity
      by
                        
                        Advances
                        
                        
                        Agreements
                        
                        
                        Contractual
                        
                        
                        EffectiveFiscal
      year
                        
                        Amount
                        
                        
                        Amount
                        
                        
                        Rate
                        
                        
                        Rate(Dollars in thousands)2009
                        
                        $
                        320,000
                        
                        
                        $
                        --
                        
                        
                        
                        4.37
                        %
                        
                        
                        4.37
                        %2010
                        
                        
                        350,000
                        
                        
                        
                        45,000
                        
                        
                        
                        4.33
                        
                        
                        
                        4.332011
                        
                        
                        276,000
                        
                        
                        
                        200,000
                        
                        
                        
                        4.42
                        
                        
                        
                        4.422012
                        
                        
                        350,000
                        
                        
                        
                        150,000
                        
                        
                        
                        3.67
                        
                        
                        
                        3.672013
                        
                        
                        525,000
                        
                        
                        
                        145,000
                        
                        
                        
                        3.74
                        
                        
                        
                        4.002014
                        
                        
                        350,000
                        
                        
                        
                        100,000
                        
                        
                        
                        3.48
                        
                        
                        
                        4.212015
                        
                        
                        100,000
                        
                        
                        
                        20,000
                        
                        
                        
                        4.02
                        
                        
                        
                        5.132016
                        
                        
                        175,000
                        
                        
                        
                        --
                        
                        
                        
                        4.32
                        
                        
                        
                        5.08Total
                        
                        $
                        2,446,000
                        
                        
                        $
                        660,000
                        
                        
                        
                        3.98
                        %
                        
                        
                        4.23
                        %





The
following table presents the maturity of FHLB advances and other borrowings for
the next four quarters as of March 31, 2009.  There are no maturities
of repurchase agreements for the next four quarters.





WeightedMaturity
      by
                    
                    
                    
                    
                    AverageQuarter
      End
                    
                    Amount
                    
                    
                    Rate(Dollars
      in thousands)June
      30, 2009
                    
                    $
                    --
                    
                    
                    
                    --
                    %September
      30, 2009
                    
                    
                    320,000
                    
                    
                    
                    4.37December
      31, 2009
                    
                    
                    --
                    
                    
                    
                    --March
      31, 2010
                    
                    
                    --
                    
                    
                    
                    --$
                    320,000
                    
                    
                    
                    4.37
                    %





Contingencies




In the
normal course of business, the Company and its subsidiary are named defendants
in various lawsuits and counter claims.  In the opinion of management,
after consultation with legal counsel, none of the currently pending suits are
expected to have a materially adverse effect on the Company’s consolidated
financial statements for the current interim or future periods.




50


Capital




Consistent with our goal to operate a
sound and profitable financial organization, we actively seek to maintain a
“well-capitalized” status in accordance with regulatory
standards.  Total equity under GAAP for the Bank was $841.7 million at
March 31, 2009, or 10% of total Bank assets on that date.  As of March
31, 2009, the Bank exceeded all capital requirements of the
OTS.Due to our strong capital position and current ability to
access liquidity in excess of needs, the Company did not participate in the
TARP's CPP.





The
following table presents the Bank’s regulatory capital ratios at March 31, 2009
based upon regulatory guidelines.


RegulatoryRequirementBank
                
                
                For
      “Well-Ratios
                
                
                Capitalized”
      StatusTangible
      equity
                
                
                9.9
                %
                
                
                N/ACore
      capital
                
                
                9.9
                %
                
                
                5.0
                %Tier
      I risk-based capital
                
                
                23.0
                %
                
                
                6.0
                %Total
      risk-based capital
                
                
                23.2
                %
                
                
                10.0
                %





A
reconciliation of the Bank’s equity under GAAP to regulatory capital amounts as
of March 31, 2009 is as follows (dollars in thousands):





Total
      equity as reported under GAAP
                    
                    $
                    841,707Unrealized
      gains on AFS securities
                    
                    
                    (24,622
                    )Other
                    
                    
                    (370
                    )Total
      tangible and core capital
                    
                    
                    816,715Allowance
      for loan losses
                    
                    
                    4,846Total
      risk based capital
                    
                    $
                    821,561









Item 3.   Quantitative and Qualitative
Disclosure About Market Risk





For a
complete discussion of the Company’s asset and liability management policies, as
well as the potential impact of interest rate changes upon the market value of
the Company’s portfolios, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Asset and Liability Management and Market
Risk” in the Company’s Annual Report to Stockholders for the year ended
September 30, 2008, attached as Exhibit 13 to the Company’s Annual Report on
Form 10-K for the year ended September 30, 2008.





