TCF Financial Corporation (TCB)

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TCF Financial Corporation (TCB)

Q3 2012 Earnings Conference Call

October 26, 2012 09:00 AM ET


William A. Cooper - Chairman and CEO

Michael Scott Jones - EVP and CFO

Craig R. Dahl - Vice Chairman and EVP, Lending

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

Barry N. Winslow - Vice Chairman, Corporate Development

Neil W. Brown - Chief Risk Officer

Earl D. Stratton - EVP and COO

Jason Korstange - Director, Corporate Communications


Jon Arfstrom - RBC Capital Markets

Erika Penala - Bank of America Merrill Lynch

Stephen Geyen - Stifel Nicolaus & Co.

Christopher McGratty - KBW, Inc.

Stephen Scinicariello - UBS Securities

Emlen Harmon - Jefferies & Company, Inc.

Thomas Alonso - Macquarie Securities Group

Terry McEvoy - Oppenheimer & Co.

Andrew Marquardt - Evercore Partners Inc

Peyton Green - Sterne, Agee & Leach, Inc



Good morning and welcome to TCF’s 2012 Third Quarter Earnings Call. My name is Michelle and I’ll 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. (Operator Instructions)

At this time, I’d 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. 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 Dahl, Vice Chairman of Lending; Mr. Mike Jones, Chief Financial Officer; and Mr. Earl Stratton, Chief Operations Officer.

During our remarks today we will be referencing a slide presentation that is available on our Investor Relations section of TCF's website During this presentation, we may make projections and other forward-looking statements regarding future events or 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 2012 third quarter earnings release for more information about risks and uncertainties which may affect us. The information we will provide today is accurate as of September 30, 2012, and we undertake no duty to update the information.

On this morning’s call Mr. Cooper will give us the third quarter highlights, Mr. Jones will go over the credit, followed by Mr. Dahl, which will go on lending and Mr. Tom Jasper then deposits and fee regeneration. Following that Mr. Cooper will have a summary and we will follow that with question-and-answer period.

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

William A. Cooper

Thank you, Jason. Third quarter highlights, TCF had net income of $9.3 million or $0.06 a share. On a core basis, after some of the transactions, non-recurring transactions that I will discuss in the future, we earned about $0.18 a share. The net interest margin was 4.85% that was up 89 basis points from the third quarter of 2011 and about flat with the second quarter.

Pre-tax pre-provision profits were $115.8 million and that's up 10.3% from the third quarter of 2011. Total loans and leases of $15.2 billion increased 6.1% from September 2011, were up 7% for the second quarter. We’ve had some very positive initial results from the rollout of our Free Checking which makes us optimistic that decision was the correct one. Total deposits of $13.7 billion increased 11.4% from third quarter of last year.

Gains on sales of securities were $13 million. Gains on sale of consumer real estate were $4.6 million and we had our regular gain on the sale of auto loans of $7.5 million in the quarter. Some of the non-recurring items, we adopted the accounting methodology driven by regulatory bankruptcy clarification that was issued by the OCC and we booked a $31.5 million additional provision in our consumer lending area and we put $103 million of loans on a non-accrual basis.

These were loans going back originated medium, originated as long as 10 years ago where the customer filed Chapter 7 bankruptcy and did not reaffirm their debt. However, they continue to make their mortgage payment and live in their house, some 90% – over 90% of these loans are current. We aggressively addressed the commercial credit area in this quarter as well and we took a $15 million increase in the commercial provision and we charged-off some $20 million in the quarter as well aggressively addressing commercial credit issues.

Numbers absent with these unusual items of the change in OCC clarification, our consumer's real estate over 60-day delinquencies decreased from the second quarter. The consumer real estate non-accrual – again excluding that change were down 7% from the second quarter and consumer real estate charge-offs were down 10% from the second quarter. So basically our consumer area it continued to improve.

Commercial classified assets decreased some $80 million from the second quarter and real estate owned decreased some $5 million from the second quarter.

Some revenue highlights. First of all we had a 14-year high in the net interest margin rate of 4.85%, which is again one of the highest in the banking business. And as I mentioned, it was up 89 basis points from the third quarter. So we’ve had a very strong revenue growth. The net interest income is up 14% from a year-ago. The strong revenue growth and strong net interest margin and so forth is due to the restructuring that we did in early part of the year as well as the balance sheet shift into higher yielding loans that’s been occurring over the year.

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