TFS Financial (TFSL) - 2024 Q3 - Quarterly Report

Capital and Liquidity - As of June 30, 2024, the Company's Common Equity Tier 1 Capital ratio is 18.82%, exceeding regulatory requirements for being "Well Capitalized" [159] - The Company has a combined additional borrowing capacity of $3.77 billion as of June 30, 2024, from various sources [160] - The Company maintains stable core deposits and adequate access to contingent sources of liquidity [158] - As of June 30, 2024, total deposits amounted to $10.03 billion, including $1.22 billion in brokered CDs, while borrowings totaled $4.83 billion [187] - The company has the ability to borrow a maximum of $7.48 billion from the FHLB of Cincinnati as of June 30, 2024 [187] - The liquidity ratio averaged 6.19% for the three months ended June 30, 2024, exceeding the minimum target of 5% [259] - Cash and cash equivalents totaled $560.4 million at June 30, 2024, representing a 20% increase from $466.7 million at September 30, 2023 [260] Loan Portfolio and Performance - The total first mortgage loan originations and purchases amounted to $598.726 million for the period [168] - The balance of first mortgage loans held for investment is $11.588 billion as of June 30, 2024 [170] - Adjustable-rate mortgage (ARM) production accounted for 21.5% of total first mortgage loan originations [168] - Fixed-rate loans greater than 10 years represent 53.4% of the total first mortgage loans held for investment [170] - Home equity loans and lines of credit total $3,588,820,000, yielding 7.43% [172] - The total loans receivable amount to $15,208,831,000, with a yield of 4.52% [172] - The average credit score for first mortgage loans originated during the current quarter was 777, with an average loan-to-value (LTV) ratio of 71% [183] - As of June 30, 2024, only $28.5 million, or 0.2%, of loans originated or purchased were delinquent [183] - The total residential Core loan portfolio was $11,545,509 thousand as of June 30, 2024, representing 75.9% of total loans [206] - The total balance of adjustable-rate mortgages (ARMs) scheduled for interest rate reset is $4,497,753,000 [171] - The total principal balance of home equity lines of credit in the draw period was $3.05 billion, with a delinquency rate of 0.10% [215] - Total loans seriously delinquent (90 days or more) were 0.10% of total net loans at June 30, 2024, compared to 0.09% at September 30, 2023 [219] Income and Expenses - Net income increased by $2.4 million, or 14%, to $20.0 million for the quarter ended June 30, 2024, compared to $17.6 million for the same quarter in 2023 [235] - Interest and dividend income rose by $28.2 million, or 18%, to $184.9 million during the current quarter, up from $156.7 million in the same quarter last year [236] - Interest income on loans increased by $22.0 million, or 15%, to $166.3 million, attributed to a 45 basis point rise in average yield to 4.38% [237] - Interest expense increased by $27.7 million, or 32%, to $115.6 million, primarily due to higher costs of certificates of deposit and borrowed funds [238] - Non-interest income increased by $0.4 million, or 7%, to $6.2 million during the current quarter compared to $5.8 million for the quarter ended June 30, 2023 [243] - Net interest income decreased by $3.5 million, or 2%, to $209.7 million during the nine months ended June 30, 2024, from $213.2 million in the prior year [252] - Non-interest expense decreased by $8.3 million, or 5%, to $153.3 million during the nine months ended June 30, 2024, driven by a reduction in marketing expenses [256] Credit Losses and Allowances - The allowance for credit losses on loans at the end of the period was $67.529 million, compared to $74.803 million at the end of the previous period [195] - The total allowance for credit losses increased to $95.7 million as of June 30, 2024, up from $94.8 million at March 31, 2024 [199] - The allowance for credit losses was $95.7 million, or 0.63% of total loans receivable, at June 30, 2024 [227] - The total charge-offs for the nine months ended June 30, 2024, were $1.014 million, a decrease from $1.099 million for the same period in 2023 [195] - The allowance for credit losses on loans to non-accrual loans at the end of the period was 190.93%, down from 244.28% in the previous period [195] Interest Rate Risk Management - The Company emphasizes a multi-disciplined risk management program, including stress testing and scenario analysis [161] - The Company promotes adjustable-rate loans and shorter-term fixed-rate loans to mitigate interest rate risk [165] - The Company manages interest rate risk through established risk parameter limits and oversight by the Board of Directors [274] - The simulation model used by the Company incorporates extensive regression analytics to assess interest rate risk and is subject to continuous refinement [284] - As of June 30, 2024, a 200 basis point increase in interest rates would result in a 23.46% decrease in the Company's Economic Value of Equity (EVE), amounting to a reduction of $332,249 thousand [277] - The Company's EVE at 0 basis points is estimated at $1,416,123 thousand, with an EVE ratio of 9.00% [277] - A 100 basis point decrease in interest rates would increase the Company's EVE by 7.75%, resulting in an increase of $109,756 thousand [277] - The estimated Earnings at Risk (EaR) for the Company would decrease by 1.00% over the next 12 months with a 200 basis point increase in market interest rates [285] Shareholder Equity and Dividends - Total shareholders' equity decreased by $12.3 million, or 0.6%, to $1.92 billion at June 30, 2024, from $1.93 billion at September 30, 2023 [232] - The Association plans to continue dividend payments and strategic stock repurchases as part of its future capital deployment activities [273]