TCF Financial Corporation ( TCB)

Q3 2011 Earnings Conference Call

October 20, 2011 11:00 AM ET


William Cooper – Chairman and CEO

Neil Brown – President and COO

Barry Winslow – Vice Chairman and Chief Risk Officer

Tom Jasper – CFO

Earl Stratton – Chief Information Officer

Craig Dahl – EVP, TCF Wholesale Banking

Jason Korstange – Director of TCF Corporate Communications


Jon Arfstrom – RBC Capital Markets

Ken Zerbe – Morgan Stanley

Paul Miller – FBR Capital Markets

Erika Penala – Bank of America Merrill Lynch

Chris McGratty – KBW

Chris Gamaitoni – Compass Point

Erika Penala – Bank of America Merrill Lynch

Emlen Harmon – Jefferies & Company



Good morning and welcome to TCF’s 2011 third quarter earnings call. My name is Christy [ph] and I will be your conference operator today.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. If you would like to ask a question, simply press star followed by the number 1 on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, press the pound key. If you are using a speaker phone, please lift your handset prior to asking your question.

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

Jason Korstange

Good morning. Mr. William Cooper, Chairman and CEO will host this conference. Joining Mr. Cooper will be Neil Brown, President and Chief Operating Officer; Mr. Barry Winslow, Vice Chairman and Chief Risk Officer; Mr. Tom Jasper, Chief Financial Officer; Mr. Earl Stratton, Chief Information Officer; and Mr. Craig Dahl, Executive Vice President of TCF Wholesale Banking.

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 the forward-looking statement disclosure contained in our 2011 Third Quarter Earnings Release for more information about risks and uncertainties which may affect us. The information we will provide today as of September 30, 2011 and we undertake no duty to update the information.

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

William Cooper

Thank you, Jason. Today, TCF reported its 66 consecutive quarter of earnings. We earned $0.20 for the quarter versus $0.19 cents in the second quarter, a slight improvement. Net income was $31.7 million versus $29.8 million, again, a slight improvement. $36.8 million last year’s quarter but last year’s quarter had an $8.5 million security scheme that wasn’t matched this year. So earnings, best way to say it, revenues were up to $293 million versus $290 million in the second quarter. Margin, essentially flat. Fee income up a little.

Expenses were down $189 million versus $196 million. So the core operations of the bank improved modestly in the quarter. The margin was, dollars were at flat rate down a little bit largely due to higher liquidity and an increasing amount of asset sensitivity in terms of we’re putting on more variable rate assets and our fixed-rate assets are running off somewhat. That’s an issue that we’ll address early in 2012.

Provision for loan losses was up from the last quarter but all of the parameters associated with credited improved. Our performing classified assets were down from $390 million to $340 million. Our non-accrual loans from 321 to 307. REO was down $6 million and the number of houses that we owned has decreased as we have accelerated the liquidation of foreclosed real-estate.

If you combine it all, the performing classified loans, the 60-day delinquency, the TDRs, the non-accruals, etc., all of that declines quarter-to-quarter and that’s the third consecutive quarter we’ve seen that decrease. The TDRs which is an accounting anomaly, in my judgment, continue to perform well. We’ve had very little mitigation and particularly in our commercial TDRs into a lost category or non-accrual category, it’s simply an accounting structure if you will. Part of the provision increase that we saw in the quarter was the change in the TDR accounting under Generally Accepted Accounting Principles.

As I mentioned earlier, fee income was up from June quarter down from last year which is mostly that impacted Reg E but that improvement is encouraging. We implemented our new negative balance account system in the first of October and so far that is performing exactly as planned. We’ve got some other fee income change that we’ve made that won’t take impact until later in the fourth. In the fourth quarter, we’ll have the full impact of the Durbin Amendment which cost us something like $15 million a quarter. We expect to mitigate that Durbin impact in 2012.

We do not plan to institute a debit card fee similar to that’s happening in other places. We do have some fee income structural changes, however, you’ll be able to continue to have a free accounted TCF as long as you use the account.

The loans were flat. Deposits were up. We went over $12 billion for the first time. Deposit rates were pretty steady between the quarters but down considerably from last year.

New checking origination was very strong. We’ve implemented a lot of marketing in that area and we still – we’ve got really strong checking origination. We expect to have some improving loan growth with the signing of the deal in the inventory finance area with BRP which is based in Canada that Ski-Doos and Sea-Doos, etc., we expect to see a growth in 2012 of as much of $650 million from that deal alone. In addition to that, the new auto finance subsidiary that we are acquiring and the process of acquiring, we expect to see asset growth from the subsidiary as well.

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