TFS Financial Corporation (TFSL)

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TFS Financial Corp (TFSL)

Q4 2012 Earnings Call

October 31, 2012 10:00 am ET


Marc A. Stefanski - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Paul J. Huml - Chief Operating Officer and Chief Accounting Officer

David S. Huffman - Chief Financial Officer, Secretary and Member of Investment Committee

Meredith S. Weil - Chief Operating Officer of Third Federal Savings and Loan


Matthew Breese - Sterne Agee & Leach Inc., Research Division

Joseph Albert Stieven - Stieven Capital Advisors, L.P.

Frank Rango



Welcome to TFS Financial Corporation's Fourth Fiscal Quarter Earnings Conference Call and Webcast. Hosting the call today from TFS Financial is Mr. Marc Stefanski, Chief Executive Officer. He is joined by Mr. Dave Huffman, Chief Financial Officer; and Ms. Meredith Weil, Chief Operating Officer of Third Federal Savings; and Mr. Paul Huml, Chief Accounting Officer.

Today's call is being recorded and will be available for replay beginning at 2 p.m. Eastern Standard Time. The dial number for your replay is (800)283-4783. [Operator Instructions]

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 the financial condition may differ, possibly materially, from the anticipated results and the financial condition 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 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.

Marc A. Stefanski

Good morning, everyone. Welcome. And for all of our friends in the Northeast, you've been in our thoughts and prayers. Hope everything is well with you and your families. And we'd like to start off by having Paul Huml go over the deck that was published yesterday. And so Paul, if you don't mind.

Paul J. Huml

Okay. Thanks, Marc, and welcome to everyone. As Marc mentioned, we filed the earnings release yesterday and also the slide deck that we'll briefly go over today. So just going through the slide deck and Page 3 is just sort of the summary where we're at, at September 30, 2012 versus 2011. You'll see our assets have gone up by about $600 million and our deposits have gone up as well. Shareholders' equities are very consistent.

From our strategic overview, not a whole lot has changed. I think our focus has been on the ARM production that we've tried to generate and you'd see some of the numbers on there just from the percentage of our production being the adjustable rate is 56% this year, it was 55% last year. That's a significant change from where we've been in prior years, you can see 19% in fiscal 2010. So that's been a big strategic move on our part is to generate more first mortgage adjustable products. And the -- you can see of the some of the FICO scores and the average LTVs are very, very strong for the production that we've been doing. So that's really where we are from a strategic standpoint. Markets of operation, not a whole lot of change there, really just the same Florida and Ohio markets.

Going on the next slide. Really, the financial highlights, obviously, the strong capital numbers come out as being a good issue for us. I would say from a net interest income, as you can see, from year-to-year, we have increased our net interest income. Obviously, the bad side is the elevated provision for loan losses over the last few years. I think one of the other things that comes out in the non-interest income which has dropped a little bit over the years, is really our decision of not selling loans into Fannie Mae. So you'd see a lot of those noninterest income numbers, particularly in 2010, generated from sales.

Down below, you'll see the, again, the net interest margin has increased over the last couple of years. Some of the asset quality numbers have a tough comparison as you look across, just because of the number of regulatory changes that have occurred over the last year or so that's caused some additional charge-offs, different classifications from charging off SVAs. So it's difficult as you go through some of those things to see some across-the-board comparisons, but maybe there's some charts a little later as we look at delinquencies that might shed a little better light on comparison.

Next slide, capital position. Again, very strong numbers. These are the last 3 ratios on the table are our, the thrift only, does not take into account the holding company and the capital that is at that level.

Next slide is really the deposit overview, which tells has told the story as we've maintained our deposit levels have increased as we slowly lowered the average costs of those deposits. And a lot of that is from the CDs that have matured, higher-rated CDs, longer-term that are maturing and continue to roll off. So we hope to continue that.

Next page is, really, again, the focus on adjustable rate production and where we've done. We had a strong year as far as production, over $2.6 billion of loans that have come through, 56% of them were adjustable. And again, the total credit parameters, the credit scores and the loan-to-value ratios are very strong. And you can see where we have sort of changed our approach from fiscal '09 through to 2012, generating a lot more adjustable rate in this low interest rate environment as we're trying to provide some protection -- interest rate protection going forward.

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