TFS Financial Earnings 2020-12-31

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

tfsl-20201231

Table of Contents

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 December 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, 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 February 4, 2021, there were 280,579,029 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
	December 31, 2020 and September 30, 2020	4

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

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

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

	Consolidated Statements of Cash Flows
	Three Months Ended December 31, 2020 and 2019	8

	Notes to Unaudited Interim Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	65

Item 4.	Controls and Procedures	68

Part II — OTHER INFORMATION

Item 1.	Legal Proceedings	69

Item 1A.	Risk Factors	69

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults Upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	69

Item 6.	Exhibits	70

SIGNATURES		71

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			FHFA: Federal Housing Finance Agency
AOCI: Accumulated Other Comprehensive Income			FHLB: Federal Home Loan Bank
ARM: Adjustable Rate Mortgage			FICO: Financing Corporation
ASC: Accounting Standards Codification			FRB-Cleveland: Federal Reserve Bank of Cleveland
ASU: Accounting Standards Update			Freddie Mac: Federal Home Loan Mortgage Corporation
Association: Third Federal Savings and Loan			FRS: Board of Governors of the Federal Reserve System
Association of Cleveland			GAAP: Generally Accepted Accounting Principles
BOLI: Bank Owned Life Insurance			Ginnie Mae: Government National Mortgage Association
CARES Act: Coronavirus Aid, Relief and Economic Security			GVA: General Valuation Allowances
Act			HPI: Home Price Index
CDs: Certificates of Deposit			IRR: Interest Rate Risk
CECL: Current Expected Credit Losses			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

Table of Contents

Item 1. Financial Statements

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

(In thousands, except share data)


	December 31, 2020		September 30, 2020
ASSETS
Cash and due from banks	$	29,512	$	25,270
Other interest-earning cash equivalents	470,408		472,763
Cash and cash equivalents	499,920		498,033
Investment securities available for sale (amortized cost $443,328 and $447,384, respectively)	447,609		453,438


Mortgage loans held for sale ($107,978 and $36,078 measured at fair value, respectively)	111,288		36,871
Loans held for investment, net:
Mortgage loans	12,925,023		13,104,959
Other loans	2,637		2,581
Deferred loan expenses, net	42,138		42,459
Allowance for credit losses on loans	(70,290)		(46,937)
Loans, net	12,899,508		13,103,062
Mortgage loan servicing rights, net	8,230		7,860
Federal Home Loan Bank stock, at cost	136,793		136,793
Real estate owned, net	102		185
Premises, equipment, and software, net	40,770		41,594
Accrued interest receivable	34,840		36,634
Bank owned life insurance contracts	294,565		222,919
Other assets	99,208		104,832
TOTAL ASSETS	$	14,572,833	$	14,642,221
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	9,190,600	$	9,225,554
Borrowed funds	3,444,998		3,521,745
Borrowers’ advances for insurance and taxes	142,248		111,536
Principal, interest, and related escrow owed on loans serviced	50,866		45,895
Accrued expenses and other liabilities	86,289		65,638
Total liabilities	12,915,001		12,970,368
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; 280,564,920 and 280,150,006 outstanding at December 31, 2020 and September 30, 2020, respectively	3,323		3,323
Paid-in capital	1,739,178		1,742,714
Treasury stock, at cost; 51,753,830 and 52,168,744 shares at December 31, 2020 and September 30, 2020, respectively	(764,774)		(767,649)
Unallocated ESOP shares	(39,000)		(40,084)
Retained earnings—substantially restricted	840,678		865,514
Accumulated other comprehensive loss	(121,573)		(131,965)
Total shareholders’ equity	1,657,832		1,671,853
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	14,572,833	$	14,642,221

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
	December 31,
	2020		2019
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	100,126	$	115,225
Investment securities available for sale	987		2,864

Other interest and dividend earning assets	816		1,963
Total interest and dividend income	101,929		120,052
INTEREST EXPENSE:
Deposits	27,696		38,316
Borrowed funds	15,490		17,551
Total interest expense	43,186		55,867
NET INTEREST INCOME	58,743		64,185
PROVISION (RELEASE) FOR CREDIT LOSSES	(2,000)		(3,000)
NET INTEREST INCOME AFTER PROVISION (RELEASE) FOR CREDIT LOSSES	60,743		67,185
NON-INTEREST INCOME:
Fees and service charges, net of amortization	2,495		2,146
Net gain on the sale of loans	16,443		2,925
Increase in and death benefits from bank owned life insurance contracts	1,647		1,561