The
general objective of our interest rate risk management is to determine and
manage an appropriate level of interest rate risk while maximizing net interest
income, in a manner consistent with our policy to reduce, to the extent
possible, the exposure of our net interest income to changes in market interest
rates.  ALCO regularly reviews the interest rate risk exposure of the
Bank by forecasting the impact of hypothetical, alternative interest rate
environments on net interest income and market value of portfolio equity
(“MVPE”) at various dates.  The MVPE is defined as the net of the
present value of the cash flows of an institution’s existing assets, liabilities
and off-balance sheet instruments.  The present values are determined
in alternative interest rate environments providing potential changes in net
interest income and MVPE under those alternative interest rate environments. The
Bank’s analysis of its MVPE at March 31, 2009 indicates a decrease in its risk
exposure compared to September 30, 2008 primarily due to lower interest rates at
March 31, 2009 compared to September 30, 2008.  The Bank’s analysis of
the sensitivity of its net interest income to parallel changes in interest rates
at March 31, 2009 indicates a decrease in sensitivity since September 30,
2008.





For each
period end presented in the following table, the estimated percentage change in
the Bank’s net interest income based on the indicated instantaneous, parallel
and permanent change in interest rates is presented.  The percentage
change in each interest rate environment represents the difference between
estimated net interest income


51


in the 0
basis point interest rate environment (“base case”, assumes the forward market
and product interest rates implied by the yield curve are realized) and
estimated net interest income in each alternative interest rate environment
(assumes market and product interest rates have a parallel shift in rates across
all maturities by the indicated change in rates).  At March 31, 2009,
the three-month Treasury bill yield was less than one percent, so the -100 and
-200 basis point scenarios are not presented.  Estimations of net
interest income used in preparing the table below are based upon the assumptions
that the total composition of interest-earning assets and interest-bearing
liabilities does not change materially and that any repricing of assets or
liabilities occurs at anticipated product and market rates for the alternative
rate environments as of the dates presented.  The estimation of net
interest income does not include any projected gain or loss related to the sale
of loans or securities, or income derived from non-interest income sources, but
does include the use of different prepayment assumptions in the alternative
interest rate environments.  It is important to consider that the
estimated changes in net interest income are for a cumulative four-quarter
period.  These do not reflect the earnings expectations of
management.





Percentage
      Change in Net Interest IncomeAtChange
      (in Basis Points)
                
                
                March
      31,
                
                
                December
      31,
                
                
                September
      30,in
      Interest Rates(1)
                
                
                2009
                
                
                2008
                
                
                2008000
                bp
                
                
                --
                
                
                
                --
                
                
                
                --+100
                bp
                
                
                3.52
                %
                
                
                1.15
                %
                
                
                -2.20
                %+200
                bp
                
                
                3.58
                %
                
                
                -1.02
                %
                
                
                -5.08
                %+300
                bp
                
                
                3.26
                %
                
                
                -3.42
                %
                
                
                -8.62
                %





(1)
            Assumes
      an instantaneous, permanent and parallel change in interest rates at all
      maturities.





The
increase in estimated net interest income in all scenarios at March 31, 2009
compared to December 31, 2008 is primarily due to the decrease in the amount of
liabilities expected to reprice in the upcoming year.  The amount of
liabilities expected to reprice decreased because FHLB advances that were
scheduled to mature in the upcoming year were exchanged for new FHLB advances
with longer maturities, as discussed in “Notes to Financial Statements-- Note 4
– FHLB Advances.”





Liabilities
expected to reprice also decreased due to the maturity of $300.0 million of FHLB
advances during the quarter that were replaced with new long-term
borrowings.   At March 31, 2009 and December 31, 2008, the low
level of interest rates, particularly mortgage rates, resulted in the WAL of
mortgage related assets to be relatively short as borrowers have a financial
incentive to refinance their mortgages into lower interest rates.  As
interest rates rise, this incentive for borrowers is reduced, resulting in less
expected cash flow from mortgage related assets.  At March 31, 2009,
the amount of assets repricing in the four-quarter period is greater than the
amount of liabilities in all of the interest rate shock scenarios, despite the
decrease in cash flows from mortgage related assets as interest rate increase.
At December 31, 2008 net interest income decreased in the +200 and +300 basis
point scenarios.  Cash flows from mortgage related assets decreased to
such a degree that the amount of total assets expected to reprice was less than
the amount of liabilities scheduled to reprice, thus having a negative impact to
the net interest income.


