TFS Financial Corporation Reports Earnings Growth in First Quarter Fiscal 2025

Business Wire
01-31
Chairman and CEO Marc A. Stefanski (Photo: Business Wire)

CLEVELAND, January 30, 2025--(BUSINESS WIRE)--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 quarter ended December 31, 2024.

"Our earnings of $22.4 million this quarter show our success in managing margin compression and expenses," said Chairman and CEO Marc A. Stefanski. "We’ve also developed creative deposit products, leading to more than $350 million growth in our promotional CDs in December alone. Additionally, our Tier I capital ratio remains a source of strength at nearly 11%. As I look forward in 2025, I am encouraged by the economic forecast, interest rates, and their effect on the housing industry."

Financial Results for the Quarter ended December 31, 2024 Compared to the Quarter ended September 30, 2024

The Company reported net income of $22.4 million for the quarter ended December 31, 2024 compared to $18.2 million for the quarter ended September 30, 2024. The increase in net income was mainly due to a release of provision for credit losses and a decrease in non-interest expense, partially offset by a decrease in net interest income.

Net interest income decreased $0.4 million, or 0.58%, to $68.3 million for the quarter ended December 31, 2024 when compared to the quarter ended September 30, 2024, primarily driven by a decrease in the average balance and yield of interest-earning cash and cash equivalents, the latter being impacted by a decline in short-term interest rates. The interest rate spread for the quarter ended December 31, 2024 was 1.34% compared to 1.36% for the preceding quarter. The net interest margin was 1.66% for the quarter ended December 31, 2024 and 1.67% for the quarter ended September 30, 2024.

During the quarter ended December 31, 2024, there was a $1.5 million release of provision for credit losses compared to a $1.0 million provision for the quarter ended September 30, 2024. The total allowance for credit losses at December 31, 2024 was $97.8 million, or 0.64% of total loans receivable, unchanged from the prior quarter. Net loan recoveries were $1.4 million during the quarter ended December 31, 2024 compared to $1.1 million for the quarter ended September 30, 2024. The total allowance for credit losses included a liability for unfunded commitments of $27.2 million at December 31, 2024 and $27.8 million at September 30, 2024.

Total loan delinquencies increased $4.4 million to $36.3 million, or 0.24% of total loans receivable, at December 31, 2024 from $31.9 million, or 0.21% of total loans receivable, at September 30, 2024. Non-accrual loans increased $2.9 million to $36.5 million, or 0.24% of total loans receivable, at December 31, 2024 from $33.6 million, or 0.22% of total loans receivable, at September 30, 2024.

Total non-interest expense for the quarter ended December 31, 2024 decreased $3.2 million, or 6.26%, from the prior quarter to $47.9 million, mainly due to a $1.7 million decrease in marketing costs and a $1.5 million decrease in other expenses. Marketing costs are recognized when incurred. The decrease in other expenses is primarily due to a combined $1.0 million decrease in down payment assistance and other community programs, due to some seasonality in those activities, and a $0.4 million increase in positive adjustment to the defined benefit plan related to an increase in the expected long-term return on plan assets.

Financial Results for the Quarter ended December 31, 2024 Compared to the Quarter ended December 31, 2023

The Company reported net income of $22.4 million for the quarter ended December 31, 2024 compared to $20.7 million for the quarter ended December 31, 2023. The improvement in net income was mainly due to an increase in the release of provision for credit losses and lower non-interest expense, partially offset by a decrease in net interest income. Additionally, non-interest income increased slightly over the same period a year ago.

Net interest income decreased $0.8 million, or 1.16%, to $68.3 million for the quarter ended December 31, 2024 compared to $69.1 million for the same quarter a year ago. When comparing the two periods, the average balance and cost of interest-bearing liabilities increased $93.2 million and 26 basis points while the average balance and cost of interest earning assets increased $80.1 million and 21 basis points. The interest rate spread for the quarter ended December 31, 2024 was 1.34% compared to 1.39% for the year-ago quarter. The net interest margin was 1.66% for the quarter ended December 31, 2024 and 1.68% for the quarter ended December 31, 2023.

During the quarter ended December 31, 2024, there was a $1.5 million release of provision for credit losses compared to a $1.0 million release of provision for the quarter ended December 31, 2023. The total allowance for credit losses was $97.8 million, or 0.64% of total loans receivable, at December 31, 2024 compared to $94.6 million, or 0.62% of total loans receivable, at December 31, 2023.

