TFS Financial Corporation Accomplishes Another Quarter of Outstanding Growth
CLEVELAND--(BUSINESS WIRE)--Jan 30, 2020--
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 quarter ended December 31, 2019.
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Chairman and CEO Marc A. Stefanski (Photo: Business Wire)
The Company reported net income of $25.6 million for the quarter ended December 31, 2019, compared to net income of $20.3 million for the quarter ended December 31, 2018. The change was largely attributable to a gain from the sale of commercial properties, increased gain on the sale of loans and an increase in the credit for loan loss provision, partially offset by a decrease in net interest income.
“Third Federal continued to experience exceptional growth during the last three months,” said Chairman and CEO Marc A. Stefanski. “Our loan portfolio grew $278 million as lower interest rates attracted borrowers to refinance. We also continued to grow our customer base as retail deposits increased $235 million. We accomplished this growth with minimal impact to our net interest income. It was a great way to finish 2019, and we look forward to sharing our ongoing success with our customers, associates, communities and shareholders”.
Net interest income decreased $3.6 million, to $64.2 million for the quarter ended December 31, 2019 from $67.8 million for the quarter ended December 31, 2018. The average balance and yield of interest-earning assets increased $387.4 million and decreased five basis points, respectively, during the quarter ended December 31, 2019 when compared to the quarter ended December 31, 2018. The decrease in yield can be attributed to lower rates charged on home equity lines of credit during the more recent period, due to reductions in the Wall Street Journal Prime Rate, the index to which home equity lines of credit are linked. The average balance and cost of interest-bearing liabilities increased $458.1 million and 11 basis points, respectively, during the quarter ended December 31, 2019 when compared to the same period last year. The opportunity to grow retail deposits in a competitive rate environment contributed to the increased cost. The average balance and cost of certificates of deposit grew $153.4 million and 26 basis points, respectively, to $6.5 billion at 2.14% for the quarter ended December 31, 2019 from $6.4 billion at 1.88% for the quarter ended December 31, 2018. The interest rate spread for the quarter ended December 31, 2019 was 1.63% compared to 1.79% in the same quarter last year. The net interest margin for the quarter ended December 31, 2019 was 1.82% compared to 1.98% in the same quarter last year.
The provision for loan losses was a credit of $3.0 million for the quarter ended December 31, 2019 compared to a credit of $2.0 million for the quarter ended December 31, 2018. Continued recoveries of loan amounts previously charged off, low levels of current loan charge-offs, decreases in delinquency rates and reduced exposure from home equity lines of credit coming to the end of the draw period resulted in the loan provision credit. The Company closely monitors present and emerging risks within the loan portfolio when assessing the adequacy of the allowance for loan losses. The Company reported $1.4 million of net loan recoveries for the quarter ended December 31, 2019 and $1.5 million of net loan recoveries for the quarter ended December 31, 2018. Gross loan charge-offs were $1.6 million for the quarter ended December 31, 2019 and $1.3 million for the quarter ended December 31, 2018, while loan recoveries were $3.0 million in the current quarter and $2.8 million in the prior year quarter. The allowance for loan losses was $37.3 million, or 0.28% of total loans receivable, at December 31, 2019, compared to $38.9 million, or 0.29% of total loans receivable, at September 30, 2019 and $41.9 million, or 0.32% of total loans receivable, at December 31, 2018.
Non-accrual loans decreased $11.0 million to $60.3 million, or 0.45% of total loans, at December 31, 2019 from $71.3 million, or 0.54% of total loans, at September 30, 2019. The decrease consisted of a $3.8 million decrease in the residential core portfolio, a $0.9 million decrease in the Home Today portfolio and a $6.3 million decrease in the home equity loans and lines of credit portfolio. Improved performance within the portfolios and reclassifications to accruing status on loans modified in troubled debt restructurings, with sustained periods of performance, contributed to the changes.