52


The
following table sets forth the estimated percentage change in MVPE at each
period end presented based on the indicated instantaneous, parallel and
permanent change in interest rates.  The MVPE is defined as the net of
the present value of the cash flows of an institution’s existing assets,
liabilities and off-balance sheet instruments.  The percentage change
in each interest rate environment represents the difference between MVPE in the
base case and MVPE in each alternative interest rate environment.  At
March 31, 2009, the three-month Treasury bill was less than one percent, so the
-100 and -200 basis point scenarios are not presented.  The
estimations of MVPE used in preparing the table below are based upon the
assumptions that the total composition of interest-earning assets and
interest-bearing liabilities does not change, that any repricing of assets or
liabilities occurs at current product or market rates for the alternative rate
environments as of the dates presented, and that different prepayment rates are
used in each alternative interest rate environment.  The estimated
MVPE results from the valuation of cash flows from financial assets and
liabilities over the anticipated lives of each for each interest rate
environment.  The table presents the effects of the change in interest
rates on our assets and liabilities as they mature, repay or reprice, as shown
by the change in the MVPE in changing interest rate environments.


Percentage
      Change in MVPEAtChange
      (in Basis Points)
                
                
                March
      31,
                
                
                December
      31,
                
                
                September
      30,in
      Interest Rates(1)
                
                
                2009
                
                
                2008
                
                
                2008000
                bp
                
                
                --
                
                
                
                --
                
                
                
                --+100
                bp
                
                
                0.70
                %
                
                
                3.67
                %
                
                
                -6.99
                %+200
                bp
                
                
                -6.51
                %
                
                
                -9.06
                %
                
                
                -19.37
                %+300
                bp
                
                
                -18.34
                %
                
                
                -28.68
                %
                
                
                -34.88
                %





(1)
            Assumes
      an instantaneous, permanent and parallel change in interest rates at all
      maturities.





Changes
in the estimated market values of our financial assets and liabilities drive
changes in estimates of MVPE.  The market value of shorter
term-to-maturity financial instruments is less sensitive to changes in interest
rates than the market value of longer term-to-maturity financial
instruments.  Because of this, our certificates of deposit (which have
relatively short average lives) tend to display less sensitivity to changes in
interest rates than do our mortgage-related assets (which have relatively long
average lives).  However, the average life expected on our
mortgage-related assets varies under different interest rate environments
because borrowers have the ability to prepay their mortgage
loans.  Prepayment assumptions change on mortgage-related assets under
various interest rate environments because many borrowers look to obtain
financing at the lowest cost available.  Generally, there is no
penalty to prepay a mortgage loan we have originated or purchased.  If
interest rates decrease, the borrower has an economic incentive to lower their
mortgage payment (through a lower interest rate) with only the fees associated
on the new mortgage or loan modification.  In a decreasing interest
rate environment, prepayments increase and the average life of a mortgage
shortens compared to higher interest rate environments.  When interest
rates increase, the economic incentive for borrowers to refinance or modify
their mortgage payment is reduced, resulting in lower prepayment assumptions and
longer average lives.





The MVPE
increased in the +100 basis point interest rate scenario at March 31, 2009,
however, to a lesser extent than the increase at December 31,
2008.  The MVPE increased in the +100 basis point scenario because the
WAL of the assets are shorter than the liabilities, resulting in a larger
decrease in the market value of liabilities than assets as interest rates
increased.  The increase in the MVPE was smaller at March 31, 2009 as
a result of an increase in the WAL of mortgage related assets during this
period.  Longer weighted average lives result in greater price
sensitivity to changes in interest rates.  As a result, loss on
mortgage related assets in the +100 basis point scenario was greater as of March
31, 2009 than December 31, 2008.  In the +200 and +300 basis point
scenarios, the WAL of the mortgage related assets extended to such a point that
the price sensitivity for mortgage related assets were similar at the end of
both periods. The WAL of the liabilities increased during the current quarter
primarily due to the refinancing of FHLB advances during the quarter into new
advances with a longer term to maturity. Therefore, the change in the MVPE is
less negative at March 31, 2009 due to the increase in the weighted average of
the liability portfolio which helps to reduce risk during periods of rising
interest rates.


