TFS Financial Corporation Announces Second Fiscal Quarter 2023 Results

Remains Strong, Stable and Well-Capitalized

CLEVELAND–(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 and six months ended March 31, 2023.


“We live by our mission of helping customers achieve the dream of homeownership and financial security, and we are built to withstand changes in the economy,” said Chairman and CEO Marc A. Stefanski. “Our retail deposits from individuals in the communities we serve, and our first mortgage loan portfolio with an average credit score of 761 and with a loan-to-value ratio of 66%, are a result of the success we have found by focusing on that mission. We continue to expand our product offerings to attract new customers from around the country, and saw a strong net gain in savings of $140 million in March alone. Our strength and stability is further recognized through our Tier 1 capital leverage ratio of 11 percent – more than double the regulatory requirement, and our ongoing quarterly 5-star rating from independent rating agency Bauer Financial.”

Highlights – Second Quarter Fiscal 2023

  • Reported net income of $15.9 million
  • Generated over $80 million of residential mortgage loan growth
  • Remained well capitalized, with a Tier 1 leverage ratio of 11.27%
  • Paid a $0.2825 dividend per share

The Company reported net income of $15.9 million for the quarter ended March 31, 2023, a decrease of $6.3 million from $22.2 million for the quarter ended December 31, 2022. The decrease was primarily due to a decrease in net interest income and an increase in non-interest expense, partially offset by a resultant decrease in income tax expense.

Net interest income decreased $5.9 million to $69.3 million for the quarter ended March 31, 2023 from $75.2 million for the quarter ended December 31, 2022. During the quarter, an increase in balances and yields on interest-earning assets was more than offset by higher funding costs. The interest rate spread was 1.56% for the quarter ended March 31, 2023 compared to 1.75% for the quarter ended December 31, 2022. The net interest margin was 1.78% for the quarter ended March 31, 2023 compared to 1.95% for the prior quarter.

Total non-interest expense increased $2.4 million to $55.6 million for the quarter ended March 31, 2023, from $53.2 million for the quarter ended December 31, 2022. The increase consisted mainly of a $2.0 million increase in salaries and employee benefits, related primarily to annual increases in wages and health insurance costs, and a $0.7 million increase in federal (“FDIC”) insurance premiums and assessments, due to a two basis point increase in FDIC assessment rates effective January 1, 2023.

Total assets increased by $132.7 million to $16.26 billion at March 31, 2023 from $16.13 billion at December 31, 2022. The increase was mainly the result of new loan originations exceeding the total of loan sales and principal repayments and an increase in other assets.

Loans held for investment, net of allowance and deferred loan expenses, increased $89.8 million to $14.56 billion at March 31, 2023 from $14.47 billion at December 31, 2022.

Other assets increased $51.5 million to $159.3 million at March 31, 2023 from $107.8 million at December 31, 2022. The increase was primarily due to the combined effect of a $34.9 million increase in initial margin requirement and a $7.8 million increase in interest receivable on centrally cleared swap contracts. Additionally, there was a $5.5 million increase in the net deferred tax asset, related to net changes in unrealized gains and losses recorded in other comprehensive income.

Compared to December 31, 2022, deposits decreased by $11.4 million, to $9.00 billion at March 31, 2023. The decrease was due to the release of $93.3 million in maturing brokered deposits, partially offset by an $81.9 million increase in retail deposits. Retail deposit growth in the third month of the quarter more than offset some attrition that occurred during the first two months of the quarter.

Borrowed funds increased $217.7 million to $5.20 billion at March 31, 2023 from $4.99 billion at December 31, 2022. The increase was primarily used to fund loan growth and contractual requirements on swap instruments.

Highlights – Fiscal Year-To-Date 2023

  • Reported net income of $38.1 million
  • Generated over $300 million of residential mortgage loan growth
  • Grew net interest income by 20% to $144.4 million compared to the fiscal 2022 period
  • Remained well capitalized, with a Tier 1 leverage ratio of 11.27%
  • Paid a $0.565 dividend per share

The Company reported net income of $38.1 million for the six months ended March 31, 2023 compared to net income of $32.0 million for the six months ended March 31, 2022. The $6.1 million increase was primarily due to an increase in net interest income offset by a decrease in non-interest income and an increase in non-interest expenses.

Net interest income increased by $23.8 million, or 20%, to $144.4 million for the six months ended March 31, 2023, compared to $120.6 million for the six months ended March 31, 2022, driven by loan growth and a higher interest rate environment. The interest rate spread was 1.66% for the six months ended March 31, 2023 compared to 1.63% for the six months ended March 31, 2022. The net interest margin was 1.86% for the six months ended March 31, 2023 compared to 1.76% for the prior year period.