Total loan delinquencies decreased $1.4 million to $34.0 million, or 0.25% of total loans receivable, at December 31, 2019 from $35.4 million, or 0.27% of total loans receivable, at September 30, 2019. The decrease in delinquencies consisted of a $0.6 million decrease in the residential core portfolio, a $0.4 million increase in the Home Today portfolio, and a $1.2 million decrease in the home equity loans and lines of credit portfolio.
Total troubled debt restructurings decreased $6.1 million at December 31, 2019, to $151.3 million from $157.4 million at September 30, 2019. Of the $151.3 million of troubled debt restructurings recorded at December 31, 2019, $76.4 million was in the residential core portfolio, $35.5 million was in the Home Today portfolio, and $39.4 million was in the home equity loans and lines of credit portfolio. The portion of total troubled debt restructurings included as part of non-accrual loans was $49.2 million at December 31, 2019 and $60.5 million at September 30, 2019.
Total non-interest income increased by $7.2 million, to $11.9 million, for the quarter ended December 31, 2019 from $4.7 million for the quarter ended December 31, 2018. The increase primarily related to a $2.8 million increase in the net gain on sale of loans and a $4.3 million net gain on the sale of the remaining commercial property held by a partially owned subsidiary of the Company, representing the Company’s share of the gain. Loan sales totaled $208.5 million in principal balances at a $2.9 million net gain during the quarter ended December 31, 2019 compared to $20.7 million at a $0.1 million net gain during the quarter ended December 31, 2018.
Total income tax expense was $6.2 million for the quarters ended December 31, 2019 and December 31, 2018. The federal effective tax rate was 18.5% for the quarter ended December 31, 2019 compared to 20.0% for the quarter ended December 31, 2018. Excess tax benefits on stock options exercised are recognized in full at the time of activity and were the primary contributor to the change in the federal effective tax rate, totaling $0.4 million during the quarter ended December 31, 2019.
Total assets increased by $263.8 million, or 1.8%, to $14.81 billion at December 31, 2019 from $14.54 billion at September 30, 2019. This change was mainly the result of new loan originations and loan purchases exceeding the total of loan sales and principal repayments, combined with a net increase in the combination of cash and cash equivalents and investment securities, partially offset by decreases in premises, equipment and software, net and other assets.
The combination of cash and cash equivalents and investment securities increased $12.2 million, or 1.5%, to $835.2 million at December 31, 2019 from $823.0 million at September 30, 2019.
The combination of loans held for investment, net and mortgage loans held for sale increased $278.0 million, or 2.1%, to $13.48 billion at December 31, 2019 from $13.20 billion at September 30, 2019. Residential core mortgage loans, including those held for sale, increased $228.9 million during the quarter and included the opportunistic purchase of $230.3 million of fixed-rate residential mortgages, originated and serviced by the Association and sold in a prior year, from an investor seeking to manage their balance sheet, and sales of $208.5 million in fixed-rate residential mortgages, including the bulk sale of $99.0 million to a private investor. Total first mortgage loan originations were $750.6 million for the quarter ended December 31, 2019 and $383.8 million for the quarter ended December 31, 2018. The current period originations were 44% adjustable rate mortgages and 8% fixed-rate mortgages with terms of 10 years or less. The home equity loans and lines of credit portfolio increased $46.4 million during the quarter ended December 31, 2019. Commitments originated for home equity loans and lines of credit were $349.5 million for the quarter ended December 31, 2019 and $357.0 million for the quarter ended December 31, 2018.
Premises, equipment and software, net decreased $18.5 million, or 30.0%, to $43.1 million at December 31, 2019 from $61.6 million at September 30, 2019. The decrease included $18.1 million related to the sale of commercial properties described above.
Other assets decreased $8.6 million, or 9.8%, to $79.4 million at December 31, 2019 from $88.0 million at September 30, 2019. At December 31, 2019, an $18.4 million right of use asset related to the Company’s operating leases was added to other assets due to the adoption of recently issued accounting guidance on the treatment of leases. This addition was more than offset by various decreases, none of which were individually significant.
