TFS Financial Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________

FORM 10-Q

________________________________



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-33390

________________________________________

TFS FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

________________________________________



United States of America		52-2054948
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

7007 Broadway Avenue
Cleveland,	Ohio	44105
(Address of Principal Executive Offices)		(Zip Code)

(216) 441-6000

Registrant’s telephone number, including area code:

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

________________________________________

Securities registered pursuant to Section 12(b) of the Act



Title of each class	Trading Symbol(s)	Name of each exchange in which registered
Common Stock, par value $0.01 per share	TFSL	The NASDAQ Stock Market, LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	o	Smaller Reporting Company	☐

Emerging Growth Company	☐

If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of May 13, 2020, there were 280,142,927 shares of the Registrant’s common stock, par value $0.01 per share, outstanding, of which 227,119,132 shares, or 81.1% of the Registrant’s common stock, were held by Third Federal Savings and Loan Association of Cleveland, MHC, the Registrant’s mutual holding company.

Table of Contents

TFS Financial Corporation

INDEX



		Page

	Glossary of Terms	3

PART l – FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Statements of Condition
	March 31, 2020 and September 30, 2019	4

	Consolidated Statements of Income
	Three and Six Months Ended March 31, 2020 and 2019	5

	Consolidated Statements of Comprehensive Income
	Three and Six Months Ended March 31, 2020 and 2019	6

	Consolidated Statements of Shareholders’ Equity
	Three and Six Months Ended March 31, 2020 and 2019	7

	Consolidated Statements of Cash Flows
	Six Months Months Ended March 31, 2020 and 2019	9

	Notes to Unaudited Interim Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68

Item 4.	Controls and Procedures	72

Part II — OTHER INFORMATION

Item 1.	Legal Proceedings	72

Item 1A.	Risk Factors	72

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 3.	Defaults Upon Senior Securities	74

Item 4.	Mine Safety Disclosures	74

Item 5.	Other Information	74

Item 6.	Exhibits	75

SIGNATURES		76

Table of Contents

GLOSSARY OF TERMS

TFS Financial Corporation provides the following list of acronyms and defined terms as a tool for the reader. The acronyms and defined terms identified below are used throughout the document.



ACT: Tax Cuts and Jobs Act	FHLB: Federal Home Loan Bank
AOCI: Accumulated Other Comprehensive Income	FICO: Financing Corporation
ARM: Adjustable Rate Mortgage	FRB-Cleveland: Federal Reserve Bank of Cleveland
ASC: Accounting Standards Codification	Freddie Mac: Federal Home Loan Mortgage Corporation
ASU: Accounting Standards Update	FRS: Board of Governors of the Federal Reserve System
Association: Third Federal Savings and Loan	GAAP: Generally Accepted Accounting Principles
Association of Cleveland	Ginnie Mae: Government National Mortgage Association
BOLI: Bank Owned Life Insurance	GVA: General Valuation Allowances
CARES Act: Coronavirus Aid, Relief and Economic Security	HPI: Home Price Index
Act	IRR: Interest Rate Risk
CDs: Certificates of Deposit	IRS: Internal Revenue Service
CFPB: Consumer Financial Protection Bureau	IVA: Individual Valuation Allowance
CLTV: Combined Loan-to-Value	LIHTC: Low Income Housing Tax Credit
Company: TFS Financial Corporation and its	LIP: Loans-in-Process
subsidiaries	LTV: Loan-to-Value
DFA: Dodd-Frank Wall Street Reform and Consumer	MGIC: Mortgage Guaranty Insurance Corporation
Protection Act	OCC: Office of the Comptroller of the Currency
EaR: Earnings at Risk	OCI: Other Comprehensive Income
EPS: Earnings per Share	PMI: Private Mortgage Insurance
ESOP: Third Federal Employee (Associate) Stock	PMIC: PMI Mortgage Insurance Co.
Ownership Plan	REMICs: Real Estate Mortgage Investment Conduits
EVE: Economic Value of Equity	SEC: United States Securities and Exchange Commission
Fannie Mae: Federal National Mortgage Association	TDR: Troubled Debt Restructuring
FASB: Financial Accounting Standards Board	Third Federal Savings, MHC: Third Federal Savings
FDIC: Federal Deposit Insurance Corporation	and Loan Association of Cleveland, MHC
FHFA: Federal Housing Finance Agency

Table of Contents

Item 1. Financial Statements

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

(In thousands, except share data)



