TFS Financial Corporation Announces Fiscal Quarter Ended June 30, 2010 Financial Results

CLEVELAND, Aug. 4, 2010 (GLOBE NEWSWIRE) -- TFS Financial Corporation (Nasdaq:TFSL) (the "Company"), the holding company for Third Federal Savings and Loan Association of Cleveland (the "Association"), today announced results for the three and nine month periods ended June 30, 2010. The Company also will not be declaring a cash dividend for the current quarter and has suspended its stock repurchase program.

The Company reported net income of $10.2 million for the three months ended June 30, 2010, compared to net income of $10.0 million for the three months ended June 30, 2009. An increase in the net gain on the sale of loans of $10.3 million during the current quarter, as compared to the quarter ended June 30, 2009, was essentially offset by a $10 million increase in the provision for loan losses in the current quarter, as compared to the quarter ended June 30, 2009. Net income of $22.1 million was reported for the nine months ended June 30, 2010, compared to net income of $27.3 million for the nine months ended June 30, 2009. The decrease was attributable to a $13 million increase in the provision for loan losses in the current nine month period, as compared to the nine months ended June 30, 2009.

The Company recorded a provision for loan losses of $30.0 million for the three months ended June 30, 2010, compared to $20.0 million for the three months ended June 30, 2009. The provision recorded for the quarter ended June 30, 2010 exceeded net charge-offs of $16.0 million, whereas the net charge-offs of $23.8 million exceeded the provision recorded for the three months ended June 30, 2009. The provision for loan losses was $71.0 million for the nine months ended June 30, 2010 compared to $58.0 million for the nine months ended June 30, 2009. The provisions exceeded net charge-offs of $47.8 million and $45.9 million for the nine months ended June 30, 2010 and 2009, respectively. Of the $47.8 million of net charge-offs for the nine months ended June 30, 2010, $35.0 million occurred in the equity loans and lines of credit portfolio. The allowance for loan losses was $118.4 million, or 1.33% of total loans receivable at June 30, 2010, compared to $95.2 million, or 1.02% of total loans receivable at September 30, 2009, and further compared to $55.9 million, or 0.59%, of total loans receivable at June 30, 2009. 

Nonperforming loans increased by $34.9 million to $290.7 million, or 3.25% of total loans, at June 30, 2010 from $255.7 million, or 2.73% of total loans, at September 30, 2009, and, further, non-performing loans increased by $52.2 million at June 30, 2010, compared to $238.4 million, or 2.53% of total loans, at June 30, 2009. Of the $34.9 million increase in non-performing loans for the nine months ended June 30, 2010, $30.2 million occurred in the residential, non-Home Today portfolio and $12.0 million occurred in the Home Today portfolio. The Home Today portfolio is an affordable housing program targeted toward low and moderate income home buyers, which totaled $283.2 million at June 30, 2010 and $291.7 million at September 30, 2009. Non-performing construction loans decreased $5.6 million during the nine-month period ended June 30, 2010. Non-performing equity loans and lines of credit decreased $1.7 million during the nine-month period ended June 30, 2010. As of June 30, 2010, our equity loans and lines of credit portfolio was $2.90 billion, compared to $2.98 billion at September 30, 2009.

Total assets increased by $341.4 million, or 3%, to $10.94 billion at June 30, 2010 from $10.60 billion at September 30, 2009. This change was the result of increases in our cash and cash equivalents, investment securities and other assets partially offset by a decrease in our loan portfolio.

Cash and cash equivalents increased $642.5 million, or 209%, to $949.6 million at June 30, 2010 from $307.0 million at September 30, 2009, and investment securities increased $64.4 million, or 11%, to $666.2 million at June 30, 2010 from $601.8 million at September 30, 2009. This increase is the result of successful deposit gathering, as well as loan sales which closed during June, 2010.

Other assets increased $42.3 million to $95.5 million at June 30, 2010 from $53.2 million at September 30, 2009. This increase is largely the result of the $44.7 million remaining balance of a $51.9 million prepayment of FDIC deposit insurance assessments made in December, 2009.

Deposits increased $337.7 million, or 4%, to $8.91 billion at June 30, 2010 from $8.57 billion at September 30, 2009. This increase is largely the result of a $337.4 million increase in high-yield savings accounts.

