TFS Financial CORP [TFSL] Filings

10-Q 1 tfsl-20220331.htm 10-Q tfsl-20220331

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, 2022


☐			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, a 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

Accelerated filer

Non-accelerated filer

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 5, 2022, there were 280,797,116 shares of the Registrant’s common stock, par value $0.01 per share, outstanding, of which 227,119,132 shares, or 80.9% 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, 2022 and September 30, 2021	4

	Consolidated Statements of Income
	Three and Six Months Ended March 31, 2022 and 2021	5

	Consolidated Statements of Comprehensive Income
	Three and Six Months Ended March 31, 2022 and 2021	6

	Consolidated Statements of Shareholders’ Equity
	Three and Six Months Ended March 31, 2022 and 2021	7

	Consolidated Statements of Cash Flows
	Six Months Ended March 31, 2022 and 2021	9

	Notes to Unaudited Interim Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	69

Item 4.	Controls and Procedures	73

Part II — OTHER INFORMATION

Item 1.	Legal Proceedings	73

Item 1A.	Risk Factors	73

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.


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

Table of Contents

Item 1. Financial Statements

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

(In thousands, except share data)


	March 31, 2022		September 30, 2021
ASSETS
Cash and due from banks	$	24,395	$	27,346
Other interest-earning cash equivalents	346,276		460,980
Cash and cash equivalents	370,671		488,326
Investment securities available for sale (amortized cost $464,077 and $420,542, respectively)	443,222		421,783


Mortgage loans held for sale ($0 and $0 measured at fair value, respectively)	—		8,848
Loans held for investment, net:
Mortgage loans	13,150,338		12,525,687
Other loans	2,589		2,778
Deferred loan expenses, net	47,372		44,859
Allowance for credit losses on loans	(64,324)		(64,289)
Loans, net	13,135,975		12,509,035
Mortgage loan servicing rights, net	8,464		8,941
Federal Home Loan Bank stock, at cost	162,783		162,783
Real estate owned, net	131		289
Premises, equipment, and software, net	35,417		37,420
Accrued interest receivable	30,908		31,107
Bank owned life insurance contracts	300,268		297,332
Other assets	93,050		91,586
TOTAL ASSETS	$	14,580,889	$	14,057,450
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	9,008,347	$	8,993,605
Borrowed funds	3,555,325		3,091,815
Borrowers’ advances for insurance and taxes	95,199		109,633
Principal, interest, and related escrow owed on loans serviced	33,034		41,476
Accrued expenses and other liabilities	93,236		88,641
Total liabilities	12,785,141		12,325,170
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; 280,830,738 and 280,761,299 outstanding at March 31, 2022 and September 30, 2021, respectively	3,323		3,323
Paid-in capital	1,748,589		1,746,887
Treasury stock, at cost; 51,488,012 and 51,557,451 shares at March 31, 2022 and September 30, 2021, respectively	(768,304)		(768,035)
Unallocated ESOP shares	(33,584)		(35,751)
Retained earnings—substantially restricted	856,555		853,657
Accumulated other comprehensive loss	(10,831)		(67,801)
Total shareholders’ equity	1,795,748		1,732,280
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	14,580,889	$	14,057,450

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,
	2022		2021		2022		2021
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	91,125	$	96,175	$	181,244	$	196,301
Investment securities available for sale	1,355		966		2,315		1,953

Other interest and dividend earning assets	981		814		1,992		1,630
Total interest and dividend income	93,461		97,955		185,551		199,884
INTEREST EXPENSE:
Deposits	16,896		24,545		36,147		52,241
Borrowed funds	13,824		14,999		28,819		30,489
Total interest expense	30,720		39,544		64,966		82,730
NET INTEREST INCOME	62,741		58,411		120,585		117,154
PROVISION (RELEASE) FOR CREDIT LOSSES	(1,000)		(4,000)		(3,000)		(6,000)
NET INTEREST INCOME AFTER PROVISION (RELEASE) FOR CREDIT LOSSES	63,741		62,411		123,585		123,154
NON-INTEREST INCOME:
Fees and service charges, net of amortization	2,568		2,460		4,972		4,955
Net gain on the sale of loans	113		8,911		2,300		25,354
Increase in and death benefits from bank owned life insurance contracts	2,222		3,807		5,133		5,454

