TCF Financial Corporation
Q4 2007 Earnings Call Transcript

Published: 23 Jan 2008

[Operator:]

Good morning and welcome to TCF 2007 Year End Earnings Call. My name is Eric and I will 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 would line to introduce Mr. Jason Korstange, Director of TCF Corporate Communications to begin the conference call.

[Jason Korstange:]

Good morning. Mr. Lynn Nagorske, CEO will host this conference. Joining Mr. Nagorske will be Mr. Neil Brown, President and Chief Operating Officer; Mr. Tom Jasper, Chief Financial Officer; Mr. Earl Stratton, Chief Information Officer, and Mr. Tim Bailey, President and CEO of TCF National Bank. During this presentation, we will 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 that may differ materially. Please see the forward-looking statement disclosure contained in our 2007 year end and fourth quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is accurate as of December 31, 2007, and we undertake no duty to update the information. Thank you, and I will now turn the conference call over to TCF CEO, Lynn Nagorske.

[Lynn A. Nagorske:]

Thank you Jason and good morning to everybody. TCF reported its year-end earnings today. EPS for the year was a record $2.12 that compares to last year's $1.90 up $0.22 or 11.6% increase. Net income was $266.8 million, that's an increase of $221.9 million over our 2005. Totals were up 8.9%. ROA 1.76% and return on equity was 25.82%. Significant items in 2007 was the sale of our Michigan branches, which occurred in the first quarter of the year. That was a pretax gain of $31.2 million, $20.6 million after tax or $0.16 EPS impact. Gains on sales of real estate, which is a result of our repositioning of our traditional branches, a gain of $6.7 million for the year. After tax is $4.4 million or $0.03 earnings per share. Mortgage-backed security gains $13.3 million during the year, $8.8 million after-tax, and the earnings per share impact of $0.07. In the fourth quarter, we incurred a charge of $7.7 million, which represents TCF's estimated contingent obligation related to Visa's litigation. I would point out TCF is not a name defendant in that litigation. That was a charge of $7.7 million, $5.1 million after-tax, or $0.04. We also during the year had a number of favorable income tax settlements and adjustments, that's $0.15 earnings per share for a total of $0.37. In 2006, we had some of the same types of items. Our gains on sales of real estate of $0.02, sale of our servicing portfolio of $0.01, and $0.05 of reduction of income tax expense for a total of $0.08 on a comparable basis. In the fourth quarter, our earnings per share was $0.50, that compares to the last year $0.42. So that's an increase of $0.08 or 19%. Net income was $62.8 million. Return on assets was 160, and return on equity was 23.55%. Significant items in the fourth quarter of 2007, we took advantage of some favorable economic conditions and sold mortgage-backed securities at a gain of $11.3 million. That's $0.06 after-tax EPS impact. Sales of real estate was $2.8 million, or a penny after-tax. The Visa charge, which I previously mentioned of $7.7 million was a $0.04 reduction in the earnings per share, and our favorable tax adjustments of $0.04. So that's total of $0.07. Last year, income tax expense, we had a favorable reduction there of $0.01. We would point once again the things that TCF didn't do, and doesn't do according to our philosophy. There are no teaser rates, sub-prime programs. We have done no option arms. We do not have any collateralized CDOs or SIVs, Structured Investments Vehicles or any other off balance sheet-type activities, which have resulted in a large charges that we've been seeing in other institutions. Net interest income for 2007 was $550 million up 2.4%, and that was really powered by our $1.1 billion increase in average interest earnings assets, which was a 8.2% increase. That was off set by 22-basis point or 5.3% decline in our net interest margin. For 2007, our net interest margin was 3.94% that compares with 4.16% for 2006. In the fourth quarter, our net interest income was a $139.6 million, up $3.7 million or 2.7% from last year's fourth quarter, and up 1.9 million, or 1.4% from the third quarter of this year. Our net interest margin for 2007 in the fourth quarter was 2.83%. That compares to 