TFS Financial Reports Second Quarter and 2025 Fiscal Year-To-Date Results

TFS Financial Corporation (NASDAQ:TFSL) (the "Company", "we", "our"), 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, 2025.

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Chairman and CEO Marc A. Stefanski

"Our second quarter earnings reflect our ability to successfully operate in any economic climate," said Chairman and CEO Marc A. Stefanski. "My optimism for this year continues to be reinforced by the success we have seen so far, and that our fiscal earnings to date this year are the best we've seen since 2021. Our net interest margin increased nearly 10 basis points to 1.75% and commitments to originate and acquire first mortgages and equity loans and lines of credit have increased 40% over last quarter. We continue to exceed the threshold to be considered well-capitalized, our Tier 1 leverage ratio at 10.92% improved by three basis points compared to last quarter."

The Company reported net income of $21.0 million for the quarter ended March 31, 2025 following $22.4 million of net income for the quarter ended December 31, 2024. The change in net income, when comparing the two quarters, was mainly attributable to increases in the provision for credit losses and non-interest expense, partially offset by an increase in net interest income.

Net interest income increased $3.7 million, or 5.4%, to $72.0 million for the quarter ended March 31, 2025 from $68.3 million for the quarter ended December 31, 2024. The increase was primarily due to a 14 basis point decrease in the weighted average cost of interest-bearing liabilities. The interest rate spread for the quarter ended March 31, 2025 increased 11 basis points from the previous quarter, to 1.45%, and the net interest margin increased nine basis points during the quarter to 1.75%.

The Company recorded a provision for credit losses of $1.5 million for the quarter ended March 31, 2025 compared to a $1.5 million release of provision for the quarter ended December 31, 2024. The total allowance for credit losses increased $2.2 million during the quarter to $99.9 million, or 0.65% of total loans receivable, from $97.8 million, or 0.64% of total loans receivable, at December 31, 2024. The increase occurred mainly in the allowance for unfunded commitments, included in other liabilities, which increased $2.2 million, to $29.4 million at March 31, 2025, from $27.2 million at December 31, 2024. This increase was primarily due to a 40% increase in commitments to originate and acquire loans, including residential mortgage loans and equity loans and lines of credit. Net recoveries were $0.7 million for the quarter ended March 31, 2025 compared to $1.4 million for the previous quarter.

Total non-interest expense increased $3.2 million, or 6.7%, to $51.1 million for the quarter ended March 31, 2025 from $47.9 million for the quarter ended December 31, 2024. The change included increases of $1.1 million in salaries and employee benefits, $1.0 million in marketing services and $0.8 million in office property, equipment and software, primarily data processing expense. The increase in salaries and employee benefits was primarily the result of wage increases and an increase in staffing, after a period of natural attrition, and was partially offset by a decrease in group health insurance costs.

Total assets increased by $54.1 million to $17.11 billion at March 31, 2025 from $17.06 billion at December 31, 2024. The increase was mainly due to increases in investment securities available for sale and loans held for investment.

Investment securities available for sale increased $26.2 million, or 5%, to $533.9 million at March 31, 2025 from $507.7 million at December 31, 2024 primarily due to purchases exceeding cash flows from security repayments and maturities during the quarter.

Loans held for investment, net of allowance and deferred loan expenses, increased $17.2 million, or less than 1%, to $15.36 billion at March 31, 2025 from $15.34 billion at December 31, 2024. During the quarter ended March 31, 2025, the combined balances of home equity loans and lines of credit increased $193.7 million to $4.32 billion and residential core mortgage loans decreased $175.9 million to $10.99 billion. Repayments and sales of residential mortgage loans held for investment outpaced originations during the quarter ended March 31, 2025. Loans held for sale increased $5.0 million to $5.8 million at March 31, 2025, from $0.8 million at December 31, 2024, due to an increase in both loans committed to future delivery contracts with Fannie Mae and loans intended for future sale.

