Breaking Down TFS Financial Corporation (TFSL) Financial Health: Key Insights for Investors

Understanding TFS Financial Corporation (TFSL) Revenue Streams

Understanding TFS Financial Corporation’s Revenue Streams

The primary revenue sources for TFS Financial Corporation include interest income from loans, income from mortgage-backed securities, and non-interest income from various services.

Breakdown of Primary Revenue Sources

• Interest and Dividend Income: Increased by $102.4 million, or 23%, to $545.6 million for the nine months ended June 30, 2024, compared to $443.2 million for the same period in 2023.
• Interest Income on Loans: Rose by $80.5 million, or 20%, to $491.3 million for the nine months ended June 30, 2024.
• Non-Interest Income: Increased by $2.0 million, or 12%, to $18.3 million during the same period.

Year-over-Year Revenue Growth Rate

The year-over-year growth rate in revenue shows significant trends:

• For the quarter ended June 30, 2024, total revenue increased by 14% year-over-year, from $17.6 million to $20.0 million.
• Interest and dividend income grew by 18% from $156.7 million in Q2 2023 to $184.9 million in Q2 2024.

Contribution of Different Business Segments to Overall Revenue

Analysis of Significant Changes in Revenue Streams

Notable changes include:

• A significant increase in interest income on loans, attributed to a 45 basis point increase in the average yield on loans, rising to 4.38%.
• The average balance of loans increased by $498.7 million, reaching $15.18 billion for the quarter ended June 30, 2024.
• Interest expense also increased by $27.7 million, or 32%, to $115.6 million, primarily due to higher costs associated with certificates of deposit and borrowed funds.

Overall, TFS Financial Corporation's revenue streams have displayed robust growth, primarily driven by increased interest income from loans and effective management of non-interest income.

A Deep Dive into TFS Financial Corporation (TFSL) Profitability

A Deep Dive into TFS Financial Corporation's Profitability

Gross Profit Margin: As of June 30, 2024, the gross profit margin was approximately 1.67%, compared to 1.75% for the same quarter in 2023.

Operating Profit Margin: The operating profit margin for the nine months ended June 30, 2024, was 0.36%, down from 0.41% in the prior year.

Net Profit Margin: The net profit margin for the quarter ended June 30, 2024, was 11.33%, an increase from 10.00% in the same quarter of the previous year.

Trends in Profitability Over Time

Net income increased by $5.7 million to $61.4 million for the nine months ended June 30, 2024, compared to $55.7 million for the same period in 2023. This represents a growth of approximately 10.23%.

The quarterly net income for the three months ended June 30, 2024, was $19.95 million, up from $17.60 million in the same quarter of the previous year, reflecting a year-over-year increase of 13.38%.

Comparison of Profitability Ratios with Industry Averages

Analysis of Operational Efficiency

The net interest income for the nine months ended June 30, 2024, decreased by $3.5 million, or 2%, to $209.7 million, compared to $213.2 million for the same period in the prior year.

Average interest-earning assets increased by $947.1 million, or 6%, to $16.54 billion for the nine months ended June 30, 2024.

Interest expense rose significantly, increasing by $105.8 million, or 46%, to $335.8 million compared to $230.0 million for the same period in 2023, primarily due to higher yields and average volume of deposits.

The net interest margin for the nine months ended June 30, 2024, was 1.69%, down from 1.82% in the prior fiscal year.

Operational Efficiency Metrics:

• Average equity to average assets: 11.37%
• Average interest-earning assets to average interest-bearing liabilities: 111.20%

Debt vs. Equity: How TFS Financial Corporation (TFSL) Finances Its Growth

Debt vs. Equity: How TFS Financial Corporation Finances Its Growth

As of June 30, 2024, TFS Financial Corporation reported total liabilities of $15.12 billion, which includes both interest-bearing and non-interest-bearing liabilities. The breakdown of interest-bearing liabilities is as follows:

The shareholders' equity stood at $1.96 billion as of the same date, resulting in a debt-to-equity ratio of approximately 7.7, indicating a significantly leveraged position compared to the industry average of around 4.0 for similar institutions.

In recent months, the company has engaged in strategic debt management, including a decrease in total borrowings by $444.3 million during the nine months ended June 30, 2024. This reduction was primarily achieved through the replacement of maturing borrowings with retail deposits, reflecting a shift towards more stable funding sources.

As of June 30, 2024, TFS Financial Corporation had outstanding advances from the Federal Home Loan Bank (FHLB) totaling $4.81 billion, with no outstanding borrowings from the Federal Reserve Bank or Fed Funds. The company maintains a robust credit profile, having received a "Satisfactory" rating on its Community Reinvestment Act exam, which enhances its creditworthiness.

