TFS Financial Corporation Announces First Fiscal Quarter Ended December 31, 2008 Financial Results

CLEVELAND, Feb 4, 2009 (GlobeNewswire via COMTEX) -- TFSL | Quote | Chart | News | PowerRating -- TFS Financial Corporation (Nasdaq:TFSL) (the "Company"), the holding company for Third Federal Savings and Loan Association of Cleveland, today announced results for the quarter ended December 31, 2008.

The Company reported net income of $11.5 million for the three months ended December 31, 2008, compared to net income of $18.8 million for the three months ended December 31, 2007. This decrease can be attributed primarily to an increase in the provision for loan losses and increases in non-interest expenses.

Interest income decreased $14.3 million, or 10%, to $131.4 million for the three months ended December 31, 2008 from $145.7 for the three months ended December 31, 2007. The decrease resulted primarily from a decrease in the yield received on interest earning assets, as a result of decreases in market interest rates.

Interest expense decreased $16.8 million, or 18%, to $75.9 for the three months ended December 31, 2008 from $92.7 million for the three months ended December 31, 2007. The decrease can also be primarily attributed to a decrease in market interest rates, as well as the use of lower cost Federal Home Loan Bank advances as a funding source.

In response to the challenging economic environment, we recorded a provision for loan losses of $10.0 million for the three months ended December 31, 2008 and $3.0 million for the three months ended December 31, 2007. The provisions exceeded net charge-offs of $5.0 million and $2.0 million for the quarters ended December 31, 2008 and 2007, respectively. We expect that, as the equity lines of credit that have become delinquent 90 days or more are resolved, we will realize an increase in net charge-offs that will be applied against the allowance. The allowance for loan losses was $48.8 million, or 0.51% of total loans receivable, at December 31, 2008, compared to $43.8 million, or 0.47% of total loans receivable, at September 30, 2008, and further compared to $26.1 million or 0.31% of total loans receivable at December 31, 2007. Non-performing loans increased $30.2 million to $203.1 million, or 2.13% of total loans, at December 31, 2008 from $172.9 million, or 1.86% of total loans, at September 30, 2008, and, further, non-performing loans increased $73.3 million compared to $129.8 million, or 1.55% of total loans, at December 31, 2007. For purposes of comparability, effective June 30, 2008 and quarterly thereafter, based on the increased risk related to increases in non-performing loans we expanded our evaluation of equity lines of credit delinquent 90 days or more.

Non-interest expense increased $6.1 million, or 18%, to $40.2 million for the three months ended December 31, 2008 from $34.1 million for the three months ended December 31, 2007. The increase resulted primarily from a combination of an increase in expenses, costs and losses related to holding and disposing of real estate parcels acquired through foreclosure, an increase in Federal insurance premiums and an increase in state franchise tax.

Total assets increased by $89.3 million, or 1%, to $10.88 billion at December 31, 2008 from $10.79 billion at September 30, 2008. The growth in assets consisted primarily of mortgage loans.

Cash and cash equivalents decreased by $40.3 million, or 30%, to $92.0 million at December 31, 2008 from $132.4 million at September 30, 2008, as we continued to redeploy our liquid assets into loan products that provide higher yields along with longer maturities.

Deposits increased $40.6 million, or less than 1%, to $8.30 billion at December 31, 2008 from $8.26 billion at September 30, 2008. This increase can be attributed to an increase in certificates of deposit offset by a decrease in our high yield checking and savings accounts.

Federal Home Loan Bank advances increased $49.5 million, or 10%, to $547.5 at December 31, 2008 from $498.0 million at September 30, 2008. This increase can be attributed to additional cash required to fund the growth of our loan portfolio.

Accrued expenses and other liabilities increased by $50.7 million, or 93%, to $105.2 million at December 31, 2008 from $54.6 million at September 30, 2008. This increase reflects the in-transit status of $49.6 million of real estate tax payments that have been collected from borrowers and will be remitted to various taxing agencies.