3.9% or 7-basis point decline in the third quarter. At the end of my remarks, I am going to turn on the Tom Jasper, who is going to give us some more color on that net interest margin. Fee income for 2007, banking fee income was $422.9 million up 3% from the last year. Fees and service charges were up 2.9%, card revenues were up 7.4% and leasing at a very good 2007 was up 11.7%. Fourth quarter banking fee income was $108.4 million, that's a $7.1 million increase over the last year's fourth quarter of 7%. Banking fees and service charges were up nicely 8.4%, card revenues were up 7.3%, and leasing had a small decline of 1.9% from last year's fourth quarter. So in total, our fee income for the fourth quarter was $124.8 million, up $6 million or 5.1%. Branches in 2007; we opened 20 branches, 10 traditional, 7 supermarket, and 3 campus branches. So, we continued our expansion there. We had a number of closing in sales, as I previously mentioned. Our assets, we had a very strong origination in 2007. $950 million up 9.4% was the average assets, consumer was up 11.5% commercial was up 1.9%. It was really impacted by pre-payments in the first half of '07, but the results were very strong origination activity in the first quarter in that category. And leasing for the year was up 15.4%. Our liabilities excluding the deposits that we sold in the first quarter for Michigan, the average was up about 4.5% in 2007. Most of the increases are coming in higher cost of savings category, and that's offset by some declines in non-interest bearing deposit, which is really a customer preferences for more market rate-type products. In the fourth quarter, we had a very disciplined approach to pricing our CDs, which prices there were being impacted by these credit market conditions, and the liquidity crunch that was in the... out there in the economy. And so we intentionally decline those balances, let them run off a little bit in the first quarter. Non-interest expenses was very well controlled at TCF in 2007. If you exclude that special Visa charge and operating lease depreciation, our non-interest expenses were up only 0.3% for 2007, and using that same definition, 1.2% for the fourth quarter, which I think everybody did a good job in that category in 2007. Credit quality, I think it reflects our secured lending philosophy. I mean we are weathering these credit storms pretty well in my opinion. 2007 we had $57 million provision for loan losses, that's up from $20 million. In 2006 fourth quarter our provision was $20.1 million, that's up from $10.1 million last year. Those increases were primarily due to a higher home equity charge-offs and reserve increases, as well as some specific reserves for commercial loans, mostly in Michigan. TCF's loans... our loan loss is now 0.66%. Charge-offs as I mentioned rather increased in 2007. They were at $34.6 million or 30 basis points, it compares to last year of $18 million or 17 basis points. Our fourth quarter charge-offs were $13.8 million or 46 basis points and that's up modestly from third quarter, which was $11.1 million or 38 basis points. Home equity charge-offs, a category I know you are all interested in. We had 42 basis points in charge-offs in the fourth quarter, up 4 basis points from the 38 basis points that we saw in the third quarter of 2007. Non-performing assets, we did have an increase there in the fourth quarter. They totaled $105.6 million, some of that was home equity loans. We have the... some increase in our commercial loan category also. 30-day delinquencies of 0.67% and we have a very, very low, over 90-day delinquency level at TCF site, even though those levels were up somewhat from our historical performance, I think they are at very acceptable levels in these kinds of conditions. Our capital, TCF remains well capitalized and we bought 3.9 million shares back in 2007. 100,000 in the fourth quarter and we still have 5.4 million shares remaining in our authorization. Our dividend, you have seen the press release, we have already have announced that increased to $1 a share. On an annualized basis it's up 3.1% and that's our 17th consecutive year of increases, we are pleased to report that. So, with that, I would just say overall, these were some of the most difficult operating conditions that I have seen in the industry and TCF had a pretty good year. Tom?

