Sandler O'Neill East Coast Financial Services Conference November 10-12, 2010 Exhibit 99.1 |
2 Forward-Looking Statements This presentation contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include: Statements of our goals, intentions and expectations; Statements regarding our business plans and prospects and growth and operating strategies; Statements concerning trends in our provision for loan losses and charge-offs; Statements regarding the asset quality of our loan portfolio; and Estimates of our risks and future costs and benefits. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events: Significantly increased competition among depository and other financial institutions; Inflation and changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments; General economic conditions, either nationally or in our market areas, including employment prospects and conditions that are worse than expected; Decreased demand for our products and services and lower revenue and earnings because of a recession; Adverse changes and volatility in credit markets; Legislative or regulatory changes that adversely affect our business; Changes in consumer spending, borrowing and savings habits; Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board and the Public Company Accounting Oversight Board; Changes in laws or governmental regulations affecting financial institutions, including changes in regulatory costs and capital requirements; The timing and the amount of revenue that we may recognize; Changes in expense trends (including, but not limited to trends affecting non-performing assets, charge offs and provisions for loan losses); Changes in consumer spending, borrowing and spending habits; The impact of the current governmental effort to restructure the U.S. Financial and regulatory system; Inability of third-party providers to perform their obligations to us; Adverse changes and volatility in real estate markets; The strength or weakness of the real estate markets and of the consumer and commercial credit sectors and its impact on the credit quality of our loans and other assets. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward- looking statements. |
3 Organized in 1997 as the mid-tier stock holding company for Third Federal Savings & Loan Association of Cleveland (“Thrift”), which was founded in 1938 by Ben and Gerome Stefanski Completed first step IPO conversion in April 2007 TFSL (NASDAQ) Financials at 9/30/2010: Assets: $11.1B Deposits: $ 8.9B Equity: $ 1.8B Market Cap: $ 2.7B As of September 30, 2010, there were 308.3 million shares outstanding, of which 73.7% were held by the Mutual Holding Company Overview of TFS Financial Corporation |
Ohio 22 full service branches in Northeast Ohio 4 loan production offices in the Columbus area (Central Ohio) 4 loan production offices in the Cincinnati area (Southwestern Ohio) Markets of Operation Florida Organic, de novo expansion into Florida started in 2000 9 full service branches along the West Coast from New Port Richey to Naples 8 full-service branches along the East Coast from Palm Gardens to Hallandale Source: SNL Financial Deposits as of June 30, 2010 Deposits Market Market MSA Branches ($M) Share (%) Rank Cleveland-Elyria-Mentor, OH 19 5,782 11.51 2 Akron, OH 3 499 4.33 8 Ohio Totals 22 6,281 2.79 9 Deposits Market Market MSA Branches ($M) Share (%) Rank Tampa-St.Petersburg-Clearwater, FL 5 1,090 2.21 7 Miami-Fort Lauderdale, FL 8 1,064 0.68 26 Cape Coral-Fort Myers, FL 2 251 2.15 13 North Port-Bradenton-Sarasota, FL 1 248 1.47 15 Naples-Marco Island, FL 1 123 1.12 17 Florida Totals 17 2,776 0.69 23 4 |