Shareholders' equity decreased $48.8 million, to $1.79 billion at December 31, 2008 from $1.84 billion at September 30, 2008. This reflects $11.5 million of net income during the three-month period reduced by $3.9 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) and $60.3 million of repurchases of outstanding common stock during the three-month period. The remainder reflects adjustments related to the allocation of shares of our common stock held by the ESOP. Approximately 4.7 million shares were repurchased during the three months ended December 31, 2008 as part of the completion of two repurchase programs, totaling 20.8 million shares. A third repurchase program of up to 2.2 million additional shares was approved on December 15, 2008. No shares were repurchased under this third program as of December 31, 2008.

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 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, 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 policy and/or assessment rates of the Federal Deposit Insurance Corporation; -- inability of third-party providers to perform their obligations to us; -- changes in our organization, 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.

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TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (In thousands, except share data) -------------------------------------------------------------------- (unaudited) December 31, September 30, 2008 2008 ------------ ------------ ASSETS Cash and due from banks $ 45,983 $ 57,888 Other interest-bearing cash equivalents 46,055 74,491 ------------ ------------ Cash and Cash equivalents 92,038 132,379 ------------ ------------ Investment securities Available for sale (amortized cost $29,576 and $30,861, respectively) 30,050 31,102 Held to maturity (fair value $782,223 and $820,047, respectively) 778,177 817,750 ------------ ------------ Investment securities 808,227 848,852 ------------ ------------ Mortgage loans held for sale (includes $156,133 measured at fair value) 172,171 200,670 Loans held for investment, net: Mortgage loans 9,470,189 9,259,529 Other loans 8,952 7,599 Deferred loan fees, net (12,959) (14,596) Allowance for loan losses (48,774) (43,796) ------------ ------------ Loans, net 9,417,408 9,208,736 ------------ ------------ Mortgage loan servicing assets, net 42,721 41,526 Federal Home Loans Bank stock, at cost 35,620 35,620 Real estate owned 15,349 14,108 Premises, equipment, and software, net 67,287 68,112 Accrued interest receivable 43,644 46,371 Bank owned life insurance contracts 152,948 151,294 Other assets 28,341 38,783 ------------ ------------ TOTAL ASSETS $ 10,875,754 $ 10,786,451 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 8,301,659 $ 8,261,101 Federal Home Loan Bank advances 547,535 498,028 Borrowers' advances for insurance and taxes 46,404 48,439 Principal, interest, and related escrow owed on loans serviced 80,105 80,675 Accrued expenses and other liabilities 105,207 54,556 ------------ ------------ Total liabilities 9,080,910 8,942,799 ----------- ------------ 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; 311,518,750 and 316,233,550 outstanding at December 31, 2008 and September 30, 2008, respectively 3,323 3,323 Paid-in capital 1,674,927 1,672,953 Treasury Stock, at cost; 20,800,000 shares at December 31, 2008 and 16,085,200 shares at September 30, 2008, (252,932) (192,662) Unallocated ESOP shares (91,959) (93,545) Retained earnings--substantially restricted 469,808 462,190 Accumulated other comprehensive loss (8,323) (8,607) ------------ ------------ Total shareholders' equity 1,794,844 1,843,652 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,875,754 $ 10,786,451 ============ ============ TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) (In thousands except share and per share data) For the Three Months Ended December 31, -------------------------- 2008 2007 ------------ ------------ INTEREST AND DIVIDEND INCOME: Loans, including fees $ 121,356 $ 123,967 Investment securities