TFS Financial Corporation Announces Fourth Quarter and Year Ended September 30, 2010 Financial Results

CLEVELAND, Nov. 10, 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 quarterly and fiscal year results for the periods ended September 30, 2010.

The Company reported net income of $11.3 million for the year ended September 30, 2010, compared to net income of $14.4 million for the year ended September 30, 2009. This change was attributed to decreases in both net interest income and non-interest income partially offset by a decrease in the provision for loan losses. The Company reported a net loss of $10.7 million for the three months ended September 30, 2010, compared to a net loss of $12.9 million for the three months ended September 30, 2009. This change was mainly attributed to a decrease in the provision for loan losses, partially offset by an increase in non-interest expense and a decrease in non-interest income.

The Company recorded a provision for loan losses of $106.0 million for the year ended September 30, 2010 and $115.0 million for the year ended September 30, 2009. The provisions recorded exceeded net charge-offs of $68.0 million and $63.5 million for the fiscal years ended September 30, 2010 and 2009, respectively. The Company recorded a provision for loan losses of $35.0 million for the three months ended September 30, 2010 and $57.0 million for the three months ended September 30, 2009. The provisions exceeded net charge-offs of $20.2 million and $17.6 million for the three months ended September 30, 2010 and 2009, respectively. The level of charge-offs in the portfolio remains elevated. As delinquencies in the portfolio have been resolved through pay-off, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan, uncollected balances have been charged against the allowance for loan losses previously provided. The allowance for loan losses was $133.2 million, or 1.42% of total loans receivable, at September 30, 2010, compared to $95.2 million, or 1.02% of total loans receivable, at September 30, 2009.   

Non-performing loans increased $31.7 million to $287.4 million, or 3.07% of total loans, at September 30, 2010 from $255.8 million, or 2.73% of total loans, at September 30, 2009. The $31.7 million increase in non-performing loans for the year ended September 30, 2010, consisted of a $35.7 million increase in the residential, non-Home Today portfolio; a $7.8 million increase in the residential, Home Today portfolio; a $5.2 million decrease in the equity loans and lines of credit portfolio; and a $6.6 million decrease in construction loans. Non-performing loans decreased $3.3 million to $287.4 million, or 3.07% of total loans, at September 30, 2010 from $290.7 million, or 3.25% of total loans, at June 30, 2010. The $3.3 million decrease in non-performing loans for the three months ended September 30, 2010, consisted of a $5.5 million increase in the residential, non-Home Today portfolio; a $4.3 million decrease in the residential, Home Today portfolio; a $3.5 million decrease in the equity loans and lines of credit portfolio; and a $1.0 million decrease in construction loans. The Home Today portfolio is an affordable housing program targeted toward low and moderate income home buyers, which totaled $280.5 million at September 30, 2010 and $291.7 million at September 30, 2009.  Responding to the economic challenges facing many customers, the level of loan modifications increased, resulting in $135.3 million of troubled debt restructurings recorded at September 30, 2010, an $88.8 million increase from September 30, 2009. Of the $135.3 million of troubled debt restructurings recorded at September 30, 2010, $57.4 million is in the residential, non-Home Today portfolio and $72.4 million is in the Home Today portfolio.

Net interest income decreased $2.6 million, or 1.1%, to $227.5 million for the year ended September 30, 2010 from $230.1 million for the year ended September 30, 2009. While net interest income decreased, the interest rate spread improved, increasing 7 basis points to 1.77% for the year ended September 30, 2010 from 1.70% for the year ended September 30, 2009. 

Non-interest income decreased $8.7 million, or 12.9%, to $58.6 million for the year ended September 30, 2010 from $67.4 million for the year ended September 30, 2009. This decrease primarily resulted from a $7.5 million decrease in net gain on the sale of loans, most of which occurred in the three months ended September 30, 2010.

Non-interest expense decreased $455 thousand, or 0.3%, to $161.9 million for the year ended September 30, 2010 from $162.4 million for the year ended September 30, 2009.  Non-interest expense increased $6.2 million, or 17.5%, to $41.8 million for the three months ended September 30, 2010 from $35.6 million for the three months ended September 30, 2009. The increase primarily resulted from increased marketing costs, federal insurance premiums and other operating expenses.

Total assets increased $477.2 million, or 4.5%, to $11.08 billion at September 30, 2010 from $10.60 billion at September 30, 2009. The change in assets was the result of increases in our cash and cash equivalents, investment securities and other assets partially offset by decreases in our loan portfolio. 

Cash and cash equivalents increased $436.7 million, or 142.0%, to $743.7 million at September 30, 2010 from $307.0 million at September 30, 2009, as we have retained our most liquid assets for subsequent reinvestment in investment securities and/or loan products that provide higher yields along with longer maturities. This increase is primarily the result of successful deposit gathering combined with an increase in payments collected from borrowers on loans we service for others.

Net loans held for investment decreased $37.8 million, or less than 1%, to $9.18 million at September 30, 2010 from $9.22 billion at September 30, 2009. The decrease was primarily the result of a $38.0 million increase in the allowance for loan losses to $133.2 million from $95.2 million.

