TTFS Financial Corporation Delivers Impressive Q1 Earnings Boost for FY 2025

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

TFS Financial Corporation (the “Company”), the holding company for Third Federal Savings and Loan Association of Cleveland (the “Association”), recently announced results for the quarter ended December 31, 2024.

“Our earnings of USD 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 USD 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 USD 22.4 million for the quarter ended December 31, 2024 compared to USD 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 USD 0.4 million, or 0.58%, to USD 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 USD 1.5 million release of provision for credit losses compared to a USD 1.0 million provision for the quarter ended September 30, 2024. The total allowance for credit losses at December 31, 2024 was USD 97.8 million, or 0.64% of total loans receivable, unchanged from the prior quarter. Net loan recoveries were USD 1.4 million during the quarter ended December 31, 2024 compared to USD 1.1 million for the quarter ended September 30, 2024. The total allowance for credit losses included a liability for unfunded commitments of USD 27.2 million at December 31, 2024 and USD 27.8 million at September 30, 2024.

Total loan delinquencies increased USD 4.4 million to USD 36.3 million, or 0.24% of total loans receivable, at December 31, 2024 from USD 31.9 million, or 0.21% of total loans receivable, at September 30, 2024. Non-accrual loans increased USD 2.9 million to USD 36.5 million, or 0.24% of total loans receivable, at December 31, 2024 from USD 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 USD 3.2 million, or 6.26%, from the prior quarter to USD 47.9 million, mainly due to a USD 1.7 million decrease in marketing costs and a USD 1.5 million decrease in other expenses. Marketing costs are recognized when incurred. The decrease in other expenses is primarily due to a combined USD 1.0 million decrease in down payment assistance and other community programs, due to some seasonality in those activities, and a USD 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 USD 22.4 million for the quarter ended December 31, 2024 compared to USD 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 USD 0.8 million, or 1.16%, to USD 68.3 million for the quarter ended December 31, 2024 compared to USD 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 USD 93.2 million and 26 basis points while the average balance and cost of interest earning assets increased USD 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 USD 1.5 million release of provision for credit losses compared to a USD 1.0 million release of provision for the quarter ended December 31, 2023. The total allowance for credit losses was USD 97.8 million, or 0.64% of total loans receivable, at December 31, 2024 compared to USD 94.6 million, or 0.62% of total loans receivable, at December 31, 2023.

Total non-interest income increased by USD 0.2 million, to USD 6.5 million for the quarter ended December 31, 2024, from USD 6.3 million for the quarter ended December 31, 2023. The increase was mainly the result of a USD 0.5 million increase in fees and service charges and a USD 0.6 million increase in net gain on the sale of loans, partially offset by decreases of USD 0.5 million in benefits realized on bank owned life insurance contracts and USD 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 USD 2.4 million to USD 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 USD 0.5 million in salaries and employee benefits, USD 0.7 million in marketing costs and USD 0.7 million in other expenses. The decrease in other expenses was primarily due to a USD 0.3 million decrease in telecommunications expense, due to renegotiated contracts, and a USD 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 USD 33.2 million, or less than 1%, to USD 17.06 billion at December 31, 2024 from USD 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 USD 18.6 million, or 3.53%, to USD 507.7 million at December 31, 2024 from USD 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 USD 20.9 million, or less than 1%, to USD 15.34 billion at December 31, 2024 from USD 15.32 billion at September 30, 2024. The increase was offset by a USD 17.0 million decrease in the portfolio of loans held for sale, which totaled USD 0.8 million at December 31, 2024. During the quarter ended December 31, 2024, the home equity loans and lines of credit portfolio increased USD 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 USD 176.5 million compared to USD 255.5 million for the quarter ended September 30, 2024 and USD 273.0 million for the quarter ended December 31, 2023. Of total residential mortgage loans originated during the current period, USD 146.3 million (83%) were purchase transactions and USD 23.8 million (14%) were adjustable-rate loans. Commitments originated for home equity loans and lines of credit were USD 559.0 million for the quarter ended December 31, 2024 compared to USD 655.4 million for the quarter ended September 30, 2024 and USD 436.1 million for the quarter ended December 31, 2023. The portfolio of residential first mortgage loans was reduced by USD 82.4 million of loans delivered to Fannie Mae on contracts settled during the quarter ended December 31, 2024 with a net gain of USD 1.4 million recognized at the time loans were committed for sale.

TFS Financial Corp (Image: Business Wire)
TFS Financial Corp (Image: Business Wire)

Other assets decreased USD 15.8 million, or 13.84%, to USD 98.3 million at December 31, 2024 from USD 114.1 million at September 30, 2024. This decrease was primarily the result of a USD 12.9 million decrease in current and deferred income tax assets, which were liabilities at December 31, 2024, and a USD 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 USD 12.2 million, or less than 1%, to USD 10.21 billion at December 31, 2024 from USD 10.20 billion at September 30, 2024. The increase in deposits included a USD 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 USD 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 USD 1.10 billion and included USD 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 USD 136.5 million, or 2.85%, to USD 4.66 billion at December 31, 2024 from USD 4.79 billion at September 30, 2024. The total balance of borrowed funds at December 31, 2024 consisted of USD 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 USD 81.0 million in overnight borrowings, all from the Federal Home Loan Bank.

Total shareholders’ equity increased USD 51.7 million, or 2.78%, to USD 1.91 billion at December 31, 2024 from USD 1.86 billion at September 30, 2024. Activity during the quarter reflects USD 22.4 million of net income, a USD 42.4 million net increase in accumulated other comprehensive income, a quarterly dividend of USD 14.8 million and a net positive adjustment of USD 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 USD 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 USD 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 USD 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.

Source

RELATED ARTICLES

Recent News