TCF Financial Corporation (TCB)

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TCF Financial (TCB)

Q3 2013 Earnings Call

October 25, 2013 9:00 am ET


James E. Korstange - Senior Vice President and Director of Corporate Communications

William A. Cooper - Chairman, Chief Executive Officer and Member of Executive Committee

Michael Scott Jones - Chief Financial Officer and Executive Vice President

Craig R. Dahl - Vice Chairman of Lending, Executive Vice President of Lending and Director

Thomas F. Jasper - Vice Chairman of Funding, Operations & Finance, Executive Vice President of Funding, Operations & Finance and Director


Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Keith Murray - ISI Group Inc., Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Nicholas Karzon - Crédit Suisse AG, Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Emlen B. Harmon - Jefferies LLC, Research Division

Andrew Marquardt - Evercore Partners Inc., Research Division



Good morning, and welcome to TCF's third quarter earnings call. My name is Ginger, and I will be your conference operator today. [Operator Instructions] At this time, I would like to introduce Mr. Jason Korstange, Director at TCF Corporate Communications, to begin the conference.

James E. 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. Tom Jasper, Vice Chairman of Funding, Operations and Finance; Mr. Craig Dahl, Vice Chairman of Lending; Mr. Mike Jones, Chief Financial Officer; Mr. Earl Stratton, Chief Operations Officer; and Mr. Jim Costa, Chief Risk 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 the forward-looking statement disclosure contained in our 2013 third quarter earnings release for more information about risk and uncertainties which may affect us. The information we'll provide today is accurate as of September 30, 2013, and we undertake no duty to update the information.

During our remarks today, we will be referencing a slide presentation that is available on the Investor Relations section of TCF's website,

On today's call, Mr. Cooper will begin by discussing third quarter highlights, Mike Jones will discuss credit and expenses, Craig Dahl will provide an overview of lending, Tom Jasper will review deposits, fee generation and capital, and Mr. Cooper will wrap up with a summary of the quarter. We will then open it to questions.

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

William A. Cooper

Thanks, Jason. TCF continued to have improved results in the third quarter. Net income was almost $38 million, $0.23 a share. That's up from $0.21 in the prior quarter and $0.06 from a year ago. Our pre-provision pretax return on assets was over 2% again at 2.04% and in the top quartile of our peers.

Our return on assets is approaching 1%, we're at 0.97%, and return on equity is approaching 10% at 9.25%. Core revenue of $306 million is up about 2% from a year ago. Core revenue is now, which is margin plus fee income, as a percentage of total assets, is up to 6.56%, which exceeds our base case and far exceeds our peers who are running around 4.25%.

All the credit metrics continued to improve. Provision for credit losses were $24.6 million. That's down almost 75% from a year ago. And our provision for loan losses is now approaching 50 basis points of assets, which, again, is close to our base case. Non-accrual loans, a lot of numbers moved around there, but we had, on a real core basis, very significant improvement in non-accruals. They're $283 million. That's down 33% from a year ago.

Delinquencies decreased $59 million. That's a 60% reduction from a year ago. Loan and lease originations increased by almost $600 million, almost 25% from the third quarter of 2012. Average deposits increased $750 million, almost 6% from a year ago.

So all of our core businesses and core performances continue to improve. As I mentioned, the revenue is up almost 1.5% from the second quarter at $306 million. We saw some nice improvements in the fee income, particularly in our leasing. As we previously talked about, that number tends to be somewhat lumpy, growing and shrinking as a results in transactions that occurred during the quarter.

A margin at 4.62% -- those of you who are listening to this regularly, remember that we talked about our margin probably zeroing in around 4.60%. We think it has zeroed in on there, and we think it's likely that it will stabilize close to that level. And net interest margin dollars are over $200 million. Impacting the margin in the quarter was a higher level of liquidity, higher than our goals. We're anticipating some of that liquidity to come down in the fourth quarter, which will be another contributor to improve margins.

On Page 5 of the deck, we compare ourselves to our peers, and the peers are all U.S. publicly traded banks and thrifts between $10 billion and $50 billion. We're comparing to second number quarters because we don't have all the third quarter numbers, but it is a telling, very interesting data. Net -- these are percentage of total assets. Our net interest income is 4.38% versus 3.05%; our noninterest income, 2.18% versus 1.17%. And our core revenue, as I mentioned, is 6.56% versus 4.22%.

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