TCF Financial Corporation
Q3 2009 Earnings Call Transcript

Published: 21 Oct 2009

[Operator:]

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. That reduction in deposit cost has been a big contributor to an improvement in our net interest margin and continues. I think we will continue to see some fall off in those deposit rates. A number of new checking accounts, which is a key parameter for us, increased 12.6% from a year ago, the new origination of accounts. Our expenses continue to be well controlled, comp and benefits are essentially flat between the second and third quarter. The growth that we see from last year is essentially some of the new businesses that we've acquired in the inventory, finance and some other areas. But on the whole, our comp and benefit line is flat to down. Where we've seen increases in expenses is the FDIC premium, they come in and loot the bank periodically. We did engage in that prepayment. We prepaid three years of FDIC premiums, which will be amortized over the following three years. Hopefully that means that we'll no longer be special assessments, so that remains to be seen. Foreclosed real estate expenses are at $8 million and that has been a significant contributor to our higher operating expenses as well. But in terms of our core operating expense levels, they're flat to down, which is good news. Credit quality, we added $22 million in the reserve in the quarter going from $193 million to $215 million. We charged off $53 million and put $75 million in the provision. That's pretty much formula driven and it's again a growing of the reserve in general. I will mention that there are some encouraging signs, particularly on the consumer side. We've seen flattening, I think for three months in a row we've had reduction in net charge-offs in our consumer portfolio. And early level delinquencies are showing some significant improvements and there are some signs at least that we've hit the peak in this level for charge- offs and future problems in the consumer side. And there haven't been any real big snakes crawl out in connection with the commercial or the inventory or the equipment finance inventory finance areas. Again, this is not a satisfactory result but I'm optimistic about the future after at least another couple of quarters. Our 60-day delinquency was up 0.81% up from 0.72%, that's a fraction of the industry, a very low rate but still up slightly and that's almost all in the consumer real estate. As I mentioned, the 30-day delinquency rates have actually shown some significant improvements. We do have some accruing consumer trouble debt restructurings. TCF has a program where it restructures mortgages, first mortgages and that totals $159 million. Those are accruing loans and we'll in the question section talk some more about that if there's any questions about it. On the income tax basis, our tax rate went down because we had a positive settlement in one of our tax differences with one of the states. So our provision was down some $3 million, tax provision. Capital remains strong, both risk-based and core capital. We continue to improve our capital ratios going forward but we're well capitalized in all of our classifications of capital. If I had to look over the edge of the Earth a little bit, again, I'll mention that there are really good strong signs of improving net interest margins and improving fee income levels, controlled operating expenses. The key unknown and driver of this thing is the provision for loan losses, and we've put a lot more in the reserve than we've charged off over the last several quarters. At some point that will slow and reverse. There's been a lot of discussion about retail banking fees, particularly NSF fees with some legislation being proposed in the Senate and a discussion about some regulations coming out from the Federal Reserve. We have addressed that issue in terms of as it relates to NSF income at TCF. And I have announced a new product that we'll be introducing in the first quarter of next year, Convenience Checking. That product will restructure how our fee income works relative to our checking base. TCF has over a 1,700,000 checking accounts, which is an extraordinarily large base of accounts. We have the tenth largest debit card, Visa debit card portfolio in America. And there's been a lot of talk about what these proposed regulations will do. We have addressed those problems, we believe, in connection with our new product. Our new checking product rather than having a per item NFS fee as it currently does, we'll simply have a negative balance maintenance fee. And if an account goes negative balance, we will charge a daily fee rather than a per item fee. And we will also introduce an account maintenance fee, a small account maintenance fee with below minimum balances on the account. We'll start to introduce that to new customers in January. As we gain more information and better data, we'll expand that out forward. The other thing the new account will do is it will not charge you for a returned item. When someone writes a check and we return it, the industry and TCF charges a fee for that, there will be no charge for that. In addition to that under this new program, posting order and all the rest of those kinds of issues that have boiled up in the regulatory world will become irrelevant because it's simply whether the account has a negative balance or a positive balance. We've done focus groups on this and we think it is a very palatable account, a desirable account and is quite different than our competitors. Again, TCF is leading the world in this. It does introduce an account maintenance fee, however, that is the way the industry as a whole is going, particular our big bank competitors. We think our account maintenance fee is lower than our big bank competitors at this point but it is as a result of regulation part of what's going to be necessary in retail banking. We believe that in general it remains to be seen, we're doing simulations and pilots but in general these programs should be revenue neutral for us perhaps revenue positive in terms of our banking fee income, the way we simulate the programs today. With that I will simply open it up to questions.