Total non-interest income increased by $0.2 million, to $6.5 million for the quarter ended December 31, 2024, from $6.3 million for the quarter ended December 31, 2023. The increase was mainly the result of a $0.5 million increase in fees and service charges and a $0.6 million increase in net gain on the sale of loans, partially offset by decreases of $0.5 million in benefits realized on bank owned life insurance contracts and $0.4 million in other income. The decrease in other income was primarily related to changes in the fair value of interest rate commitments on loans originated for the held for sale portfolio.

Total non-interest expense decreased $2.4 million to $47.9 million for the quarter ended December 31, 2024 from $50.3 million for the same quarter a year ago. The decrease was mainly due to decreases of $0.5 million in salaries and employee benefits, $0.7 million in marketing costs and $0.7 million in other expenses. The decrease in other expenses was primarily due to a $0.3 million decrease in telecommunications expense, due to renegotiated contracts, and a $0.4 million increase in positive adjustment to the defined benefit plan related to an increase in the expected long-term return on plan assets.

Financial Position at December 31, 2024 Compared to September 30, 2024

Total assets decreased $33.2 million, or less than 1%, to $17.06 billion at December 31, 2024 from $17.09 billion at September 30, 2024. This change was mainly the result of decreases in investment securities available for sale and other assets.

Investment securities available for sale decreased $18.6 million, or 3.53%, to $507.7 million at December 31, 2024 from $526.3 million at September 30, 2024. This decrease was due to the combined effect of cash flows from security repayments and maturities exceeding purchases during the period and a decline in fair values, the result of interest rate changes during the quarter.

Loans held for investment, net of deferred loan fees and allowance for credit losses, increased $20.9 million, or less than 1%, to $15.34 billion at December 31, 2024 from $15.32 billion at September 30, 2024. The increase was offset by a $17.0 million decrease in the portfolio of loans held for sale, which totaled $0.8 million at December 31, 2024. During the quarter ended December 31, 2024, the home equity loans and lines of credit portfolio increased $236.2 million and residential core mortgage loans decreased $214.4 million as repayments and sales outpaced the volume of residential mortgage loans originated and purchased.

The changes in loans held for sale and loans held for investment were affected by the volume of loans originated, purchased and sold. During the quarter ended December 31, 2024, total first mortgage loan originations were $176.5 million compared to $255.5 million for the quarter ended September 30, 2024 and $273.0 million for the quarter ended December 31, 2023. Of total residential mortgage loans originated during the current period, $146.3 million (83%) were purchase transactions and $23.8 million (14%) were adjustable rate loans. Commitments originated for home equity loans and lines of credit were $559.0 million for the quarter ended December 31, 2024 compared to $655.4 million for the quarter ended September 30, 2024 and $436.1 million for the quarter ended December 31, 2023. The portfolio of residential first mortgage loans was reduced by $82.4 million of loans delivered to Fannie Mae on contracts settled during the quarter ended December 31, 2024 with a net gain of $1.4 million recognized at the time loans were committed for sale.

Other assets decreased $15.8 million, or 13.84%, to $98.3 million at December 31, 2024 from $114.1 million at September 30, 2024. This decrease was primarily the result of a $12.9 million decrease in current and deferred income tax assets, which were liabilities at December 31, 2024, and a $2.2 million decrease in accounts receivable related to funds held by the benefit plan administrator for the employee stock ownership plan.

Deposits increased by $12.2 million, or less than 1%, to $10.21 billion at December 31, 2024 from $10.20 billion at September 30, 2024. The increase in deposits included a $14.2 million increase in checking accounts and a $13.2 million increase in savings accounts, partially offset by a $15.5 million decrease in money market accounts. During the quarter ended December 31, 2024, a special certificate of deposit ("CD") offering drew $350.0 million in deposits and assisted with retail deposit growth and retention, while the weighted average cost of CDs decreased 11 basis points. The growth in retail CDs was offset by a decrease of $120.8 million in brokered CD accounts. The CD portfolio increased $2.4 million in total. At December 31, 2024, brokered CDs totaled $1.10 billion and included $725.0 million of three-month certificates of deposit accounts aligned with pay-fixed interest rate swap contracts, with a remaining weighted average effective maturity of approximately 2.3 years.

