Mail Stop 4561
March 13, 2009
Mr. Marc A. Stefanski
Chairman, President and Chief Executive Officer
TFS Financial Corporation
7007 Broadway Avenue
Cleveland, Ohio 44105
Re: TFS Financial Corporation
File No. 001-33390
Form 10-K for the fiscal year ended September 30, 2008
Form 10-Q for the quarter ended December 31, 2008
Schedule 14A filed January 15, 2009
Dear Mr. Stefanski:
We have reviewed your filings and have the following
comments.
Our accounting review is limited to the specific comments issued.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K
Allocation of Allowance for Loan Losses, page 20
1. We note the downward trend in the amount of allowance allocated
to
the Residential Home Today loans from 25.3% as of September 30,
2007
to 13.4% as of September 30, 2008 and then to 10.2% as of December
31, 2008. In light of the increasing amounts of delinquent loans
and
charge offs in this loan category during the periods presented,
please tell us and revise future filings to explain the reason for
this downward trend considering that the credit risk profiles of
Home Today borrowers are significantly higher than those of non-
Home
Today borrowers.
Management`s Discussion and Analysis, page 48
2. In future filings, please revise the overview, on page 48, to
comply with Release No. 33-8350 including, but not limited to, the
following:
* provide a balanced, executive-level discussion that identifies
the
most important matters with which management is concerned
primarily
in evaluating the company`s financial condition and operating
results;
* identify and provide insight into material opportunities,
challenges and risks, such as those presented by known material
trends and uncertainties regarding business conditions in your
markets of Ohio and Florida, on which your executives are most
focused for both the short and long term; and
* identify and provide insight into the actions you are taking to
address each of these opportunities, challenges and risks.
3. In future filings, please expand your overview consistent with
recent guidance from the Commission including, but not limited to,
analysis of the following:
* how the collapse of the real estate market and the economy in
Florida and Ohio has affected you and how the continued
deterioration
may affect you given concentration of over eighty five percent of
your loans in real estate;
* how the carrying amount of your investment securities and loans
may
be overvalued due to dramatic decline in the market value of these
assets; and
* trends in the number and percentage of your loans that are non-
performing or overdue by 30 days or more.
4. In future filings, please revise this section to comply with
Instruction 3 to Item 303 by providing discussion and analysis
that
"focus [es] specifically on material events and uncertainties
known
to management that would cause reported financial information not
to
be necessarily indicative of future operating results or of future
financial condition." In this regard, future filings should
address
the trends in the Home Today program (higher delinquencies than
regular conforming loans), interest only loans, and, inversing
delinquencies, defaults and additions to loan loss provisions.
5. In future filings, please revise fourth paragraph to provide
more
detail as to the composition of your loan portfolio including, but
not limited to, the percentage of your loans that were originated
to
borrowers in Florida and the percentage to borrowers in Ohio.
6. In future filings, please revise the fifth paragraph to provide
analysis of the impact of the Home Today Program including, but
not
limited to, the following:
* disclose the amount and the percentage of loans in your loan
portfolio that are the result of the Home Today Program;
* characterize the extent to which these loans are "alt-A" or have
the characteristics of other categories of loans:
* explain in detail how borrowers "might not qualify for such
loans;"
and
* disclose the extent to which you continue and plan to continue
to
issue loans at the same aggregate level under this program.
Comparison of Financial Condition at September 30, 2008 and 2007,
page 51
7. In future filings, please explain in more detail the reasons
for
the drop in cash of 84 percent ($700 million) despite the loan of
almost $500 million from the Federal Home Loan Bank. Please
discuss
the risks to your expanding borrowing from the FHLB and increasing
mortgage loans in the current recession and the dramatic collapse
of
the real estate market particularly in Florida.
8. In future filings, please provide analysis of the risks to you
of
your "decision" to retain more of your mortgage originations given
the real estate market in Florida and Ohio. Please indicate
whether
your decision was based on difficulty in selling these mortgages.
Liquidity and Capital Resources, page 61
9. Please supplementally explain to us the basis for your claim,
on
page 61, that your loans, most of which are real estate related,
"represent highly liquid assets."
