TFS Financial (US:TFSL)2024-02-08 20:13Capital and Liquidity - As of December 31, 2023, the company's Common Equity Tier 1 Capital ratio is 19.02%, exceeding the regulatory requirement for being classified as "Well Capitalized" [146]. - The company has a combined additional borrowing capacity exceeding $3.03 billion as of December 31, 2023, from various sources [148]. - The company maintains a multi-disciplined risk management program that includes stress testing and scenario analysis for various financial risks [149]. - The company has retained ample liquidity and diverse funding sources, with a focus on maintaining access to adequate liquidity to support growth [151]. - The company’s Tier 1 (leverage) capital totaled $1.83 billion, or 10.78% of net average assets, as of December 31, 2023 [153]. - Deposits totaled $9.92 billion, including $1.49 billion of brokered CDs, while borrowings amounted to $5.03 billion as of December 31, 2023 [174]. - The liquidity ratio averaged 6.07% for the three months ended December 31, 2023, exceeding the minimum target of 5% [254]. - The Company had $167.0 million readily available in cash and a demand loan from the Association to support its operations as of December 31, 2023 [270]. Loan Performance and Credit Quality - For the three months ended December 31, 2023, total first mortgage loan originations and purchases amounted to $272.95 million, a decrease from $485.47 million in the same period of 2022 [157]. - The balance of first mortgage loans held for investment as of December 31, 2023, is $11.99 billion, down from $12.12 billion as of September 30, 2023 [157]. - The average credit score for first mortgage loans originated in the current quarter was 776, with an average loan-to-value (LTV) ratio of 71% [171]. - The total allowance for credit losses decreased to $94.6 million as of December 31, 2023, from $104.8 million at September 30, 2023, primarily due to the adoption of ASU 2022-02 [189]. - The allowance for credit losses on loans to non-accrual loans at the end of the period was 206.25% [185]. - Total loans seriously delinquent (90 days or more) were 0.10% of total net loans at December 31, 2023, up from 0.09% at September 30, 2023 [213]. - Total non-performing assets increased to $34.57 million at December 31, 2023, from $33.36 million at September 30, 2023 [216]. Interest Income and Expense - Interest and dividend income increased by $38.2 million, or 27%, to $177.2 million during the current quarter compared to $139.0 million during the same quarter in the prior year [241]. - Interest income on loans rose by $32.3 million, or 25%, to $162.0 million, driven by a 66 basis point increase in the average yield on loans to 4.26% [242]. - Interest expense increased by $44.3 million, or 69%, to $108.1 million during the current quarter, primarily due to higher costs of certificates of deposit and borrowed funds [243]. - Net interest income decreased by $6.1 million to $69.1 million compared to $75.2 million for the same quarter last year, with average interest-earning assets increasing by $972.8 million, or 6% [246]. Asset Management - Total loans receivable as of December 31, 2023, amounted to $15.24 billion, with a yield of 4.34% [160]. - The total residential core loans reached $11,949.5 million, representing 78.4% of total loans, down from 79.4% in the previous quarter and 80.3% a year ago [196]. - Home equity loans and lines of credit increased to $3,197.7 million, accounting for 21.0% of total loans, compared to 19.9% in the previous quarter and 18.5% a year ago [196]. - The unpaid principal balance of the home equity loans and lines of credit portfolio included $454.0 million in home equity loans and $2.74 billion in home equity lines of credit as of December 31, 2023 [203]. - The total construction loans decreased to $40.7 million, down from $48.4 million in the previous quarter and significantly lower than $113.8 million a year ago [196]. Shareholder Equity and Dividends - The total shareholders' equity decreased by $60.6 million, or 3.1%, to $1.87 billion at December 31, 2023, reflecting net income and dividends paid [234]. - The Company waived its right to receive $0.2825 per share dividend payments on September 26, 2023, and December 13, 2023, as approved by its members [274]. - The Company plans to continue dividend payments, support asset growth, and strategic stock repurchases in the future [275]. Risk Management - The company promotes adjustable-rate mortgages, with ARM production accounting for 24.1% of total first mortgage loan originations in Q4 2023, down from 33.5% in Q4 2022 [157]. - The company offers a "Smart Rate" adjustable-rate mortgage that provides improved interest rate risk characteristics compared to traditional fixed-rate loans [154]. - The Company’s interest rate risk management strategy includes the establishment of risk parameter limits and oversight by the Board of Directors [276]. - The Economic Value of Equity (EVE) model uses 150 different interest rate paths to compute market value at the account level, while EaR uses the implied forward curve for interest income/expense calculations [292]. - Specific policy limits for interest rate risk have been established and approved by the Association's Board of Directors, serving as benchmarks for evaluation [294].