Borrowed funds decreased $136.5 million, or 2.85%, to $4.66 billion at December 31, 2024 from $4.79 billion at September 30, 2024. The total balance of borrowed funds at December 31, 2024 consisted of $1.63 billion of long-term advances with a weighted average maturity of approximately 2.0 years and $2.93 billion of three-month advances, aligned with interest rate swap contracts, with a remaining weighted average effective maturity of approximately 3.0 years, and $81.0 million in overnight borrowings, all from the Federal Home Loan Bank.

Total shareholders' equity increased $51.7 million, or 2.78%, to $1.91 billion at December 31, 2024 from $1.86 billion at September 30, 2024. Activity during the quarter reflects $22.4 million of net income, a $42.4 million net increase in accumulated other comprehensive income, a quarterly dividend of $14.8 million and a net positive adjustment of $1.6 million related to stock compensation and employee stock ownership plans. The change in accumulated other comprehensive income is primarily due to a net positive change in unrealized gains and losses on swap contracts. There were no stock repurchases during the quarter. The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased and 4,808,049 shares have been repurchased as of December 31, 2024.

Other Noteworthy Items for the Quarter Ended December 31, 2024

The Company declared and paid a quarterly dividend of $0.2825 per share during the quarter ended December 31, 2024. As a result of a mutual member vote, Third Federal Savings and Loan Association of Cleveland, MHC (the "MHC"), the mutual holding company that owns approximately 81% of the outstanding stock of the Company, was able to waive its receipt of its share of the dividend paid. Under current Federal Reserve regulations, the MHC is required to obtain the approval of its members every 12 months for the MHC to waive its right to receive dividends. As a result of a July 9, 2024 member vote and the subsequent non-objection of the Federal Reserve, the MHC has the approval to waive receipt of up to $1.13 per share of possible dividends to be declared on the Company’s common stock during the twelve months subsequent to the members’ approval (i.e., through July 9, 2025), including a total of up to $0.565 remaining. The MHC has conducted the member vote to approve the dividend waiver each of the past eleven years under Federal Reserve regulations and for each of those eleven years, approximately 97% of the votes cast were in favor of the waiver.

The Company operates under the capital requirements for the standardized approach of the Basel III capital framework ("Basel III Rules"). At December 31, 2024 all of the Company's capital ratios exceeded the amounts required for the Company to be considered "well capitalized" for regulatory capital purposes. The Company's Tier 1 leverage ratio was 10.89%, its Common Equity Tier 1 and Tier 1 ratios, as calculated under the fully phased-in Basel III Rules, were each 18.31% and its total capital ratio was 19.15%.

Presentation slides as of December 31, 2024 will be available on the Company's website, thirdfederal.com, under the Investor Relations link under the "Latest Presentation" heading, beginning January 31, 2025. The Company will not be hosting a conference call to discuss its operating results.

Third Federal Savings and Loan Association is a leading provider of savings and mortgage products, and operates under the values of love, trust, respect, a commitment to excellence and fun. Founded in Cleveland in 1938 as a mutual association by Ben and Gerome Stefanski, Third Federal’s mission is to help people achieve the dream of home ownership and financial security. It became part of a public company in 2007 and celebrated its 85th anniversary in May 2023. Third Federal, which lends in 27 states and the District of Columbia, is dedicated to serving consumers with competitive rates and outstanding service. Third Federal, an equal housing lender, has 21 full service branches in Northeast Ohio, two lending offices in Central and Southern Ohio, and 16 full service branches throughout Florida.

Forward Looking Statements

This report 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, among other things:

statements of our goals, intentions and expectations;

statements regarding our business plans and prospects and growth and operating strategies;

statements concerning trends in our provision for credit losses and charge-offs on loans and off-balance sheet exposures;

statements regarding the trends in factors affecting our financial condition and results of operations, including credit 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, including with respect to our ability to charge overdraft fees;

inflation and changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments, or our ability to originate loans;

general economic conditions, either globally, nationally or in our market areas, including employment prospects, real estate values and conditions that are worse than expected;

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, and changes in estimates of the allowance for credit losses;

decreased demand for our products and services and lower revenue and earnings because of a recession or other events;

changes in consumer spending, borrowing and savings habits, including repayment speeds on loans;

adverse changes and volatility in the securities markets, credit markets or real estate markets;

our ability to manage market risk, credit risk, liquidity risk, reputational risk, regulatory risk and compliance risk;

our ability to access cost-effective funding;

legislative or regulatory changes that adversely affect our business, including changes in regulatory costs and capital requirements and changes related to our ability to pay dividends and the ability of Third Federal Savings, MHC to waive dividends;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB or the PCAOB;

the adoption of implementing regulations by a number of different regulatory bodies, and uncertainty in the exact nature, extent and timing of such regulations and the impact they will have on us;

our ability to enter new markets successfully and take advantage of growth opportunities;

the continuing governmental efforts to restructure the U.S. financial and regulatory system;