[Operator:]

(Operator Instructions). Your first question comes from Jon Arfstrom - RBC Capital Markets.

[Jon Arfstrom:]

Thanks for some of that detail on the new account, Bill, but I was just wondering if you could maybe give us a little more framework in terms of how the account maintenance fee might work.

[William A. Cooper:]

Well, we haven't really worked out the details of it but it'd be typical of the way it used to be 20, 25 years ago. If your account balance goes below a certain level, say $100, then there will be a monthly maintenance fee. There may be two, there may be a bigger fee below $100 and a smaller fee, say below $500 or something like that. The negative balance fee would be a daily fee until the account goes positive. There would be no fee if it went negative, say below a $5 number, but if you take your account negative $200, there will be a daily fee charged until the customer brings that account to positive. We will notice the customer on the day that it goes negative, either through email or U.S. mail or through online banking, as promptly as possible that the account has gone negative and when the customer brings the account positive that fee will cease. One important thing it does and what regulation is directing at is the train wreck that people get into with their accounts where somebody inadvertently does a $25 or say writes five checks for $10 each and is overdraft $50, and since that's five items they get charged for each item, which is very expensive, as compared to somebody who wrote one check for $50 and only gets hit one item. And that tends to happen relatively randomly and it gets driven by what order you post things in and people are very confused about how it all works. This program, this product will be very simple. If a customer goes negative, they know exactly what it will cost them and how much it will cost them until they bring the account positive. And in addition to that, you won't be charged for an item that didn't result in risk to the bank in connection with returning items and so forth. So basically what we will have is account maintenance fees. Some of the fees will be driven by the account going negative and some of them will be driven by the account going down to a relatively low balance, and that's pretty much the way the product structure works. Anybody, Earl or Neil got anything to add to that?

[Unidentified Corporate Participant:]

I think you've described it quite well.

[Operator:]

Your next question comes from Craig Siegenthaler - Credit Suisse.

[Craig Siegenthaler:]

First, I was wondering if you could just talk about the uptick in the troubled debt restructuring, and I 'm guessing that the aggressive modification activity drove this. But I'm wondering if you could help us understand why a lot of these loans won't become non-accrual in the next two quarters.

[Neil W. Brown:]

We developed a proprietary loan modification program, introduced it in June. And the intent of the program is to reduce our ultimate credit costs associated with these borrowers. And it is all home equity type lending that we're talking about here. And what we do is we have a customer at the early stages of delinquency, if they've had some financial hardship and they can't continue to make their existing payments, we'll modify the loan and give them payment relief in terms of a reduced payment for a period of 12 to 15 months. And we re-underwrite the loan at that point and we've verified that they have the ability to make the payment through their verified debt to income ratio. And so this will continue for 12 or 15 months and if they successfully complete the modification terms, at the end of that we'll give them a break, if you will. I mean, we'll relieve like $1,000 of their loan balance. And then at that point, they continue back to their old payments and they continue to make those payments and they'll come out of troubled debt restructuring and continue on in an accrual basis.

[Craig Siegenthaler:]

So right now the interest rate is reduced but no change to the principle. The principle then is addressed down the road, maybe a year from now and that's when you take some of the principle away, is that what you're saying? It looks $1,000 was taken out of the principle?

[Neil W. Brown:]

You broke up there a little bit, but the interest rate is reduced and the payment is reduced for a period of time. The actual interest, the contractual interest on the loan continues at the original loan terms but the amount they pay for 12 months is less. And then at the end of that period they revert back to the original loan terms.

[William A. Cooper:]

We do book a reserve on that loan at the point that we restructure this as well that on average equals about 10% of the principle balance of the loan. Now, our history in these loans and first of all one of the things you've got to remember about these loans that's different than other banks, TCF never engaged in any subprime lending. These are people that have had very good credit. And what has happened is something like their wife got laid off or their overtime got cut or whatever. And one of the things I can say about these deals is the only home equity loans that I'm pretty darn sure everybody can pay because we just re-underwrote it. We actually sit across a table from somebody and work these deals out. But in connection with generally accepted accounting principles, there's a calculation where we book a reserve on these loans. As I mentioned, that reserve is on average around 10%.