During the six months ended March 31, 2023, there was a $2.0 million release of provision for credit losses compared to a $3.0 million release of provision for the six months ended March 31, 2022. Net loan recoveries totaled $2.9 million during the six months ended March 31, 2023 and $4.7 million during the prior year period. The total allowance for credit losses at March 31, 2023 was $100.8 million, or 0.69% of total loans receivable, compared to $99.9 million, or 0.70% of total loans receivable, at September 30, 2022 and $90.9 million, or 0.69% of total loans receivable, at March 31, 2022. The allowance for credit losses included $26.7 million, $27.0 million, and $26.6 million in liabilities for unfunded commitments at March 31, 2023, September 30, 2022 and March 31, 2022, respectively.

Total loan delinquencies increased $2.7 million to $23.9 million, or 0.16% of total loans receivable, at March 31, 2023 from $21.2 million, or 0.17% of total loans, at September 30, 2022. Non-accrual loans decreased $2.9 million to $32.7 million, or 0.22% of total loans, at March 31, 2023 from $35.6 million, or 0.25% of total loans, at September 30, 2022.

Total non-interest income decreased $3.2 million, or 23%, to $10.5 million for the six months ended March 31, 2023 from $13.7 million for the six months ended March 31, 2022. The decrease consisted mainly of a $1.7 million decrease in net gain on the sale of loans, a $1.1 million decrease in fees and service charges and a $0.7 million decrease in benefits realized on bank owned life insurance contracts. The decrease in net gain on the sale of loans was the result of a decrease in secondary market pricing and a lower volume of loans sold. The decrease in fees and service charges is primarily due to less servicing revenue due to a decrease in the balance of loans serviced for others.

Total non-interest expense increased $11.2 million, or 11%, to $108.8 million for the six months ended March 31, 2023, from $97.6 million for the six months ended March 31, 2022 and included increases of $5.4 million in salaries and employee benefits, $2.2 million in marketing costs, and $1.9 million in federal (“FDIC”) insurance premiums and assessments. Additionally, there was a $1.4 million increase in pension expense, reported in other expenses, related to the change in net actuarial gains and losses. The increase in salaries and employee benefits was primarily the result of increases in health insurance costs and increases in both staffing levels and wages. FDIC premiums increased due to growth in deposits and a two basis point increase in FDIC assessment rates that went into effect on January 1, 2023.

Total assets increased by $471.8 million, or 3%, to $16.26 billion at March 31, 2023 from $15.79 billion at September 30, 2022. The increase was mainly the result of new loan originations exceeding the total of loan sales and principal repayments.

Cash and cash equivalents increased $51.5 million, or 14%, to $421.1 million at March 31, 2023 from $369.6 million at September 30, 2022, due to normal fluctuations.

Loans held for investment, net of allowance and deferred loan expenses, increased $306.3 million, or 2%, to $14.56 billion at March 31, 2023 from $14.26 billion at September 30, 2022. The residential core mortgage loan portfolio increased $212.4 million, to $11.75 billion, and home equity loans and lines of credit increased $90.0 million, to $2.72 billion, during the six months. Loan originations, including first mortgages and equity loans and lines of credit, were $1.54 billion during the six months ended March 31, 2023 compared to $2.82 billion during the six months ended March 31, 2022. The decrease in originations was primarily due to a generally increasing interest rate environment, resulting in less refinance activity. Mortgage loan originations included 88% purchases and 37% adjustable rate mortgages for the six months ended March 31, 2023.

Deposits increased $81.9 million to $9.00 billion at March 31, 2023 from $8.92 billion at September 30, 2022. The increase was the result of a $206.9 million increase in certificates of deposit (“CDs”) and a $70.0 million increase in savings accounts, partially offset by a $108.6 million decrease in money market deposit accounts and an $89.8 million decrease in checking accounts.

Borrowed funds increased $411.7 million, or 9%, to $5.20 billion at March 31, 2023 from $4.79 billion at September 30, 2022. The increase was primarily used to fund loan growth. The total balance of borrowed funds at March 31, 2023, all from the FHLB, included $575.0 million of overnight advances, $1.59 billion of term advances with a weighted average maturity of approximately 2.6 years, and $3.03 billion of term advances, aligned with interest rate swap contracts, with a remaining weighted average effective maturity of approximately 3.9 years. Additional borrowing capacity at the FHLB was $3.44 billion at March 31, 2023.

Total shareholders’ equity decreased $9.9 million, or 0.5%, to $1.83 billion at March 31, 2023 from $1.84 billion at September 30, 2022. Activity reflects $38.1 million of net income reduced by $29.1 million for dividends paid, an $18.4 million net loss in accumulated other comprehensive income and $5.0 million in repurchases of common stock. Additionally, there was $4.5 million of net positive adjustments related to our stock compensation and employee stock ownership plans. The change in accumulated other comprehensive income is primarily due to a net negative change in unrealized gains and losses on swap contracts. During the six months ended March 31, 2023, a total of 361,869 shares of our common stock were repurchased at an average cost of $13.82 per share. The Company’s eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,191,951 shares remaining to be repurchased at March 31, 2023.