Deposits increased by $234.5 million, or 2.7%, to $9.00 billion at December 31, 2019 from $8.77 billion at September 30, 2019. The increase in deposits was the result of a $184.5 million increase in our certificates of deposit (“CDs”), a $29.1 million increase in our checking accounts, and a $27.3 million increase in our money market accounts, offset by a $7.0 million decrease in our savings accounts during the quarter ended December 31, 2019. Total deposits include $501.4 million and $507.8 million of brokered CDs at December 31, 2019 and September 30, 2019, respectively.
Borrowed funds, all from the FHLB, decreased $13.3 million, to $3.89 billion at December 31, 2019 from $3.90 billion at September 30, 2019. This decrease consisted of a $100.0 million decrease in overnight and other short-term advances, offset by a $37.6 million increase in long term borrowings and a $50.0 million increase in 90 day advances that have an effective duration at inception of five to eight years as a result of interest rate swap contracts.
Total shareholders’ equity increased $32.2 million, or 1.9%, to $1.73 billion at December 31, 2019 from $1.70 billion at September 30, 2019. Activity reflects $25.6 million of net income in the current fiscal year reduced by $0.4 million of repurchases of common stock and a quarterly dividend of $13.4 million. Other changes included $18.6 million of unrealized gain recognized in accumulated other comprehensive income and $1.7 million of adjustments related to our stock compensation and employee stock ownership plans. A total of 19,500 shares of our common stock were repurchased at an average cost of $18.37 per share during the quarter ended December 31, 2019. At December 31, 2019, there were 5,892,079 shares remaining to be purchased under the Company’s eighth repurchase program.
The Company declared and paid a quarterly dividend of $0.27 per share during the quarter ended December 31, 2019. As a result of a mutual member vote, Third Federal Savings and Loan Association of Cleveland, MHC (the “MHC”), the mutual holding company that owns approximately 81% of the outstanding stock of the Company, was able to waive its receipt of its share of the dividend paid. Under current Federal Reserve regulations, the MHC is required to obtain the approval of its members every 12 months for the MHC to waive its right to receive dividends. As a result of a July 16, 2019 member vote and the subsequent non-objection of the Federal Reserve, the MHC has the approval to waive the receipt of up to a total of $1.10 per share of possible dividends to be declared on the Company’s common stock, including up to $0.56 in dividends during the six months ending June 30, 2020. The MHC has conducted the member vote to approve the dividend waiver each of the past six years under Federal Reserve regulations and for each of those six years, approximately 97% of the votes cast were in favor of the waiver.
The Association operates under the capital requirements for the standardized approach of the Basel III capital framework for U.S. banking organizations (“Basel III Rules”). At December 31, 2019 all of the Association’s capital ratios substantially exceed the amounts required for the Association to be considered “well capitalized” for regulatory capital purposes. The Association’s Tier 1 leverage ratio was 10.19%, its Common Equity Tier 1 and Tier 1 ratios, as calculated under the fully phased-in Basel III Rules, were each 18.31% and its total capital ratio was 18.77%. Additionally, the Company’s Tier 1 leverage ratio was 11.99%, its Common Equity Tier 1 and Tier 1 ratios were each 21.56% and its total capital ratio was 22.02%. The Association’s current capital ratios reflect the dilutive impact of $57 million of dividends that the Association paid to the Company, its sole shareholder, during the quarter ended December 31, 2019. Because of its intercompany nature, these dividends had no impact on the Company’s capital ratios or its consolidated statement of condition.
Judy Adam, the Chief Risk Officer of the Company, has announced that she will be retiring from employment in June 2020. Kitty Danckers, who has been with the Association since 1997 and has served in various roles including regional branch manager, manager of information services and operations support groups, and Chief Information Security Officer since 2016, will become the new Chief Risk Officer at that time. “Judy has been an integral part of our organization for 20 years, mentoring and leading with her strong business acumen and communication skills while in her role as the Chief Risk Officer since 2015,” said Chairman and CEO Marc A. Stefanski. “On behalf of our Board, our management team and our associates, I thank her and wish her the best in her retirement. We welcome Kitty into her new responsibilities, and have confidence that her background and her extensive experience in many areas of the Company have prepared her for her new role.”