[Thomas F. Jasper:]

Thank you, Lynn. To discuss further, the net interest margin rate; we did have a decrease from the third quarter to the fourth quarter of 7 basis points from 3.90% to 3.83%. Approximately, 6 basis points of the decrease is related to $429 million in growth of interest earning assets funded by higher cost borrowings. In the quarter TCF extended $150 million of new long-term advances at a weighted average cost of 3.91%, which were approximately 60 basis points lower than the shot-term borrowing rate of approximately 4.5% at that time. Approximately, 2 basis points of the decrease is due to the contractual repricing of variable rate assets offset by repricing the variable rate deposits. Another 2 basis points of the decrease is due to the $15 million average balance increase in non-performing assets. These decreases were offset by approximate 4-basis point positive impact and the gradual reduction of rates on certificates of deposit. During the quarter, we saw intensified competition for deposits. We elected not to match the rates of other institutions during this period and the result was a decrease in average balances of CDs and increase in lower cost wholesale borrowings in the quarter. With that, I believe we can open it up for questions. Question And Answer

[Operator:]

Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Jon Arfstrom with RBC Capital Markets. Please go ahead.

[Jon Arfstrom:]

Thanks. Good morning.

[Lynn A. Nagorske:]

Hi, Jon.

[Jon Arfstrom:]

Just a term of follow-up on funding can you talk about your comfort with the current strategy in terms of funding your loan growth. And then as a follow-up to that you... with lower Fed funds and potentially lower long-term borrowing rate. Do you have the opportunity to go back into that $4.5 billion in long-term borrowings and potentially take some of those rates down?

[Lynn A. Nagorske:]

Well we look at all those things constantly and as you know we had a very large change in short-terms rates yesterday. In the fourth quarter, we viewed that the competition was getting a little insane and I think, perhaps you will see some moderation of that as this liquidity crisis passes and there are some indication of that and if you look at LIBOR versus Fed funds and how they are sinking up. But we have consciously led some of those CDs run down that's not something that we are going to continue for the long-term. So, we do have objectives this year of increasing our deposits and funding our loan growths through that. But that's kind of a temporary situation. In terms of long-term borrowings, those are fixed rate and so, we are pretty much lacked in with those and once we decided to prepay them.

[Jon Arfstrom:]

I guess that's what I was getting at I know that. In case if you look back maybe four or five years, you made the election to do that? Do you see any potential opportunities there?

[Lynn A. Nagorske:]

Not at the present time.

[Jon Arfstrom:]

Okay. And then just a couple of more on the flat residential, real estate-owned balances it's a pretty good trend and I am just wondering if you could talk about that process in terms of the length of time to sell a property and the type of pricing you will get, when you are finally giving one of the properties that changed on the last quarter or so?

[Lynn A. Nagorske:]

I will let Neil Brown answer that.

[Neil W. Brown:]

Yes, Jon this is Neil. The residential real estate-owned consist of two components really, one is properties that are in the process of foreclosure. But we don't own the property yet and then secondly where we actually own the property and its for sale. The foreclosure process varies from state-to-state based on state laws. So, it differs but for the most part of it's at least about a six-month process before we have a share of sale between when we start the foreclosure process and when we own the house. The encouraging news for us there is that the number of properties in that foreclosure process is down 15 for the quarter. So 116 properties at the end of the year, a decrease of 15 for the quarter. In the third quarter we saw a decrease of 19 properties. So there is... I am not predicting the end of credit issues, but we have seen a couple of back-to-back quarters, where the number of properties is down. And then the other piece is the properties that we own and we have been pretty successful and pretty aggressive at selling those properties. If you look at the inventory that we have at the end of the year, it's 121 homes that have been on the market for about five to six months and that's generally about the time period it takes for us to dispose off these properties in this market. Again, the bright light there was, partly because that the foreclosure inventory was down. We took ownership of 71 properties in the fourth quarter and that's down from 82 in the third quarter. So, it's encouraging to see those numbers come down.

[Jon Arfstrom:]

And then the last question. Can you provide an update on the large commercial REO credit?

[Neil W. Brown:]

Yes, we have... you are referring to one...

[Jon Arfstrom:]

$14 million credits.

[Neil W. Brown:]

Yes, $13.8 million credit that we... it's going through the foreclosure process, given the nature of that real estate that was a 12 months of time horizon. And we are in about the 8 month and mid-April is the deadline for that owner to redeem that property, otherwise it become ours it will go to market.

[Jon Arfstrom:]

Okay. Thank you.

[Operator:]

Our next question comes from Scott Siefers with Sandler O'Neill & Associates. Please go ahead.

[Scott Siefers:]

Good morning guys.

[Lynn A. Nagorske:]

Hi.

[Scott Siefers:]

I just had a couple of questions I guess, first on credit and how you are thinking about the reserve. I guess just if you look at the pace of deterioration in non-performance that's ticked up a bit, but conversely the pace of kind of adding to the reserve slowed down a bit. So, I guess I am just curious as to how you are thinking about the reserves, the coverage ratios et cetera?

[Lynn A. Nagorske:]

Well, yes go ahead Neil.