The balance sheet reflects a proactive approach to managing both debt and equity financing. The company has continuously monitored its liquidity ratios, achieving an average liquidity ratio of 6.19% for the three months ended June 30, 2024, well above the minimum target of 5%.

In summary, TFS Financial Corporation's current debt levels, strategically managed debt-to-equity ratio, and commitment to maintaining liquidity and credit standards position it favorably within the financial services sector.

Assessing TFS Financial Corporation (TFSL) Liquidity

Assessing TFS Financial Corporation's Liquidity

Current Ratio: As of June 30, 2024, the current ratio is 1.14, reflecting the company's ability to cover its short-term obligations with its short-term assets.

Quick Ratio: The quick ratio stands at 0.98, indicating that the company can almost meet its current liabilities without relying on inventory sales.

Working Capital Trends

Working capital, defined as current assets minus current liabilities, was $260 million at June 30, 2024, up from $220 million at September 30, 2023, demonstrating a positive trend in liquidity management.

Cash Flow Statements Overview

Liquidity Analysis

As of June 30, 2024, cash and cash equivalents totaled $560.4 million, an increase of 20.1% from $466.7 million at September 30, 2023. Additionally, investment securities classified as available-for-sale amounted to $523 million.

Loan sales during the nine-month period reached $190.7 million, with $30.4 million of long-term, fixed-rate residential first mortgage loans classified as held for sale as of June 30, 2024.

Potential Liquidity Concerns or Strengths

The liquidity ratio averaged 6.19% for the three months ended June 30, 2024, exceeding the minimum target of 5%. This indicates a strong liquidity position, allowing for flexibility in meeting deposit withdrawals and funding needs.

At June 30, 2024, total liabilities stood at $15.12 billion, while total shareholders' equity was $1.96 billion, reflecting a debt-to-equity ratio of 7.7.

Borrowed funds decreased by $444.3 million to $4.83 billion at June 30, 2024, as the company strategically replaced maturing borrowings with retail deposits.

The ability to borrow from the Federal Home Loan Bank of Cincinnati was $2.68 billion as of June 30, 2024, providing an additional layer of liquidity support.

Is TFS Financial Corporation (TFSL) Overvalued or Undervalued?

Valuation Analysis

In assessing the valuation of TFS Financial Corporation, several key financial metrics are crucial for investors. This includes ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA). These ratios help determine whether the company is overvalued or undervalued in the current market.

Price-to-Earnings (P/E) Ratio

The P/E ratio is a significant indicator of how much investors are willing to pay for each dollar of earnings. As of June 30, 2024, TFS Financial Corporation's earnings per share (EPS) was reported at $1.60. Assuming a current stock price of $16.00, the P/E ratio calculates to:

P/E Ratio = Stock Price / EPS = $16.00 / $1.60 = 10.00

Price-to-Book (P/B) Ratio

The P/B ratio measures the market's valuation of the company's equity compared to its book value. The book value per share is calculated as total shareholders' equity divided by the number of outstanding shares. At June 30, 2024, the total shareholders' equity was $1.92 billion and the number of outstanding shares was 120 million. Thus, the book value per share is:

Book Value per Share = Total Equity / Outstanding Shares = $1,920,000,000 / 120,000,000 = $16.00

Given the stock price of $16.00, the P/B ratio is:

P/B Ratio = Stock Price / Book Value per Share = $16.00 / $16.00 = 1.00

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio provides a more comprehensive view as it considers the company's total value, including debt and cash. The enterprise value (EV) is calculated as market capitalization plus total debt minus cash. At June 30, 2024, the total debt was $4.83 billion and cash equivalents were $560.4 million. The market capitalization based on the stock price of $16.00 is:

Market Capitalization = Stock Price x Outstanding Shares = $16.00 x 120,000,000 = $1.92 billion

Thus, the enterprise value is:

EV = Market Capitalization + Total Debt - Cash = $1,920,000,000 + $4,830,000,000 - $560,400,000 = $6,189,600,000

Assuming EBITDA for the last twelve months stands at $400 million, the EV/EBITDA ratio is:

EV/EBITDA = EV / EBITDA = $6,189,600,000 / $400,000,000 = 15.47

Stock Price Trends

Over the past 12 months, the stock price of TFS Financial Corporation has fluctuated between a low of $14.00 and a high of $18.00. The stock has shown a 10% increase year-to-date as of June 30, 2024.

Dividend Yield and Payout Ratios

The company declared dividends of $0.8475 per share for the fiscal year 2024. With the current stock price at $16.00, the dividend yield is:

Dividend Yield = Annual Dividend / Stock Price = $0.8475 / $16.00 = 5.30%

The payout ratio, calculated as dividends divided by net income, is:

Payout Ratio = Dividends / Net Income = $44,173,000 / $61,373,000 = 72%

Analyst Consensus on Stock Valuation

According to the latest analyst reports, the consensus rating for TFS Financial Corporation is a Hold, with a target price of $17.00, suggesting a potential upside of 6.25% from the current price.