Presentation slides as of December 31, 2019 will be available on the Company’s website, www.thirdfederal.com, under the Investor Relations link within the “Recent Presentations” menu, beginning January 31, 2020. The Company will not be hosting a conference call to discuss its operating results.
Third Federal Savings and Loan Association is a leading provider of savings and mortgage products, and operates under the values of love, trust, respect, a commitment to excellence and fun. Founded in Cleveland in 1938 as a mutual association by Ben and Gerome Stefanski, Third Federal’s mission is to help people achieve the dream of home ownership and financial security. It became part of a public company in 2007 and celebrated its 80 th anniversary in May, 2018. Third Federal, which lends in 25 states and the District of Columbia, is dedicated to serving consumers with competitive rates and outstanding service. Third Federal, an equal housing lender, has 21 full service branches in Northeast Ohio, seven lending offices in Central and Southern Ohio, and 16 full service branches throughout Florida. As of December 31, 2019, the Company’s assets totaled $14.81 billion.
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, among other things:
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:
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
(In thousands, except share data)
Cash and due from banks
Other interest-earning cash equivalents
Cash and cash equivalents
Investment securities available for sale (amortized cost $553,039 and $550,605, respectively)
Mortgage loans held for sale, at lower of cost or market (none measured at fair value)
Loans held for investment, net:
Deferred loan expenses, net
Allowance for loan losses
Mortgage loan servicing rights, net
Federal Home Loan Bank stock, at cost
Real estate owned, net
Premises, equipment, and software, net
Accrued interest receivable
Bank owned life insurance contracts
LIABILITIES AND SHAREHOLDERS’ EQUITY
Borrowers’ advances for insurance and taxes
Principal, interest, and related escrow owed on loans serviced
Accrued expenses and other liabilities
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; 280,127,221 and 279,962,777 outstanding at December 31, 2019 and September 30, 2019, respectively
Treasury stock, at cost; 52,191,529 and 52,355,973 shares at December 31, 2019 and September 30, 2019, respectively
Unallocated ESOP shares
Retained earnings—substantially restricted
Accumulated other comprehensive income (loss)
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except share and per share data)
For the Three Months Ended
INTEREST AND DIVIDEND INCOME:
Loans, including fees
Investment securities available for sale
Other interest and dividend earning assets
Total interest and dividend income
Total interest expense
NET INTEREST INCOME
PROVISION (CREDIT) FOR LOAN LOSSES
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES
Fees and service charges, net of amortization
Net gain on the sale of loans
Increase in and death benefits from bank owned life insurance contracts
Total non-interest income
Salaries and employee benefits
Office property, equipment and software
Federal insurance premium and assessments
State franchise tax
Total non-interest expense
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
Earnings per share
Weighted average shares outstanding
TFS FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCES AND YIELDS (unaudited)
Three Months Ended
Three Months Ended
December 31, 2019
December 31, 2018
(Dollars in thousands)
Federal Home Loan Bank stock
Total interest-earning assets
Certificates of deposit
Total interest-bearing liabilities
Total liabilities and shareholders’ equity
Net interest income
Interest rate spread (1)(3)
Net interest-earning assets (4)
Net interest margin (1)(5)
Average interest-earning assets to average interest-bearing liabilities
Selected performance ratios:
Return on average assets (1)
Return on average equity (1)
Average equity to average assets
Loans include both mortgage loans held for sale and loans held for investment.
Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
Net interest margin represents net interest income divided by total interest-earning assets.
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Jennifer Rosa (216) 429-5037
KEYWORD: FLORIDA OHIO UNITED STATES NORTH AMERICA
INDUSTRY KEYWORD: BANKING PROFESSIONAL SERVICES FINANCE
SOURCE: Third Federal Savings and Loan
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PUB: 01/30/2020 04:13 PM/DISC: 01/30/2020 04:13 PM