TFS Financial Corp (TFSL) 2014 Q3 法說會逐字稿

Welcome to TFS Financial Corporation's third 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; 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 5 PM Eastern Standard Time. The dial in number for the replay is 1-800-723-0528. (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 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 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.

Thank you very much. Welcome to our quarterly call, and I am happy to report that again here at Third Federal there is nothing but sunshine and blue skies as we broadcast live here from Cleveland, Ohio. It is the home of the Republican National Convention, the next one coming up; Lebron James, of course, has signed on with the Cavaliers; we have Johnny Football joining the Browns; and the Gay Games start next week.

Along with that, we are just fresh off of our member vote. We had a special meeting, and I am happy to announce that 67.6% of our members have voted in favor of our dividend waiver. If you take all the people that voted, you are looking at over 92% of those who voted for the dividend waiver.

So consequently -- I stand corrected; 97%. My 7 looked like a 2. Consequently, we are very, very happy to announce that from this point onward we will be forwarding all that information to the Federal Reserve; and typically we have seen that time frame somewhere around 30 days that we would hear from them. There is no guarantee as to what exactly will be said, but we are expecting to hear from them within that time period.

So all those good things being said, Paul, I will turn it over to you to go over a slide or two, and we can jump right into questions.

All right, great. Thanks, Marc, and welcome, everyone. As Marc said, the results are really just a continuation of our past message, previous stories. I am really just going to hit a couple key slides to go over, so we're not going through each one.

Really on page 5, just a couple items. We have the financial highlights.

We see the assets. We increased our loans, so our asset size increased, which is part of the growth aspect of our three-dimensional approach.

Based on some of the loan performance, we have been able to keep our provision for loan losses down, so that has helped. Our noninterest expenses we have kept in line.

And obviously the net income is up from the prior year, up from the previous quarter. So that is a continuation of a good thing.

Moving on to slide 10, which is really the total loan portfolio, it is just a reiteration of what we've talked about in the past, where we transformed the balance sheet in our fixed-rate loan portfolio to get more of an interest rate risk protection, where we are getting more adjustable rate and shorter-term fixed-rate loans. So the comparison between 2009 and today was -- in 2009 we had about 59% of our mortgage loans were fixed rate; now that number is 39%. So that is just helping us from an overall interest rate risk standpoint.

Going on to the next page, page 11, which is the loan performance, just highlights the credit quality that we have had with the recent loans that we put on the books. You can see on the far right column our total delinquency rate is just a shade under 1% in total.

But if you look at the middle column, our loans since the end of 2008, from 2009 forward, our delinquency rate is 11 basis points. So that just is a confirmation of the credit quality of the loans that we've put on the books over the last number of years.

Really that brings us to page 14, which is -- remains for us what a lot of people is interested in and which Marc already touched on. But we talked about the asset growth. Marc touched on the MHC special member vote to move the dividend process a little further along.

And our buyback program, which began in April of this year, we purchased 3,144,050 shares out of 5 million. So we continue to work on that.

So just that three approach of growth, buybacks, and dividends is what we are continuing on and what we are continuing to focus on. And really just a summary. So once we went public we have purchased approximately 28% of those original shares from back in 2007.

So that is really just the key highlights of the numbers for the quarter. And I am going to turn it over to Marc, or if we went to entertain questions from the audience.

Yes, thanks, Paul. Just one other thing I would like to add to Paul's report on the delinquencies. Since 2010 I think we are talking about, we have made over 50,000 loans and only 32 are in the delinquency category right now. So for those who may be concerned with things moving forward, our credit quality will continue to be one of our focuses as we move forward.

So at this time we are anxious to hear what any and all of you have to say, or comment on, or have questions on. And our full team is here to address any questions you might have, so it is wide open right now.

(Operator Instructions) Matthew Breese, Sterne, Agee.

Good afternoon, guys. I just wanted to touch on the level of repurchases this quarter. Obviously, it is the first real quarter since the MoU where you guys can freely repurchase stock. So I wanted to get some color around the 3.1 million shares that were repurchased, and whether or not there were any volume constraints during the quarter.

Well, the volume is pretty much dictated by the average of our trading volume on the market. So we have -- the daily purchases are limited to 25% of a moving average daily trading volume.

Were you limited by those -- during the quarter, were you limited by that threshold?

Yes. I mean, that is the daily max of what you can buy.

Okay, okay. Then what about post-quarter, subsequent to quarter end? Have you since June 30 been repurchasing shares?

Yes, we continue to remain in the market and those numbers just get reported as we have future filings.

Okay. Okay, and then as it relates to the dividend, obviously with the waiver allowed, the more you repurchase then the more dollars can be funneled to minority shareholders, if in fact it were a fixed payout. And right now the $0.07 per quarter dividend is about 30% of minority earnings.