Shareholders' equity increased $15.7 million to $1.76 billion at June 30, 2010 from $1.75 billion at September 30, 2009. This reflects $22.1 million of net income during the nine-month period reduced by $15.6 million in dividends paid on our shares of common stock (other than the shares held by Third Federal Savings, MHC and unallocated employee stock ownership plan (ESOP) shares). The remainder of the change reflects the repurchase of outstanding common stock and adjustments related to the allocation of shares of our common stock related to stock-based compensation awards and the ESOP. No shares of outstanding common stock were repurchased during the three-month period ended June 30, 2010. The current repurchase program, which has been suspended, has 2,156,250 shares yet to be purchased as of June 30, 2010. 

The Office of Thrift Supervision (the "OTS") has expressed concerns with the risk concentration and other aspects of the Association's home equity line of credit portfolio and its administration of that portfolio. In connection with those concerns, the OTS has informed the Company that it must provide the OTS 45 days prior written notice of the Company's intent to declare and pay cash dividends to its stockholders or repurchase any of its outstanding common stock. The OTS may object to a proposed dividend or stock repurchase within the 45 days notice period. The Association has suspended the origination of all new equity loans and lines of credit and is working diligently to resolve the OTS' concerns with respect to the home equity line of credit portfolio. The Company does not intend to declare or pay a cash dividend, or to repurchase any of its outstanding common stock until the OTS' concerns are resolved. Any future payment of dividends or stock repurchases will be decided by the Company's board of directors, subject to proper OTS notice, if required at that time.

At June 30, 2010¸ the Association was "well capitalized" for regulatory capital purposes, as its tier 1 capital ratio was 18.36% and its total risk based capital was 19.45%, both of which substantially exceed the amounts required for the Association to be considered well capitalized.

The TFS Financial Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3622

Forward Looking Statements

This press release contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include:

  • statements of our goals, intentions and expectations;
  • statements regarding our business plans and prospects and growth and operating strategies;
  • statements concerning trends in our provision for loan losses and charge-offs;
  • statements regarding the asset quality of our loan and investment portfolios; and
  • estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:

  • significantly increased competition among depository and other financial institutions;
  • inflation and changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;
  • general economic conditions, either nationally or in our market areas, including unemployment prospects and conditions, that are worse than expected;
  • decreased demand for our products and services and lower revenue and earnings because of a recession;
  • adverse changes and volatility in the securities markets;
  • adverse changes and volatility in credit markets;
  • legislative or regulatory changes that adversely affect our business;
  • our ability to enter new markets successfully and take advantage of growth opportunities, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any;
  • changes in consumer spending, borrowing and savings habits;
  • changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board and the Public Company Accounting Oversight Board;
  • future adverse developments concerning Fannie Mae or Freddie Mac;
  • changes in monetary and fiscal policy of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;
  • changes in policy and/or assessment rates of taxing authorities that adversely affect us;
  • changes in laws or governmental regulations affecting financial institutions, including changes in regulatory costs and capital requirements;
  • the timing and the amount of revenue that we may recognize;
  • changes in expense trends (including, but not limited to trends affecting non-performing assets, charge-offs and provisions for loan losses);
  • the impact of the current governmental effort to restructure the U.S. Financial and regulatory system;
  • inability of third-party providers to perform their obligations to us;
  • adverse changes and volatility in real estate markets;
  • changes in our organization, or compensation and benefit plans; and
  • the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and its impact on the credit quality of our loans and other assets.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
(In thousands, except share data)
June 30,
2010
September 30,
2009
ASSETS
Cash and due from banks  $ 32,546  $ 20,823
Other interest-bearing cash equivalents 917,009 286,223
Cash and cash equivalents  949,555  307,046
Investment securities:
Available for sale (amortized cost $23,548 and $23,065, respectively) 23,790 23,434
Held to maturity (fair value $653,162 and $587,440, respectively) 642,376 578,331
 666,166  601,765
Mortgage loans held for sale (includes $94,423 and $40,436, measured at
fair value, respectively)
115,853 61,170
Loans held for investment, net:
Mortgage loans   8,883,188  9,318,189
Other loans 7,252 7,107
Deferred loan fees, net (12,835) (10,463)
Allowance for loan losses (118,414) (95,248)
Loans, net  8,759,191  9,219,585
Mortgage loan servicing assets, net  42,291  41,375
Federal Home Loan Bank stock, at cost  35,620  35,620
Real estate owned  14,373  17,733
Premises, equipment, and software, net  62,860  65,134
Accrued interest receivable  36,164  38,365
Bank owned life insurance contracts  162,672  157,864
Other assets  95,457  53,183
TOTAL ASSETS  $ 10,940,202  $ 10,598,840
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits  $ 8,908,209  $ 8,570,506
Borrowed funds  70,158  70,158
Borrowers' advances for insurance and taxes  30,606  48,192
Principal, interest, and related escrow owed on loans serviced  107,955  105,719
Accrued expenses and other liabilities  61,747  58,400
Total liabilities  9,178,675  8,852,975
Commitments and contingent liabilities
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none
issued and outstanding
0 0
Common stock, $0.01 par value, 700,000,000 shares authorized; 332,318,750 shares
issued; 308,315,000 and 308,476,400 outstanding at June 30, 2010 and
September 30, 2009, respectively
 3,323  3,323
Paid-in capital  1,685,139  1,679,000
Treasury Stock, at cost; 24,003,750 and 23,842,350 shares at June 30, 2010
and September 30, 2009, respectively
 (289,324)  (287,514)
Unallocated ESOP shares  (84,022)  (87,896)
Retained earnings—substantially restricted  463,399  456,875
Accumulated other comprehensive loss  (16,988)  (17,923)
Total shareholders' equity  1,761,527  1,745,865
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $ 10,940,202  $ 10,598,840
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except share and per share data)
For the Three Months
Ended June 30,
For the Nine Months
Ended June 30,
2010200920102009
INTEREST AND DIVIDEND INCOME:
Loans, including fees  $ 103,902  $ 110,863  $ 315,713  $ 347,955
Investment securities available for sale  150  176  416  644
Investment securities held to maturity  4,674  6,374  14,639  23,256
Other interest and earnings assets  664  457  1,813  1,313
Total interest and dividend income  109,390  117,870  332,581  373,168
INTEREST EXPENSE:
Deposits  51,446  59,032  158,779  197,165
Borrowed funds  480  485  1,439  2,102
Total interest expense  51,926  59,517  160,218  199,267
NET INTEREST INCOME  57,464  58,353  172,363  173,901
PROVISION FOR LOAN LOSSES  30,000  20,000  71,000  58,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  27,464  38,353  101,363  115,901
NON-INTEREST INCOME
Fees and service charges, net of amortization  5,626  4,233  16,658  15,249