5 Strategic Overview Our business model is to originate and service first mortgage loans and continue to service existing home equity loans and lines which we fund with core retail deposits Thrift stopped accepting applications of new home equity loans and lines in June 2010 Thrift introduced and is originating new adjustable rate mortgages product to replace home equity lines – $1B in loan applications from 7/1/10 to 9/30/10 have been ARM products The ARM will act as an interest-rate hedge for the balance sheet First mortgage loans and retail deposits have been generated primarily from the market areas defined by where we have full service branches and loan production offices Large deposits per branch ($227 million at 9/30/10) helps keep us a low cost provider In generating mortgage loans and home equity loans and lines, only non-commissioned Thrift associates were used to gather applications, underwrite and process the requests First mortgage originations continue to be made using stringent, conservative lending standards Historically, prudent capital management has supplemented shareholder returns. Repurchased 24.1 million of TFSL stock (approximately 23% of the public float) since the IPO in April 2007 Dividends of $49 million paid to public common shareholders since IPO |
6 Financial Highlights (Dollars in Thousands) At or for the year ended, 9/30/08 9/30/09 9/30/10 Balance Sheet Assets ($) 10,786,451 10,598,840 11,076,027 Net Loans ($) 9,208,736 9,219,585 9,181,749 Deposits ($) 8,261,101 8,570,506 8,851,941 Common Equity ($) 1,843,652 1,745,865 1,752,897 Balance Sheet Ratios Loans/ Deposits (%) 111.5 107.6 103.7 TCE / TA (%) 17.0 16.4 15.8 Thrift Only Ratios: Core Capital Ratio (%) 12.1 12.5 12.1 Tier 1 Risk Based Ratio (%) 17.3 17.3 18.0 Total Risk Based Capital Ratio (%) 17.6 18.2 19.2 Profitability Net Interest income ($) 219,862 230,075 227,506 Provision for loan losses ($) (34,500) (115,000) (106,000) Net Interest income after provision for loan losses ($) 185,362 115,075 121,506 Non-interest income ($) 47,780 67,384 58,638 Non-interest expense ($) (151,447) (162,388) (161,929) Income before income taxes ($) 81,695 20,071 18,215 Income tax expense ($) (27,205) (5,676) (6,877) Net income ($) 54,490 14,395 11,338 Net interest margin (%) 2.18 2.20 2.16 Efficiency Ratio (%) 56.6 54.6 56.6 Asset Quality NPAs/ Assets (%) 1.7 2.6 2.7 NCOs/ Avg Loans (%) 0.2 0.7 0.7 Reserves/ Loans (%) 0.5 1.0 1.4 Texas Ratio (NPAs & TDRs / TCE & LLR) (%) 10.0 17.4 21.0 |
7 Loan and Deposit Balances *About Home Today: An affordable housing program targeted toward low and moderate income home buyers that is designed to teach the essential skills needed for successful homeownership. Most loans supported by PMI. Cumulative loan originations under this program have been less than $20 million over the last three years. (negligible) 80% of 1-4 family in Ohio Also service $7B in loans for others No brokered deposits Deposits increased 3.3% from prior year Deposit Data 9/30/10 71% 11% 18% 0% Certificates of Deposit Negotiable Order of Withdrawal Savings Accrued Interest Gross Loan Balances 9/30/10 66% 3% 30% 1% Residential non-Home Today Residential Home Today Equity loans and lines of credit Other |
8 Capital Position as of September 30, 2010* 15.75% 12.14% 18.00% 19.17% 10.92% 9.68% 16.20% 17.46% 0.00% 5.00% 10.00% 15.00% 20.00% Tangible Common Equity Ratio (TFSL) Core Capital Ratio (Thrift) Tier 1 Risk-based Ratio (Thrift) Total Risk-Based Capital Ratio (Thrift) Well Capitalized Source: SNL Financial Peers include: ISBC, CFFN, BNCL, KRNY, NFBK, WSBF, EBSB and RCKB 6.00% 10.00% 5.00% Peers TFSL/Thrift * Peer data is as of 6/30/10 |
9 Loan Delinquencies and Charge-offs Dollars in millions Loan Delinquencies Net Charge-offs for FYE Balances 9/30/2009 9/30/2010 9/30/2009 9/30/2010 Residential non-Home Today Ohio and Kentucky $4,970 1.8% 1.8% Florida 1,168 3.8% 5.1% Total $6,138 2.2% 2.5% $7 $12 Residential Home Today Ohio and Kentucky $270 38.3% 34.7% Florida 11 30.2% 32.1% Total $281 37.9% 34.6% $4 $5 Home Equity Loans and Lines of Credit Ohio $1,146 2.5% 2.0% Florida 798 4.0% 4.1% California 325 1.8% 1.5% Other 580 2.7% 2.4% Total $2,849 2.9% 2.6% $51 $49 Overall Total $9,375 3.6% 3.5% $64 $68 $5 2 $5 7 $4 -0- $5 -0- $6 35 5 5 $7 33 4 5 Other $107 12.9% $2 $2 3.9% |
10 Memorandum of Understanding On August 16, 2010, the Thrift received a Memorandum of Understanding from the OTS. Key elements of the MOU: Provide the OTS a written report from a consulting firm assessing the home equity lending portfolio Develop a plan to reduce the concentration limits for home equity loans and lines relative to tier 1 core capital and ALLL Enhance policies and procedures with respect to home equity lending and credit risk management Submit an updated business plan addressing all corrective actions Monitor the Thrift’s performance against the business plan |
