TFS Financial (TFSL) - 2025 Q2 - Quarterly Report

Capital and Liquidity - As of March 31, 2025, the company's Common Equity Tier 1 Capital ratio is 18.13%, exceeding the regulatory requirement for being considered "Well Capitalized" [149] - The Association's Tier 1 (leverage) capital ratio was 10.04% as of March 31, 2025, indicating a well-capitalized status [177] - The company exceeded all regulatory capital requirements to be considered "Well Capitalized" as of March 31, 2025, with total capital to risk-weighted assets at 17.58% [282] - The liquidity ratio averaged 5.60% for the three months ended March 31, 2025, exceeding the minimum target of 5% [268] - The company has a combined additional borrowing capacity of $3.06 billion as of March 31, 2025, from various sources [151] - As of March 31, 2025, the company had the ability to borrow a maximum of $6.67 billion from the FHLB of Cincinnati and $565.0 million from the FRB-Cleveland Discount Window [179] Loan Portfolio and Performance - As of March 31, 2025, total loans receivable amounted to $15.37 billion, with a weighted average yield of 4.60% [163] - The balance of first mortgage loans held for investment is $11.03 billion as of March 31, 2025, compared to $11.43 billion as of September 30, 2024 [161] - The company’s ARM loans (primarily Smart Rate) account for 37.7% of the total first mortgage loans held for investment as of March 31, 2025 [161] - The average credit score for first mortgage loans originated during the current quarter was 777, with an average loan-to-value (LTV) ratio of 68% [175] - The total residential Core loan portfolio amounted to $10,994.9 million, representing 71.6% of total loans as of March 31, 2025 [199] - The home equity lines of credit portfolio increased by 10.5% to $3,671.4 million as of March 31, 2025 [199] - The total unpaid principal balance of home equity loans was $643.9 million, and home equity lines of credit amounted to $3.67 billion [205] - The total home equity lines of credit in the draw period had a principal balance of $3.61 billion, with 0.12% delinquent for 90 days or more [207] Delinquencies and Credit Losses - As of March 31, 2025, 0.2% of loans originated or acquired, totaling $31.6 million, were delinquent [175] - The percentage of loans seriously delinquent (90 days or more) was 0.10% of total net loans as of March 31, 2025, showing a slight increase from 0.09% at September 30, 2024 [213] - The total allowance for credit losses on loans was $70.5 million as of March 31, 2025, compared to $70.0 million at September 30, 2024 [197] - The allowance for credit losses increased to $99.9 million as of March 31, 2025, from $97.8 million at December 31, 2024 [193] - The total charge-offs for the six months ended March 31, 2025, were $597,000, compared to $751,000 for the same period in 2024 [192] - The total allowance for home equity lines of credit increased by 7.0% to $19.5 million, from $18.2 million at December 31, 2024 [195] Income and Expenses - Net income increased by $0.3 million, or 1%, to $21.0 million for the quarter ended March 31, 2025 [236] - Interest and dividend income increased by $2.5 million, or 1%, to $186.0 million during the current quarter [238] - Non-interest income rose by $1.4 million, or 24%, to $7.1 million, primarily due to increases in net gain on loan sales and cash surrender value from bank-owned life insurance contracts [247] - Non-interest expense decreased by $1.1 million, or 2%, to $51.1 million, driven by reductions in marketing and other operating expenses [248] - Net interest income increased by $0.6 million to $72.0 million, mainly due to an increase in the yield of interest-earning assets [243] Interest Rate Sensitivity - The estimated Economic Value of Equity (EVE) for TFS Financial Corporation would decrease by 27.19% to $993,310 in the event of a 200 basis point increase in interest rates [297] - For Third Federal Savings and Loan Association, a 200 basis point increase in interest rates would result in a 31.32% decrease in EVE to $812,351 [299] - The estimated Net Interest Income (NII) for TFS Financial Corporation would increase by 11.85% to $324,206 with a 200 basis point increase in interest rates [297] - The estimated NII for Third Federal Savings and Loan Association would increase by 11.10% to $312,510 under the same interest rate scenario [299] - The simulation model used for EVE and NII sensitivity analyses incorporates numerous assumptions regarding market interest rates, loan prepayments, and deposit decay [290] Operational Efficiency - The ratio of annualized non-interest expense to average assets was 1.16% for the six months ended March 31, 2025, down from 1.20% for the same period in 2024 [181] - Average deposits per full-time employee were $11.1 million as of March 31, 2025, with average assets per full-time employee at $18.2 million [181] - Non-interest expense decreased by $3.5 million, or 3%, to $99.0 million during the six months ended March 31, 2025, from $102.5 million in the prior year [264] Market and Strategic Initiatives - The company actively markets home equity lines of credit to manage interest rate risk and increase loan portfolio yield [165] - The company has extended its lending activities to 25 other states and the District of Columbia to reduce concentration risk in Ohio and Florida [176] - The company plans to continue dividend payments and strategic stock repurchases as part of its future capital deployment activities [285]