The Company declared and paid a quarterly dividend of $0.2825 per share during each of the quarters of fiscal year 2023. 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 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 12, 2022 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 12, 2023). The MHC has conducted the member vote to approve the dividend waiver each of the past nine years under Federal Reserve regulations and for each of those nine 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 for U.S. banking organizations (“Basel III Rules”). At March 31, 2023 all of the Company’s capital ratios substantially exceed the amounts required for the Company to be considered “well capitalized” for regulatory capital purposes. The Company’s Tier 1 leverage ratio was 11.27%, its Common Equity Tier 1 and Tier 1 ratios were each 19.93% and its total capital ratio was 20.64%.

Presentation slides as of March 31, 2023 will be available on the Company’s website, www.thirdfederal.com, under the Investor Relations link within the “Recent Presentations” menu, beginning April 28, 2023. 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 is celebrating its 85th anniversary in May 2023. Third Federal, which lends in 25 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, four lending offices in Central and Southern Ohio, and 16 full service branches throughout Florida. As of March 31, 2023, the Company’s assets totaled $16.26 billion.

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;

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, and regulatory and compliance risk;

our ability to access cost-effective funding;

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

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 Financial Accounting Standards Board or the Public Company Accounting Oversight Board;

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, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any;

our ability to retain key employees;

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 and the FRS and changes in the level of government support of housing finance;

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

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, or compensation and benefit plans and changes in expense trends (including, but not limited to trends affecting non-performing assets, charge-offs and provisions for credit losses);

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

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 wide-spread pandemic, including COVID-19, 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)

 

 

March 31,
2023

 

December 31,
2022

 

September 30,
2022

ASSETS

 

 

 

 

 

Cash and due from banks

$

28,468

 

 

$

31,515

 

 

$

18,961

 

Other interest-earning cash equivalents

 

392,660

 

 

 

412,066

 

 

 

350,603

 

Cash and cash equivalents

 

421,128

 

 

 

443,581

 

 

 

369,564

 

Investment securities available for sale

 

482,576

 

 

 

473,131

 

 

 

457,908

 

Mortgage loans held for sale

 

4,398

 

 

 

12,549

 

 

 

9,661

 

Loans held for investment, net:

 

 

 

 

 

Mortgage loans

 

14,580,410

 

 

 

14,492,723

 

 

 

14,276,478

 

Other loans

 

3,868

 

 

 

3,481

 

 

 

3,263

 

Deferred loan expenses, net

 

53,183

 

 

 

51,768

 

 

 

50,221

 

Allowance for credit losses on loans

 

(74,138

)

 

 

(74,477

)

 

 

(72,895

)

Loans, net

 

14,563,323

 

 

 

14,473,495

 

 

 

14,257,067

 

Mortgage loan servicing rights, net

 

7,669

 

 

 

7,815

 

 

 

7,943

 

Federal Home Loan Bank stock, at cost

 

232,855

 

 

 

222,415

 

 

 

212,290

 

Real estate owned, net

 

1,165

 

 

 

1,378

 

 

 

1,191

 

Premises, equipment, and software, net

 

34,529

 

 

 

35,252

 

 

 

34,531

 

Accrued interest receivable

 

46,399

 

 

 

45,317

 

 

 

40,256

 

Bank owned life insurance contracts

 

308,339

 

 

 

306,216

 

 

 

304,040

 

Other assets

 

159,299

 

 

 

107,828

 

 

 

95,428

 

TOTAL ASSETS

$

16,261,680

 

 

$

16,128,977

 

 

$

15,789,879

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Deposits

$

9,002,867

 

 

$

9,014,295

 

 

$

8,921,017

 

Borrowed funds

 

5,204,964

 

 

 

4,987,287

 

 

 

4,793,221

 

Borrowers’ advances for insurance and taxes

 

102,888

 

 

 

109,070

 

 

 

117,250

 

Principal, interest, and related escrow owed on loans serviced

 

27,166

 

 

 

28,500

 

 

 

29,913

 

Accrued expenses and other liabilities

 

89,319

 

 

 

140,236

 

 

 

84,139

 

Total liabilities

 

14,427,204

 

 

 

14,279,388

 

 

 

13,945,540

 

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

 

 

 

3,323

 

Paid-in capital

 

1,752,508

 

 

 

1,751,020

 

 

 

1,751,223

 

Treasury stock, at cost

 

(775,852

)

 

 

(775,154

)

 

 

(771,986

)

Unallocated ESOP shares

 

(29,250

)

 

 

(30,334

)

