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TCF Financial Corp. (TCB)

Q3 2009 Earnings Call

October 21, 2009 11:00 am ET


Jason Korstange - Investor Relations

William A. Cooper - Chairman and Chief Executive Officer

Barry Winslow - Vice Chairman

Thomas F. Jasper - Chief Financial Officer

Neil W. Brown - President and Chief Operating Officer

Craig R Dahl - Executive Vice President of TCF Equipment Corporation, Head of Specialty Finance

Earl Stratton - Chief Information Officer

Tim Bailey - Chief Credit Officer


Jon Arfstrom - RBC Capital Markets

Craig Siegenthaler – Credit Suisse

David Rochester - FBR Capital Markets

Todd Hagerman – Collins Stewart

Steven Alexopoulos - JP Morgan

Robert Rutschow – Calyon Securities (USA) Inc.

Jordan Hymowitz - Philadelphia Financial



Welcome to TCF's 2009 Third Quarter Earnings call. (Operator Instructions) At this time, I would like to introduce Mr. Jason Korstange, Director of TCF Corporate Communications to begin the conference call.

Jason Korstange

Mr. William Cooper, Chairman and CEO will host this conference. Following 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, Mr. Tim Bailey, Chief Credit Officer, and Mr. Craig Dahl, Executive Vice President of TCF Financial Corporation and head of the Specialty Finance Division.

During this presentation we will make projections. 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 third quarter earnings release for more information about risk and uncertainties which may affect us. Information we will provide today is accurate as of September 30, 2009 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 A. Cooper

TCF reported net income for the quarter of $17.4 million $0.14 a share. Our net interest margin was 392 up from 380, which is an encouraging sign. Our charge-offs for the quarter were 152 up from 143 in the second quarter.

If I had to characterize the quarter most of the parameters, the basic parameters of the bank operated on a pretty satisfactory level. We continued to have high provisions associated with mostly our consumer portfolio and to a large degree mostly in Michigan, and I'll get into that more in a minute.

In terms of the other parameters, our net interest income was $161 million. That's up from $152 million in the third quarter last year and $156 million in the second quarter. That's up 6% from a year ago and that's very encouraging. That net interest income level is driven by improvement in the net interest margin rate and the growth of the balance sheet.

Our banking fee income was $111 million and that's up from $106 million a year ago, about 5% increase. Pretty flat with the second quarter, but that is more seasonal in nature. Our fee income is still being driven to a significant degree by slower economic activity, which slows down transaction volume both in our debit card and our checking base.

Our leasing fee income was $15 million up from $13 million and 16% from a year ago and about flat with the second quarter, and that number tends to be pretty lumpy. It occurs in a relatively random basis. We did have a $10.5 million securities gain last quarter, which we did not have in this quarter. But our revenue growth was pretty solid and is encouraging.

In terms of the balance sheet, consumer loans were essentially flat. We've had a lot of growth – we've had a lot of origination in our consumer loan portfolio, which is essentially home equity first and second mortgages, but we've also had a lot of prepayments and amortization. One thing I will mention about that is the tranches of the new originations, the 2008 and 2009 originations, are performing pretty close to the levels of what our historical charge-off levels are.

The commercial and commercial real estate, we've had strong growth. It's up 10% from a year ago at $3.6 billion. Leasing equipment finance is up 22% from a year ago. Part of that is portfolio acquisitions that we did. And our inventory finance group now stands with $186 million up from $118 million in the second quarter, and that's a brand new business for us and we'll continue to see strong growth in that area.

Overall, loans and leases are $13.9 billion up from $12.9 billion or 7.7% increase from a year ago, pretty good growth. I might mention that in general our growth and our loan portfolio is at better margins than it has been in the past. We've got floors in most of our new loan originations.

In the third quarter of 2009 we did announce the creation of our Red Iron Acceptance, which is a joint venture with Toro Company that will evolve into our inventory finance area and will provide continuing strong growth in connection with our inventory finance business.

Deposits continue to perform excellently. We're at $7.6 billion of core deposits, that's deposits before certificates, up from $5.2 billion a year ago. That's a 44% increase, and up from $7.3 billion in the second quarter. We've continued to let higher cost CDs run off and that's driven our deposit cost down from 115 basis points in the second quarter and 134 basis a year ago to 94 basis points and at the end of the quarter I think we were at 90 basis points.

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