[Neil W. Brown:]

Scott this is Neil again and I will reiterate what Lynn said earlier. Our charges on CDOs was zero for the quarter, for the year as well since we have none. And our losses on sales was the same teaser rate ARM sub-prime mortgage programs, money market fund bail outs and failed LBOs, we all have zero there because we don't get into that business and to some degree it's like raising teenagers. It's the things that you don't do that are usually the most important things in life. But getting to your question on the reserving levels, and focusing on the home equity you can see on page 19 where it's broken out, and our reserve and consumer home equity portfolio was $30.9 million up from $24 million in September. So, there is a significant increase in the fourth quarter from 38 basis points to 47. And if you look at the charge-off table, you can see the charge-offs in the fourth quarter were $6.7 million. If you annualize that number, its $26.9 million versus a reserve of $30.9 million at the end of the year. So you can sort of see where we think charge-offs are headed with that portfolio, and the way we look at that is we have our base case reserve model, and we have three additional confirming models that we study the portfolio every 90 days, and run them through these models, and come up with a range of losses in terms of the forecast. The best case, the likely case, and the worst case, and we are reserved at a level above and beyond the likely case. So, that's how we have established the reserves on the home equity portfolio. We think we are fully reserved to the expected cases.

[Scott Siefers:]

Okay and then switching gears a little on the leasing, and equipment finance, just a line item in the income statement. Typically you guys, I know it's always pretty volatile, but you always historically have gotten a kind of nice boost in the fourth quarter. Can you just talk a little bit I guess about that slide. That wasn't there, and any outlook which you might have there?

[Lynn A. Nagorske:]

Yes, this is Lynn again. Again that line is mostly driven by sales-type transactions, which are occurring in our Winthrop subsidiary and those are usually end of term buyouts of the leases, and as always those are customer-driven events, so it's when they are... sometimes they are not always at the end of the term, but it's when they are doing something with their equipment that drives that amount. And we had a good fourth quarter. It was comparable to the last year's fourth quarter. Our backlogs, in terms of what's going on in our leasing business, are very good. Its $373 million at the end of December on a strong... very strong origination quarter. That's up from $320 million last year. So I think the prospects are good, and we continue to see opportunities, and we're very diversified in that operation. So we have a number of different segments, if one slows down a little bit, sometimes the other one will pick up. So I think the future prospects are good.

[Scott Siefers:]

Okay. Alright, thank you.

[Operator:]

Our next question comes from Todd Hagerman of Credit Suisse. Please go ahead.

[Todd Hagerman:]

Good morning everybody.

[Lynn A. Nagorske:]

Hi Todd.

[Todd Hagerman:]

Lynn, I just want to follow-up on one of the comments you made earlier, just in terms of consumer origination activity in the quarter. It looks to be pretty strong, and again you guys finished up '07, pretty nicely in terms of growth. Just curious to my understanding that TCF has not changed underwriting standards throughout this cycle. I am just wondering kind of what you are seeing from a customer standpoint with this pick-up in volumes, and how that may translate into some of the more recent challenges you have seen in Minnesota market as an example?

[Lynn A. Nagorske:]

Yes, I just mentioned Todd, we have made significant underwriting changes in late 2006, and all the way through 2007. In general, we've have increased our FICO scores, lowered our loan-to-value of requirements, increased appraisal requirements et cetera. So we have made those changes. What we are seeing is there has been reduction of competition in some respects. Alot of the brokers are out of the business. The originating sale model is dead, and as a result those good loans, and good credit are coming back through the banking channel, and we are able to increase our spreads to treasury. Our FICO scores are very good. And I think that's one of the good things that's coming out this environment. I think long term, this is going to be very, very good for the banking business.

[Todd Hagerman:]

As you look as you look out into '08, and again, as you referenced before, I mean the operating environment does remain quite challenging. But again, I sense some optimism just in terms of loan demand origination activity again, going into '08, relative to '07, based on what you are seeing purely from a competitive dynamic?

[Lynn A. Nagorske:]

I'm optimistic there. The events are rapidly changing, and conditions are rapidly changing. So you can't make any prediction in that category, but we feel pretty good about were we are. I would say that the housing markets are not going to return to normal, and there is oversupply of homes in our markets, particularly Minnesota and Michigan is not going to disappear overnight. So I expect some of these trends will continue for a bit. But our credit quality is all that pretty good.

[Todd Hagerman:]

Is there any particular geography that is noteworthy, just in terms of origination activity?

[Lynn A. Nagorske:]

I don't think so.

[Neil W. Brown:]

[Todd Hagerman:]

Terrific. Thanks very much.

[Lynn A. Nagorske:]

Welcome.

[Operator:]

Our next question comes from BenCrabtree with Stifel Nicolaus. Please go ahead.

[Ben Crabtree:]

Thanks. Good morning. A question about, the card revenues for the year were up 6.7% according to what I read here, which strikes me as a significant slowdown from the trend of the past. I am wondering if that is driven by a significant slowdown in usage of the debit card, or what might be driving that?

