TFS Financial Corporation Announces Fiscal Quarter Ended March 31, 2013 Financial Results

CLEVELAND, Ohio, April 25, 2013 (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 six month periods ended March 31, 2013.

The Company reported net income of $12.8 million for the three months ended March 31, 2013, compared to net income of $1.0 million for the three months ended March 31, 2012. The increase in net income is largely the result of an increase in net interest income and a lower provision for loan losses, partially offset by an increase in non-interest expenses. Net income of $23.9 million was reported for the six months ended March 31, 2013, compared to net income of $9.5 million for the six months ended March 31, 2012. The increase in net income for the six months is largely the result of increases in net interest income and non-interest income and a lower provision for loan losses, partially offset by an increase in non-interest expenses.

"The trends we are seeing in the housing market fuel my optimism," said Chairman and CEO Marc A. Stefanski. "In our Ohio market, where we make most of our loans, home sales were up 10 percent in February, and already 14 percent for the year.  That, coupled with our continued decline in delinquencies and our growth in new markets, gives me even more reason to be positive about our results from this quarter.  As we celebrate our 75^th anniversary, we remain true to our commitment to our customers, associates, communities and our stockholders."

Lower interest rates on deposits, particularly on certificates of deposit, caused net interest income to increase $2.1 million, or 3%, to $67.9 million for the three months ended March 31, 2013 from $65.8 million for the three months ended March 31, 2012. Net interest income increased $6.3 million, or 5%, to $136.3 million for six months ended March 31, 2013 from $130.0 million for the six months ended March 31, 2012. Low interest rates continue to decrease the yield on interest-earning assets and to a greater extent, the rate paid on deposits. As a result, the interest rate spread has improved from the prior year. The interest rate spread increased 13 basis points in the current quarter to 2.28% compared to 2.15% in the same quarter last year. The interest rate spread for the six months ended March 31, 2013 was 2.26% compared to 2.11% in the six month period last year. The net interest margin increased six basis points in the current quarter to 2.48% compared to 2.42% in the same quarter last year. The net interest margin for the six months ended March 31, 2013 was 2.48% compared to 2.41% in the six month period last year.

The Company recorded a provision for loan losses of $10.0 million for the three months ended March 31, 2013 compared to $27.0 million for the three months ended March 31, 2012. The Company reported $14.0 million of net loan charge-offs for the three months ended March 31, 2013 compared to $22.6 million for the three months ended March 31, 2012. Of the $14.0 million of net charge-offs in the current quarter, $5.2 million occurred in the equity loans and lines of credit portfolio, $5.0 million occurred in the residential, non-Home Today portfolio and $3.8 million occurred in the Home Today portfolio. The Home Today portfolio, which has had minimal new originations since 2009, is an affordable housing program targeted toward low and moderate income home buyers, which totaled $193.2 million at March 31, 2013 and $208.3 million at September 30, 2012. The Company recorded a provision for loan losses of $28.0 million for the six months ended March 31, 2013 compared to $42.0 million for the six months ended March 31, 2012. The Company reported $27.2 million of net loan charge-offs for the six months ended March 31, 2013 compared to $97.7 million for the six months ended March 31, 2012. Of the $27.2 million of net charge-offs for the six months ended March 31, 2013, $10.7 million occurred in the equity loans and lines of credit portfolio, $9.3 million occurred in the residential, non-Home Today portfolio and $7.2 million occurred in the Home Today portfolio. Net charge-offs of $97.7 million for the six months ended March 31, 2012 included the impact of charging off, during that period, the Specific Valuation Allowance (SVA), which was $55.5 million at September 30, 2011. The allowance for loan losses was $101.2 million, or 1.02% of total loans receivable, at March 31, 2013, compared to $100.5 million, or 0.97% of total loans receivable, at September 30, 2012. 

Non-accrual loans decreased $16.6 million to $166.0 million, or 1.67% of total loans, at March 31, 2013 from $182.6 million, or 1.77% of total loans, at September 30, 2012. The $16.6 million decrease in non-accrual loans for the six months ended March 31, 2013, consisted of a $7.5 million decrease in the residential, non-Home Today portfolio; a $4.0 million decrease in the residential, Home Today portfolio; a $4.9 million decrease in the equity loans and lines of credit portfolio; and a $0.2 million decrease in construction loans.

Total loan delinquencies decreased $27.6 million to $144.9 million, or 1.45% of total loans receivable, at March 31, 2013 from $172.5 million, or 1.66% of total loans receivable, at September 30, 2012.

Total troubled debt restructurings decreased $14.1 million to $207.3 million at March 31, 2013 from $221.4 million at September 30, 2012. Of the $207.3 million of troubled debt restructurings recorded at March 31, 2013, $74.9 million was in the Home Today portfolio, $112.6 million was in the residential, non-Home Today portfolio and $19.1 million was in the equity loans and lines of credit portfolio. The portion of total troubled debt restructurings included as part of non-accrual loans was $82.6 million at March 31, 2013 and $86.9 million at September 30, 2012.

Total assets decreased $396.4 million, or 3%, to $11.12 billion at March 31, 2013 from $11.52 billion at September 30, 2012. This change was mainly the result of the total of loan sales and principal repayments exceeding new loan origination levels, and a decrease in cash and cash equivalents, partially offset by an increase in investment securities.