Other	688		530		1,340		1,406
Total non-interest income	5,591		15,708		13,745		37,169
NON-INTEREST EXPENSE:
Salaries and employee benefits	26,862		26,672		53,377		55,010
Marketing services	6,551		5,325		12,177		11,058
Office property, equipment and software	6,824		6,395		13,463		12,830
Federal insurance premium and assessments	2,276		2,323		4,288		4,713
State franchise tax	1,237		1,159		2,461		2,310
Other expenses	6,225		6,936		11,882		14,618
Total non-interest expense	49,975		48,810		97,648		100,539
INCOME BEFORE INCOME TAXES	19,357		29,309		39,682		59,784
INCOME TAX EXPENSE	3,512		6,300		7,697		11,773
NET INCOME	$	15,845	$	23,009	$	31,985	$	48,011
Earnings per share—basic and diluted	$	0.06	$	0.08	$	0.11	$	0.17
Weighted average shares outstanding
Basic	277,423,493		276,716,978		277,323,217		276,464,037
Diluted	278,819,539		278,593,303		278,864,945		278,291,638

See accompanying notes to unaudited interim consolidated financial statements.

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TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(In thousands)


	For the Three Months Ended				For the Six Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Net income	$	15,845	$	23,009	$	31,985	$	48,011
Other comprehensive income (loss), net of tax:
Net change in unrealized (loss) on securities available for sale	(14,061)		(485)		(17,144)		(1,858)
Net change in cash flow hedges	53,287		33,989		73,936		45,288
Net change in defined benefit plan obligation	82		466		178		932
Total other comprehensive income	39,308		33,970		56,970		44,362
Total comprehensive income	$	55,153	$	56,979	$	88,955	$	92,373

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, 2021
	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, 2020	$	3,323	$	1,739,178	$	(764,774)	$	(39,000)	$	840,678	$	(121,573)	$	1,657,832
Net income	—		—		—		—		23,009		—		23,009
Other comprehensive income (loss), net of tax	—		—		—		—		—		33,970		33,970
ESOP shares allocated or committed to be released	—		1,018		—		1,083		—		—		2,101
Compensation costs for equity incentive plans	—		1,547		—		—		—		—		1,547


Treasury stock allocated to equity incentive plan	—		938		(1,633)		—		—		—		(695)
Dividends declared to common shareholders ($0.28 per common share)	—		—		—		—		(14,293)		—		(14,293)
Balance at March 31, 2021	$	3,323	$	1,742,681	$	(766,407)	$	(37,917)	$	849,394	$	(87,603)	$	1,703,471

	For the Three Months Ended March 31, 2022
	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, 2021	$	3,323	$	1,746,992	$	(767,457)	$	(34,667)	$	855,318	$	(50,139)	$	1,753,370

Net income	—		—		—		—		15,845		—		15,845
Other comprehensive income (loss), net of tax	—		—		—		—		—		39,308		39,308
ESOP shares allocated or committed to be released	—		782		—		1,083		—		—		1,865
Compensation costs for equity incentive plans	—		933		—		—		—		—		933

Purchase of treasury stock (53,059 shares)	—		—		(905)		—		—		—		(905)
Treasury stock allocated to equity incentive plan	—		(118)		58		—		—		—		(60)
Dividends declared to common shareholders ($0.2825 per common share)	—		—		—		—		(14,608)		—		(14,608)
Balance at March 31, 2022	$	3,323	$	1,748,589	$	(768,304)	$	(33,584)	$	856,555	$	(10,831)	$	1,795,748

