TCF Financial Earnings Call Insights: Consumer Loan Sale Outlook and Foreclosed OREO Costs

TCF Financial Corporation (NYSE:TCB) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Consumer Loan Sale Outlook

Jon Arfstrom – RBC Capital Markets: Probably a question for you, Craig, on the consumer loan sale gains. So obviously, a good number for the quarter, but I’m curious how you view that business going forward? How we should look at it, in terms of the gain levels in the future and I guess the reason I asked this is that there’s maybe a little more volatility in fees this quarter than we’re used to. I – Bill has warned us for years about the lumpiness of leasing. But it looks like auto is on a trajectory up and one of the lines that I think we’re all having trouble pegging is that consumer loan sale gain lines. So I’m just curious how you view that business and how you make the decisions in terms of when to sell the loans and what we can we expect for gains going forward?

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Craig R. Dahl – VC and EVP, Lending: This is Craig Dahl. John, the level of asset sales is really dependent there on a couple of factors. Number one, our overall hold position in consumer; number two, our geographic concentrations based on the originations that we’re getting; and then third, basically the level of infrastructure expansion that’s required to support that growth. Now inside our consumer business, there’s not as much expansion. We have a substantial factory, basically to support that origination. So, those are the three factors that would go into our level of sales. I would say – also, I guess the fourth factor would be the appetite of our buyers and in this quarter, there was a significant appetite. I would expect the second quarter to be slightly less than the first quarter.

William A. Cooper – Chairman and CEO: John, I’d really like to help you with your model on that, but unfortunately, it’s another one of those lumpy things. What we can say is that, particularly on the real estate side of finding markets to sell our real estate origination loans is really good news. Number one, it generates fee income; and number two, it allows us to increase origination because we can diversify by geographic risk. That means that we can grow in markets that we were going to slow because of the level of the risk in a certain geography and take a gain as opposed to margins that we would normally have. But, I would love to tell you, gee it’s going to grow 2% a year or something, but it is going to be lumpy. But what we do expect to happen is to continue to be a core earning capacity at the bank.

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Jon Arfstrom – RBC Capital Markets: And you expect quarterly gains here, it’s just perhaps the level or the amount that you sell that will be variable?

William A. Cooper – Chairman and CEO: Yes.

Jon Arfstrom – RBC Capital Markets: Then one question for Tom, I appreciate the comment about typically you will see a 5% decline, just due to typical Q1 seasonality. Are you expecting a typical rebound in Q2 or does this consumer hangover continue into Q2.

Thomas F. Jasper – VC and EVP, Funding, Operations & Finance: It doesn’t appear to be a real impetus as it relates to consumer spending going out and if you look at some of the retail sales numbers and they are coming out from some of the major retailers. You can see that there is an impact and so there is not a lot assuming here to give us a lot of confidence there, its immediately going to bounce back as it relates to Q2. What we do know John is that we are getting it done on the account side. So the good news is account attrition has again decreased for the fifth consecutive quarter, our comp production is up as we have known on Slide 15 its up 5.2% over the last three quarters on average. So we are getting it done on the number of accounts and that will have an impact but the ability to predict how much that’s going to bounce back and when is tough, and as we look at. As we are sitting here and put a snow in Minnesota this morning on April 18, there are other factors that go into this that spending that we have to control.

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Foreclosed OREO Costs

Scott Siefers – Sandler O’Neil: I think my first question was just on those foreclosed OREO costs that ran through noninterest expense. So I guess, do you anticipate doing sales like you did of the consumer properties regularly or just kind of an unusual item and that will let that OREO costs line fall back down materially. I think ex out the noise, maybe it’s been running somewhere – call it like the $7 million range or could we even drop below that because you had accelerated some of those costs?

William A. Cooper – Chairman and CEO: We continue to investigate the possibilities of that and it is opportunistic. One of the things that has happened because of the improvement in home values, the market for that kind of activity has improved considerably and there’s a possibility that there would be the sale of different kinds of assets, non-accrual loans OREO, TDRs, all of those different kinds of assets. There’s a possibility of sales occurring in the future as that market improves, but I can’t really give you good guidance on it, because you negotiate each one of those transactions one at a time…

Scott Siefers – Sandler O’Neil: Then, just separately, was hoping a little color on the margin, maybe it came down a little more quickly than I had anticipated and at least some that’s due to the higher level of liquidity that you had in the first quarter I guess, just would be curious about how you’re feeling about the outlook and I think in the past, you’ve talked about sort of the 460 bottom for the margin, how do you feel about that number in light of where we are now?

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William A. Cooper – Chairman and CEO: We made a little progress. We bumped down the deposit rates a few basis points as well which will help the very low rates. It’s just – there’s not much you can do about it. we’ve got loans that are coming off at 6.5% and going on at 3.5%, and now we got asset generation capacity of assets with very good margin which is why our overall margin rate is so much higher than our peers, but it would be probably appropriate to think that we’re going to continue to see a couple of basis points, several basis points a quarter assuming that interest rates stay where they are, to continue to knock off that margin. Mike, is that fair to say?

Michael S. Jones – EVP and CFO: I think that’s fair.