TFS Financial Corporation was organized in 1997 as the mid-tier stock holding
company for the Association. We completed our initial public stock offering
on April 20, 2007 and issued 100,199,618 shares of common stock, or 30.16% of
our post-offering outstanding common stock, to subscribers in the offering.
Additionally, at the time of the public offering, 5,000,000 shares of our common
stock, or 1.50% of our outstanding shares, were issued to the newly formed charitable
foundation, Third Federal Foundation. Third Federal Savings, MHC, our mutual
holding company parent, holds the remainder of our outstanding common stock
(227,119,132 shares). Net proceeds from our initial public stock offering were
approximately $886 million and reflected the costs we incurred in completing
the offering as well as a $106.5 million loan to the ESOP related to its acquisition
of shares in the initial public stock offering. As the holding company of the
Association, we are authorized to pursue other business activities permitted
by applicable laws and regulations for savings and loan holding companies, which
include making equity investments and the acquisition of banking and financial
services companies.
Our cash flow depends primarily on earnings from the investment of the portion
of the net offering proceeds we retained, and any dividends we receive from
the Association and Third Capital, Inc. All of our officers are also officers
of the Association. In addition, we use the services of the support staff of
the Association from time to time. We may hire additional employees, as needed,
to the extent we expand our business in the future.
Third Capital, Inc. is a Delaware corporation that was organized in 1998 as
our wholly-owned subsidiary. At September 30, 2015, Third Capital, Inc. had
consolidated assets of $79.6 million, and for the fiscal year ended September
30, 2015, Third Capital, Inc. had consolidated net income of $0.3 million. Third
Capital, Inc. has no separate operations other than as the holding company for
its operating subsidiaries, and as a minority investor or partner in other entities
including minority investments in private equity funds. The following is a description
of the entities, other than the private equity funds, in which Third Capital,
Inc. is the owner, an investor or a partner.
The Association’s principal lending activity is the origination of fixed-rate
and adjustable-rate, first mortgage loans to purchase or refinance residential
real estate. The Association also originates residential construction loans
to individuals (for the construction of their personal residences by a qualified
builder) and originates home equity loans and lines of credit in Ohio and Florida.
We offer home equity lines of credit in 20 additional states and home equity
loans in six additional states.
The Association’s Board of Directors is responsible for establishing
and overseeing the Association’s investment policy. The investment policy
is reviewed at least annually by management and any changes to the policy are
recommended to the Board of Directors, or a committee thereof, and are subject
to its approval. This policy dictates that investment decisions be made based
on the safety of the investment, liquidity requirements, potential returns,
the ability to provide collateral for pledging requirements, and consistency
with our interest rate risk management strategy. The Association’s Investment
Committee, which consists of its chief operating officer, chief financial officer
and other members of management, oversees its investing activities and strategies.
The portfolio manager is responsible for making securities portfolio decisions
in accordance with established policies. The portfolio manager has the authority
to purchase and sell securities within specific guidelines established in the
investment policy, but historically the portfolio manager has executed purchases
only after extensive discussions with other Investment Committee members. All
transactions are formally reviewed by the Investment Committee at least quarterly.
Any investment which, subsequent to its purchase, fails to meet the guidelines
of the policy is reported to the Investment Committee, which decides whether
to hold or sell the investment.
The Association’s current investment policy requires that it invest primarily
in debt securities issued by the U.S. Government, agencies of the U.S. Government,
and government-sponsored entities, which include Fannie Mae and Freddie Mac.
The policy also permits investments in mortgage-backed securities, including
pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and
Ginnie Mae as well as collateralized mortgage obligations and real estate mortgage
investment conduits issued or backed by securities issued by these governmental
agencies and government-sponsored entities. The investment policy also permits
investments in asset-backed securities, banker’s acceptances, money market
funds, term federal funds, repurchase agreements and reverse repurchase agreements.
The Association’s Board of Directors is responsible for establishing
and overseeing the Association’s investment policy. The investment policy
is reviewed at least annually by management and any changes to the policy are
recommended to the Board of Directors, or a committee thereof, and are subject
to its approval. This policy dictates that investment decisions be made based
on the safety of the investment, liquidity requirements, potential returns,
the ability to provide collateral for pledging requirements, and consistency
with our interest rate risk management strategy. The Association’s Investment
Committee, which consists of its chief operating officer, chief financial officer
and other members of management, oversees its investing activities and strategies.
The portfolio manager is responsible for making securities portfolio decisions
in accordance with established policies. The portfolio manager has the authority
to purchase and sell securities within specific guidelines established in the
investment policy, but historically the portfolio manager has executed purchases
only after extensive discussions with other Investment Committee members. All
transactions are formally reviewed by the Investment Committee at least quarterly.
Any investment which, subsequent to its purchase, fails to meet the guidelines
of the policy is reported to the Investment Committee, which decides whether
to hold or sell the investment.
Lending activities are conducted primarily by the Association’s loan
personnel (all of whom are salaried employees) operating at our main and branch
office locations and at our loan production offices. All loans that the Association
originates are underwritten pursuant to its policies and procedures, which,
for real estate loans, are generally consistent with Fannie Mae underwriting
guidelines, subject to the discussion below. The Association originates both
adjustable-rate and fixed-rate loans and advertises extensively throughout its
market area. Its ability to originate fixed- or adjustable-rate loans is dependent
upon the relative consumer demand for such loans, which is affected by current
market interest rates as well as anticipated future market interest rates. The
Association’s loan origination and sales activity may be adversely affected
by a rising interest rate environment or economic recession, which typically
results in decreased loan demand. The Association’s residential real estate
mortgage loan originations are generated by its in-house loan representatives,
by direct mail solicitations, by referrals from existing or past customers,
by referrals from local builders and real estate brokers, from calls to its
telephone call center and from the internet.