[Neil W. Brown:]

It's 11.5%.

[Craig Siegenthaler:]

And an important point, I guess, is what percentage of those loans are also first lien or second lien?

[William A. Cooper:]

They'll all first.

[Craig Siegenthaler:]

They're all first, Okay.

[Neil W. Brown:]

This is Neil. That program really only works with first mortgages. The other think I would mention is we have some history with different loan modification programs that were less conservative than what we're doing today and our success rate on that has been 80% and the re-default rate has been 20% and that's what we expect to come out of this program.

[William A. Cooper:]

One other thing I'll add, what this program does to a greater or lesser degree and it depends on how it all works out, but what it tends to do as a result of booking this 10% reserve when we restructure this is it pushes the provision forward in connection with what it would have been if this loan had simply gone through its normal structure and it became a non-performing and a problem loan. It tends to accelerate provisioning in connection with the eventual disposition of these loans. It doesn't defer it, it accelerates it.

[Neil W. Brown:]

It accelerates it and hopefully reduces it.

[Operator:]

Your next question comes from David Rochester - FBR Capital Markets.

[David Rochester:]

Can you talk about any other modifications or restructurings you're doing on the commercial real estate side?

[Unidentified Corporate Executive:]

I'm not sure what that question means.

[David Rochester:]

Are you modifying any other commercial real estate loans as opposed to consumer real estate loans?

[Unidentified Corporate Executive:]

We do work in a problem commercial real estate loan as well but not in a similar manner. We're not putting people on low interest rates and so forth. This kind of structure is pretty much exclusively for first mortgage residential loans.

[David Rochester:]

So would you happen to have the balance of the commercial real estate loans that you've actually restructured?

[Thomas F. Jasper:]

From a TDR perspective on commercial, our total balance is $10 million.

[Neil W. Brown:]

Included in non-accrual.

[Thomas F. Jasper:]

And those are non-accrual loans and so there's no interest being recognized on those.

[David Rochester:]

And the increase in the problem loans, I guess that was primarily driven by the CRE. Can you talk about some geographic characteristics and product types with that?

[Unidentified Corporate Executive:]

With potential problem loans?

[David Rochester:]

Yes.

[Barry Winslow:]

Yes, Dave, what drove that number there was about eight or nine loans in there that throw that number in terms of the geographic characteristics, they were pretty much spread over our footprint. A couple in Chicago, a couple in Minnesota, a couple in Wisconsin, that sort of thing so there weren't any huge geographic trends there. One of the things I'd just point out there is that these are not delinquent loans. By the way, Jason just passed me a note that say this is Barry Winslow, sorry. These loans are not delinquent and we look at them and we put them in there based on just the operating results. For this category, we disregard any of the other normal loss mitigators that we think are pretty significant here like strong guarantors, other sources of cash flow, liquidity, etc, and we just look at these based on just their operating trends and obviously in this economy, most businesses are stressed.

[William A. Cooper:]

I want to make a point on that. TCF is one of the few banks that discloses this number and it's more accurately described as a watch list, if you will. And the vast majority of these loans never become non-performing and we've kind of got ourselves in a conundrum. We disclose it every quarter. No one else does. We're a little concerned if we stop disclosing it everybody will say, well, what are they trying to hide? But it is a number that is commonly misinterpreted in connection with people think it's the march-down to be a non-performing loan and that's not the case.

[Barry Winslow:]

It's a little tough to talk about this without talking about individual credits, and obviously this is not the forum to do that. But it is very lumpy and it's facts and circumstances of every deal. But I will say that if you know us and you've been following us for a while, we are very much secured lenders. We're pretty conservative on LTVs and we make very, very few non-recourse loans.

[David Rochester:]

Would you say this is more like a special mention bucket versus a –

[Unidentified Corporate Executive:]

Yes, some are, some of these aren't even classified.

[David Rochester:]

And just one last one on your margin outlook, are you still looking at 4% by the end of the year or I guess in the fourth quarter?

[William A. Cooper:]

Well, that's the goal.

[Barry Winslow:]

We're seeing very strong spreads on the commercial stuff we are originating now.

[William A. Cooper:]

And we're seeing dropping deposit rates. We're continuing to make improvement in our overall deposit rates.

