TCF Financial Corporation (



Q4 2011 Earnings Call

January 24, 2012 11:00 a.m. ET


William A. Cooper - Chairman and CEO

Barry N. Winslow - Vice Chairman of Corporate Development

Mr. Neil Brown - Chief Risk Officer

Thomas F. Jasper - Vice Chairman of Funding, Operations and Finance

Craig R. Dahl - Vice Chairman of Lending

Michael S. Jones - Chief Financial Officer

Earl D. Stratton - Chief Operations Officer

Jason Korstange - Director of TCF Corporate Communications


Jon Arfstrom - RBC Capital Markets

Steven Alexopoulos - J.P. Morgan Securities

Ken Zerbe - Morgan Stanley

Connor Fitzgerald - Bank of America Merrill Lynch

Chris Gamaitoni - Compass Point

Emlen Harmon - Jefferies & Company

Steve Scinicariello - UBS Securities

Tom Alonso - Macquarie Securities

Ken Barger - FBR Capital Markets

Andrew Marquardt - Evercore Partners

Andrew Boord – Fenimore

Peyton Green - Sterne Agee & Leach

Tony Davis - Stifel Nicolaus



Good morning and welcome to TCF’s 2011 Year End and Fourth Quarter Earnings Call. My name is Christy and I will be your conference operator today.

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All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. (Operator Instructions)

At this time I would like to introduce Mr. Jason Korstange, Director of TCF Corporate Communications to begin the conference.

Jason Korstange

Good morning. Mr. William Cooper, Chairman and CEO will host this conference. Joining Mr. Cooper will be Mr. Barry Winslow, Vice Chairman of Corporate Development; Mr. Neil Brown, Chief Risk Officer; Mr. Tom Jasper, Vice Chairman of Funding, Operations and Finance; Mr. Craig R. Dahl, Vice Chairman of Lending; Mr. Mike Jones, Chief Financial Officer and Mr. Earl Stratton, Chief Operations Officer.

During this presentation, we may make projections and other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are predictions and that actual events or results may differ materially. Please see our forward-looking statement disclosure contained in our 2011 Year End and Fourth Quarter Earnings Release for more information about risks and uncertainties, which may affect us. The information we will provide is accurate as of December 31, 2011 and we undertake no duty to update the information.

Thank you and I will now turn over the conference call to Mr. William Cooper, Chairman and CEO.

William Cooper

Thank you, Jason. TCF reported its 21st consecutive year of net income at almost $110 million for the year, $0.71 per share. We reported our 67th consecutive quarter of net income for the quarter at $16.5 million or $0.10. TCF's fourth quarter was impacted by the first full quarter of the driven amendment, which reduced our fee income on debit cards by almost 50%, which impacted us almost $15 million for the quarter.

Although, almost all of our credit metrics improved in 2011 including in the fourth quarter, TCF is still impacted by higher than normal provisions and particularly in our home equity portfolio and commercial lending portfolios. Our specialty financed portfolio has continued to have excellent credit quality.

Historical lower interest rates have had a negative impact on our net interest margin as loans have refinanced that at lower rates than they had previously. All that being said, we have some very positive events in 2012, as we previously discussed, we signed an agreement with VRP on our inventory finance business that should originate over $600 million of new loans, variable rate, good yielding loans in 2012, a newly acquired auto finance subsidiary has started to originate loans in 2012 and we will add significant amount of lending outstandings in 2012 as well.

Both of those areas to a greater or lesser degree as I mentioned earlier, expenses tend to come first, revenue is later as we ramp up the expenses of origination in support of those portfolios put provisions on the guideline provisions as the loans grow and as they stabilize they become more profitable.

Net interest income was about flat with 2010 at about $700 million and pretty much flat for the quarter as well as compared to 2010. Our fee income on deposits was down year-to-date for 2010 about 17% largely due to the Durbin amendment, Reg E and other factors and it was down in the quarter by 23%.

Deposit fee income obviously for us, which includes debit card income, continues to be a challenge due to the regulatory changes and customer behavior changes as well as what's going on in the market place. This is much changing environment. Deposit fees were innovating in deposit fees, in pricing and structure, aims or work in progress, people are changing their behaviors and it will continue to be an issue in 2012 particularly in the first quarter of 2012. But, we have got a laser focus on this area and we are making significant changes to this significant progress.

Leasing fee income at $89 million year-to-date and $18.5 million for the quarter, its interesting now exceeds debit card revenue, which shows you the diversification that’s occurring in our P&L and balance sheet as we expand into new businesses.

Loans were about flat down just a little for the quarter year-to-date, credit quality metrics continue to improve with continued improvement in classified assets, non-accrual loans et cetera, however, as I mentioned earlier it still remains an issue as particularly we still have low but stabilizing home prices. A little about TDR, TDR is by the Trouble Debt Restructurings and that means where we made some compromise with the borrower as it relates to interest rate but not principle or other terms and loan, but not principle.

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