53


Gap Table:  The
following gap table summarizes the anticipated maturities or repricing of our
interest-earning assets and interest-bearing liabilities as of March 31, 2009,
based on the information and assumptions set forth in the notes
below.  Cash flow projections for mortgage loans and MBS are
calculated based on current interest rates.  Prepayment projections
are subjective in nature, involve uncertainties and assumptions and, therefore,
cannot be determined with a high degree of accuracy. Although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
differently to changes in market interest rates.  Assumptions may not
reflect how actual yields and costs respond to market changes. The interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types of assets
and liabilities may lag behind changes in market interest
rates.  Certain assets, such as ARM loans, have features that restrict
changes in interest rates on a short-term basis and over the life of the
asset.  In the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those assumed in
calculating the gap table. For additional information regarding the impact
of changes in interest rates, see the Percentage Change in Net Interest Income
and Percentage Change in MVPE tables above.








54


March
      31, 2009
                                        
                                        Within
      Three Months
                                        
                                        
                                        Three
      Months To One Year
                                        
                                        
                                        More
      Than One Year to Three Years
                                        
                                        
                                        More
      Than Three Years to Five Years
                                        
                                        
                                        Over
      Five Years
                                        
                                        
                                        TotalInterest-earning
      assets:
                                        
                                        (Dollars
      in thousands)Loans
      receivable(1):Mortgage
      loans:Fixed
                                        
                                        $
                                        438,844
                                        
                                        
                                        $
                                        1,041,454
                                        
                                        
                                        $
                                        1,088,281
                                        
                                        
                                        $
                                        447,823
                                        
                                        
                                        $
                                        796,918
                                        
                                        
                                        $
                                        3,813,320Adjustable
                                        
                                        
                                        194,872
                                        
                                        
                                        
                                        695,210
                                        
                                        
                                        
                                        445,572
                                        
                                        
                                        
                                        32,604
                                        
                                        
                                        
                                        2,266
                                        
                                        
                                        
                                        1,370,524Other
      loans
                                        
                                        
                                        135,781
                                        
                                        
                                        
                                        30,109
                                        
                                        
                                        
                                        23,308
                                        
                                        
                                        
                                        7,361
                                        
                                        
                                        
                                        9,447
                                        
                                        
                                        
                                        206,006Securities:Non-mortgage
      securities(2)
                                        
                                        
                                        30,578
                                        
                                        
                                        
                                        79,601
                                        
                                        
                                        
                                        70,322
                                        
                                        
                                        
                                        17,297
                                        
                                        
                                        
                                        18,618
                                        
                                        
                                        
                                        216,416MBS(3)
                                        
                                        
                                        359,851
                                        
                                        
                                        
                                        790,296
                                        
                                        
                                        
                                        572,845
                                        
                                        
                                        
                                        195,853
                                        
                                        
                                        
                                        243,933
                                        
                                        
                                        
                                        2,162,778Other
      interest-earning assets
                                        
                                        
                                        34,244
                                        
                                        
                                        
                                        --
                                        
                                        
                                        
                                        --
                                        
                                        
                                        
                                        --
                                        
                                        
                                        
                                        --
                                        
                                        
                                        
                                        34,244Total
      interest-earning assets
                                        
                                        
                                        1,194,170
                                        
                                        
                                        
                                        2,636,670
                                        
                                        
                                        
                                        2,200,328
                                        
                                        
                                        
                                        700,938
                                        
                                        
                                        
                                        1,071,182
                                        
                                        
                                        
                                        7,803,288Interest-bearing
      liabilities:Deposits:Savings(4)
                                        
                                        
                                        106,385
                                        
                                        
                                        
                                        8,056
                                        
                                        
                                        
                                        18,968
                                        
                                        
                                        
                                        15,012
                                        
                                        
                                        
                                        81,484
                                        
                                        
                                        
                                        229,905Checking
      (4)
                                        
                                        
                                        10,257
                                        
                                        
                                        
                                        34,348
                                        
                                        
                                        
                                        108,706
                                        
                                        
                                        
                                        62,396
                                        
                                        
                                        
                                        232,379
                                        
                                        
                                        
                                        448,086Money
      market (4)
                                        
                                        
                                        37,291
                                        
                                        
                                        
                                        103,193
                                        
                                        
                                        
                                        189,948
                                        
                                        
                                        
                                        151,192
                                        
                                        
                                        
                                        344,864
                                        
                                        
                                        
