Contact: David Reavis (216) 429-5036
For release Tuesday, January 30, 2018
TFS Financial Corporation Earnings Remain Strong as Housing Market Booms
(Cleveland, OH - January 30, 2018) - 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 month period ended December 31, 2017.
The Company reported net income of $19.6 million for both the quarter ended December 31, 2017, and the quarter ended December 31, 2016. While the net income results were very similar between the two periods, an increase in income tax expense as a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017 was essentially offset by an increase in the credit for loan losses.
“Third Federal finished 2017 on a high note with another quarter of strong earnings thanks to a booming housing market,” said Marc A. Stefanski, chairman and CEO. “Overall asset growth continues to drive our earnings. This was helped by considerable growth in home equity loan originations, which increased 59% compared to the first quarter of 2017.
As we celebrate our 80th anniversary in 2018, we look forward to sharing our continuing success with our customers, associates, communities and shareholders.”
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (H.R. 1) (the “Act”). The Act includes a number of changes in existing tax law impacting businesses including, among other things, a permanent reduction in the maximum corporate income tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018, however as a September 30 fiscal year end entity, the Company is required to use a blended maximum rate for its entire September 30, 2018 fiscal year, which would be approximately 24.5%. In addition, as required by U.S. generally accepted accounting principles, the Company revalued its net deferred tax assets as of December 31, 2017, resulting in a reduction in the value of its net deferred tax asset and the recording of approximately $4.6 million of additional income tax expense in the Company’s statement of income in the three months ended December 31, 2017. The revaluation of the net deferred tax assets is subject to adjustment in future periods.
Net interest income in the current period increased $1.8 million compared to the prior year quarter, as $9.0 million of additional interest income in the current period more than offset $7.2 million of additional interest expense. Interest income was higher as the average balance of interest-earning assets, mainly loans, and the weighted average yield earned on those assets, both increased from the previous year period. The average cost of interest-bearing liabilities was higher in the current year as a result of increased short-term market interest rates and the use of longer duration funding sources that carried higher costs. Net interest income was $70.0 million for the quarter ended December 31, 2017 and $68.2 million for the quarter ended December 31, 2016. The interest rate spread for the quarter ended December 31, 2017 was 1.95% compared to 2.03% in the same quarter last year. The net interest margin for the quarter ended December 31, 2017 was 2.10% compared to 2.16% in the same quarter last year.
The provision for loan losses was a credit of $3.0 million for the three months ended December 31, 2017 compared to no provision for the three months ended December 31, 2016. Continued strong recoveries of loan amounts previously charged off, low levels of current loan charge-offs 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 reported $19 thousand of net loan charge-offs for the three months ended December 31, 2017 and $1.3 million of net loan charge-offs for the three months ended December 31, 2016. Gross loan charge-offs were $2.6 million for the three months ended December 31, 2017 and $4.0 million for the three months ended December 31, 2016. while loan recoveries were $2.6 million in the current quarter and $2.7 million in the prior year quarter. In recent years, a large portion of the overall allowance has been allocated to the home equity loans and lines of credit category to address exposure from customers whose lines of credit were originated without amortizing payments during the draw period and who could face potential increased payment shock at the end of the draw period. In general, home equity lines of credit originated prior to June 2010 were characterized by a ten-year draw period, with interest only payments, followed by a ten-year repayment period. However, a large number of those lines of credit approaching the end of draw period have been paid off or refinanced without significant loss. The principal balance of home equity lines of credit originated prior to 2010 without amortizing payments during the draw period that are coming to the end of the draw period through fiscal 2020 was $396.1 million at December 31, 2017, compared to $484.8 at September 30, 2017 and $789.4 million at December 31, 2016. As this exposure decreases without incurring significant loss, the portion of the overall allowance allocated to the home equity loans and lines of credit category has correspondingly decreased. Generally, equity lines of credit originated after June 2010 require
The following information was filed by Tfs Financial Corp (TFSL) on Tuesday, January 30, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.