Deposits increased $190.4 million, or 2%, to $10.40 billion at March 31, 2025, compared to $10.21 billion at December 31, 2024, consisting of a $227.7 million increase in primarily retail certificates of deposit ("CDs") and decreases of $17.8 million in money market deposit accounts, $16.6 million in checking accounts, and $1.2 million in savings accounts. The increase in retail deposits was achieved through competitive rate and enhanced product offerings, supported by marketing efforts.

Borrowed funds decreased $69.0 million to $4.59 billion at March 31, 2025 from $4.66 billion at December 31, 2024, as maturing borrowings were replaced with retail deposits.

Borrowers' advances for insurance and taxes decreased by $39.7 million to $100.3 million at March 31, 2025 from $140.0 million at December 31, 2024. This change primarily reflects the cyclical nature of real estate tax payments that were collected from borrowers and remitted to various taxing agencies.

Fiscal 2025 Year-To-Date

The Company reported net income of $43.4 million for the six months ended March 31, 2025, an increase of $2.0 million compared to net income of $41.4 million for the six months ended March 31, 2024. The change mainly consisted of an increase in non-interest income and a decrease in non-interest expense, partially offset by an increase in the provision for credit losses.

Net interest income decreased less than 1% to $140.4 million for the six months ended March 31, 2025 compared to $140.5 million for the six months ended March 31, 2024. The interest rate spread was 1.39% for the six months ended March 31, 2025, a one basis point decrease from 1.40% for the six months ended March 31, 2024. The net interest margin was 1.70% for both the six months ended March 31, 2025 and March 31, 2024.

During the six months ended March 31, 2025, there was no provision for credit losses, as provisions recorded during the period were offset by releases of provision. Comparatively, there was a $2.0 million release of provision for the six months ended March 31, 2024. Net loan recoveries totaled $2.1 million for the six months ended March 31, 2025 and $2.3 million for the same period in the prior year.

The total allowance for credit losses at March 31, 2025 was $99.9 million, or 0.65% of total loans receivable, compared to $97.8 million, or 0.64% of total loans receivable, at September 30, 2024. The $2.1 million increase was primarily related to an increase in the equity lines of credit portfolio and undrawn balances, as well as an increase in commitments to originate and acquire loans, including residential mortgage loans and equity loans and lines of credit. The allowance for credit losses included $29.4 million and $27.8 million in liabilities for unfunded commitments at March 31, 2025 and September 30, 2024, respectively. Total loan delinquencies decreased to $31.6 million, or 0.20% of total loans receivable, at March 31, 2025 from $31.9 million, or 0.21% of total loans receivable, at September 30, 2024. Non-accrual loans totaled $37.0 million, or 0.24% of total loans receivable, at March 31, 2025, compared to $33.6 million, or 0.22% of total loans receivable, at September 30, 2024.

Total non-interest income increased $1.6 million, or 13.3%, to $13.6 million for the six months ended March 31, 2025, from $12.0 million for the six months ended March 31, 2024, primarily due to a $1.4 million increase in net gain on the sale of loans.

Total non-interest expense decreased $3.5 million, or 3.4%, to $99.0 million for the six months ended March 31, 2025, from $102.5 million for the six months ended March 31, 2024. The change included decreases of $0.3 million in salaries and employee benefits, $1.2 million in marketing costs, $0.5 million in federal ("FDIC") insurance premiums and $1.5 million in other expenses. The decrease in other expenses was mainly due to an $0.8 million positive change in net periodic benefit, the result of actuarial calculations on the defined benefit plan, and a $0.7 million decrease in appraisal and other third party costs related to home equity line of credit originations.

Total assets increased by $20.9 million, or less than 1%, to $17.11 billion at March 31, 2025 from $17.09 billion at September 30, 2024. The increase was mainly the result of an increase in loans held for investment partially offset by a decrease in loans held for sale.