                                        826,488Certificates
                                        
                                        
                                        418,388
                                        
                                        
                                        
                                        1,127,193
                                        
                                        
                                        
                                        945,691
                                        
                                        
                                        
                                        119,767
                                        
                                        
                                        
                                        996
                                        
                                        
                                        
                                        2,612,035Borrowings
      (5)
                                        
                                        
                                        53,609
                                        
                                        
                                        
                                        320,000
                                        
                                        
                                        
                                        1,271,000
                                        
                                        
                                        
                                        1,120,000
                                        
                                        
                                        
                                        395,000
                                        
                                        
                                        
                                        3,159,609Total
      interest-bearing liabilities
                                        
                                        
                                        625,930
                                        
                                        
                                        
                                        1,592,790
                                        
                                        
                                        
                                        2,534,313
                                        
                                        
                                        
                                        1,468,367
                                        
                                        
                                        
                                        1,054,723
                                        
                                        
                                        
                                        7,276,123Excess(deficiency)
      of interest-earning assets overinterest-bearing
      liabilities
                                        
                                        $
                                        568,240
                                        
                                        
                                        $
                                        1,043,880
                                        
                                        
                                        $
                                        (333,985
                                        )
                                        
                                        $
                                        (767,429
                                        )
                                        
                                        $
                                        16,459
                                        
                                        
                                        $
                                        527,165Cumulative
      excess(deficiency) of interest-earningassets
      over interest-bearing liabilities
                                        
                                        $
                                        568,240
                                        
                                        
                                        $
                                        1,612,120
                                        
                                        
                                        $
                                        1,278,135
                                        
                                        
                                        $
                                        510,706
                                        
                                        
                                        $
                                        527,166Cumulative
      excess(deficiency) of interest-earningassets
      over interest-bearing liabilities as apercent
      of total assets at March 31, 2009
                                        
                                        
                                        6.87
                                        %
                                        
                                        
                                        19.50
                                        %
                                        
                                        
                                        15.46
                                        %
                                        
                                        
                                        6.18
                                        %
                                        
                                        
                                        6.38
                                        %Cumulative
      excess(deficiency) at September 30, 2008
                                        
                                        
                                        (0.10
                                        )%
                                        
                                        
                                        1.90
                                        %
                                        
                                        
                                        (1.19
                                        )%
                                        
                                        
                                        (4.16
                                        )%
                                        
                                        
                                        9.05
                                        %


55


(1)  Adjustable-rate
loans are included in the period in which the rate is next scheduled to adjust
or in the period in which repayments are expected to occur prior to their next
rate adjustment, rather than in the period in which the loans are
due.  Fixed-rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization and prepayment
assumptions.  Balances have been reduced for non-performing loans,
which totaled $22.4 million at March 31, 2009.


(2)  Based
on contractual maturities, or terms to call date or pre-refunding dates as of
March 31, 2009, and excludes the unrealized loss adjustment of $2.0 million on
AFS investment securities.


(3)  Reflects
estimated prepayments of MBS in our portfolio, and excludes the unrealized gain
adjustment of $41.6 million on AFS MBS.


(4)  Although
our checking, savings and money market accounts are subject to immediate
withdrawal, management considers a substantial amount of such accounts to be
core deposits having significantly longer effective maturities.  The
decay rates (the assumed rate at which the balance of existing accounts would
decline) used on these accounts are based on assumptions developed based upon
our actual experience with these accounts.  If all of our checking,
savings and money market accounts had been assumed to be subject to repricing
within one year, interest-bearing assets which were estimated to mature or
reprice within one year would have exceeded interest-earning liabilities with
comparable characteristics by $407.2 million, for a cumulative one-year gap of
4.92% of total assets.


(5)  Borrowings
exclude $35.2 million of deferred prepayment penalty costs and $803 thousand of
deferred gain on the terminated interest rate swaps.





The
change in the one-year gap to 19.50% at March 31, 2009 from 1.90% at September
30, 2008 was a result of a significant decrease in interest rates, particularly
mortgage interest rates.  The decrease in mortgage interest rates
increased projected cash flows from mortgage loan prepayments which
resulted in shorter average lives and quicker repricing of interest-earning
assets at March 31, 2009 compared to September 30, 2008.