[David Rochester:]

Just real quick on the deposit fee thing, and this will be my last one, I promise you. On the new legislation you were talking about, did you anticipate any kind of issues with talking about a daily fee versus a monthly fee? Does that legislation at all address how often you can do that kind of a fee?

[William A. Cooper:]

There's a lot of legislation out there, most of which is never going to happen. A lot of it is just political. I really find it interesting in this banking crisis, the world teetered huge losses, TARP money in the trillions of dollars, etc, and what do we get out of Congress? Legislation on bank fees. I mean, that's really helpful. The most likely thing to happen in my judgment, and this is just my judgment, is the Federal Reserve is going to issue regulations in probably November on fee structure. And I suspect that the Congress and so forth will wait to see what happens with that regulation, and if people think that those are adequate, then that will probably handle it. The good news about that is the Federal Reserve actually knows something about the banking system as opposed to Chris Dodd and it's more likely that we'll get rational regulation as opposed to political posturing.

[Operator:]

Your next question comes from Todd Hagerman - Collins Stewart.

[Todd Hagerman:]

Bill, I just want to go back. You made a comment with respect to credit and reserves suggesting that consumer charge-offs had possibly peaked this quarter and at some point the reserve would come down. I guess if you could just expand on that and thinking about in terms of how the TDRs are expected to increase and the reserve is largely mathematical, if you will, are you suggesting that kind of reserve build over at least the next couple of quarters probably going to revert back to what you were doing over the last few quarters, or could it possibly be less than that?

[William A. Cooper:]

Again, a lot of reserving on the consumer side is formula-driven and so it tends to have a long lead. Charge-off rates over a longer period of time affect your reserving going forward. And to some degree, one of the things that happens with that is, I apply a reserve based on a portfolio as a whole on a vintage that has very low or no charge-offs in terms of the growth and so forth. And the three months doesn't necessarily make a trend, okay, but it's just encouraging both in terms of the shorter term delinquencies and in terms of the charge-offs themselves, and these troubled debt restructurings could be having an impact on those numbers as well. But because of the nature of the way this works and the timing of how it occurs, before we'd see reductions in reserve levels, we would have to probably get into several quarters if assuming things did get better.

[Todd Hagerman:]

And then just if you could, just expand a little bit on the first mortgage product. It looks like the first mortgage product, I guess, kind of across the board, whether it's non-accrual, delinquencies, and so forth, trended high or a little bit more than what I was expecting. Is there anything different or unique that you're beginning to see within the first mortgage product as opposed to junior lien product?

[Neil W. Brown:]

There's some increases. It's a kind of aggressive word, but Chicago is an area where we've seen some of the increases in delinquencies and charge-offs on the first mortgage. So it's just these gradual increases. It's not a spike or an alarm.

[Todd Hagerman:]

And with the TDRs that you're doing, is it now beginning to capture more of the first mortgage, the original product as opposed to the junior lien holders or is it both? Is it a mix of both?

[Neil W. Brown:]

It's designed solely for first mortgages at this point. We're not going to restructure second mortgage until the underlying first mortgage is handled. So right now, it's just first mortgages. And I will say that that program will continue, although we did more of them in July than we did in August and we did more of them in August than we did in September and we did more of them in September than we did in October, so it's a program that's not going to grow as fast as it did in the second quarter.

[William A. Cooper:]

It'll tend to slow. The other thing I'll mention is that we have seen signs of stabilizing and, even in some of our markets, rising home values, and inventory of bank-owned homes reduction, etc, new home sales up and so forth, there's a lot of encouraging things going on in the marketplace relative to residential lending.

[Operator:]

Your next question comes from Steven Alexopoulos - JP Morgan

[Steven Alexopoulos:]

Bill, how much would the daily fee need to be for you to fully replace the current level of NSFs? Just to kind of get a sense of this, $2 fee, $20 fee?

[William A. Cooper:]

Let me say this, we're still working on that. It would be a fair amount less than the per item fee. The per item fee is currently $35. It would be less than that. But we haven't worked out exactly how much less. We're still modeling the various ups and downs of how all that's going to work.

[Steven Alexopoulos:]

I know you said earlier you don't believe the Dodd bill will actually pass. I don't know if you had a chance to look at the language last night. It does seem they talk about negative balance fees, so it seems like this new product is part of that. What is the plan if this does indeed pass? Do you scrap the new product or do the revenues just get piped down substantially? I know you think it's low odds, but it seems to be moving forward pretty quickly. I was wondering if you could talk about this.