 

 

(31,417

)

Retained earnings—substantially restricted

 

879,046

 

 

 

877,713

 

 

 

870,047

 

Accumulated other comprehensive income (loss)

 

4,701

 

 

 

23,021

 

 

 

23,149

 

Total shareholders’ equity

 

1,834,476

 

 

 

1,849,589

 

 

 

1,844,339

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

16,261,680

 

 

$

16,128,977

 

 

$

15,789,879

 

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(In thousands, except share and per share data)

 

 

For the three months ended

 

March 31,
2023

 

December 31, 2022

 

September 30, 2022

 

June 30,
2022

 

March 31,
2022

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

 

 

Loans, including fees

$

136,835

 

 

$

129,665

 

 

$

114,871

 

 

$

99,576

 

 

$

91,125

 

Investment securities available for sale

 

3,455

 

 

 

3,062

 

 

 

1,904

 

 

 

1,282

 

 

 

1,355

 

Other interest and dividend earning assets

 

7,262

 

 

 

6,243

 

 

 

4,236

 

 

 

1,913

 

 

 

981

 

Total interest and dividend income

 

147,552

 

 

 

138,970

 

 

 

121,011

 

 

 

102,771

 

 

 

93,461

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

Deposits

 

39,876

 

 

 

29,855

 

 

 

23,582

 

 

 

17,214

 

 

 

16,896

 

Borrowed funds

 

38,408

 

 

 

33,958

 

 

 

21,920

 

 

 

14,255

 

 

 

13,824

 

Total interest expense

 

78,284

 

 

 

63,813

 

 

 

45,502

 

 

 

31,469

 

 

 

30,720

 

NET INTEREST INCOME

 

69,268

 

 

 

75,157

 

 

 

75,509

 

 

 

71,302

 

 

 

62,741

 

PROVISION (RELEASE) FOR CREDIT LOSSES

 

(1,000

)

 

 

(1,000

)

 

 

 

 

 

4,000

 

 

 

(1,000

)

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

70,268

 

 

 

76,157

 

 

 

75,509

 

 

 

67,302

 

 

 

63,741

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

 

 

Fees and service charges, net of amortization

 

1,924

 

 

 

1,936

 

 

 

2,220

 

 

 

2,742

 

 

 

2,568

 

Net gain (loss) on the sale of loans

 

579

 

 

 

17

 

 

 

(1,113

)

 

 

(51

)

 

 

113

 

Increase in and death benefits from bank owned life insurance contracts

 

2,123

 

 

 

2,238

 

 

 

2,761

 

 

 

2,090

 

 

 

2,222

 

Other

 

703

 

 

 

966

 

 

 

514

 

 

 

896

 

 

 

688

 

Total non-interest income

 

5,329

 

 

 

5,157

 

 

 

4,382

 

 

 

5,677

 

 

 

5,591

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

30,390

 

 

 

28,403

 

 

 

27,206

 

 

 

28,756

 

 

 

26,862

 

Marketing services

 

6,671

 

 

 

7,713

 

 

 

4,256

 

 

 

4,830

 

 

 

6,551

 

Office property, equipment and software

 

6,802

 

 

 

6,800

 

 

 

6,558

 

 

 

6,762

 

 

 

6,824

 

Federal insurance premium and assessments

 

3,488

 

 

 

2,761

 

 

 

2,722

 

 

 

2,351

 

 

 

2,276

 

State franchise tax

 

1,268

 

 

 

1,208

 

 

 

1,201

 

 

 

1,197

 

 

 

1,237

 

Other expenses

 

6,955

 

 

 

6,309

 

 

 

6,799

 

 

 

7,860

 

 

 

6,225

 

Total non-interest expense

 

55,574

 

 

 

53,194

 

 

 

48,742

 

 

 

51,756

 

 

 

49,975

 

INCOME BEFORE INCOME TAXES

 

20,023

 

 

 

28,120

 

 

 

31,149

 

 

 

21,223

 

 

 

19,357

 

INCOME TAX EXPENSE

 

4,115

 

 

 

5,927

 

 

 

5,716

 

 

 

4,076

 

 

 

3,512

 

NET INCOME

$

15,908

 

 

$

22,193

 

 

$

25,433

 

 

$

17,147

 

 

$

15,845

 

Earnings per share – basic and diluted

$

0.06

 

 

$

0.08

 

 

$

0.09

 

 

$

0.06

 

 

$

0.06

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

277,361,293

 

 

 

277,320,904

 

 

 

277,383,038

 

 

 

277,453,439

 

 

 

277,423,493

 

Diluted

 

278,499,145

 

 

 

278,462,937

 

 

 

278,505,233

 

 

 

278,555,759

 

 

 

278,819,539

 

Contacts

Jennifer Rosa (216) 429-5037

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