11 Promontory Financial Group (“PFG”) PFG (a premier financial consulting group made up primarily of former regulators) was engaged to provide an assessment of the home equity portfolio and lending practices Report was completed and submitted to the OTS in September 2010 The report had several key findings: Thrift has controlled credit risk through selection of higher quality of borrowers Thrift has employed generally conservative underwriting practices Thrift capital position can withstand significant economic stress, and maintains a substantive cushion over statutory “well-capitalized” standards Thrift should actively manage home equity lending exposure down Thrift has opportunities to enhance risk management and to mitigate home equity concentrations including line cancellations/suspensions and improved programs, policies and practices |
12 Summary of Home Equity Portfolio (charts available in appendix) The ratio of home equity portfolio and open commitments relative to Tier 1 (Core) Capital plus ALLL, has ranged between 288% to 544% over the past seven years. Balance at September 2010 is 350%, with a plan to reduce to 260% by December, 2011 Customers have maintained strong credit scores with 85% of existing credit limits associated with current credit scores over 700 Loans seriously delinquent (either >90 days past due or in bankruptcy or foreclosure) is under 3% – very little delinquency occurs in credit scores over 700 While CLTVs (combined loan to value) have slipped from origination, the portion of loans with >100% CLTV have delinquencies under 5% 72% of customers with negative equity have credit scores of 700 or better 70% of customers have used the same or less of their credit line, regardless of change in property value, indicating they are not using their equity lines to stay current on their obligations. |
13 The Reduction plan effectively began with the suspension of all new home equity loan and line originations, increases and extensions beginning in June 2010. The formal plan submitted to the OTS in September 2010, included 3 key elements: Line Reduction – From June 30, 2010, through December 2011, a reduction of $1 billion of commitments including $300 million in outstanding balances – The plan does not include selling any existing home equity loans or lines Process and Procedure Management - Implementation of expanded line management, account management and collection processes recommended by PFG – These procedures will assist in the ongoing management of the risk in our current portfolio as individual customer situations change and as larger economic trends evolve Down streaming of Capital – Down stream $150 million into the Thrift from the holding company in October 2010. – Holding Company has approximately $400 million of equity capital separate from the Thrift at 9/30/10 Home Equity Lending Reduction Plan |
14 Current Status of Plan: The Thrift believes the requirements of the MOU for the submission of documents have been met. However the OTS has neither approved nor disapproved the plan, and therefore the plan is subject to revision. The OTS has the ultimate authority as to how long the MOU will remain in effect. Reduction is being accomplished in a variety of ways: The Thrift is asking customers to voluntarily close their lines of credit and/or close their second mortgage as a part of a refinance In early October, the Thrift began suspending lines of credit for customers with a significant decline in equity As of September 30, 2010: Home equity balances have been reduced $47 million from June 30, 2010 Commitments have been reduced $102 million from June 30, 2010 Home Equity Lending Reduction Plan |
15 Cash Dividends and Stock Repurchases TFS Financial must provide the OTS 45 days prior written notice of the Company’s intent to declare and pay dividends to its stockholders or repurchase any of its outstanding stock. The Company understands and shares the view of the importance to shareholders of dividends and stock repurchases, however, the Company does not intend to declare or pay a dividend, or to repurchase any of its outstanding common stock until the OTS’ concerns are resolved. |
