Profits at TFS Financial Corp. in Cleveland fell sharply in the quarter that ended June 30, as a surge of new loan activity could not make up for a steep drop in noninterest income.
Yet despite the profit drop, TFS' per-share earnings of two cents beat analysts' estimates by a penny, according to Thomson Reuters.
The $10.9 billion-asset parent of Third Federal Savings Bank said late Wednesday that it earned $6 million in the quarter, down 41% from the same period a year earlier.
TFS said the decline was largely a result of a significant slowdown in loan sales, which contributed to 69% drop in fee income year over year, to $8.8 million. In all, income from loan sales fell 99%, to just $210,000.
Net interest income rose 10% year over year, to $63 million, thanks primarily to steady loan growth. TFS, which is almost exclusively a mortgage lender, said that residential mortgage loans increased by $850 million in the first nine months of its fiscal year, which started Oct. 1.
That more than offset a $288 million decrease in its volume of home-equity loans and lines of credit over the same nine-month period. Last summer the lender was ordered by the Office of Thrift Supervision to shrink its portfolio of home-equity loans by $1 billion by the end of 2011. The company said that as of June 30 it had already hit that target.
Investors and analysts were shocked when the thrift was hit with the order, particularly given its 22% total risk-based capital ratio. Several attorneys said at the time that it was just another example of the overzealousness that the OTS demonstrated in its final months.
TFS said Wednesday that now that the OTS has been merged with the Office of the Comptroller of the Currency, it is working with its new regulator to evaluate the progress with the goal of coming up with a timeline to exit the order so it can reinstate its stock repurchase and dividend strategy.
