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Shares of TFS Financial Corp. (TFSL - Snapshot Report) fell 0.3% on Friday after the company reported fiscal first-quarter 2014 earnings (ended Dec 31) on Jan 30 after market close. Earnings per share of 5 cents were in line with the Zacks Consensus Estimate. The bottom line compared favorably with the year-ago figure of 4 cents.

A continuous decline in provision for loan losses, improvement in asset quality and strong capital ratios were the positives for the quarter. However, a fall in the top line and marginally higher operating expenses were the headwinds.

Net income in the reported quarter grew 43.7% year over year to $16.0 million.

Performance in Detail

Total revenue was $98.1 million, down 8.3% from the prior-year quarter. However, it outpaced the Zacks Consensus Estimate of $72.0 million.

Net interest income dropped 0.9% from the year-ago quarter to $67.8 million. The decrease was primarily due to a fall in interest and dividend income, partially offset by lower interest expense.

Further, non-interest income declined 38.4% year over year to $5.1 million. The decline was mainly due to a lower net gain on the sale of loans and other income.

Operating expenses were $42.9 million, up 0.8% from the year-ago quarter. The rise was primarily due to higher salaries and employee benefit costs and marketing expenses, partly offset by a decrease in federal insurance premium and assessments costs and other operating expenditure.

TFS Financial’s capital ratios were well above the regulatory requirement. As of Dec 31, 2013, Tier 1 risk-based capital ratio was 21.89%. Total risk-based capital came in at 23.11%.

Credit Quality

In the said quarter, credit quality continued to improve with TFS Financial reporting provision for loan losses of $6.0 million, down 66.7% from the year-ago quarter. Moreover, net loan charge-offs came in at $13.3 million, in line with the prior-year quarter.

Share Repurchase

Following the approval of the Federal Reserve, TFS Financial completed its fourth stock repurchase program. The company repurchased approximately 2.2 million shares for $26.1 million.

Performance of Other Banks

Among other companies in the same industry, Washington Federal Inc.’s (WAFD - Analyst Report) fiscal first-quarter 2014 earnings beat the Zacks Consensus Estimate while People's United Financial Inc. (PBCT - Analyst Report) and First Niagara Financial Group Inc. (FNFG - Snapshot Report) reported earnings that were in line with the Zacks Consensus Estimate.

Our Viewpoint

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

On the other hand, 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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