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, the Federal Reserve System, Fannie Mae, the OCC, FDIC, and others;

the ability of the U.S. Government to remain open, function properly and manage federal debt limits;

changes in policy and/or assessment rates of taxing authorities that adversely affect us or our customers;

changes in accounting and tax estimates;

changes in our organization and changes in expense trends, including but not limited to trends affecting non-performing assets, charge-offs and provisions for credit losses;

changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;

the inability of third-party providers to perform their obligations to us;

our ability to retain key employees;

the effects of global or national war, conflict or acts of terrorism;

civil unrest;

cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems; and

the impact of a wide-spread pandemic, and related government action, on our business and the economy.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

(In thousands, except share data)

 

December 31,
2024

September 30,
2024

ASSETS

Cash and due from banks

$

32,582

$

26,287

Other interest-earning cash equivalents

433,349

437,431

Cash and cash equivalents

465,931

463,718

Investment securities available for sale

507,710

526,251

Mortgage loans held for sale

829

17,775

Loans held for investment, net:

Mortgage loans

15,340,842

15,321,400

Other loans

6,746

5,705

Deferred loan expenses, net

65,880

64,956

Allowance for credit losses on loans

(70,559

)

(70,002

)

Loans, net

15,342,909

15,322,059

Mortgage loan servicing rights, net

7,721

7,627

Federal Home Loan Bank stock, at cost

223,972

228,494

Real estate owned, net

174

Premises, equipment, and software, net

32,693

33,187

Accrued interest receivable

57,521

59,398

Bank owned life insurance contracts

320,032

317,977

Other assets

98,268

114,125

TOTAL ASSETS

$

17,057,586

$

17,090,785

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits

$

10,207,257

$

10,195,079

Borrowed funds

4,656,323

4,792,847

Borrowers’ advances for insurance and taxes

140,011

113,637

Principal, interest, and related escrow owed on loans serviced

39,418

28,753

Accrued expenses and other liabilities

100,300

97,845

Total liabilities

15,143,309

15,228,161

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

3,323

3,323

Paid-in capital

1,754,241

1,754,365

Treasury stock, at cost

(771,572

)

(772,195

)

Unallocated ESOP shares

(21,667

)

(22,750

)

Retained earnings—substantially restricted

923,139

915,489

Accumulated other comprehensive loss

26,813

(15,608

)

Total shareholders’ equity

1,914,277

1,862,624

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

17,057,586

$

17,090,785

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,
2024

September 30,
2024

June 30,
2024

March 31,
2024

December 31,
2023

INTEREST AND DIVIDEND INCOME:

Loans, including fees

$

172,152

$

172,412

$

166,268

$

162,970

$

162,035

Investment securities available for sale

4,455

4,694

4,663

4,476

4,395

Other interest and dividend earning assets

10,161

11,410

13,975

16,047

10,729

Total interest and dividend income

186,768

188,516

184,906

183,493

177,159

INTEREST EXPENSE:

Deposits

77,942

80,196

75,521

72,685

64,326

Borrowed funds

40,498

39,605

40,112

39,430

43,741

Total interest expense

118,440

119,801

115,633

112,115

108,067

NET INTEREST INCOME

68,328

68,715

69,273

71,378

69,092

PROVISION (RELEASE) FOR CREDIT LOSSES

(1,500

)

1,000

(500

)

(1,000

)

(1,000

)

NET INTEREST INCOME AFTER PROVISION (RELEASE) FOR CREDIT LOSSES

69,828

67,715

69,773

72,378

70,092

NON-INTEREST INCOME:

Fees and service charges, net of amortization

2,224

2,379

2,097

1,845

1,748

Net gain (loss) on the sale of loans

1,115

1,101

723

442

481

Increase in and death benefits from bank owned life insurance contracts

2,682

2,361

2,254

2,193

3,191

Other

482

579

1,171

1,242

895

Total non-interest income

6,503

6,420

6,245

5,722

6,315

NON-INTEREST EXPENSE:

Salaries and employee benefits

26,606

26,320

26,845

27,501

27,116

Marketing services

3,654

5,334

4,867

5,099

4,431

Office property, equipment and software

6,844

7,158

7,008

7,303

6,845

Federal insurance premium and assessments

3,585

3,522

3,258

4,013

3,778

State franchise tax

1,047

1,086

1,244

1,238

1,176

Other expenses

6,205

7,664

7,566

7,044

6,931

Total non-interest expense

47,941

51,084

50,788

52,198

50,277

INCOME BEFORE INCOME TAXES

28,390

23,051

25,230

25,902

26,130

INCOME TAX EXPENSE

5,964

4,836

5,277

5,189

5,423

NET INCOME

$

22,426

$

18,215

$

19,953

$

20,713

$

20,707

Earnings per share - basic and diluted

$

0.08

$

0.06

$

0.07

$

0.07

$

0.07

Weighted average shares outstanding

Basic

278,538,110

278,399,318

278,291,376

278,183,041

277,841,526

Diluted

279,578,652

279,404,704

279,221,360

279,046,837

279,001,898

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

AVERAGE BALANCES AND YIELDS (unaudited)

 

Three Months Ended

Three Months Ended

Three Months Ended

December 31, 2024

September 30, 2024

December 31, 2023

Average
Balance

Interest
Income/
Expense

Yield/
Cost (1)

Average
Balance

Interest
Income/
Expense

Yield/
Cost (1)

Average
Balance

Interest
Income/
Expense

Yield/
Cost (1)

(Dollars in thousands)

Interest-earning assets:

Interest-earning cash equivalents

$

424,111

$

4,949

4.67

%

$

460,242

$

6,133

5.33

%

$

398,506

$

5,124

5.14

%

Investment securities

60,183

674

4.48

%

72,427

918

5.07

%

64,778

850

5.25

%

Mortgage-backed securities

454,332

3,781

3.33

%

446,480

3,776

3.38

%

444,411

3,545

3.19

%

Loans (2)

15,326,120

172,152

4.49

%

15,258,648

172,412

4.52

%

15,232,349

162,035

4.26

%

Federal Home Loan Bank stock

225,977

5,212

9.23

%

230,335

5,277

9.16

%

270,540

5,605

8.29

%

Total interest-earning assets

16,490,723

186,768

4.53

%

16,468,132

188,516

4.58

%

16,410,584

177,159

4.32

%

Noninterest-earning assets

524,634

544,705

553,461

Total assets

$

17,015,357

$

17,012,837

$

16,964,045

Interest-bearing liabilities:

Checking accounts

$

826,383

90

0.04

%

$

832,001

91

0.04

%

$

937,817

118

0.05

%

Savings accounts

1,289,788

3,353

1.04

%

1,353,608

4,688

1.39

%

1,721,466

6,912

1.61

%

Certificates of deposit

8,058,740

74,499

3.70

%

7,909,142

75,417

3.81

%

6,847,482

57,296

3.35

%

Borrowed funds

4,653,328

40,498

3.48

%

4,787,825

39,605

3.31

%

5,228,239

43,741

3.35

%

Total interest-bearing liabilities

14,828,239

118,440

3.19

%

14,882,576

119,801

3.22

%

14,735,004

108,067

2.93

%

Noninterest-bearing liabilities

271,640

217,788

278,801

Total liabilities

15,099,879

15,100,364

15,013,805

Shareholders’ equity

1,915,478

1,912,473

1,950,240

Total liabilities and shareholders’ equity

$

17,015,357

$

17,012,837

$

16,964,045

Net interest income

$

68,328

$

68,715

$

69,092

Interest rate spread (1)(3)

1.34

%

1.36

%

1.39

%

Net interest-earning assets (4)

$

1,662,484

$

1,585,556

$

1,675,580

Net interest margin (1)(5)

1.66

%

1.67

%

1.68

%

Average interest-earning assets to average interest-bearing liabilities

111.21

%

110.65

%

111.37

%

Selected performance ratios:

Return on average assets (1)

0.53

%

0.43

%

0.49

%

Return on average equity (1)

4.68

%

3.81

%

4.25

%

Average equity to average assets

11.26

%

11.24

%

11.50

%

(1)

Annualized.

(2)

Loans include both mortgage loans held for sale and loans held for investment.

(3)

Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5)

Net interest margin represents net interest income divided by total interest-earning assets.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250130972753/en/

Contacts

Jennifer Rosa (216) 429-5037

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