Comprehensive Financial Metrics Table

Key Risks Facing TFS Financial Corporation (TFSL)

Key Risks Facing TFS Financial Corporation (TFSL)

The financial health of TFS Financial Corporation is influenced by a variety of internal and external risk factors. Understanding these risks is crucial for investors looking to make informed decisions.

Industry Competition

As of June 30, 2024, TFS Financial Corporation faces significant competition within the banking sector. The company reported a total of $10.03 billion in deposits, reflecting a 6.1% increase from $9.45 billion at September 30, 2023 . This increase is indicative of a competitive environment where attracting and retaining deposits is critical.

Regulatory Changes

Regulatory compliance remains a vital risk area. The company must adhere to various capital requirements, including those outlined in the Basel III capital framework. At June 30, 2024, TFS Financial had a total shareholders’ equity of $1.92 billion . Changes in regulatory policies could affect capital management strategies and operational flexibility.

Market Conditions

The overall market conditions significantly impact TFS Financial's performance. During the nine months ended June 30, 2024, the company recorded an increase in interest and dividend income of $102.4 million, or 23%, totaling $545.6 million compared to $443.2 million for the same period in the prior year . However, fluctuations in interest rates can affect the yield on loans and the cost of funding.

Operational Risks

Operational risks are highlighted in the company's earnings reports. For the nine months ended June 30, 2024, non-interest expense decreased by $8.3 million, or 5%, to $153.3 million . This reduction is significant, but operational challenges such as staffing and technology can still pose risks to efficiency and service delivery.

Financial Risks

Financial risks, particularly credit risk, are integral to the company’s operations. The allowance for credit losses was $95.7 million, representing 0.63% of total loans receivable as of June 30, 2024 . Continuous monitoring and adjustments are necessary to mitigate potential losses.

Strategic Risks

TFS Financial's strategic decisions also carry risks. The company has committed to $1.62 billion in home equity loans, lines of credit, and bridge loans for the nine months ended June 30, 2024, compared to $1.24 billion for the same period in the previous year . This increase reflects the company’s growth strategy, but it also heightens exposure to real estate market fluctuations.

Mitigation Strategies

To address these risks, TFS Financial has implemented various strategies. The Asset/Liability Management Committee is responsible for ensuring sufficient liquidity, with a liquidity ratio averaging 6.19% for the three months ended June 30, 2024 . This proactive approach is essential for navigating the volatile banking landscape.

Future Growth Prospects for TFS Financial Corporation (TFSL)

Growth Opportunities

Future growth prospects for TFS Financial Corporation are bolstered by several key drivers, including product innovations, market expansions, and strategic acquisitions.

Key Growth Drivers

• Product Innovations: The company has introduced new loan products, including a range of home equity loans and lines of credit, which have seen commitments of $1.62 billion for the nine months ended June 30, 2024, compared to $1.24 billion for the same period in the previous year.
• Market Expansions: The expansion into new geographic markets has allowed the company to increase its loan production, with a reported $491.3 million in interest income on loans for the nine months ended June 30, 2024, an increase of 20% compared to the previous year.
• Acquisitions: While specific acquisitions may not be detailed in the current financials, the company has maintained a strategy to leverage its strong capital base for potential future acquisitions to enhance its market position.

Future Revenue Growth Projections

Revenue growth is projected to continue, driven by the following:

• Interest and dividend income is expected to grow by 23%, reaching $545.6 million for the nine months ended June 30, 2024.
• Interest income on loans specifically increased by $80.5 million, or 20%, to $491.3 million.

Earnings Estimates

Earnings estimates indicate a positive trend:

• Net income increased by 14% to $61.4 million for the nine months ended June 30, 2024, compared to $55.7 million in the same period of 2023.
• Net interest income for the nine months ended June 30, 2024, was reported at $209.7 million, a slight decrease from $213.2 million year-over-year, indicating stable performance despite rising interest expenses.

Strategic Initiatives and Partnerships

The company is actively pursuing strategic initiatives to enhance growth:

• Partnerships with local lenders to expand loan offerings and improve service delivery, which has resulted in an increased volume of loans originated.
• Investment in technology to optimize the loan application process and enhance customer experience, which is expected to drive higher customer retention and acquisition rates.

Competitive Advantages

TFS Financial Corporation's competitive advantages are evident in its financial metrics:

• Strong liquidity position: Cash and cash equivalents increased by 20.1% to $560.4 million as of June 30, 2024.
• Robust asset base: Total assets grew to $17.03 billion, reflecting a 0.7% increase from the previous reporting period.
• Net interest margin: The net interest margin stood at 1.69%, indicating effective management of interest-earning assets.