Other	876		5,298
Total non-interest income	21,461		11,930
NON-INTEREST EXPENSE:
Salaries and employee benefits	28,338		25,885
Marketing services	5,733		4,461
Office property, equipment and software	6,435		6,446
Federal insurance premium and assessments	2,390		2,619
State franchise tax	1,151		1,132
Other expenses	7,682		6,777
Total non-interest expense	51,729		47,320
INCOME BEFORE INCOME TAXES	30,475		31,795
INCOME TAX EXPENSE	5,473		6,153
NET INCOME	$	25,002	$	25,642
Earnings per share—basic and diluted	$	0.09	$	0.09
Weighted average shares outstanding
Basic	276,216,596		275,578,184
Diluted	278,028,072		277,888,588

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

TFS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(In thousands)


	For the Three Months Ended
	December 31,
	2020		2019
Net income	$	25,002	$	25,642
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (losses) on securities available for sale	(1,373)		2,923
Net change in cash flow hedges	11,299		15,205
Net change in defined benefit plan obligation	466		452
Total other comprehensive income	10,392		18,580
Total comprehensive income	$	35,394	$	44,222

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 December 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 September 30, 2019	$	3,323	$	1,734,154	$	(764,589)	$	(44,417)	$	837,662	$	(69,379)	$	1,696,754
Net income	—		—		—		—		25,642		—		25,642
Other comprehensive income (loss), net of tax	—		—		—		—		—		18,580		18,580
ESOP shares allocated or committed to be released	—		1,011		—		1,083		—		—		2,094
Compensation costs for equity incentive plans	—		1,189		—		—		—		—		1,189
Purchase of treasury stock (19,500 shares)	—		—		(359)		—		—		—		(359)
Treasury stock allocated to equity incentive plan	—		(32)		(1,544)		—		—		—		(1,576)
Dividends paid to common shareholders ($0.27 per common share)	—		—		—		—		(13,375)		—		(13,375)
Balance at December 31, 2019	$	3,323	$	1,736,322	$	(766,492)	$	(43,334)	$	849,929	$	(50,799)	$	1,728,949


	For the Three Months Ended December 31, 2020
	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 principle1	—		—		—		—		(35,763)		—		(35,763)
Net income	—		—		—		—		25,002		—		25,002
Other comprehensive income (loss), net of tax	—		—		—		—		—		10,392		10,392
ESOP shares allocated or committed to be released	—		718		—		1,084		—		—		1,802
Compensation costs for equity incentive plans	—		1,566		—		—		—		—		1,566

Treasury stock allocated to equity incentive plan	—		(5,820)		2,875		—		—		—		(2,945)
Dividends paid to common shareholders ($0.28 per common share)	—		—		—		—		(14,075)		—		(14,075)
Balance at December 31, 2020	$	3,323	$	1,739,178	$	(764,774)	$	(39,000)	$	840,678	$	(121,573)	$	1,657,832

1See Note 14. RECENT ACCOUNTING PRONOUNCEMENTS, ASU 2016-13 Adopted during 3 months ended December 31, 2020

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 Three Months Ended December 31,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	25,002	$	25,642
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense	3,368		3,283
Depreciation and amortization	9,831		7,794
Deferred income taxes	(237)		(64)
Provision (release) for credit losses	(2,000)		(3,000)
Net gain on the sale of loans	(16,443)		(2,925)
Net gain on sale of commercial property	—		(4,257)
Other net (gains) losses	5		(13)
Proceeds from sales of loans held for sale	11,569		9,753
Loans originated for sale	(16,079)		(15,606)
Increase in bank owned life insurance contracts	(1,662)		(1,577)
Net decrease (increase) in interest receivable and other assets	11,695		(5,705)
Net (decrease) increase in accrued expenses and other liabilities	(871)		16,066

Net cash provided by operating activities	24,178		29,391
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated	(1,471,386)		(1,055,571)
Principal repayments on loans	1,371,385		583,081
Proceeds from principal repayments and maturities of:
Securities available for sale	94,915		52,574

Proceeds from sale of:
Loans	221,277		200,923
Real estate owned	82		635
Premises, equipment and other Assets	—		23,512
Purchases of:
Bank-owned life insurance	(70,000)		—

Securities available for sale	(92,964)		(56,377)
Premises and equipment	(518)		(537)
Other	29		16
Net cash provided by (used in) investing activities	52,820		(

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	2020-12-31	Filed 2021-02-09
10-K	2020-09-30	Filed 2020-11-24
10-Q	2020-06-30	Filed 2020-08-07
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	2020-11-19
8-K	2020-10-29
8-K	2020-08-27
8-K	2020-07-30
8-K	2020-07-30
8-K	2020-07-14
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

EX-31.1	tfslfy21decex311.htm
EX-31.2	tfslfy21decex312.htm
EX-32	tfslfy21decex32.htm

TFSL 10Q Quarterly Report

TFS Financial Earnings 2020-12-31