The combination of cash and cash equivalents and investment securities increased $11.3 million, or 2%, to $741.0 million at March 31, 2013 from $729.7 million at September 30, 2012, to maintain liquidity levels. 

The combination of Loans held for investment, net and mortgage loans held for sale decreased $401.4 million, or 4%, to $9.95 billion at March 31, 2013 from $10.35 billion at September 30, 2012. During the six months ended March 31, 2013, loan sales of $222.2 million were completed, consisting of $35.8 million of fixed rate loans that qualified under Fannie Mae's Home Affordable Refinance Program (HARP II), $58.3 million of fixed rate non-agency whole loans and $128.1 million of variable rate non-agency whole loans. Net gain on the sale of these loans was $4.3 million. There were no loan sales during the six months ended March 31, 2012. Residential non-Home Today mortgage loans, including those held for sale, decreased $227.3 million during the six months ended March 31, 2013, while the equity loans and lines of credit portfolio decreased by $153.7 million. First mortgage loan originations were $887.5 million for the six months ended March 31, 2013, of which $451.0 million were adjustable rate mortgages, representing approximately 51% of all residential mortgage originations, compared to 58% for the six months ended March 31, 2012. Approximately 47% of the fixed rate originations for the six months ended March 31, 2013 were 10 year fixed rate loans. Adjustable rate mortgages originated under the Smart Rate ARM program since July, 2010 have helped to offset future interest rate risk exposure. Loans under the program have mainly either 15 or 30 year terms, with the initial interest rate fixed for either the first three or five years and adjusting annually thereafter, subject to various caps. Most loans originated under the program have been 30 year terms with interest rates fixed for five years. The total principal balance of all adjustable rate first mortgage loans was $3.00 billion, or 37% of all first mortgage residential loans, at March 31, 2013. We continue to originate additional HARP II eligible loans for sale and to evaluate potential non-agency, whole loan sales of a pool of our high credit quality, first mortgage loans held for sale, which together, had a balance of $96.9 million at March 31, 2013.

Deposits decreased $224.1 million, or 2%, to $8.76 billion at March 31, 2013 from $8.98 billion at September 30, 2012. The decrease in deposits was the net result of a $34.9 million increase in our savings accounts, a $46.1 million increase in our checking accounts, and a $304.8 million decrease in our certificates of deposit ("CD") for the six months ended March 31, 2013. To manage our cost of funds, maturing, higher rate CDs were replaced by other lower rate savings products or borrowed funds from the FHLB, as needed.

Borrowed funds decreased $172.3 million, to $315.9 million at March 31, 2013 from $488.2 million at September 30, 2012. This decrease reflects lower overnight advances from the FHLB as a combination of loan sales and reduced loan production led to decreased cash demands during the period.

Total shareholders' equity increased $28.5 million, or 2%, to $1.84 billion at March 31, 2013 from $1.81 billion at September 30, 2012. Activity reflects $23.9 million of net income in the current fiscal year to date combined with adjustments related to our stock compensation plan and ESOP.

At March 31, 2013, the Association was "well capitalized" for regulatory capital purposes, as its tier 1 risk based capital ratio was 22.26% and its total risk-based capital was 23.52%, both of which substantially exceed the amounts required for the Association to be considered well capitalized.

The Company will host a conference call to discuss its operating results for the three and six month periods ending March 31, 2013 at 10:00 a.m. (ET) on April 26, 2013. The toll-free dial-in number is 866-952-1908, Conference ID TFSLQ213. A telephone replay will be available beginning at 2:00 p.m. (ET) on April 26, 2013 by dialing 800-695-2533. The conference call will be simultaneously webcast on the Company's website www.thirdfederal.com under the Investor Relations link under the "About Us" tab, and will be archived for 30 days after the event, beginning April 29, 2013. The slides for the conference call will be filed with the SEC under a separate Form 8-K and will also be available on the Company's website. 

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 employment prospects and conditions that are worse than expected;
• decreased demand for our products and services and lower revenue and earnings because of a recession or other events;
• adverse changes and volatility in the securities markets;
• adverse changes and volatility in credit markets;
• legislative or regulatory changes that adversely affect our business, including changes in regulatory costs and capital requirements and changes related to our ability to pay dividends and the ability of Third Federal Savings and Loan Association of Cleveland, MHC to waive dividends;
• 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 or 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 or the Federal Reserve Board and changes in the level of government support of housing finance;
• changes in policy and/or assessment rates of taxing authorities that adversely affect us;
• 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 continuing 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;
• a slowing or failure of the moderate economic recovery;
• the extensive reforms enacted in the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which will continue to impact us;
• the adoption of implementing regulations by a number of different regulatory bodies under the Dodd-Frank Act, and uncertainty regarding the exact nature, extent and timing of such regulations and the impact they will have on us;
• the continuing impact of coming under the jurisdiction of new federal regulators;
• changes in our organization, or compensation and benefit plans;
• the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and their impact on the credit quality of our loans and other assets; and
• the ability of the U.S. Federal government to manage federal debt limits.

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