TFS Financial Stock

TFS Financial Corporation operates as the bank holding company for Third Federal Savings and Loan Association of Cleveland (Association) that engages in originating and servicing residential real estate mortgage loans and attracting retail savings deposits. The company is a subsidiary of Third Federal Savings and Loan Association of Cleveland, MHC.

The company also operates Third Capital, Inc. as a wholly-owned subsidiary. The Association’s business strategy is to originate mortgage loans with interest rates that are competitive with those of similar products offered by other financial institutions in its markets. Similarly, the Association offers checking accounts, savings accounts and certificate of deposit accounts, each bearing interest rates that are competitive with similar products offered by other financial institutions in its markets.

The Association attracts retail deposits from the general public in the areas surrounding its main office and its branch offices. It also utilizes its internet website, direct mail solicitation and its customer service call center to generate loan applications and attract retail deposits. Longer-term brokered CDs and advances from the FHLB of Cincinnati, as well as shorter-term brokered Certificates of Deposit (CDs) and advances from the FHLB of Cincinnati, hedged to longer effective durations by interest rate exchange contracts, are also used as funding alternatives. In addition to residential real estate mortgage loans, the Association originates residential construction loans to individuals for the construction of their personal residences by a qualified builder. The Association also offers home equity loans and lines of credit subject to certain property and credit performance conditions. The Association retains in its portfolio a large portion of the loans that it originates. The Association also purchases residential real estate mortgage loans through a correspondent lending partnership. Loans that the Association sells consist primarily of long-term, fixed-rate residential real estate mortgage loans. The Association retains the servicing rights on all loans that it sells. The Association’s revenues are derived primarily from interest on loans and, to a lesser extent, interest on interest-earning deposits in other financial institutions, deposits maintained at the FRS, federal funds sold, investment securities, including mortgage-backed securities and dividends from FHLB of Cincinnati stock. The Association also generates revenues from fees and service charges. The Association’s primary sources of funds are deposits, borrowings, principal and interest payments on loans and securities and proceeds from loan sales.

Market Area

The Association conducts its operations from its main office in Cleveland, Ohio, and from additional, full-service branches and loan production offices located throughout the states of Ohio and Florida. In Ohio, the Association maintains full-service offices located in the northeast Ohio counties of Cuyahoga, Lake, Lorain, Medina and Summit, regional loan production office located in the central Ohio (Columbus, Ohio) and loan production offices located in the southern Ohio counties of Butler and Hamilton (Cincinnati, Ohio). In Florida, the Association maintains full-service branches located in the counties of Pasco, Pinellas, Hillsborough, Sarasota, Lee, Collier, Palm Beach and Broward.

The Association also provides savings products in all 50 states and first mortgage refinance loans in 21 states and the District of Columbia. Home equity lines of credit are provided in 25 states and the District of Columbia. First mortgage loans and bridge loans to purchase homes are provided in 13 states while other equity loan products are provided in eight states. These products are provided through its branch network for customers in its core markets of Ohio, Florida, Kentucky and Indiana as well as its customer service call center and its internet site for all customers not served by its branch network.

Lending Activities

The company’s principal lending activity is the origination of fixed-rate and adjustable-rate, first mortgage loans to purchase or refinance residential real estate. Adjustable-rate and up to 30-year fixed-rate first mortgage loans to refinance real estate are offered in 21 states and the District of Columbia. Also, the company offers adjustable-rate and up to 30-year fixed- rate first mortgage loans to purchase real estate in 13 states. Further, the company originates residential construction loans to individuals (for the construction of their personal residences by a qualified builder) in Ohio and Florida. The company also purchases first mortgage loans originated in Ohio, Pennsylvania and North Carolina through a correspondent lending partnership. Additionally, the company offers home equity lines of credit in 25 states and the District of Columbia and home equity loans in eight states.

Residential Real Estate Mortgage Loans: The company’s primary lending activity is the origination of residential real estate mortgage loans. The company offers fixed-rate conventional mortgage loans with terms of 30 years or less that are fully amortizing with monthly loan payments, and adjustable-rate mortgage loans that amortize over a period of up to 30 years, provide an initial fixed interest rate for three or five years.

The company generally originates both fixed- and adjustable-rate mortgage loans in amounts up to $2 million, for single-family homes in most of its lending markets. The loans originated for larger dollar amounts are generally referred to as jumbo loans. The company generally underwrites jumbo loans in a manner similar to conforming loans.

The company offers Smart Rate adjustable-rate mortgage loan products secured by residential properties with interest rates that are fixed for an initial period of three or five years, after which the interest rate generally resets every year based upon a contractual spread.

The company retains the servicing rights on all loans sold in order to generate fee income and reinforce its commitment to customer service. One- to four-family residential mortgage real estate loans that have been sold were underwritten generally to Fannie Mae guidelines. At the time of the closing of these loans the company owns the loans and subsequently sells them to Fannie Mae and others providing normal and customary representations and warranties, including representations and warranties related to compliance, generally with Fannie Mae underwriting standards. At the time of sale, the loans are free from encumbrances except for the mortgages filed by the company which, with other underwriting documents, are subsequently assigned and delivered to Fannie Mae and others.

