TCF Financial Corporation (TCB)

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TCF Financial Corp. (TCB)

Q1 2009 Earnings Call

April 23, 2009 11:00 AM ET


Jason Korstange - Investor Relations

William A. Cooper - Chairman and Chief Executive Officer

Barry Winslow - Vice Chairman of TCF Equipment Finance.

Thomas F. Jasper - Chief Financial Officer

Neil W. Brown - President and Chief Operating Officer

Craig R Dahl - President and Chief Executive Officer, TCF Equipment Finance


Jon Arfstrom - RBC Capital Markets

Steven Alexopoulos - JP Morgan

David Rochester - FBR Capital Markets

Ken Zerbe - Morgan Stanley

Ben Crabtree - Stifel Nicolaus & Co.

Kenneth Usdin - Banc of America Securities

Lana Chan - BMO Capital Markets

Frederick Weiss - Atlantic Trust

Michael Beerman - Eminence Capital



Good morning and welcome to TCF 2009, First Quarter Earnings Call. My name is Brandy and I'll be your conference operator today. All lines have been mute to prevent any background noise. After the speakers' remarks there will be 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 call. Please go ahead, sir.

Jason Korstange

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

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 2009 first quarter earning's release for more information about risk and uncertainties, which may affect us. Information we provide today is accurate as of March 31, 2009 and we undertake no duty to update that information.

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

William A. Cooper

Thank you, Jason. First thing I'll mention, as we have previously released, TCF has paid off the so called TARP money, and I was send that letter yesterday for $361 million. That payment in exiting TARP will have a number of benefits at TCF.

First of all, it will save about $0.14 or $0.15 a share, in earnings per share as a result of not having to pay the dividend on that preferred. Our reason for exiting at TARP was that basically the deal change, it was going to result in significantly increased regulation in many fashions with more to come.

And, because of the way that regulators are currently looking at capital ratios these days that became apparent to us that it was not a good idea to lever that TARP which would create additional lever on tangible capital, which is now becoming an important capital ratio in the regulatory world.

So, we still have to deal with the warrants. They have the right to purchase a little over 3 million shares at 16.93, we're in the negotiation with the treasury as to whether will repurchase those warrants. Its my understanding that if we don't purchase then there will be require to sale them to someone else.

The term in the law is that, they are required to liquidate them. But we don't know exactly when that will be resolved, but it will be resolved in the next couple of weeks, at least maybe considerably sooner than that.

In terms of the quarter, if I had to summarize it, we had relatively weak net interest margin, quite weak fee income. Our operating expenses are pretty much under control and our credit is relatively stable. Those are the kind of the big issues that driven the quarter. We earned $26 million in the quarter, which is $0.17 a share and that was down from $0.20 a share in the fourth quarter.

And again, the preferred dividend was in the first quarter, our earnings would have been over $0.20 without that preferred dividend.

Our net interest margin was 3.66%, down from 3.84, and I am going to talk a little bit about why that occurred and what's going to happen with that. Our charge-off was 1.04% versus 1.02. So, basically our charge-offs have basically stabilized.

In terms of the net interest margin, what basically happened in the net interest margin was a huge success that we had on the deposit front, growing core deposits on checking and savings deposits by over $1 billion, with our inability to reinvest that money at good spreads in that short period of time.

So we were in a very liquid position and basically we're bringing money in at 2% or even at a little higher and investing it at a quarter percent to the tune of some billion dollars. We have subsequently invested that, the bulk of that money either in the pay off of the TARP which is a good exchange of funds or in short-term agency investments which will actually give us a positive margin instead of a negative margin through the balance of the year.

Given that, we expect the net interest margin for the balance of the year to be better than the first quarter with reduced deposit cost and increasing loan growth.

The non-interest income was also weak which is what we have experienced over the last several quarters at $57 million which was down from both the previous quarter and the year ago. The good news there... and that's pretty well across the board, the good news there is that it appears that for the balance of the year... the second quarter and balance of the year as a result of very significant deposit number of checking account growth and increasing activity, we're going to see stronger fee income throughout the balance of the year. But it was weak in the first quarter.

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