Financial Federal making moves

Published on: December 3, 2010

Financial Federal  Mary Floyd Kent Wunderlich William Tayloe

Christopher Sheffield, Memphis Business Journal

Financial Federal Savings Bank has quietly gone about its banking business for 25 years as one of only two thrifts remaining in the Memphis market.

That quiet approach is slowly changing with new products, new marketing and, perhaps, an acquisition in the offing.

"There are opportunities," says Financial Federal CEO Kent Wunderlich, who departs from a rather reserved demeanor and breaks into a broad smile when posed the question about any pending deals. "We’re looking at opportunities."

A move by Financial Federal may be imminent, but Wunderlich declines to go into any details.

But the bank, by its own admission, has about $47 million in capital from retained earnings that it needs to put to work.

Should Financial Federal be shopping around for a deal, in the current climate it’s likely to find some potential takers as more financial institutions clean up their books, but struggle with low capital positions.

While Wunderlich is reticent to talk about growth though an acquisition, he and other Financial Federal executives say there are more organic steps being taken.

The $322 million in assets thrift is embarking on a more retail-light model after years of being content to just build capital by making solid commercial and residential loans and gathering deposits through selling certificates of deposit, says president William Tayloe.

The thrift, which operates from a single location in Memphis, first ventured down the retail path earlier this year when it rolled out a money market product for the first time, dipping its toe into offering full-service checking, which it has avoided largely due to cost issues, Tayloe says.

The money market products are meant to complement the services and products in its private banking and residential divisions that also provide construction loans for new homes, financing for commercial property, lines of credit for businesses and home equity lines of credit.

A third division, the commercial and multifamily division, provides financing for apartments, retail, office, industrial, self-storage and senior housing projects. It currently services about $1 billion in commercial loans for properties across the U.S. It has offices in Nashville and Atlanta.

Since kicking off the money market product in February it has gathered about $3 million in new deposits, Tayloe says.

"And that’s with a slow rollout," he says. "We haven’t marketed it."

The money market product, and other new products that will be rolled out in the coming months, are in response to customer demand, Tayloe says. Those are new changes the thrift is trying to make while trying to balance its lean, cost-efficient business model that’s kept annual income in the range of 1 percent of return on assets.

That’s about double other thrifts, says Doug Southard, principal at Memphis-based valuation and consulting firm Southard Financial.

"They’re doing something right," Southard says.

Net income should be at about $3.5 million this year, down from $4.5 million last year and $6 million to $8 million the last few years before the housing market collapse, Wunderlich says.

Despite declining income, Wunderlich says Financial Federal has weathered the housing collapse and general market downturn well.

It’s been aggressive identifying and writing down bad loans and Tayloe says only about 2 percent of its $295 million in portfolio loans — which includes about $145 million in residential loans — are in the loan loss category.

Wunderlich says the performance of its loan portfolio is reflective of its strong customer base, which it hopes to further utilize going forward.

Wunderlich knows that to compete and continue to be successful offering more products and services is going to be the key, especially as competitors look to pick off the best customers.

"We go up against the big guys every day," he says. "And the other community banks, too. Everybody is looking for assets."