The company requires title insurance on all of its residential real estate mortgage loans. The company also requires that borrowers maintain fire and extended coverage casualty insurance (and, if appropriate, flood insurance up to $250 thousand) in an amount at least equal to the lesser of the loan balance or the replacement cost of the improvements. The company offers a loan product allowing up to 95% LTV with no mortgage insurance for superior credit borrowers.

Home Equity Loans and Home Equity Lines of Credit: The company offers home equity loans and home equity lines of credit, which are primarily secured by a second mortgage on residences. The home equity product is offered in 25 states and the District of Columbia. Home equity lines of credit originated since 2013 require amortizing loan payments during the draw period. These offers were, and are, subject to certain property and credit performance conditions which, among other items, related to CLTV, geography, borrower income verification, minimum credit scores and draw period duration. These loans have fixed interest rates, and are limited to a combined 80% LTV ratio (first and second mortgage liens). The company charges a closing fee with respect to bridge loans.

The company originates its home equity loans and home equity lines of credit without application fees (except for bridge loans) or borrower-paid closing costs. Home equity loans are offered with fixed interest rates, are fully amortizing and have terms of up to 30 years. The company’s home equity lines of credit are offered with adjustable rates of interest indexed to the Prime Rate.

Construction Loans: The company originates construction loans to individuals for the construction of their personal single-family residence by a qualified builder (construction/permanent loans). The company’s construction/permanent loans generally provide for disbursements to the builder or sub-contractors during the construction phase as work progresses. During the construction phase, the borrower only pays interest on the drawn balance. Upon completion of construction, the loan converts to a permanent amortizing loan without the expense of a second closing. The company offers construction/permanent loans with fixed or adjustable rates, and a current maximum loan-to-completed-appraised value ratio of 85%.

Deposits

The Association obtains deposits primarily from the areas in which its branch offices are located, as well as from its customer service call center, its internet website, and from brokered deposits. It offers a variety of retail deposit accounts with a range of interest rates and terms. Its retail deposit accounts consist of savings accounts, money market accounts, checking accounts, CDs, individual retirement accounts, and other qualified plan accounts.

Investment Portfolio

As of September 30, 2023, the company’s investment portfolio included Real Estate Mortgage Investment Conduits (REMICs); Fannie Mae certificates; Freddie Mac certificates; and the U.S. Government and agency obligations.

Supervision and Regulation

The company is a savings and loan holding company, and is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of, the Board of Governors of the Federal Reserve System (FRS). The company is also subject to the rules and regulations of the United States Securities and Exchange Commission (SEC) under the federal securities laws. The company is a non-diversified savings and loan holding company within the meaning of the Home Owners’ Loan Act, as amended (HOLA).

The Association is a federal savings association that is examined and supervised by the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) and is subject to examination by the Federal Deposit Insurance Corporation (FDIC) under certain circumstances.

The Association is also a member of and owns stock in the FHLB of Cincinnati. The Association is also regulated to a lesser extent by the FRS. The CFPB has examination and enforcement authority over the Association with respect to consumer protection laws and regulations.

In March 2021, the Association received a ‘Needs to Improve’ CRA (Community Reinvestment Act) rating in its most recent federal evaluation dated February 24, 2020.

The Association’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FRS.

The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured depository institutions, such as the Association. The Association is a member of the FHLB System, which consists of 11 regional FHLBs. As a member of the FHLB of Cincinnati, the Association is required to acquire and hold shares of capital stock in the FHLB.

The Association’s operations are also subject to federal laws applicable to credit transactions, such as the Truth-In-Lending Act; Home Mortgage Disclosure Act; Equal Credit Opportunity Act; Fair Credit Reporting Act; Fair Debt Collection Act; and rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of the Association also are subject to:

The Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

The Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

The Check Clearing for the 21st Century Act (also known as Check 21), which gives substitute checks, such as digital check images and copies made from those images, the same legal standing as the original paper check;

The Bank Secrecy Act and Title III of The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the USA PATRIOT Act), which require the Association to implement a compliance program to detect and prevent money laundering, terrorist financing, and illicit crime. Together, the BSA and USA PATRIOT Act require the Association to implement internal controls, conduct customer due diligence, maintain records, and file reports;

Regulations of the Office of Foreign Assets Control that enforce economic and trade sanctions against targeted foreign countries, regimes, and other designated individuals and organizations;

The Gramm-Leach-Bliley Act, which placed limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties; and

The Dodd-Frank Act, which holds lenders accountable for ensuring a borrower's ability to repay a mortgage. Loans defined as a qualified mortgage must be made to a borrower whose total monthly debt-to-income ratio does not exceed 43%, as well as the verification and documentation of the income and financial resources relied upon to qualify the borrower on the loan.

History

TFS Financial Corporation was founded in 1938. The company was incorporated in 1996.