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 three months and nine months ended June 30, 2022.

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Chairman and CEO Marc A. Stefanski (Photo: Business Wire)

“Our focus continues to be on loan growth in this purchase-driven market,” said Chairman and CEO Marc A. Stefanski. “That concentration led to a 67% increase in loan growth compared to last quarter. Our 8% increase in net income over that same timeframe is supported by higher interest income and holding more of our originated loans in portfolio, and our interest rate spread has increased 15 basis points from 1.71% to 1.86% since the March quarter end.”

Highlights - Third Quarter Fiscal Year 2022

• Reported net income of $17.1 million

• Net interest rate spread improved to 1.86%

• Generated $766 million of loan growth, surpassing the $453 million of growth last quarter

• Maintained strong asset quality

• Paid a $0.2825 dividend per share

The Company reported net income of $17.1 million for the quarter ended June 30, 2022 compared to net income of $15.8 million for the quarter ended March 31, 2022. Net interest income increased during the quarter, partially offset by increases in the provision for credit losses and non-interest expense. Net income of $49.1 million was reported for the nine months ended June 30, 2022 compared to net income of $64.0 million for the nine months ended June 30, 2021. The change primarily consisted of a decrease in net gain on the sale of loans and an increase in the provision for loan losses, partially offset by an increase in net interest income.

Net interest income increased by $8.6 million, or 13.6%, to $71.3 million for the quarter ended June 30, 2022 from $62.7 million for the quarter ended March 31, 2022. Net interest income increased by $17.7 million, or 10.1%, to $191.9 million for the nine months ended June 30, 2022 from $174.2 million for the nine months ended June 30, 2021. The increases were primarily due to growth in the residential loan portfolio and higher interest rates. The yield increased for all categories of interest-earning assets compared to the previous quarter. The cost of funds decreased by two basis points as borrowings that matured during the periods were replaced with lower cost funding and the majority of maturing certificates of deposits either repriced at lower interest rates or migrated to lower-priced non-maturity deposits. The interest rate spread for the quarter ended June 30, 2022 was 1.86% compared to 1.71% for the quarter ended March 31, 2022 and 1.50% for the quarter ended June 30, 2021. The net interest margin was 1.97%, 1.82% and 1.63% for the quarters ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively.

During the quarter ended June 30, 2022, there was a $4.0 million provision to the allowance for credit losses compared to a $1.0 million release of provision for the quarter ended March 31, 2022. The total provision was $1.0 million for the nine months ended June 30, 2022 compared to a $7.0 million release of provision for the nine months ended June 30, 2021. Growth in both the core residential and equity line of credit portfolios was the primary reason for increases in provision. Net recoveries continued to curtail provision requirements. The allowance for credit losses was $97.6 million, or 0.70% of total loans receivable, at June 30, 2022 and included a $28.1 million liability for unfunded commitments. At September 30, 2021, the allowance for credit losses was $89.3 million, or 0.71% of total loans receivable, and included a $25.0 million liability for unfunded commitments. The Company recorded $2.7 million of net loan recoveries for each of the quarters ended June 30, 2022 and March 31, 2022, and recorded $7.3 million and $3.6 million of net loan recoveries for the nine months ended June 30, 2022 and June 30, 2021, respectively.

Total loan delinquencies decreased $0.7 million to $22.2 million, or 0.16% of total loans receivable, at June 30, 2022 from $22.9 million, or 0.17% of total loans receivable, at March 31, 2022 and decreased $2.5 million from $24.7 million at September 30, 2021. Non-accrual loans decreased $1.6 million to $37.7 million, or 0.27% of total loans, at June 30, 2022 from $39.3 million at March 31, 2022 and decreased $6.3 million from $44.0 million, or 0.35% of total loans, at September 30, 2021.

Non-interest income decreased $27.2 million to $19.4 million for the nine months ended June 30, 2022 from $46.6 million for the nine months ended June 30, 2021, almost entirely due to a $26.6 million decrease in net gain on the sale of loans, as well as a $0.6 million decrease in income related to bank owned life insurance. During the current fiscal year, market pricing for loans has been, for the most part, less favorable than in the prior fiscal year. There were $104.3 million of loans sold at a net gain of $2.2 million during the nine months ended June 30, 2022 compared to $634.0 million of loans sold at a net gain of $28.8 million during the nine months ended June 30, 2021.

Total assets increased by $1.35 billion, or 9.6%, to $15.41 billion at June 30, 2022 from $14.06 billion at September 30, 2021. The increase was mainly the result of new loan originations exceeding the total of loan sales and principal repayments and an increase in FHLB stock, partially offset by a decrease in cash and cash equivalents.

Cash and cash equivalents decreased $100.8 million, or 21%, to $387.5 million at June 30, 2022 from $488.3 million at September 30, 2021. The decrease can be attributed to the reinvestment of liquid assets into loan products.

The amount of Federal Home Loan Bank stock owned increased $26.1 million, or 16%, to $188.9 million at June 30, 2022 from $162.8 million at September 30, 2021, as a result of stock ownership requirements of the FHLB.