available for sale 258 558 Investment securities held to maturity 9,342 11,636 Federal funds sold -- 8,246 Other interest earning assets 448 1,261 ------------ ------------ Total interest income 131,404 145,668 ------------ ------------ INTEREST EXPENSE: Deposits 74,714 92,696 Federal Home Loan Bank advances 1,138 -- ------------ ------------ Total interest expense 75,852 92,696 ------------ ------------ NET INTEREST INCOME 55,552 52,972 PROVISION FOR LOAN LOSSES 10,000 3,000 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 45,552 49,972 ------------ ------------ NON-INTEREST INCOME: Fees and service charges 6,436 6,333 Net gain on the sale of loans 3,078 1,199 Increase in and death benefits from bank owned life insurance contracts 1,674 1,657 Net income (loss) on private equity investments (1,107) 1,928 Other 1,850 1,816 ------------ ------------ Total non-interest income 11,931 12,933 ------------ ------------ NON-INTEREST EXPENSE Salaries and employee benefits 20,157 18,355 Marketing services 3,525 3,525 Office property, equipment, and software 5,353 4,519 Federal insurance premium 2,010 631 State franchise tax 1,562 707 Real estate owned expense, net 1,973 743 Other operating expenses 5,639 5,623 ------------ ------------ Total non-interest expense 40,219 34,103 ------------ ------------ INCOME BEFORE INCOME TAXES 17,264 28,802 INCOME TAX EXPENSE 5,776 9,986 ------------ ------------ NET INCOME $ 11,488 $ 18,816 ============ ============ Earnings per share - basic and fully diluted $ 0.04 $ 0.06 Weighted average shares outstanding Basic 303,432,538 322,327,418 Fully diluted 303,778,688 322,327,418 TFS FINANCIAL CORPORATION AND SUBSIDIARIES AVERAGE BALANCES AND YIELDS (unaudited) Three Months Ended Three Months Ended December 31, 2008 December 31, 2007 ---------------------------- ---------------------------- Interest (a) Interest (a) Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost ----------- -------- ------ ----------- -------- ------ (Dollars in thousands) Interest- earning assets: Federal funds sold $ 85 $ 0 0.85% $ 709,435 $ 8,246 4.65% Other interest- bearing cash equivalents 1,441 7 1.94% 52,963 657 4.96% Investment securities 17,309 128 2.96% 60,635 599 3.95% Mortgage- backed securities 812,125 9,472 4.67% 854,689 11,595 5.43% Loans 9,539,296 121,356 5.09% 8,322,205 123,967 5.96% Federal Home Loan Bank stock 35,620 441 4.95% 34,231 604 7.06% ----------- -------- ------ ----------- -------- ----- Total interest- earning assets 10,405,876 131,404 5.05% 10,034,158 145,668 5.81% -------- -------- Noninterest- earning assets 332,720 356,325 ----------- ----------- Total assets $10,738,596 $10,390,483 =========== =========== Interest- bearing liabilities: NOW accounts $ 1,092,378 3,945 1.44% $ 1,401,307 11,617 3.32% Savings accounts 1,142,467 5,766 2.02% 1,094,998 10,887 3.98% Certificates of deposit 6,072,223 65,003 4.28% 5,683,540 70,192 4.94% Federal Home Loan Bank advances 373,998 1,138 1.22% -- -- -- ----------- -------- ------ ----------- -------- ------ Total interest- bearing liabilities 8,681,066 75,852 3.50% 8,179,845 92,696 4.53% -------- -------- Noninterest- bearing liabilities 238,827 203,214 ----------- ----------- Total liabilities 8,919,893 8,383,059 Shareholders' equity 1,818,703 2,007,424 ----------- ----------- Total liabilities and share- holders' equity $10,738,596 $10,390,483 =========== =========== Net interest income $ 55,552 $ 52,972 ======== ======== Interest rate spread (b) 1.55% 1.28% ====== ====== Net interest- earning assets (c) $ 1,724,810 $ 1,854,313 =========== =========== Net interest margin (d) 2.14%(a) 2.11%(a) ======== ======== Average interest- earning assets to average interest- bearing liabilities 119.87% 122.67% =========== =========== (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.

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SOURCE: Third Federal Savings and Loan

TFS Financial Corporation Monica Martines (216) 441-7346 Cell: (216) 533-3751 Jennifer Rosa (216) 429-5037

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