56





Changes in
portfolio composition.  The following table presents the
distribution of our investment and MBS portfolios, at cost, at the dates
indicated.  Overall, fixed-rate securities comprised approximately 55%
of these portfolios at March 31, 2009.  The WAL is the estimated
remaining maturity after historical prepayment speeds and projected call option
assumptions have been applied.  The increase in the WAL between
September 30, 2008 and March 31, 2009 was due largely to a slowdown in
prepayment speeds on adjustable-rate MBS during the year.  The
decrease in the yield between September 30, 2008 and March 31, 2009 was a result
of a decrease in the yield of adjustable-rate MBS that reset during the year as
well as calls and maturities of higher yielding investment
securities.





March
      31, 2009
                    
                    
                    December
      31, 2008
                    
                    
                    September
      30, 2008Balance
                    
                    
                    WAL
                    
                    
                    Yield
                    
                    
                    Balance
                    
                    
                    WAL
                    
                    
                    Yield
                    
                    
                    Balance
                    
                    
                    WAL
                    
                    
                    Yield(Dollars
      in thousands)Fixed-rate
      investments:Agency
      bonds
                    
                    $
                    152,067
                    
                    
                    
                    0.75
                    
                    
                    
                    1.68
                    %
                    
                    $
                    45,036
                    
                    
                    
                    0.24
                    
                    
                    
                    3.22
                    %
                    
                    $
                    82,552
                    
                    
                    
                    5.55
                    
                    
                    
                    4.28
                    %MBS
                    
                    
                    1,105,095
                    
                    
                    
                    4.03
                    
                    
                    
                    4.84
                    
                    
                    
                    1,164,744
                    
                    
                    
                    5.08
                    
                    
                    
                    4.88
                    
                    
                    
                    1,207,086
                    
                    
                    
                    4.92
                    
                    
                    
                    4.88Municipal
      bonds
                    
                    
                    60,537
                    
                    
                    
                    4.27
                    
                    
                    
                    3.31
                    
                    
                    
                    58,806
                    
                    
                    
                    4.17
                    
                    
                    
                    3.41
                    
                    
                    
                    58,062
                    
                    
                    
                    4.81
                    
                    
                    
                    3.39Total
      fixed-rate investments
                    
                    
                    1,317,699
                    
                    
                    
                    3.66
                    
                    
                    
                    4.41
                    
                    
                    
                    1,268,586
                    
                    
                    
                    4.87
                    
                    
                    
                    4.75
                    
                    
                    
                    1,347,700
                    
                    
                    
                    4.95
                    
                    
                    
                    4.78Adjustable-rate
      investments:MBS
                    
                    
                    1,057,683
                    
                    
                    
                    7.15
                    
                    
                    
                    4.60
                    
                    
                    
                    986,908
                    
                    
                    
                    6.68
                    
                    
                    
                    4.75
                    
                    
                    
                    1,034,734
                    
                    
                    
                    5.21
                    
                    
                    
                    4.76Trust
      preferred securities
                    
                    
                    3,812
                    
                    
                    
                    28.23
                    
                    
                    
                    2.98
                    
                    
                    
                    3,842
                    
                    
                    
                    28.48
                    
                    
                    
                    3.66
                    
                    
                    
                    3,859
                    
                    
                    
                    28.73
                    
                    
                    
                    4.48Total
      adjustable-rate investments
                    
                    
                    1,061,495
                    
                    
                    
                    7.25
                    
                    
                    
                    4.59
                    
                    
                    
                    990,750
                    
                    
                    
                    6.79
                    
                    
                    
                    4.75
                    
                    
                    
                    1,038,593
                    
                    
                    
                    5.32
                    
                    
                    
                    4.76Total
      investment portfolio, at cost
                    
                    $
                    2,379,194
                    
                    
                    
                    5.26
                    
                    
                    
                    4.49
                    %
                    
                    $
                    2,259,336
                    
                    
                    
                    5.71
                    
                    
                    
                    4.75
                    %
                    
                    $
                    2,386,293
                    
                    
                    
                    5.11
                    
                    
                    
                    4.77
                    %




57


The
certificate of deposit portfolio increased $93.0 million from September 30, 2008
to March 31, 2009 and the average cost of the portfolio decreased 46 basis
points between the two reporting dates.  The decrease in the average
cost was due to repricing to market rates.  Certificates maturing in
one year or less at March 31, 2009 were $1.55 billion with an average cost of
3.18%.  The following table presents the maturity of certificates of
deposit at the dates indicated.