Other assets increased $47.3 million, or 89%, to $100.5 million at September 30, 2010 from $53.2 million at September 30, 2009. This increase is largely the result of the $39.5 million remaining balance of a $51.9 million prepayment of FDIC insurance assessments made in December 2009.

Deposits increased $281.4 million, or 3%, to $8.85 billion at September 30, 2010 from $8.57 billion at September 30, 2009. The increase in deposits was primarily the result of a $355.7 million increase in high-yield savings accounts partially offset by a $48.1 million decrease in certificates of deposits, and a $22.3 million decrease in our high yield-checking accounts.

Principal, interest and related escrow owed on loans serviced increased $178.7 million, or 169%, to $284.4 million at September 30, 2010 from $105.7 million at September 30, 2009. This increase is primarily attributable to the increase of principal and interest payments resulting from increased prepayments related to an increase in refinance activity.   

Shareholders' equity increased $7.0 million during the year, to $1.75 billion at September 30, 2010. This reflects $11.3 million of net income during the year reduced by $1.8 million of repurchases of outstanding common stock and $15.6 million in dividends paid on our shares of common stock (other than the shares held by Third Federal Savings, MHC and unallocated ESOP shares) in the current fiscal year. The remainder reflects adjustments related to the allocation of shares of our common stock related to the ESOP, stock compensation plans and adjustments to our accumulated other comprehensive loss attributable primarily to the change in our pension obligation. We repurchased 161.4 thousand shares of common stock during the year ended September 30, 2010.

Under the terms of an August 13, 2010 Memorandum of Understanding ("MOU") with the Office of Thrift Supervision ("OTS"), the Association was responsible for the submission of various documents relating to its home equity lending portfolio. The Association believes the requirements of the MOU for the submission of documents have been met, subject to ongoing monitoring reports. The OTS is currently reviewing the plan the Association submitted to further limit its home equity portfolio exposure, but the OTS has neither approved nor disapproved the plan. The Association has begun several methods to reduce its home equity exposure, including refinances, voluntary home equity line of credit closures and line suspensions where borrowers have experienced significant declines in their equity in the mortgaged property.