Loans held for investment, net of allowance and deferred loan expenses, increased $1.39 billion, or 11%, to $13.90 billion at June 30, 2022 from $12.51 billion at September 30, 2021, primarily due to the level of loans originated and held for investment. The residential core mortgage loan portfolio increased $1.08 billion, to $11.36 billion, and home equity loans and lines of credit increased $300.0 million, to $2.51 billion, during the nine months ended June 30, 2022. Total first mortgage loan originations were $1.17 billion for the quarter ended June 30, 2022 and $2.91 billion for each of the nine months ended June 30, 2022 and June 30, 2021. Purchase originations were $1.29 billion during the current fiscal year-to-date period compared to $686.0 million during the same period last year. New equity line of credit commitments were $1.52 billion and $1.17 billion, respectively, for the nine months ended June 30, 2022 and June 30, 2021.

Deposits increased $164.0 million, or 1.8%, to $9.16 billion at June 30, 2022 from $8.99 billion at September 30, 2021. The increase was the result of a $371.9 million increase in checking accounts and an $86.9 million increase in savings accounts, partially offset by a $251.8 million decrease in certificates of deposit ("CDs") and a $42.2 million decrease in money market deposit accounts for the nine months ended June 30, 2022. Total deposits included $489.8 million and $492.0 million of brokered CDs and $300.1 million and $0 of brokered checking accounts at June 30, 2022 and September 30, 2021, respectively. Brokered checking accounts were added during the quarter ended March 31, 2022, as an alternative source of funding in the management of interest rate risk.

Borrowed funds, all from the FHLB, increased $1.15 billion, or 37%, to $4.25 billion at June 30, 2022 from $3.09 billion at September 30, 2021. The increase was primarily used to fund loan growth. During the nine months ended June 30, 2022, additions included $1.46 billion of overnight advances and $400.0 million of long term advances, partially offset by principal repayments. Also, during the nine-month period, $700.0 million of 90 day advances and their related swap contracts matured and were paid off. The total balance of borrowed funds at June 30, 2022 consisted of $1.46 billion of overnight advances, $1.04 billion of term advances with a weighted average maturity of approximately 2.7 years and $1.75 billion of term advances, aligned with interest rate swap contracts, with a remaining weighted average effective maturity of approximately 2.6 years.

Borrowers' advances for insurance and taxes decreased by $41.6 million to $68.1 million at June 30, 2022 from $109.6 million at September 30, 2021. This change primarily reflects the cyclical nature of real estate tax payments that have been collected from borrowers and were remitted to various taxing agencies.

Total shareholders' equity increased $80.8 million, or 4.7%, to $1.81 billion at June 30, 2022 from $1.73 billion at September 30, 2021. Activity reflects $49.1 million of net income, a $72.8 million positive change in accumulated other comprehensive income and $7.2 million of positive adjustments related to our stock compensation and employee stock ownership plans, reduced by $43.6 million of quarterly dividends and $4.7 million in repurchases of common stock. The change in accumulated other comprehensive income is primarily due to a net positive change in unrealized gains and losses on swap contracts. During the nine months ended June 30, 2022, a total of 312,259 shares of our common stock were repurchased at an average cost of $15.08 per share. The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,578,820 shares remaining to be repurchased at June 30, 2022.

The Company declared and paid a quarterly dividend of $0.2825 per share during each of the first, second and third quarters of the current fiscal year. 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. At a July 12, 2022 special meeting of members of the MHC, the members (depositors and certain loan customers of the Association) voted to approve the MHC’s proposed waiver of dividends, aggregating up to $1.13 per share, 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 filed a notice with, and a request for non-objection from, the Federal Reserve Bank of Cleveland for the proposed dividend waivers. Both the non-objection from the Federal Reserve Bank and the timing of the non-objection are unknown at this point. 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 Association operates under the capital requirements for the standardized approach of the Basel III capital framework for U.S. banking organizations (“Basel III Rules”). At June 30, 2022 all of the Association's capital ratios substantially exceed the amounts required for the Association to be considered "well capitalized" for regulatory capital purposes. The Association’s Tier 1 leverage ratio was 10.63%, its Common Equity Tier 1 and Tier 1 ratios, as calculated under the fully phased-in Basel III Rules, were each 18.38% and its total capital ratio was 18.96%. Additionally, the Company's Tier 1 leverage ratio was 12.11%, its Common Equity Tier 1 and Tier 1 ratios were each 20.94% and its total capital ratio was 21.52%. The current capital ratios of the Association reflect the dilutive impact of $56.0 million of dividends that the Association paid to the Company, its sole shareholder, during the quarter ended December 31, 2021. Because of its intercompany nature, these dividends had no impact on the Company's capital ratios or its consolidated statement of condition.

Presentation slides as of June 30, 2022 will be available on the Company's website, www.thirdfederal.com, under the Investor Relations link within the "Recent Presentations" menu, beginning July 29, 2022. 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 celebrated its 80^th anniversary in May, 2018. 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, five lending offices in Central and Southern Ohio, and 16 full service branches throughout Florida. As of June 30, 2022, the Company’s assets totaled $15.41 billion.

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