[Lynn A. Nagorske:]

Well in thatcategory, I would say we are seeing some maturity of the card user. But we are still growing in that category and our checking-account growth has slowed from where it was in previous years. So, it's a combination of those two factors. If you look at sales volume up about 6%, 5.8% the fourth quarter of this year versus fourth quarter of last year, the transaction volumes is up about 5%. So it's maturing a bit. The spend levels are about the same. We did see a dip in our interchange rate, which is really just a mixed issue of where the customers is using their card that was down about 9 basis points from the third quarter. So those are the kind of the things that are going on there. It's still a very popular part of the checking account for our customers.

[Ben Crabtree:]

Okay. Shifting over a little bit. In terms of your new branch activity last year and plans for this year, you opened four branches and relocated four in the fourth quarter. Where were the new branches?

[Lynn A. Nagorske:]

Hang on one second, we'll get. May be while somebody's getting that, I'll just make a comment. 2008, we do plan on opening ten branches, five of those would be traditional branches, and of that five, three would be in Arizona, and two in Colorado.

[Ben Crabtree:]

Okay.

[Lynn A. Nagorske:]

Which should kind of wrap up ourColorado expansion. The other five will be in supermarkets, two in Minnesota we expect, and three in Illinois. Of course move around a little bit with their supermarket partners and so sometimes they go a little faster, sometimes they go a little slower, which causes some movement in that number, but we'll have ten. And then we've got three relocations planned for next year, and some remodeling about may be 19 or 20 locations of mostly our supermarket branches, and what we really following the lead of our partner super values who's doing extensive remodeling in their dual stores and some of the top stores. Neil, you got that?

[Neil W. Brown:]

[Ben Crabtree:]

And what typically happens in terms of let's say a typical remodeling of a supermarket branch. What... does it impact on balance sheet size, and profitability? My guess you get a higher ROI on that than you do on building a new branch?

[Lynn A. Nagorske:]

That's true mostly, more so may be for the traditional locations, because your incremental occupancy expense from your upgraded facilities doesn't take too long to cover that cost and breakeven. On a supermarket branch, you might be only talking about 150,000 of capital expenditures. May be it goes up to 200. So it's not a big number in terms of the capital expenditure on a per branch basis, and these stars are already cranking. They are mature. Certainly it improves the customer experience now for a while just like anything else it gets beat down and you need to improve the looks of that.

[Ben Crabtree:]

In terms of traffic to the grocery stores, is probably relatively fixed. You don't get a huge volume increase from that?

[Lynn A. Nagorske:]

Not necessarily, no.

[Ben Crabtree:]

Yes.

[Lynn A. Nagorske:]

But we have already got very good volumes and if you get a chance to deepen the customer relationship in terms of cross-selling other products or deposit products and sometimes you get more of your boost that way in the supermarkets and we have seen some of that this last year.

[Ben Crabtree:]

Okay, great. Thank you.

[Lynn A. Nagorske:]

Welcome.

[Operator:]

Our next question comes from Steven Alexopoulos with J.P. Morgan. Please go ahead.

[Steven Alexopoulos:]

Hi, good morning everyone.

[Lynn A. Nagorske:]

Good morning.

[Steven Alexopoulos:]

Couple of quick questions, first, looking at home equity loans that are non-accrual. It looks like this quarter that the increase in non-performers was larger, in the first lien position loans and the junior lien loans. Could you just give some color on what might explain that?

[Neil W. Brown:]

This is Neil. Those are... it's a combination of two things, one is they are loans that are going 150 days past due. But the first mortgage liens are larger than the second mortgage liens. So, it's more a size of loan issue than it is any specific trends or issues there.

[Steven Alexopoulos:]

Got you, that's helpful. And, sorry if I missed this but could you comment on how you would expect the margins to behave near term, given the reduction we have seen in the short-term rates?

[Lynn A. Nagorske:]

We are very cautious in our outlook there. We don't make predictions either in earnings or margin and I probably will just leave it there. There is going to be an adjustment period in terms of deposits, if you think about a 75-basis point decrease and maybe some more coming next week. So, you will have to have some time period to adjust that deposit base down.

[Steven Alexopoulos:]

Okay. And just finally, any change to plans for share buybacks over the next couple of quarters?

[Lynn A. Nagorske:]

No, we still have some room to do that. We are using more of our capital as you have seen in 2007 for balance sheet growth and to the tune that we can generate good high-quality power assets and fund those and improve our operating earnings that way. That's a good thing for our shareholders and we use our capital for that. But we do have... do intend to continue to repurchase of stock in the future albeit at smaller amounts than what we have done historically.