	March 31, 2020			September 30, 2019
ASSETS
Cash and due from banks	$	27,803		$	31,728
Other interest-earning cash equivalents	284,678			243,415
Cash and cash equivalents	312,481			275,143
Investment securities available for sale (amortized cost $532,812 and $550,605, respectively)	545,484			547,864
Mortgage loans held for sale, at lower of cost or market (none measured at fair value)	2,337			3,666
Loans held for investment, net:
Mortgage loans	13,571,200			13,189,516
Other loans	2,700			3,166
Deferred loan expenses, net	44,941			41,976
Allowance for loan losses	(44,387		)	(38,913		)
Loans, net	13,574,454			13,195,745
Mortgage loan servicing rights, net	7,194			8,080
Federal Home Loan Bank stock, at cost	135,858			101,858
Real estate owned, net	2,728			2,163
Premises, equipment, and software, net	42,684			61,577
Accrued interest receivable	38,915			40,822
Bank owned life insurance contracts	219,768			217,481
Other assets	120,440			87,957
TOTAL ASSETS	$	15,002,343		$	14,542,356
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	9,087,811		$	8,766,384
Borrowed funds	4,082,951			3,902,981
Borrowers’ advances for insurance and taxes	93,225			103,328
Principal, interest, and related escrow owed on loans serviced	28,722			32,909
Accrued expenses and other liabilities	54,470			40,000
Total liabilities	13,347,179			12,845,602
Commitments and contingent liabilities
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding	—			—
Common stock, $0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 280,139,970 and 279,962,777 outstanding at March 31, 2020 and September 30, 2019, respectively	3,323			3,323
Paid-in capital	1,739,523			1,734,154
Treasury stock, at cost; 52,178,780 and 52,355,973 shares at March 31, 2020 and September 30, 2019, respectively	(767,723		)	(764,589		)
Unallocated ESOP shares	(42,251		)	(44,417		)
Retained earnings—substantially restricted	853,155			837,662
Accumulated other comprehensive loss	(130,863		)	(69,379		)
Total shareholders’ equity	1,655,164			1,696,754
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	15,002,343		$	14,542,356

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(In thousands, except share and per share data)



	For the Three Months Ended					For the Six Months Ended
	March 31,					March 31,
	2020		2019			2020		2019
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	115,203	$	114,306		$	230,428	$	226,797
Investment securities available for sale	2,911		3,494			5,775		6,618
Other interest and dividend earning assets	1,412		2,643			3,375		5,316
Total interest and dividend income	119,526		120,443			239,578		238,731
INTEREST EXPENSE:
Deposits	37,483		35,077			75,799		67,839
Borrowed funds	17,005		17,605			34,556		35,319
Total interest expense	54,488		52,682			110,355		103,158
NET INTEREST INCOME	65,038		67,761			129,223		135,573
PROVISION (CREDIT) FOR LOAN LOSSES	6,000		(4,000		)	3,000		(6,000		)
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES	59,038		71,761			126,223		141,573
NON-INTEREST INCOME:
Fees and service charges, net of amortization	2,119		1,795			4,265		3,571
Net gain on the sale of loans	3,138		451			6,063		562
Increase in and death benefits from bank owned life insurance contracts	2,461		1,874			4,022		3,421
Other	1,229		786			6,527		2,028
Total non-interest income	8,947		4,906			20,877		9,582
NON-INTEREST EXPENSE:
Salaries and employee benefits	27,216		26,152			53,101		51,516
Marketing services	4,029		6,719			8,490		11,516
Office property, equipment and software	6,534		6,261			12,980		13,247
Federal insurance premium and assessments	2,768		2,370			5,387		5,136
State franchise tax	1,191		1,282			2,323		2,544
Other expenses	7,820		7,943			14,597		14,748
Total non-interest expense	49,558		50,727			96,878		98,707
INCOME BEFORE INCOME TAXES	18,427		25,940			50,222		52,448
INCOME TAX EXPENSE	1,170		5,810			7,323		11,985
NET INCOME	$	17,257	$	20,130		$	42,899	$	40,463
Earnings per share—basic and diluted	$	0.06	$	0.07		$	0.15	$	0.14
Weighted average shares outstanding
Basic	275,835,243		275,359,201			275,706,011		275,367,821
Diluted	278,101,329		277,343,155			277,990,253		277,197,565

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(In thousands)



