TFSL Is Now Yielding 6.8%

Primarily because the share price has declined to $16.51.

Ben Stefanski III resigned from the Board in January 2022, IIRC.

Seems like TFSL is an income investment with little growth to be expected.

But it is hard to ignore the 6.8% yield and the dividend has been increased
each year for the last 7 years.

Jim–Your thoughts?

David
(formerly TMFWysocki)

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Here are their last investor presentation slides:

https://s24.q4cdn.com/419229926/files/doc_presentations/2022…

TFSL is very well capitalized but the return on assets (0.46%) and return on equity (3.67%) is pretty mediocre.

GAAP book value is $6.24. Minority share book value (the shares that are publicly traded) is $32.63.

And they continue to buy back shares.

David

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I sure hope TFSL is buying back shares at these prices. They haven’t done much buying in recent years.

  • bakerbenji (long TFSL)
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Hey, David,

Check out page 55 here, which shows net income for the last five years: https://www.sec.gov/ix?doc=/Archives/edgar/data/1381668/0001…

2017-2021

88.9 mn, 85.4 mn, 80.2 mn, 83.3 mn, 81.0 mn. The drop in EBT is sharper, from $133 mn to $100 mn.

That’s not really moving in the right direction, and it’s putting serious pressure on their ability to raise the dividend and for investors to believe that it will be there if profit falls. The payout ratio was a hefty 70% of net income. So I expect all but a token increase to be off the table, and maybe they don’t even make that, though I suspect they will.

They repurchased a minimal amount of shares in 2021, effectively none. And through various dilutive elements, minority share count is now almost back where it was in 2017.

So the only way they can raise the dividend any meaningful amount is by repurchasing stock, which they’re now unwilling to do, apparently. (Or at least for the past four years.) They have an outstanding authorization for about 11% of the stock, but it’s basically been untouched for years. And it’s backed by $285 mn at the holding company, so they do have dry powder to effect the buyback.

Otherwise, the business generally looks like it has, though of course the rate spread has narrowed considerably in the last few years, now looking mighty thin.

The best strategy here, I think, is to focus buying points when the stock is good value (maybe $15-$16 per share) and ride it to a higher valuation (65%-70% of partially converted tangible book value) and then repeat. It seems to swing back and forth every couple years.

Was the departure of Ben Stefanski from the board a sign? I’m thinking of the CEO’s comment about a decade ago when he said that the second-step conversion was for the next generation of Stefanskis.

Best,
Jim

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Ben Stefanski is less of an indicator, imo.

He’s a nephew who needed a resume item. Always lived in California maybe, too.

Thanks, Jim, for the additional color and analysis.

David

Hi David, for a “NEW” poster you sure have a lot of posts out there, ha ha.

I have also owned TFSL for a long time. I have slowly added to the position over the years, always thinking that eventually value would have to win out. But it seems like management has found a way to make good salaries, a nice dividend on their shares and not have to work too hard.

But still, it is hard to sell it as it feels like a safe haven in my portfolio, almost like the bond portion is supposed to be (but bonds don’t really do that well these days).

In any event, I would sure like to see an activist investor (probably a smaller, up and coming one) come in and try to shake things up. It seems that the management is sitting on a lot of money and not willing to do anything to free up value.

So here I sit, not wanting to sell and not wanting to let the position get too big.

Randy
Long time long TFSL

3 Likes

I too have held onto my TFSL. I’m mostly retired and I look at that 6+% and I’m ok with that. I’m even willing to add if it gets below 16.

My thoughts are it has good protection from sliding too far in the form of that authorization to buy back shares. I would expect if it drifts much below 16, they would act on the authorization. Meanwhile we collect the dividends and wait for a potential activist and sale. Other than DBRG-H and I, seems like a good place to park cash and get more than a pittance. Will see what happens as interest rates move up.

Also a David

Seems like in a certain era, there were boatloads of Davids. When I was in elementary school, I probably knew a dozen Davids at a minimum. I suspect David W. is in that same age cohort!

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Thanks, Randy, for your thoughts. After reading Jim’s post on how TFSL is doing and reviewing the latest quarterly reports I have decided to stay away from TFSL. It seems like it will always be stuck in its old fashion savings and loan role. (Not many of them left.)

David

Hi David!

Thanks for your thoughts on TFSL.

Yeah, you guessed it, I am of the same age cohort. Just retired last year from practicing law for local public agencies. I turned 70 last month. And I am enjoying doing absolutely nothing for a while. Hell, I have been working every year without a break since my last year of high school back in 1969. And yes, I remember back in the 1960s Davids were everywhere.

Another David

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Great moniker on the signoff!

-Another Rob

That’s not really moving in the right direction

It all starts with loans. Their loan book remained steady and their Net Interest Income has gone down in the last 5 years. The net income didn’t suffer due to lower taxes. They are heavy on mortgage, which is okay, but they are also heavy on Home Equity loans, which performs badly in economic downcycle. That’s a risk.

If they end up selling the bank, and manage to get closer to “minority shareholder book value”, that’s like 100% gain. It is sort of family owned, will they sell, do they have a timeline?

If not, I will not buy for dividend alone.

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Hi Kingran, I am not sure they can sell the company when they are still in the middle of the two step process for de-mutualization.

They are in kind of a limbo space. I don’t think they can be bought, even in a hostile take-over because 80% of the stock is “owned” by the customers and employees if they ever do the second step.

Randy

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I sure hope TFSL is buying back shares at these prices. They haven’t done much buying in recent years.

From yesterday’s 10Q: “As of May 5, 2022, there were 280,797,116 shares of the Registrant’s common stock…”

As compared to the Q1 10Q:“As of February 4, 2022, there were 280,850,653 shares of the Registrant’s common stock…”

In other words, they weren’t very busy these last few weeks when the stock was down. I can’t say I’m surprised.

-bakerbenji (long TFSL)

Many here like TFSL, may be I am missing something, what is a single biggest risk for the bank? How are they going to increase earnings to cover dividend, and sustain the dividend growth?

Exactly, Matt. Will the stock at $14 make them more interested?

We will see.

Jim

Jim, Do you know what kind of hit to BV TFSL will take on MTM on their bond portfolio, and Mortgage portfolio? Do you think they will any ability to do buybacks?

Kingran, check out p71 of the latest TFSL 10-Q to get some idea of how much a change in rates affects the situation at TFSL: https://www.sec.gov/ix?doc=/Archives/edgar/data/1381668/0001…

Jim

Oh, and let me also add that they had equity levels that are generally at least twice the level needed to be considered well capitalized. See p68 for that.

Jim

From the 10-Q, 300 basis point increase or 3% increase will decrease the EVE by $563 million or by 36% and from 10-Q…

The table above indicates that at March 31, 2022, in the event of an increase of 200 basis points in all interest rates, the Association would experience a 22.11% decrease in EVE. In the event of a 100 basis point decrease in interest rates, the Association would experience a 10.72% increase in EVE.

Right now, the narrative for banks have shifted from “NII increase due to rate increase” to AOCI hit, i.e., the hit they are going to take on MTM (mark to market) on their assets. Small banks like TFSL will have less sticky deposits or the deposits get rolled to higher yielding instruments quickly.

None of this means TFSL is in distress, but I don’t see a reason to get near them now. On the other hand mega-cap banks like Citi trading at significant discount to TBV and Wells (better franchise, US based bank, much of its regulatory issues behind them, investment to meet the regulatory requirements are going on for the last few years, meaning less expense ahead) is getting closer to 1x TBV.

I generally prefer bigger banks, as they can withstand shock better. Of course YMMV.