At September 30, 2010, the Association was "well capitalized" for regulatory capital purposes, as its tier 1 risk based capital ratio was 18.00% and its total risk based capital was 19.17%, 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 report 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;
  • adverse changes and volatility in the securities markets;
  • adverse changes and volatility in credit markets;
  • 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);
  • inability of third-party providers to perform their obligations to us;
  • adverse changes and volatility in real estate markets;
  • a slowing or failure of the moderate economic recovery that began last year;
  • the extensive reforms enacted in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which will impact us;
  • the adoption of implementing regulations by a number of different regulatory bodies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, and uncertainty in the exact nature, extent and timing of such regulations and the impact they will have on us;
  • 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)
September 30,September 30, 
20102009
ASSETS
Cash and due from banks  $38,804  $20,823
Other interest-bearing cash equivalents  704,936  286,223
 Cash and Cash equivalents  743,740  307,046
Investment securities
Available for sale (amortized cost $24,480 and $23,065, respectively)  24,619  23,434
Held to maturity (fair value $657,076 and $587,440, respectively)  646,940  578,331
Investment securities  671,559  601,765
Mortgage loans held for sale (includes $0 and $40,436, measured at fair 
 value for the period ended September 30, 2010)  25,027  61,170
Loans held for investment, net:
Mortgage loans  9,323,073  9,318,189
Other loans  7,199  7,107
Deferred loan fees, net  (15,283)  (10,463)
Allowance for loan losses  (133,240)  (95,248)
Loans, net  9,181,749  9,219,585
Mortgage loan servicing assets, net  38,658  41,375
Federal Home Loan Bank stock, at cost  35,620  35,620
Real estate owned  15,912  17,733
Premises, equipment, and software, net  62,685  65,134
Accrued interest receivable  36,282  38,365
Bank owned life insurance contracts  164,334  157,864
Other assets  100,461  53,183
TOTAL ASSETS  $11,076,027  $10,598,840
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits  $8,851,941  $8,570,506
Borrowed funds  70,158  70,158
Borrowers' advances for insurance and taxes  51,401  48,192
Principal, interest, and related escrow owed on loans serviced  284,425  105,719
Accrued expenses and other liabilities  65,205  58,400
Total liabilities  9,323,130  8,852,975
Commitments and contingent liabilities
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued
and outstanding
Common stock, $0.01 par value, 700,000,000 shares authorized; 332,318,750 shares
issued; 308,395,000 and 308,476,400 outstanding at September 30, 2010 and
September 30, 2009, respectively  3,323  3,323
Paid-in capital  1,686,062  1,679,000
Treasury stock, at cost; 23,923,750 & 23,842,350 shares at
September 30, 2010 & September 30, 2009, respectively  (288,366)  (287,514)
Unallocated ESOP shares  (82,699)  (87,896)
Retained earnings---substantially restricted  452,633  456,875
Accumulated other comprehensive loss  (18,056)  (17,923)
Total shareholders' equity  1,752,897  1,745,865
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $11,076,027  $10,598,840
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited)
(In thousands except share and per share data)
For the Three MonthsFor the Fiscal Year 
Ended September 30,Ended September 30,
2010200920102009
INTEREST AND DIVIDEND INCOME:
Loans, including fees  $ 99,764  $ 107,978  $ 415,477  $ 455,933
Investment securities available for sale  133  146  549  790
Investment securities held to maturity  4,407  5,345  19,046  28,601
Federal funds sold  --   --   --   1
Other interest and dividend earning assets  1,006  585  2,819  1,897
Total interest and dividend income  105,310  114,054  437,891  487,222
INTEREST EXPENSE:
Deposits  49,683  57,326  208,462  254,491
Borrowed funds  484  554  1,923  2,656
Total interest expense  50,167  57,880  210,385  257,147
NET INTEREST INCOME  55,143  56,174  227,506  230,075
PROVISION FOR LOAN LOSSES  35,000  57,000  106,000  115,000
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES  20,143  (826)  121,506  115,075
NON-INTEREST INCOME:
Fees and service charges, net of amortization  3,967  6,342  20,625  21,591
Net gain (loss) on the sale of loans  (207)  6,583  25,303  32,850
Increase in and death benefits from bank owned life insurance contracts  1,671  1,674  6,491  6,591
Income (loss) on private equity investments  123  207  669  (821)
Other  1,274  1,997  5,550  7,173
 Total non-interest income  6,828  16,803  58,638  67,384
NON-INTEREST EXPENSE
Salaries and employee benefits  20,036  18,945  83,915  78,050
Marketing services  1,072  (837)  6,043  7,116
Office property, equipment, and software  4,718  5,367  20,379  21,902
Federal insurance premium  6,136  3,390  18,898  18,918
State franchise tax  893  1,049  4,602  5,037
Real estate owned expense, net  1,297  2,131  5,339  7,918
Other operating expenses  7,668  5,557  22,757  23,447
 Total non-interest expense  41,820  35,602  161,933  162,388
INCOME (LOSS) BEFORE INCOME TAXES  (14,849)  (19,625)  18,211  20,071
INCOME TAX EXPENSE (BENEFIT)  (4,102)  (6,735)  6,873  5,676
NET INCOME (LOSS)   (10,747)  (12,890)  11,338  14,395
Earnings (loss) per share - basic and fully diluted  $ (0.04)  $ (0.04)  $ 0.04  $ 0.05
Weighted average shares outstanding
Basic  300,002,153  299,703,812  299,795,588  301,227,599
Fully diluted  300,002,153  300,061,486  300,252,913  301,592,405
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCES AND YIELDS (unaudited)
Year Ended Year Ended
September 30, 2010 September 30, 2009
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
(Dollars in thousands)
Interest-earning assets:
Federal funds sold $ 0 $ 0 0.00%  $ 350  $ 1 0.29%
Other interest-bearing cash equivalents  505,706  1,216 0.24%  96,026  213 0.22%
Investment securities  17,343  364 2.10%  17,910  465 2.60%
Mortgage-backed securities  635,845  19,231 3.02%  711,756  28,926 4.06%
Loans  9,327,280  415,477 4.45%  9,600,665  455,933 4.75%
Federal Home Loan Bank stock  35,620  1,603 4.50%  35,620  1,684 4.73%
 Total interest-earning assets  10,521,794  437,891 4.16%  10,462,327  487,222 4.66%
Non-interest-earning assets  302,647  320,039
 Total assets  $ 10,824,441  $10,782,366
Interest-bearing liabilities:
NOW accounts  $ 975,889  5,485 0.56%  $ 1,046,640  9,145 0.87%
Passbook savings  1,442,641  13,181 0.91%  1,139,916  16,135 1.42%
Certificates of deposit  6,301,459  189,796 3.01%  6,200,984  229,211 3.70%
Borrowed funds  70,009  1,923 2.75%  289,911  2,656 0.92%
 Total interest-bearing liabilities  8,789,998  210,385 2.39%  8,677,451  257,147 2.96%
Non-interest-bearing liabilities  281,976  305,878
 Total liabilities  9,071,974  8,983,329
Shareholders' equity  1,752,467  1,799,037
 Total liabilities and 
 shareholders' equity  $ 10,824,441  $10,782,366
Net interest income  $227,506  $ 230,075
Interest rate spread (a) 1.77% 1.70%
Net interest-earning assets (b)  $ 1,731,796  $ 1,784,876
Net interest margin (c) 2.16% 2.20%
Average interest-earning assets
to average interest-bearing liabilities 119.70% 120.57%
(a) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(b) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(c) Net interest margin represents net interest income divided by total interest-earning assets.
CONTACT:  Third Federal Savings and Loan
          Jennifer Rosa
            (216) 429-5037
          Monica Martines
            (216) 441-7346

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