16 Summary Working diligently to resolve the MOU with the OTS Focus on our core competency of originating high credit quality 1-4 family residential mortgages in our banking footprint including the introduction of new products like our new ARM loans TFSL has a strong capital position and flexibility at the holding company We have many means at our disposal by which to achieve our desired reduction in home equity loans and commitments Focused on returning to shareholder enhancing activities Dividends Share Buybacks |
Appendix: Home Equity Lines of Credit |
18 Home Equity Lines of Credit History of Equity Portfolio Exposure Calculations include only capital at Thrift level and excludes additional capital maintained at TFSL Home Equity Portfolio and Open Commitments Relative to Thrift Tier 1 (Core) Plus ALLL 350% 387% 375% 288% 414% 449% 544% 0% 100% 200% 300% 400% 500% 600% September 30, 2004 September 30, 2005 September 30, 2006 September 30, 2007 September 30, 2008 September 30, 2009 September 30, 2010 |
19 * Seriously delinquent: Lines 90 days or more past due, or are reported either in bankruptcy or foreclosure regardless of payment status. Where credit is not available, balances are included in the <600 category Credit Extended is the credit limit on any lines open to draw and the principal balance on lines suspended or in repayment. 0.00% 74% 58% 1% 60% 70% 750 and higher % of total 0.14% 94% 79% 4% 81% 85% 700 and higher % of total 2.88% $2,198 $2,748 $79 $2,668 $4,946 Total 0.03% $953 $379 $0 $379 $1,332 800-850 0.03% $908 $1,215 $0 $1,215 $2,123 750-799 0.46% $200 $565 $3 $563 $766 700-749 6.02% $91 $384 $23 $361 $475 600-699 25.87% $45 $205 $53 $152 $250 < 600 % Seriously Delinquent Unused Balances Total Balances Seriously Delinquent* Current Credit Extended Credit Score Home Equity Lines of Credit Credit Extended, Balances and Delinquencies by Credit Score As of July 2010, dollars in millions |
20 2.86% $79 $2,676 $4,976 $4,977 Total 4.72% $37 $739 $1,188 $8 >100 2.47% $7 $277 $482 $6 90-100 1.96% $7 $355 $657 $1,459 81-89% 1.67% $18 $1,051 $2,171 $3,321 <=80% 3.90% $10 $254 $478 $183 Not Available % Seriously Delinquent Seriously Delinquent* Current Extended $s as of June 2010 Extended $s at Origination CLTV Home Equity Lines of Credit Credit Extended and Balances by Refreshed Property Values As of June 2010, dollars in millions * Seriously delinquent: Lines 90 days or more past due, or are reported either in bankruptcy or foreclosure regardless of payment status. |
21 Home Equity Lines of Credit Customers not Using Lines to Maintain Credit Score Data as of June 2010 0% 100% 0% 100% 81-100% 22% 78% 20% 80% 61-80% 27% 73% 23% 77% 41-60% 26% 74% 23% 77% 21-40% 21% 79% 22% 78% 1-20% 17% 83% 15% 85% 0% Utilization Percent as of June 2010 is Higher than Oct. 2009 Utilization Percent as of June 2010 is the Same or Lower than Oct. 2009 Utilization Percent as of June 2010 is Higher than Oct. 2009 Utilization Percent as of June 2010 is the Same or Lower than Oct. 2009 Utilization as of Oct. 2009 Accounts in a Negative Equity Position All Accounts Customers who've maintained a 700 Credit Score More than 70% of customers have used the same or less of their credit line, regardless of change in property value |
22 Home Equity Lines of Credit Negative Equity by Credit Score As of July 2010, dollars in millions Negative equity is the updated property value, less the original senior lien balance, less the credit exposure 72% of customers with negative equity have credit scores 700 or better. 4.57% $35 $737 $744 Total 0.00% $0 $68 $106 800-850 0.03% $0 $303 $282 750-799 0.52% $1 $174 $150 700-749 7.54% $11 $130 $128 600-699 27.49% $24 $63 $78 < 600 % Seriously Delinquent Seriously Delinquent* Current Negative Equity $s * Seriously delinquent: Lines 90 days or more past due, or are reported either in bankruptcy or foreclosure regardless of payment status. |