TFS Financial (TFSL)

Retail banking company TFS Financial (NASDAQ:TFSL) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 6% year on year to $80.54 million. Its non-GAAP profit of $0.08 per share was in line with analysts’ consensus estimates.

Company Overview

Tracing its roots back to 1938 during the Great Depression era when savings and loans were vital to homeownership, TFS Financial (NASDAQ:TFSL) is a savings and loan holding company that provides mortgage lending, deposit services, and other retail banking products primarily in Ohio and Florida.

Thrifts & Mortgage Finance institutions operate by accepting deposits and extending loans primarily for residential mortgages, earning revenue through interest rate spreads (difference between lending rates and borrowing costs) and origination fees. The industry benefits from demographic tailwinds as millennials enter prime homebuying age, technological advancements streamlining the loan approval process, and potential interest rate stabilization improving affordability. However, significant headwinds include net interest margin compression during rate volatility, increased competition from fintech disruptors offering digital-first experiences, mounting regulatory compliance costs, and potential housing market corrections that could impact loan portfolios and default rates.

TFS Financial competes with large national banks like JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC), regional banks such as KeyCorp (NYSE:KEY) and Fifth Third Bancorp (NASDAQ:FITB), and other savings and loan institutions like New York Community Bancorp (NYSE:NYCB) and Washington Federal (NASDAQ:WAFD).

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Over the last five years, TFS Financial grew its revenue at a tepid 1.6% compounded annual growth rate. This was below our standards and is a tough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. TFS Financial’s recent performance shows its demand has slowed as its revenue was flat over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, TFS Financial’s revenue grew by 6% year on year to $80.54 million, missing Wall Street’s estimates.

Net interest income made up 88.4% of the company’s total revenue during the last five years, meaning TFS Financial barely relies on non-interest income to drive its overall growth.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for TFS Financial, its EPS declined by 1.9% annually over the last five years while its revenue grew by 1.6%. This tells us the company became less profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For TFS Financial, EPS didn’t budge over the last two years, but at least that was better than its five-year trend. We hope its earnings can grow in the coming years.

In Q2, TFS Financial reported adjusted EPS of $0.08, up from $0.07 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects TFS Financial’s full-year EPS of $0.29 to grow 10.3%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. On the other hand, EPS is often distorted by mergers and flexible loan loss accounting. TBVPS provides clearer performance insights.

TFS Financial’s TBVPS grew at a sluggish 2.5% annual clip over the last five years. TBVPS growth has also decelerated recently as it was flat over the last two years at roughly $6.77 per share.

Over the next 12 months, Consensus estimates call for TFS Financial’s TBVPS to remain flat at roughly $6.83, a disappointing projection.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, TFS Financial has averaged a Tier 1 capital ratio of 18.6%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, TFS Financial has averaged an ROE of 4.3%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

It was encouraging to see TFS Financial beat analysts’ net interest income expectations this quarter. On the other hand, its EPS was in line and its revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $13.89 immediately following the results.

Updated: December 3, 2025 at 11:37 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own TFS Financial, you should also grasp the company’s longer-term business quality and valuation.

TFS Financial falls short of our quality standards. First off, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its net interest margin limits its operating profit potential compared to other banks that can earn more, all else equal..

TFS Financial’s P/B ratio based on the next 12 months is 2.1x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $14 on the company (compared to the current share price of $14.10).