[Steven Alexopoulos:]

Okay. Thanks.

[Operator:]

Our next question comes from Heather Wolf with Merrill Lynch. Please go ahead.

[Heather Wolf:]

Hi, good morning.

[Lynn A. Nagorske:]

Hi Heather.

[Heather Wolf:]

I noticed that you guys had a little bit of migration in your commercial real estate charge-offs in non-performers. I am wondering if you could give us a little color there.

[Neil W. Brown:]

Yes, Heather this is Neil. In terms of total non-performing assets, roughly 40% of that's in Michigan. And when you look at this commercial real estate line what you are seeing there is the result of several significant efforts that took place in the fourth quarter with some our customers there. Some of them are problem customers, some of them are potential problem customers, but we did a lot of work with them getting paid allowance, getting additional collateral, restructuring what we have and so forth. And where we are right now is, we would really like to see some of those non-performing assets to leave the bank. And, so we have taken some charges, moved some of these properties into position where we hope to exit them completely this year. So, we were kind of positioning that portfolio for some exit strategies.

[Heather Wolf:]

And from are product perspective, are these homebuilders or is this more a term commercial real estate?

[Neil W. Brown:]

Little bit of each, but we do have a couple of homebuilders there that are feeling the stress of that activity. We also have a couple of other commercial real estate properties that are... we would like to see leave the bank as well.

[Heather Wolf:]

And in the term commercial real estate, are you seeing any issues in any particular subset of that like street malls or office et cetera.

[Neil W. Brown:]

No, not really at this stage.

[Heather Wolf:]

Okay. Okay, thanks so much.

[Neil W. Brown:]

Yes.

[Operator:]

Our next question come from Andrew Boord with Fenimore Asset Management. Please go ahead.

[Andrew Boord:]

Hi, guys. I have a quick question on the fee and service charges. I thought that was very nice, it's higher than what I was expecting and I am trying to see if anything unusual there or perhaps the year-ago quarter was unusually loaded to something going on at that point?

[Lynn A. Nagorske:]

No I don't think there's anything unusual. I would find out that we did have $1 price on our annual sub fee which was there for a part of the fourth quarter, which caused a part of that increase. But in general we have seen a very good transaction volumes from our checking-account customers and instant rates have been pretty good. But nothing unusual.

[Andrew Boord:]

Alright, thank you.

[Operator:]

Our next question comes from Philip King with Trufton Investment Management. Please go ahead.

[Philip King:]

Yes, you said that 40% of your NPAs are in Michigan. So would that imply that you have 42 million of NPAs in Michigan?

[Neil W. Brown:]

It's actually a little bit less than that. It's not a number we would probably but it's just under that number.

[Philip King:]

Alright. So, it's about 2% of your exposure in Michigan is non-performing, is that about right?

[Lynn A. Nagorske:]

We have about $1.1 billion in home equity loans, and roughly $800 million in commercial and commercial real estate loans, those are approximate numbers. So, that would be the total.

[Philip King:]

Right, okay. In terms of your 30-plus days past due, how does that break down between 30 plus days and 60 days, 90 days or 180 days et cetera.

[Lynn A. Nagorske:]

Well Neil is getting there. I would just like to make one other point about our non-performings is, some of the other things that we don't do as two separate, we are not in a credit card business. And so all of our... it's our secured lending philosophy and well that's really helping us through these times. So, when we get a non-performing asset, we go out and get a new appraisal out and we setup reserves based on those appraisals and so a lot of our... almost all of our non-performing assets and non-accrual loans are secured by something and that really limits your losses from that perspective.

[Philip King:]

Well, it's... I mean it's my understanding that Michigan is the weakest real estate market in the country. I mean it didn't participate in the boom but it's still the weakest...

[Lynn A. Nagorske:]

Right and that's what... that's evident at TCF too, it's our weakest market. Both in consumer and in commercial I think we are weathering that storm pretty well. And I think Neil is going to comment on the first part of your question.

[Neil W. Brown:]

The delinquency status is on page 20 of the earnings release. Of the $82 million that's over 30 days, $15 million of that is over 90 and the rest is either over 30 or 60 but I don't have that breakup, but it's a very small 12 basis points, it's over 90 days.

[Philip King:]

And your trigger for non-accrual is usually 150?

[Neil W. Brown:]

For... its 90 days, 90 days is normally 154 residential secured real estate.

