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TFS Financial Corp's (TFSL - Snapshot Report) fiscal fourth-quarter 2013 earnings (ended Sep 30) came in at 5 cents per share, in line with the Zacks Consensus Estimate. However, this compared favorably with the break-even earnings in the year-ago quarter.

Results improved on a year-over-year basis owing to a decline in provision for loan losses and decreased operating expense, partially offset by reduced top line. Consistent improvement in asset quality and strong capital ratios were the other tailwinds.

Washington Federal’s net income in the said quarter grew substantially to $15.8 million from $1.1 million in 4Q12.

Further, for fiscal 2013, net income was $56.0 million or 18 cents per share, up from $11.5 million or 4 cents per share in fiscal 2012. Earnings were in line with the Zacks Consensus Estimate.

Performance in Detail

Washington Federal’s total revenue for the reported quarter came in at $97.8 million, down 10.5% year over year. However, total revenue outpaced the Zacks Consensus Estimate of $74.0 million.

For fiscal 2013, total revenue was $412.4 million, down 6.8% from the prior-year figure. Nevertheless, it significantly surpassed the Zacks Consensus Estimate of $293.0 million.

Net interest income dropped 0.3% from the prior-year quarter to $66.1 million. The decrease was primarily due to a fall in interest and dividend income, partially offset by lower interest expense. However, net interest margin rose 6 basis points (bps) to 2.43% year over year.

Non-interest income declined 12.3% year over year to $5.3 million.

Operating expenses decreased 2.0% from the year-ago quarter to $43.6 million. The decline was primarily due to decrease in federal insurance premium and assessments costs, state franchise tax, appraisal and other loan review expense as well as other operating expenditure. These positives were offset by a rise in salaries and employee benefits, marketing services charges, office property, equipment and software expenditure as well as real estate owned expense.

Credit Quality

In the said quarter, credit quality continued to improve with TFS Financial reporting provision for loan losses of $4.0 million, up from $29.0 million in the year-ago quarter. Moreover, net loan charge-offs came in at $44.9 million versus the year-earlier quarter figure of $158.5 million.

As of Sep 30, 2013, total loan delinquencies were 1.31% of total loans, down 35 bps from 1.66% as of Sep 30, 2012.

Capital Ratios

TFS Financial’s capital ratios were well above the regulatory requirement. As of Sep 30, 2013, Tier 1 risk-based capital ratio was 26.69%. Total risk-based capital came in at 27.94%.

Other Developments

In the reported quarter, the company received authorization from the Federal Reserve to recommence its stock repurchase program. Consequently, the company expects to begin the same after Oct 1, 2013. The repurchase program has roughly 2.2 million shares of its common stock remaining to be purchased.

Performance of Other Financial Firms

Washington Federal Inc.’s (WAFD - Analyst Report) fiscal fourth-quarter 2013 earnings surpassed the Zacks Consensus Estimate by a nickel. Results were driven by increase in both net interest income and other income, partially offset by higher operating expenses.

Hudson City Bancorp Inc.’s (HCBK - Analyst Report) operating earnings came in line with the Zacks Consensus Estimate. Results were aided by increased non-interest income and lower provision for loan losses, partially offset by a decline in net interest income.

New York Community Bancorp, Inc.’s (NYCB) earnings outpaced the Zacks Consensus Estimate. Better-than-expected results came on the back of decline in expenses.

Our Viewpoint

We expect the bank’s renewed capital deployment initiatives to boost investors’ confidence in the stock. Moreover, continuous improvement in credit quality and decent capital ratios bode well for the company.

However, a still low interest rate scenario and protracted economic recovery continue to drag the top line. Also, stringent regulations remain a cause of concern.

At present, TFS Financial carries a Zacks Rank #3 (Hold).

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