Loans held for investment, net of allowance and deferred loan expenses, increased $38.1 million, or less than 1%, to $15.36 billion at March 31, 2025 from $15.32 billion at September 30, 2024. Home equity loans and lines of credit increased $430.0 million to $4.32 billion and the residential core mortgage loan portfolio decreased $390.3 million to $10.99 billion. The decrease in residential mortgage loans included $157.5 million of loans sold or committed for sale. Loans held for sale decreased $12.0 million to $5.8 million at March 31, 2025, from $17.8 million at September 30, 2024, due to a decrease in both loans committed to future delivery contracts with Fannie Mae and loans intended for future sale. Loans originated and acquired during the six months ended March 31, 2025 included $376.0 million of residential mortgage loans and $1.20 billion of equity loans and lines of credit compared to $408.8 million of residential mortgage loans and $915.4 million of equity loans and lines of credit originated or acquired during the six months ended March 31, 2024. The volume of mortgage loan originations remains low overall due to a relatively high interest rate environment, resulting in minimal refinance activity. New mortgage loans included 87% purchases and 12% adjustable rate loans during the six months ended March 31, 2025.

Deposits increased $202.6 million, or 2%, to $10.40 billion at March 31, 2025 from $10.20 billion at September 30, 2024. The increase was the result of a $230.1 million increase in primarily retail certificates of deposit and a $12.1 million increase in savings accounts, partially offset by a $2.4 million decrease in checking accounts and a $33.3 million decrease in money market deposit accounts. There was $1.03 billion in brokered deposits at March 31, 2025 compared to $1.22 billion at September 30, 2024. The increase in retail deposits was achieved through competitive rate and enhanced product offerings, supported by marketing efforts.

Borrowed funds decreased $205.5 million, or 4%, to $4.59 billion at March 31, 2025 from $4.79 billion at September 30, 2024. The decrease was primarily due to a decrease in maturing term advances, and to a lesser extent, advances aligned with interest rate swap contracts, partially offset by an increase in overnight advances. The total balance of borrowed funds at March 31, 2025, all from the FHLB, included $139.0 million of overnight advances, $1.56 billion of term advances with a weighted average maturity of approximately 1.8 years, and $2.88 billion of term advances aligned with interest rate swap contracts, with a remaining weighted average effective maturity of approximately 2.9 years. Additional borrowing capacity at the FHLB was $2.10 billion at March 31, 2025.

Total shareholders' equity increased $34.0 million, or 2%, to $1.90 billion at March 31, 2025 from $1.86 billion at September 30, 2024. Activity reflects $43.4 million of net income, dividends paid of $29.7 million, a $16.4 million net increase in accumulated other comprehensive income and net positive adjustments of $3.9 million related to our stock compensation and employee stock ownership plans. The change in accumulated other comprehensive income was primarily due to a net increase in unrealized gains on swap contracts. There were no stock repurchases during the six months ended March 31, 2025. The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,191,951 shares authorized for repurchase at March 31, 2025.

The Company declared and paid a quarterly dividend of $0.2825 per share during each of the first two fiscal quarters of 2025. 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 9, 2024 member vote and subsequent non-objection, 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 9, 2025), including a total of up to $0.2825 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 for U.S. banking organizations ("Basel III Rules"). At March 31, 2025 all of the Company's capital ratios exceed the amounts required for the Company to be considered "well capitalized" for regulatory capital purposes. The Company's Tier 1 leverage ratio was 10.92%, its Common Equity Tier 1 and Tier 1 ratios were each 18.18% and its total capital ratio was 19.04%.

Presentation slides as of March 31, 2025 will be available on the Company's website, thirdfederal.com, under the Investor Relations link under the "Latest Presentation" heading, beginning May 1, 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 while creating value for our customers, communities, associates and shareholders. It became part of a public company in 2007 and celebrated its 85^th 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. As of March 31, 2025, the Company's assets totaled $17.11 billion.

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TFS Financial Corporation

Jennifer Rosa (216) 429-5037