Mortgage servicing assets recovery (impairment)  6  3,972  51  (2,596)
Net gain on the sale of loans  19,710  9,413  25,459  28,863
Increase in and death benefits from bank owned life insurance contracts  1,623  1,646  4,820  4,917
Income (loss) on private equity funds  200  542  546  (1,028)
Other  1,363  1,721  4,276  5,176
Total non-interest income   28,528  21,527  51,810  50,581
NON-INTEREST EXPENSE
Salaries and employee benefits  22,223  20,330  63,879  59,105
Marketing services  920  900  4,971  7,952
Office property, equipment and software  5,046  5,654  15,661  16,536
Federal insurance premium  4,239  9,771  12,762  15,528
State Franchise tax  1,329  1,211  3,709  3,988
Real estate owned expense, net  1,380  1,582  4,042  5,787
Other operating expenses  5,544  6,374  15,089  17,890
Total non-interest expense  40,681  45,822  120,113  126,786
INCOME BEFORE INCOME TAXES  15,311  14,058  33,060  39,696
INCOME TAX EXPENSE  5,074  4,022  10,975  12,411
NET INCOME  $ 10,237  $ 10,036  $ 22,085  $ 27,285
Earnings per share - basic and fully diluted  $ 0.03  $ 0.03  $ 0.07  $ 0.09
Weighted average shares outstanding
Basic 299,826,025 300,245,981 299,725,977 301,741,110
Diluted 300,577,738 300,638,781 300,335,743 302,103,263
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCES AND YIELDS (unaudited)
Three Months Ended
June 30, 2010
Three Months Ended
June 30, 2009
Average
Balance
Interest Income/
Expense
Yield/
Cost(a)
Average
Balance
Interest Income/
Expense
Yield/
Cost(a)
(Dollars in thousands)
Interest-earning assets:
Other interest-bearing cash equivalents  550,312  269 0.20%  171,497  62 0.14%
Investment securities  18,157  97 2.14%  18,124  111 2.45%
Mortgage-backed securities  633,343  4,727 2.99%  680,675  6,439 3.78%
Loans  9,344,295  103,902 4.45%  9,567,973  110,863 4.63%
Federal Home Loan Bank stock  35,620  395 4.44%  35,620  395 4.44%
Total interest-earning assets  10,581,727  109,390 4.14%  10,473,889  117,870 4.50%
Noninterest-earning assets  333,853  307,035
Total assets  $ 10,915,580  $ 10,780,924
Interest-bearing liabilities:
NOW accounts  $ 984,609  1,403 0.57%  $ 1,042,960  1,779 0.68%
Savings accounts  1,514,703  3,512 0.93%  1,127,302  3,497 1.24%
Certificates of deposit  6,302,435  46,531 2.95%  6,248,253  53,756 3.44%
Borrowed funds  70,009  480 2.74%  182,293  485 1.06%
Total interest-bearing liabilities  8,871,756  51,926 2.34%  8,600,808  59,517 2.77%
Noninterest-bearing liabilities  271,736  392,571
Total liabilities  9,143,492  8,993,379
Shareholders' equity  1,772,088  1,787,545
Total liabilities and shareholders' equity  $ 10,915,580  $ 10,780,924
Net interest income  $ 57,464  $ 58,353
Interest rate spread (b) 1.80% 1.73%
Net interest-earning assets (c)  $ 1,709,971  $ 1,873,081
Net interest margin (d) 2.17%(a) 2.23%(a)
Average interest-earning assets
to average interest-bearing liabilities
119.27% 121.78%
(a) Annualized
(b) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of
average interest-bearing liabilities.
(c) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(d) Net interest margin represents net interest income divided by total interest-earning assets.
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCES AND YIELDS (unaudited)
Nine Months Ended
June 30, 2010
Nine Months Ended
June 30, 2009
Average
Balance
Interest Income/
Expense
Yield/
Cost(a)
Average
Balance
Interest Income/
Expense
Yield/
Cost(a)
(Dollars in thousands)
Interest-earning assets:
Other interest-bearing cash
equivalents
 370,540  610 0.22%  58,042  73 0.17%
Investment securities  17,798  282 2.11%  17,775  360 2.70%
Mortgage-backed securities  624,969  14,773 3.15%  753,043  23,540 4.17%
Loans  9,402,090  315,713 4.48%  9,626,338  347,955 4.82%
Federal Home Loan Bank stock  35,620  1,203 4.50%  35,620  1,240 4.64%
Total interest-earning assets  10,451,017  332,581 4.24%  10,490,818  373,168 4.74%
Noninterest-earning assets  322,810  322,585
Total assets  $ 10,773,827  $ 10,813,403
Interest-bearing liabilities:
NOW accounts  $ 978,889  4,410 0.60%  $ 1,061,972  7,584 0.95%
Savings accounts  1,398,742  10,389 0.99%  1,124,485  12,743 1.51%
Certificates of deposit  6,288,794  143,980 3.05%  6,153,471  176,838 3.83%
Borrowed funds  70,009  1,439 2.74%  346,722  2,102 0.81%
Total interest-bearing liabilities  8,736,434  160,218 2.45%  8,686,650  199,267 3.06%
Noninterest-bearing liabilities  270,281  323,682
Total liabilities  9,006,715  9,010,332
Shareholders' equity  1,767,112  1,803,071
Total liabilities and shareholders' equity  $ 10,773,827  $ 10,813,403
Net interest income  $ 172,363  $ 173,901
Interest rate spread (b) 1.79% 1.68%
Net interest-earning assets (c)  $ 1,714,583  $ 1,804,168
Net interest margin (d) 2.20%(a) 2.21%(a)
Average interest-earning assets
to average interest-bearing liabilities
119.63% 120.77%
(a) Annualized
(b) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(c) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(d) Net interest margin represents net interest income divided by total interest-earning assets.
CONTACT:  TFS Financial Corporation
          Jennifer Rosa
            (216) 429-5037
          Monica Martines
            (216) 441-7346

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