TFS Financial's CEO Discusses F2Q12 Results - Earnings Call Transcript

TFS Financial Corporation (TFSL)

F2Q12 (Qtr End 03/31/2012) Earnings Call

May 3, 2012 10:00 am ET

Executives

Marc Stefanski - CEO

Dave Huffman - CFO

John Ringenbach - COO, Third Federal Savings

Meredith Weil - CRO, Third Federal Savings

Paul Huml - CAO

Analysts

Mike Shafir - Sterne, Agee

Presentation

Operator

Welcome to the TFS Financial Corporation's second 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; Mr. John Ringenbach, Chief Operating Officer of Third Federal Savings; Ms. Meredith Weil, Chief Retail Officer of Third Federal Savings; and Mr. Paul Huml, Chief Accounting Officer. (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 financial condition may differ possibly materially from the anticipated results and financial conditions indicated in these forward-looking statements. For a discussion on 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.

Marc Stefanski

Thank you very. I would like to say good morning to everyone and welcome. We have Paul Huml that will be going over the slide presentation that was released. And Paul, I'd like to turn the floor over to you and go ahead with your presentation.

Paul Huml

Thanks Marc. And welcome everyone, thanks for joining us. We had a little difference that the earnings release came out two days ago, normally we like to do this a day after, but apologize for any inconvenience that caused.

But going on to really Page 3 of the slide, you'll there's not a lot of change in the overall situation of TFS Financial, total assets, deposits, equity are very similar to where they've been in the past and no change in our organizational structure from the mutual holding company.

Going to next page, on Page 4, I think just goes over our strategic overview and sort of a highlight is the ARM loan production that we've continued to generate a good percentage of our loan production is in the ARM area, 58% of the current year, which is an increase over the past couple of years.

And again, we've always focused on high credit quality and you'll see the FICO score 783 and average LTV 62% of our current production. So we continue to focus on high credit quality.

Page 5, again, not a lot of change in deposit breakdown, where we operate in Ohio and Florida. And actually deposits have increased a little bit in the current quarter.

Page 6, turning over the financial highlights. I think you'll see in the loan area that we continue to have consistent loan growth. I have combined on the net loans line a portion of loans held for sale, which is about $245 million have included in that net loans number to really reflect the total loan growth that we have.

And I think you'll see the biggest change in the current quarter was our provision, which was $27 million for the quarter, which was up from $15 million last quarter and $22.5 million the same quarter last year. And the increase in the provision was really in response to some of the experience we had in increase in charge-offs, surrounding the foreclosure, the sheriff's sale process, and just seeing some slight deterioration in the market values, the values of the homes that we're moving through, but the allowance has gone back up to around $101 million in total.

With that we've actually seen some improvement in our performance from the delinquency numbers, the non-performing assets. And so it's really the charge-offs that we experienced in the quarter that led to this slight increase in provision.

Going on to Page 7, just a recap of our capital position, which has and always been strong, not a whole lot of change from that factor. Again, Page 8, loans and deposit balances. If you see a lot of consistency between the periods, where we're at and can slowly see the equity lines in credit decreasing a little bit and the residential non-home today increasing a little bit as production increases.

Page 9, is sort of a big story as far as what we're doing in adjustable rate, which is really in response to help our interest rate risk going forward. Traditionally had been a long-term fixed rate lender and our production now is around a 50-50 mark of ARMs.

Actually for the current fiscal year we're about 58% of our production in ARMs. And again, the total credit scores and average LTV of the ARM production has been very strong.

A little bit more on the adjustable rate growth is really showed on the chart on Page 10, where you can see consistent growth as to what the adjustable mortgages are as a percentage of our total first mortgage portfolio. So we're changing the course of the ship a little bit.

Whereas we had been traditionally that fixed-rate lender, now we have 31% of our total first mortgages as ARMs. And if you factor in the ELOCs, which are also adjustable with probably 45% of our total real estate loans are now adjustable rate.

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