March
      31, 2009
                
                
                December
      31, 2008
                
                
                September
      30, 2008
                
                
                June
      30, 2008Amount
                
                
                Rate
                
                
                Amount
                
                
                Rate
                
                
                Amount
                
                
                Rate
                
                
                Amount
                
                
                Rate(Dollars
      in thousands)Certificates
      maturing within:0
      to 3 months
                
                $
                418,388
                
                
                
                3.02
                %
                
                $
                333,638
                
                
                
                3.14
                %
                
                $
                494,370
                
                
                
                4.53
                %
                
                $
                454,875
                
                
                
                4.71
                %3
      to 6 months
                
                
                413,795
                
                
                
                3.16
                
                
                
                363,499
                
                
                
                3.28
                
                
                
                327,479
                
                
                
                3.26
                
                
                
                489,029
                
                
                
                4.576
      months to one year
                
                
                713,398
                
                
                
                3.28
                
                
                
                741,881
                
                
                
                3.54
                
                
                
                658,537
                
                
                
                3.43
                
                
                
                567,943
                
                
                
                3.40One
      year to two years
                
                
                582,138
                
                
                
                3.97
                
                
                
                496,201
                
                
                
                4.15
                
                
                
                631,061
                
                
                
                4.26
                
                
                
                638,300
                
                
                
                4.10After
      two years
                
                
                484,316
                
                
                
                3.69
                
                
                
                493,310
                
                
                
                3.90
                
                
                
                407,549
                
                
                
                3.93
                
                
                
                347,496
                
                
                
                4.19Total
      certificates
                
                $
                2,612,035
                
                
                
                3.45
                %
                
                $
                2,428,529
                
                
                
                3.64
                %
                
                $
                2,518,996
                
                
                
                3.91
                %
                
                $
                2,497,643
                
                
                
                4.16
                %Average
      maturity (in years)
                
                
                1.11
                
                
                
                
                
                
                
                1.15
                
                
                
                
                
                
                
                1.09
                
                
                
                
                
                
                
                1.03





58


Item
4.  Controls and
Procedures





Our
management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, evaluated the Company’s disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act
of 1934, as amended, the “Act”) as of March 31, 2009.  Based upon this
evaluation, our Chief Executive Officer and our Chief Financial Officer have
concluded that as of March 31, 2009, such disclosure controls and procedures
were effective to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Act is accumulated and
communicated to the Company’s management (including the Chief Executive Officer
and Chief Financial Officer) to allow timely decisions regarding required
disclosure, and is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.





Changes
in Internal Control Over Financial Reporting


During
the quarter ended March 31, 2009, there were no changes in the Company’s
internal control over financial reporting as defined by Rule 13a-15(d) of the
Act that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.





Part II -   OTHER
INFORMATION





Item 1.  Legal Proceedings


We are
not involved in any pending legal proceedings other than routine legal
proceedings occurring in the ordinary course of business.  We believe
that these routine legal proceedings, in the aggregate, are immaterial to our
financial condition and results of operations.





Item 1A.  Risk Factors


There
have been no material changes to our risk factors since September 30,
2008.  For a summary of other risk factors relevant to our operations,
see Part I, Item 1A in our 2008 Annual Report on Form
10-K.





59





<Index>


Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds


See
“Liquidity and Capital Resources - Capital” in “Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” regarding the OTS
restrictions on dividends from the Bank to the Company.





The
following table summarizes our share repurchase activity during the three months
ended March 31, 2009 and additional information regarding our share repurchase
program.   Our current repurchase plan of 500,000 shares was
announced on May 26, 2006.  The plan has no expiration date and had
130,368 shares remaining as of March 31, 2009.  The Company intends to
repurchase shares from time to time, depending on market conditions, at
prevailing market prices in open-market and other transactions.  The
shares would be held as treasury stock for general corporate use.




Total
              
              Total
      Number of
              Maximum
      NumberNumber
      of
              Average
              Shares
      Purchased as
              of
      Shares that MayShares
              Price
      Paid
              Part
      of Publicly
              Yet
      Be PurchasedPeriod
              Purchased
              per
      Share
              Announced
      Plans
              Under
      the PlanJanuary
      1, 2009 throughJanuary
      31, 2009
              36,201
              $43.25
              36,201
              130,368February
      1, 2009 throughFebruary
      28, 2009
              --
              --
              --
              130,368March
      1, 2009 throughMarch
      31, 2009
              --
              --
              --
              130,368Total
              36,201
              
              36,201










<Index>


Item
3.  Defaults Upon Senior Securities


Not
applicable.