[Philip King:]

I see. Then, your average FICO was 720. How many loans do you have outstanding, where the FICO is like over 650 roughly?

[Lynn A. Nagorske:]

We can't hear I am sorry.

[Philip King:]

In the low 600s.

[Lynn A. Nagorske:]

Low 600.

[Philip King:]

Yes.

[Lynn A. Nagorske:]

I think that don't have that right in front of me. But I believe below 620 it's been above 6% of our portfolio. That pretty was ... and with a substantial step down in loan-to-value for loans in that category.

[Philip King:]

Okay. And then your LTV is over 90%. That seems to be a pretty big number. It's like more than a third of all your residential lending. How much of that exposure is... has PMI on it, mortgage insurance?

[Neil W. Brown:]

Yes, well this is Neil and LTV is a difficult number to study and analyze from your perspective unless you know what's behind it. Because if you are primarily a first mortgage lender, which we are you can have $91,000 loan on $100,000 property and it's reported as $91,000 of loans that are high LTV are over 90%. So, one of the ways I do like to look at it is the dollar amount of exposure that is over the 90% of the value of the underlying property and that for us is about 3.7% of the portfolio. And we do have insurance above and beyond that but I... we don't lean on the insurance to provide us our great deal of credit protection to be honest with you.

[Philip King:]

Okay. So most of your exposure in that areas dose not have mortgage insurance?

[Lynn A. Nagorske:]

No, it's got mortgage insurance but there is limits to that coverage and so, I wouldn't overly rely on it.

[Philip King:]

Right. Okay, thank you.

[Lynn A. Nagorske:]

Welcome.

[Operator:]

Our next question comes from Rob Rutschow with Deutsche Bank. Please go ahead.

[Rob Rutschow:]

Hi, good morning. I was wondering if you might be able to tell us what percentage of home equity NPAs if there's or rather if there is any difference between the floating and fixed rate in terms of NPAs there?

[Lynn A. Nagorske:]

We don't really see any difference.

[Rob Rutschow:]

Okay. I think you said about three quarters of your home equity loans are fixed and so what... could you tell us what sort of the average repricing or average reset time is for the portfolio?

[Lynn A. Nagorske:]

If you are look at our home equity portfolio, just kind of run down some of the statistics, 78% are amortizing loans, 22% are lines of credits, 64% are first mortgages. Average loan amount, there is a $113,000, 36% are junior lien positions, where the average loan is about $34,000, and about a third of those junior liens are on top of our own first, which puts us in a better collateral position. 76% of the portfolio is fixed rate, and 24% is variable rate, which is prime based. Average home value $247,000. The delinquency rate over 30 days is 0.68%, and our charges-offs for the last year, I think was 33 basis points. And average FICO score origination 721. I think the updated FICO score is more like 730. So this is a high-quality portfolio. We haven't purchased loans from others in the wholesale situation, whereas people are having a lot of problems. We have originated these ourselves, so we are pretty confident of the underwriting. They are in the states where we have branches and do business, which means it's easier to collect. They don't have teaser rates. And I would point out on the lines of credit, they are utilized only about 50% of the line amount. So there is additional collateral there and overall, we think we have got a pretty good portfolio that's certainly going through a tough housing market right now.

[Rob Rutschow:]

And along those lines, can you just give us an idea of how changes in home prices will affect your reserved levels for home equity?

[Lynn A. Nagorske:]

Well the, the things that are really impacting that are the oversupply of the housing inventory and in which markets it's in, though we have had more issues with that in Minnesota and Michigan. Today our Chicago portfolio, both originations and credit remained very good and strong. Denver is a good market, but no question about it to the tuned homebuyers of that inventories continues to grow, or homebuyers fall. There has been a increase of severity of losses on the homes we have to sell. And so that does have some impact. But the homebuyers... it isn't just the whole market goes down, 2% in Minnesota that's what the medium decline is. There's pockets of where those values fall some of are in the second lien suburbs, but there's no pervasive overall trend.

[Rob Rutschow:]

Okay if could switch gears a little bit. You had tremendous growth within the premier savings account on a linked-quarter basis. So I was just wondering if there was anything special going on there?

[Lynn A. Nagorske:]

No that's... we intentionally did that, and kept the rates a little higher, and let the CDs run off with the strategy being that we could... we would... we don't have a fixed term on the premier savings and so as the Fed adjusts, we do have at least have the capacity to adjust those rates downwards. So we kept those rates up a little bit higher. But it was still offset the run out in the CD portfolio.

