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TFS Financial Corporation (TFSL)
F4Q2011 Earnings Call
November 17, 2011, 09:30 a.m. ET
Marc Stefanski - President and CEO
Paul Huml - CAO and COO
Dave Huffman - CFO
John Ringenbach - COO, Third Federal Savings and Loan
Meredith Weil - CRO, Third Federal Savings
Mike Shafir - Sterne Agee
Michael Lee - Royal Capital
Frank Rango - Purchase Capital
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Today’s call is being recorded and will be available for replay beginning at 12:00 Eastern. The dial-in number for the replay is 800-283-4216. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. (Operator Instructions) In interest of time and to get as many questions as possible, we ask that you limit yourselves to one question and one follow-up. Lastly, when posing a question, please pick up your handset to allow optimal sound quality.
Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on the management’s current views and assumptions and involve known and unknown risks and uncertainties. It is possible that the company’s actual results and financial condition may differ possibly materially from the anticipated results and financial conditions indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results, see Risk Factors in the company’s latest Annual Report on www.thirdfederal.com. TFS Financial Corporation assumes no obligation to update any forward-looking information provided during the conference call.
It is now my pleasure to turn the floor over to Mr. Marc Stefanski. Sir, you may begin.
Good morning, everyone, welcome. And at this time I’d like to turn the floor over to Paul Huml, who will go over the deck that was been made available to everyone and then we will follow on with questions. Paul?
Okay. Thanks Marc. As you know we put out the earnings release yesterday and then also the slides that we will be briefly going over today. And really just jumping to Page 3 of the slides, just an overview of where TFS Financial Corporation is as of September 30 which was our fiscal year-end; very consistent with where we have been as it's little under 11 billion; shareholders’ equity of 1.8 billion which is a little over 16% capital, which we say is very consistent.
Going on to Page 4, just sort of a strategic overview and we are very consistent, simple organization focusing on individual mortgages and deposits and we have traditionally been a fixed rate lender. And recently as of July 2010, issues with the equity lines of credit where we stopped originating equity lines of credit, we looked at trying to respond to our interest rate risk exposure and we went more to way in adjustable rate product, what we call our smart rate product.
And so, if you look at where we are at going from a traditionally fixed-rate, now we have got 55% of our current fiscal year production was the Smart Rate adjustable product. So, we think that’s a pretty key going forward. Generally, most of our mortgage loans and deposits have been generated in our footprint, which is Ohio and Florida, but starting in May of 2011 and expand a little bit further on; we have introduced a Smart Rate product into other states and using our same underwriting, same credit standards going out to other states that generate some loans. So, that will be a key component of growth going forward. And again, everything is originated by Third Federal Associates team, tough credit standards and you can see on the first mortgage originations that we have done this year with the average credit score of 775 and an average LTV of 64 we are keeping that strong credit component.
From markets of operation on Page 5, really not a whole lot of change, Ohio and Florida is where our physical presence is and we stay very strong in those markets from a deposit standpoint.
On Page 6, I think you can see some of the things that stick out in a tough environment, our loan growth, even considering that we stopped originating HELOCs and we reduced those consciously down 350 million property in the last year. Our loan growth has increased, which is really the originations of some of the Smart Rate products.
We have been able to increase our net interest income from last year. I think probably the big difference is in the non-interest income where we lost some, is that we are not selling any more loans to Fannie Mae. So, you see a lot of the gains that have fallen out of there. Our provision for loan losses, we are starting to see that trending down, if you look at over the last few years and even from a quarter’s standpoint. And again, the strong capital position has always been, there are over 16% intangible capital percentage and the asset quality at the bottom, we have seen some improvements there.