<Index>


Item
4.  Submission of Matters to a Vote of Security Holders


The Annual Meeting of Stockholders for the fiscal year ended
September 30, 2008 was held January 14, 2009.  Two matters were
presented to stockholders.  The results were previously included in
Part 2, Item 4 in the Form 10-Q for the period ended December 31,
2008.





<Index>


Item
5.  Other Information


Not
applicable.





<Index>


Item
6.  Exhibits


See Index
to Exhibits.


60


SIGNATURES





Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





CAPITOL
FEDERAL FINANCIAL








Date:  May
5,
2009                                               By: /s/ John B.
Dicus


John B. Dicus, Chairman, President and


Chief Executive Officer








Date:  May
5,
2009                                               By: /s/ Kent G.
Townsend


Kent G. Townsend, Executive Vice President and


Chief Financial Officer








<Index>


61


INDEX TO EXHIBITS


Exhibit
              Number
            Document2.0
            
            Plan
      of Reorganization and Stock Issuance Plan*3(i)
            
            Federal
      Stock Charter of Capitol Federal Financial*3(ii)
            
            Bylaws
      of Capitol Federal Financial filed on November 29, 2007 as Exhibit 3(ii)
      tothe
      Annual Report on Form 10-K and incorporated herein by
      reference4(i)
            
            Form
      of Stock Certificate of Capitol Federal Financial*4(ii)
            
            The
      Registrant agrees to furnish to the Securities and Exchange Commission,
      upon request, theinstruments
      defining the rights of the holders of the Registrant’s long-term
      debt.10.1(i)
            
            Registrant’s
      Thrift Plan filed on November 29, 2007 as Exhibit 10.1(i)
    tothe
      Annual Report on Form 10-K and incorporated herein by
      reference10.1(ii)
            
            Registrant’s
      Stock Ownership Plan filed on November 29, 2007 as Exhibit 10.1(ii)
      tothe
      Annual Report on Form 10-K and incorporated herein by
      reference10.2
            
            Registrant’s
      2000 Stock Option and Incentive Plan (the “Stock Option Plan”) filed on
      April 13,2000
      as Appendix A to Registrant’s Revised Proxy Statement (File No. 000-25391)
      and incorporated herein by reference10.3
            
            Registrant’s
      2000 Recognition and Retention Plan (the “RRP”) filed on April 13, 2000
      asAppendix
      B to Registrant’s Revised Proxy Statement (File No. 000-25391) and
      incorporated herein by reference10.4
            
            Capitol
      Federal Financial Deferred Incentive Bonus Plan, as
  amended10.5
            
            Form
      of Incentive Stock Option Agreement under the Stock Option Plan filed on
      February 4, 2005as
      Exhibit 10.5 to the December 31, 2004 Form 10-Q and incorporated herein by
      reference10.6
            
            Form
      of Non-Qualified Stock Option Agreement under the Stock Option Plan filed
      on February 4,2005
      as Exhibit 10.6 to the December 31, 2004 Form 10-Q and incorporated herein
      by reference10.7
            
            Form
      of Restricted Stock Agreement under the RRP filed on February 4, 2005 as
      Exhibit 10.7 to theDecember
      31, 2004 Form 10-Q and incorporated herein by reference10.8
            
            Description
      of Named Executive Officer Salary and Bonus Arrangements filed on December
      1,2008
      as Exhibit 10.8 to the Annual Report on Form 10-K and incorporated herein
      by reference10.9
            
            Description
      of Director Fee Arrangements filed on February 4, 2009 as Exhibit 10.9 to
      the December 31, 2008 Form 10-Q and incorporated herein by
      reference10.10
            
            Short-term
      Performance Plan filed on December 14, 2005 as Exhibit 10.10 to the
      AnnualReport
      on Form 10-K for the fiscal year ended September 30, 2005 and incorporated
      herein by reference11
            
            Statement
      re: computation of earnings per share**31.1
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 made by John B.
      Dicus, Chairman, President and Chief Executive Officer31.2
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G.
      Townsend, Executive Vice President and Chief Financial
    Officer32
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President
      and Chief Executive Officer, and Kent G. Townsend, Executive Vice
      President and Chief Financial
Officer





*Incorporated
by reference from Capitol Federal Financial’s Registration Statement on Form S-1
(File No. 333-68363) filed on February 11, 1999, as amended and declared
effective on the same date.


62








**No
statement is provided because the computation of per share earnings on both a
basic and fully diluted basis can be clearly determined from the Financial
Statements included in this report.


63