Financial Statements
Note 1 - Summary of Significant Accounting Policies, page 79
Allowance for Loan Losses, page 80
10. We note your disclosure of your accounting policies with
respect
to impaired loans in the first paragraph of page 81. At the end of
this paragraph you state that "[l]arge groups of smaller balance
homogeneous loans such as residential mortgages and consumer loans
are combined and collectively evaluated by portfolio for
impairment."
As paragraph 6.a of SFAS 114 specifically scopes out large groups
of
smaller-balance homogeneous loans that are collectively evaluated
for
impairment, please tell us and clarify this policy in future
filings.
11. Please tell us and revise future filings to disclose your
policy
for charging off uncollectible loans in accordance with paragraph
13
of SOP 01-6.
12. We note your disclosure on page 16 that beginning as of June
30,
2008 you conducted an expanded loan level evaluation of equity
lines
of credit which are delinquent 90 days or more. We further note
on
page 17 that during the year ended September 30, 2008 you changed
the
population of loans that are individually evaluated for impairment
to
include real estate secured loans 180 days or more past due,
except
equity lines of credit which are evaluated at 90 or more days past
due. Please revise your accounting policy disclosures in future
filings to describe these and any other significant changes in
methodology in determining your allowance for loan loss given the
significant judgment involved in this process.
13. We further note on page 88 of this Form 10-K as well as page
10
of the December 31, 2008, Form 10-Q that the amount of specific
allowance for loan losses on impaired loans increased dramatically
from $283 thousand at September 30, 2007 to $22.8 million at
September 30, 2008, and further increased to $31.2 million at
December 31, 2008. Based on the amount of your total allowance for
loan losses at the end of these periods, it appears that there is
a
downward trend in your general allowance from September 30, 2007
to
December 31, 2008, even though loan delinquencies and total loans
have been increasing. In order to bridge the gap between observed
changes in the quality of your loan portfolio and resulting
changes
in the components of your allowance for loan losses, please tell
us
and provide an expanded discussion of the following in your MD&A
in
future filings:
* How the change in methodology in June 2008 related to the
population of loans that is individually evaluated for impairment
impact the determination of both the specific allowance and the
general allowance in subsequent reporting periods;
* The reasons for the decrease in general allowance in the
subsequent
reporting periods considering the continued deterioration in asset
quality and economic conditions with respect to the geographical
areas you serve.
Form 10-Q as of December 31, 2008
Financial Statements
Note 10 - Fair Value, page 12
Loans Held for Investment, page 13
14. We note your disclosure that substantially all of the
company`s
impaired loans, other than those restructured in troubled debt
restructurings, are evaluated based on the fair value of
collateral.
Given that substantially all of your loans are residential real
estate or consumer loans, please tell us and revise future filings
to
clarify how you determined that these impaired loans were either
collateral dependent or foreclosure was probable, considering the
guidance in paragraph 13 of SFAS 114. If you do not believe that
foreclosure is probable, please explain to us why you do not
believe
that fair value measurement based on present value of expected
future
cash flows or an observable market price would be more
appropriate.
15. Given that substantially all of your impaired loans are
evaluated
based on the fair value of collateral, please tell us and revise
future filings to clarify:
* Whether you consider estimated costs to sell in determining the
fair value of the impaired loans in accordance with paragraph 13
of
SFAS 114; and
* Whether you obtain updated appraisals of the collateral, and if
not, your process for determining the fair value of the
collateral.
* * * * * * * * * * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company and each filing person
acknowledging that:
* the company or filing person is responsible for the adequacy and
accuracy of the disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company or filing person may not assert staff comments as a
defense in any proceeding initiated by the Commission or any
person
under the federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Babette Cooper, Staff Accountant, at 202-
551-
3396 if you have questions regarding comments on the financial
statements and related matters. Please contact either Jonathan E.
Gottlieb at (202) 551-3416 or me at (202) 551-3434 with any other
questions.
Sincerely,
Michael Clampitt
Senior Attorney