	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31,
	2020			2019			2020			2019
Net income	$	17,257		$	20,130		$	42,899		$	40,463
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (losses) on securities available for sale	9,253			3,381			12,176			8,478
Net change in cash flow hedges	(89,769		)	(18,936		)	(74,564		)	(45,758		)
Net change in defined benefit plan obligation	452			264			904			528
Total other comprehensive income (loss)	(80,064		)	(15,291		)	(61,484		)	(36,752		)
Total comprehensive income (loss)	$	(62,807	)	$	4,839		$	(18,585	)	$	3,711

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

(In thousands, except share and per share data)



	For the Three Months Ended March 31, 2019
	Common stock		Paid-in capital		Treasury stock			Unallocated common stock held by ESOP			Retained earnings		Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at December 31, 2018	$	3,323	$	1,727,909	$	(757,464	)	$	(47,667	)	$	815,918	$	1,761		$	1,743,780
Net income	—		—		—			—			20,130		—			20,130
Other comprehensive income (loss), net of tax	—		—		—			—			—		(15,291		)	(15,291		)
ESOP shares allocated or committed to be released	—		729		—			1,083			—		—			1,812
Compensation costs for equity incentive plans	—		1,146		—			—

Price	18.05	EPS	0
Shares	280	P/E	63
MCap	5,053	P/FCF	49
Net Debt	-275	EBIT	323
TEV	4,778	TEV/EBIT	15
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-15
10-Q	2019-12-31	Filed 2020-02-06
10-K	2019-09-30	Filed 2019-11-26
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-08
10-Q	2018-12-31	Filed 2019-02-07
10-K	2018-09-30	Filed 2018-11-27
10-Q	2018-06-30	Filed 2018-08-07
10-Q	2018-03-31	Filed 2018-05-08
10-Q	2017-12-31	Filed 2018-02-08
10-K	2017-09-30	Filed 2017-11-22
10-Q	2017-06-30	Filed 2017-08-07
10-Q	2017-03-31	Filed 2017-05-05
10-Q	2016-12-31	Filed 2017-02-08
10-K	2016-09-30	Filed 2016-11-23
10-Q	2016-06-30	Filed 2016-08-05
10-Q	2016-03-31	Filed 2016-05-06
10-Q	2015-12-31	Filed 2016-02-08
10-K	2015-09-30	Filed 2015-11-25
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-07
10-Q	2014-12-31	Filed 2015-02-06
10-K	2014-09-30	Filed 2014-11-26
10-Q	2014-06-30	Filed 2014-08-07
10-Q	2014-03-31	Filed 2014-05-08
10-Q	2013-12-31	Filed 2014-02-07
10-K	2013-09-30	Filed 2013-11-27
10-Q	2013-06-30	Filed 2013-08-08
10-Q	2013-03-31	Filed 2013-05-09
10-Q	2012-12-31	Filed 2013-02-11
10-K	2012-09-30	Filed 2012-11-29
10-Q	2012-06-30	Filed 2012-08-09
10-Q	2012-03-31	Filed 2012-05-10
10-Q	2011-12-31	Filed 2012-02-09
10-K	2011-09-30	Filed 2011-11-29
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-09
10-Q	2010-12-31	Filed 2011-02-09
10-K	2010-09-30	Filed 2010-11-24
10-Q	2010-06-30	Filed 2010-08-06
10-Q	2010-03-31	Filed 2010-05-06
10-Q	2009-12-31	Filed 2010-02-05

8-K	2020-07-30	Earnings, Officers, Exhibits
8-K	2020-07-14	Other Events
8-K	2020-06-01
8-K	2020-05-28
8-K	2020-05-11
8-K	2020-04-30
8-K	2020-02-27
8-K	2020-02-27
8-K	2020-01-30
8-K	2019-11-21
8-K	2019-10-30
8-K	2019-08-22
8-K	2019-07-30
8-K	2019-07-16
8-K	2019-06-03
8-K	2019-05-30
8-K	2019-04-30
8-K	2019-02-21
8-K	2019-02-21
8-K	2019-01-30
8-K	2018-11-14
8-K	2018-10-29
8-K	2018-09-28
8-K	2018-08-30
8-K	2018-07-30
8-K	2018-07-11
8-K	2018-05-31
8-K	2018-05-29
8-K	2018-04-30
8-K	2018-02-22
8-K	2018-02-22
8-K	2018-01-30

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EX-31.2	tfslfy20marex312.htm
EX-32	tfslfy20marex32.htm

TFSL 10Q Quarterly Report

TFS Financial Earnings 2020-03-31