Table of Contents


	For the Six Months Ended March 31, 2021
	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 September 30, 2020	$	3,323	$	1,742,714	$	(767,649)	$	(40,084)	$	865,514	$	(131,965)	$	1,671,853
Cumulative effect from changes in accounting principle, net of tax1	—		—		—		—		(35,763)		—		(35,763)
Net income	—		—		—		—		48,011		—		48,011
Other comprehensive income (loss), net of tax	—		—		—		—		—		44,362		44,362
ESOP shares allocated or committed to be released	—		1,736		—		2,167		—		—		3,903
Compensation costs for equity incentive plans	—		3,113		—		—		—		—		3,113

Treasury stock allocated to equity incentive plan	—		(4,882)		1,242		—		—		—		(3,640)
Dividends declared to common shareholders ($0.56 per common share)	—		—		—		—		(28,368)		—		(28,368)
Balance at March 31, 2021	$	3,323	$	1,742,681	$	(766,407)	$	(37,917)	$	849,394	$	(87,603)	$	1,703,471
1Related to ASU 2016-13 adopted October 1, 2020.

	For the Six Months Ended March 31, 2022
	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 September 30, 2021	$	3,323	$	1,746,887	$	(768,035)	$	(35,751)	$	853,657	$	(67,801)	$	1,732,280

Net income	—		—		—		—		31,985		—		31,985
Other comprehensive income (loss), net of tax	—		—		—		—		—		56,970		56,970
ESOP shares allocated or committed to be released	—		1,767		—		2,167		—		—		3,934
Compensation costs for equity incentive plans	—		1,959		—		—		—		—		1,959
Purchase of treasury stock (69,059 shares)	—		—		(1,190)		—		—		—		(1,190)
Treasury stock allocated to equity incentive plan	—		(2,024)		921		—		—		—		(1,103)
Dividends declared to common shareholders ($0.5650 per common share)	—		—		—		—		(29,087)		—		(29,087)
Balance at March 31, 2022	$	3,323	$	1,748,589	$	(768,304)	$	(33,584)	$	856,555	$	(10,831)	$	1,795,748

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands)


	For the Six Months Ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	31,985	$	48,011
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense	5,893		7,016
Depreciation and amortization	14,108		20,307
Deferred income taxes	(459)		386
Provision (release) for credit losses	(3,000)		(6,000)
Net gain on the sale of loans	(2,300)		(25,354)

Other net (gains) losses	199		393
Proceeds from sales of loans held for sale

TFS Financial CORP [TFSL] Filings
10-Q	[2022-05-09]
10-Q	[2022-02-08]
10-K	[2021-11-24]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-Q	[2021-02-09]
10-K	[2020-11-24]
10-Q	[2020-08-07]
10-Q	[2020-05-15]
10-Q	[2020-02-06]
10-K	[2019-11-26]
10-Q	[2019-08-07]
10-Q	[2019-05-08]
10-Q	[2019-02-07]
10-K	[2018-11-27]
10-Q	[2018-08-07]
10-Q	[2018-05-08]
10-Q	[2018-02-08]
10-K	[2017-11-22]
10-Q	[2017-08-07]
10-Q	[2017-05-05]
10-Q	[2017-02-08]
10-K	[2016-11-23]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-Q	[2016-02-08]
10-K	[2015-11-25]
10-Q	[2015-08-06]
10-Q	[2015-05-07]
10-Q	[2015-02-06]
10-K	[2014-11-26]
10-Q	[2014-08-07]
10-Q	[2014-05-08]
10-Q	[2014-02-07]
10-K	[2013-11-27]
10-Q	[2013-08-08]
10-Q	[2013-05-09]
10-Q	[2013-02-11]
10-K	[2012-11-29]
10-Q	[2012-08-09]
10-Q	[2012-05-10]
10-Q	[2012-02-09]