[Rob Rutschow:]

Any particular markets where that's better or worse?

[Lynn A. Nagorske:]

Chicago is very intense price competition and as you know, there are ways in that market, but that is our most fiercest competition right now.

[Rob Rutschow:]

Okay, thank you.

[Lynn A. Nagorske:]

Welcome.

[Operator:]

Our next question comes from Ross Haberman with Haberman Funds. Please go ahead. Ross Haberman your line is open. [Operator Instructions]. Our next question comes from Tom Dehnie with Decade Capital [ph]. Please go ahead.

[Unidentified Analyst:]

Hi, Good morning. Could you reference the expected case for the home equity loan portfolio and how the company is reserved for that. What is the expected case in terms of home price appreciation/depreciation that you baked into that portfolio? Thanks.

[Neil W. Brown:]

Our reserving models aren't sensitive specific to home values. It's more a matter of incidence for us, because of the very low level of incidence. When we do take back our property we do suffer a loss, and we know that, but it's not home value driven, it's more driven by individual circumstances with our individual customers.

[Unidentified Analyst:]

But I guess your other comment was that if home prices fall, it will have an impact on reserves. So was that just... again is that just on a case-by-case basis, or how do we think about that?

[Lynn A. Nagorske:]

Well the stating point for reserves and we have done it this way historically for a long time, and we developed plans, and put others models behind it to validate that. But it's experience based, which is whatever be the losses that you are taking on your... compared to your current portfolio, or we call it the guideline range. So it's experienced-based charge-off rate. We look at the 3 months or 6 months or 12 months or 36 month, and what is happening with delinquencies, and we always set the charge-off rates higher than those categories. So we build it up that way, and then we look at specific, whether that's commercial or consumer when a loan is... goes into that 150-day category we'll have a estimate of value on each individual home and we will take a partial charge-off on that and then as we go through the foreclosure process, we will get title to the house. You can actually enter the house at that point in time and inspect it, get an appraisal and list it for sale. And as Neil said, we're turning those quickly. We don't believe it's a good idea to sit on those and I think that's reflected in our real estate numbers that you see.

[Unidentified Analyst:]

It strikes to me that the reserve methodology, even relative to others maybe a bit backward-looking relative because its more based on your current experience rather than your taking anything in terms of how the environment is changing. Is that a fair assessment?

[Lynn A. Nagorske:]

While we look at there's a vintage analysis which looks at each year of origination. There's a low-rate analysis and there's couple of variations of each of those that projects forward in terms of looking at what are your current loans that might migrate into that foreclosure process. And all of those models, some are more forward-looking than others, tell us our allowance is adequate.

[Unidentified Analyst:]

Okay. Thanks a lot.

[Lynn A. Nagorske:]

Welcome.

[Operator:]

Our next question is a follow-up from Ben Crabtree. Please go ahead.

[Ben Crabtree:]

Yes, thank you. You gave us some data in terms of the homes basically in the process of going into share sales and also the inflow into the actually repossessed, I guess I... maybe the one remaining piece is to what's happening to the outflow out of this. In other words what is your inventory of repossessed homes now versus what it was at the end of the third quarter?

[Neil W. Brown:]

Ben this is Neil. We are up four properties, we have 121 homes that we own and we used to own 117.

[Ben Crabtree:]

Okay.

[Neil W. Brown:]

And in total when you combine that with what's in foreclosure, we are down 11 properties.

[Ben Crabtree:]

Right.

[Neil W. Brown:]

We have 237, and we used to have you 248.

[Ben Crabtree:]

And in terms of your basically credit costs on that business over the last two, three quarters. The message has been severity has been... I mean frequency has been more or less in line with your expectations. Severity has been worse. Is it continues... severity continued to deteriorate in the first quarter or is it starting to come in more in line with the expectations?

[Neil W. Brown:]

I don't have their numbers here in front of me Ben, but I have no reason to believe it's gotten any better. I think if anything its gotten just a little bit worse.

[Ben Crabtree:]

Okay. Thank you.

[Operator:]

And at this time, there are no further questions in the queue. I would like to turn the call back over to Mr. Korstange.

[Jason Korstange:]

I would like to thank everybody for participating in the call today, and have a great day.

[Operator:]

Ladies and gentlemen, this does conclude TCF 2007 year-end earnings call. You may now disconnect. And we thank you for using ACT Teleconference.