Can minority shareholders expect that kind of earnings, that sort of payout, going forward?

Well, we normally don't project what dividends are going to be. We declare dividends on a quarterly basis. Obviously, the Mutual Holding Company has passed a resolution to waive up to $0.28 over the next 12 months.

Matt, keep in mind that part of our three-dimensional approach is the growth of the Company, and buyback of stock, and dividends. So none of that is going away, and we are not going to be timid or shy about being as aggressively as possible on all three areas.

Right. Then with all three levers now being pulled, the dividends, buyback and organic growth, pre-MoU you downstream the $150 million from the Holding Company to the Bank. Do you feel like you might upstream that money sooner than later, or request for it to be upstreamed?

That decision has yet to have been made, whether we will pursue that. We feel we have adequate capital right now at the Holding Company to continue to do what we do, and I think that will be looked at if need be.

Then last September -- or last December, we upstreamed $85 million. And there is kind of a Safe Harbor regulatory analysis that each year you can take a look at it again and make another decision as to what you might want to do or not do.

Right. Okay. Then my last question is really around the margin. This quarter we had a little bit of asset yield compression, a little bit of funding cost increase. What your overall outlook for the margin is, and are we in a time frame when we can broadly expect some margin compression going forward?

I think it is not unreasonable to think about margin compression. But when we have our meetings about our strategies, I think we focus more on the three-prong approach, three-dimensional approach to our business. But along with that one of our biggest concerns, of course, is what else is going to come out of Dodd-Frank and how that is going to affect us.

So the regulatory environment continues to be a very, very tough place to be, although we are in compliance with most everything that we are supposed to be. But there are still some unwritten parts of the law that we just don't know where that is going to leave the entire industry.

So we think about compression. But I gather from your question that you look at that as one of the primary concerns; and while we have it up there as one of the concerns, I don't think that -- we don't think that it's that threatening at this point.

That's all I had. Thank you very much, guys.

(Operator Instructions) Kevin O'Keefe, Brown Advisory.

Hey, gents. Congrats on getting that buyback going and for a very nice quarter.

Did I hear you correctly in that you already had all requisite shareholder approvals for the dividend, so the only thing standing in your way is submitting to your regulators and getting them to sign off?

That's correct.

All right, well done. That was faster than I would have anticipated, so congrats on that. Excellent execution.

Thank you. We worked with Sandler O'Neill on this. And from what they indicated, coming up with 97% approval out of all those who voted is unprecedented; so that is something we are very proud of.

It just continues to show how much confidence our depositors and other shareholders too to have in our Company and our management team and the Board.

Well, I am glad you guys didn't remember I volunteered to show up on a Saturday and call people for you. Just an observation here on the buyback. When we look at what you are doing, I think it is the most financially compelling exercise out there in the financial space.

You have bought back 3.5 million shares, increased your tangible book by 3%, and your tangible equity barely moved. You are sitting at 15.8% versus 16.2% the prior quarter, and that includes growth.

What I just want to highlight and the way that we are thinking about it is, we agree with having three prongs to your strategy; we are excited about the dividend; we are very excited about the buyback; and we are excited about growth.

But when it really comes down to it, the aggression on buyback is what is going to move the needle. If I just play simple math and say over the next couple of years you will earn about $140 million, and I say that you would run this Company with a 12% tangible equity ratio, you could buy back 44 million shares.

If you did that, you would take your present minority earnings to about $1.89. And if you kept the same, roughly, 30% payout ratio, you would get a dividend -- your dividend would double, without doing anything besides just being aggressive with buyback. If you grow the Company by 30% and operate with similar ROAs, you would grow the earnings by 30%.

So the way I look at it, 30% would be generous given your risk profile and basically being a model line lender. When it comes down to it, there is no more compelling argument than aggressively buying in your shares, because you would -- in this scenario, very simple math -- you would have 90% earnings growth for the minority base and you would double the dividend without ever having to pay out more than what you are presently paying out now.

I just wanted to highlight the way we are looking at it, because I really don't think there is a more compelling argument in the entire space.

Well, thank you. So noted, and I can't disagree with you, but I appreciate your comments.

Last question would be, if you happen to complete the buyback, your remaining 1.3 million or whatever it was, is there anything that would stand in your way from being able to submit another 5 million shares?

Not a thing. That is part of the plan.

Great.

(Operator Instructions) It appears that we have no further questions at this time. I would be happy to turn the floor back over to Mr. Marc Stefanski for any additional or closing comments.

Well, the only comment I have is: thank you for your support, and thank you also for your patience. Again, it is nothing but sunshine and blue skies here at Third Federal of Cleveland, Ohio. So thank you again.

Thank you. This does conclude today's teleconference. As a reminder, the dial-in number for the replay is 1-800-723-0528. Please disconnect your lines at this time and have a wonderful day.