[William A. Cooper:]

One other thing about the Dodd bill that people tend to ignore is it would force banks to stop paying overdrafts. There's a lot of things about that. When you look at a debit card overdraft, for instance, our customer is at a merchant buying something and at that point it appears to the bank, at that instant that it's an overdraft. Sixty percent of the time when that occurs by the end of the day it's not an overdraft. A deposit comes in to cover it. Now if you set up legislation that says I can't pay overdrafts, which is what that bill does, something like three million times a year TCF would be turning down a customer at a merchant who wants to make a purchase that it appears like it's an overdraft that by the end of the day it isn't. A similar number of times it would appear to have good funds in it and by the end of the day it doesn't. Now, TCF approves 95% of those today of those that appear to be an NSF. If it's three million times a year at TCF, it's hundreds of millions of times in the industry as a whole. Now, if you talk to people, the ABA did a survey on this and they went to people and said, look your bank paid your overdraft, how do you feel about that? I'm happy. Well, you paid a fee. Well, I wish the fee was less but I'm happy about it. If you go to a customer and you say, the bank didn't authorize your transaction or returned the item, how do you feel about it? I'm pissed, okay, very unhappy. And if you're in a car at 2 o'clock in the morning in Duluth in the middle of the winter trying to get home and you put that card in that gas pump and it doesn't authorize it, you've got a real problem. And if you're buying groceries at Cub Foods there and you put the card up and it doesn't get authorized, you're embarrassed and you've got a big problem. My point is, that legislation as it's drafted, does not work. And if they want 100 million people going down their throat at Congress because people can't get their debit cards to work, it's not going to be a happy day. And that's why I say, the Fed understands this and understands how this system works. The Dodd bill simply does not work in connection with the way the world operates. So it's been my experience when something can't happen, it usually doesn't. Now, never underestimate the ability of people to make dumb decisions. But I simply don't, in the final analysis and we get push to shove, that isn't going to happen.

[Steven Alexopoulos:]

Just one final question again on the TDRs 159 million, 47 million in non-performer and 112 million in performing. What is it that decides whether that's performing or non-performing? Is it a partial charge-off of the TDR?

[Neil W. Brown:]

It's based on the payment history and some of these of TDRs that are on non-accrual. They're old permanently restructured loans that will just sit in that category but their making payments.

[William A. Cooper:]

On those if they make a payment for a year it comes off non-accruals is that correct?

[Neil W. Brown:]

Yes.

[William A. Cooper:]

It's generally accepted accounting principles that drives it.

[Operator:]

Your next question comes from Rob Rutschow - CLSA. Robert Rutschow – Calyon Securities (USA) Inc. I guess, beating a dead horse on the deposit fees. Is there any difference between the way that you would treat checks and the way that you would treat debit card overdrafts in the new product that you're rolling out?

[William A. Cooper:]

No. If the account goes negative there will be a charge. Robert Rutschow – Calyon Securities (USA) Inc. Okay and I guess you declined to tell us what the per day fee, is it safe to say it's sort of in the $1 to $5 range?

[William A. Cooper:]

I'm really not going to say what it is because I don't know. It's probably in the $10 to $25 range. Robert Rutschow – Calyon Securities (USA) Inc. Okay.

[Neil W. Brown:]

Bob is working on simulations for us 24 hours a day right now. Robert Rutschow – Calyon Securities (USA) Inc. Okay, and then some of the credit card companies have talked about opt-in for overdraft protection. Is that something that you're contemplating as well where you would charge a fee for that?

[William A. Cooper:]

Well, I'm not sure what you said there but what the credit card companies got to do with overdrafts? Robert Rutschow – Calyon Securities (USA) Inc. Well, I'm sorry, in terms of their going over limit fees, I'm sorry.

[William A. Cooper:]

We don't have any credit cards. So I don't know what the deal is with credit cards and fees. Robert Rutschow – Calyon Securities (USA) Inc. Okay.

[William A. Cooper:]

Not my puppy. Robert Rutschow – Calyon Securities (USA) Inc. Last question would just be have you seen any changes, you know, you have a big deposit account, deposit base. Have you seen any changes in consumer spending patterns over the past quarter or two?

[Neil W. Brown:]

Yes, this is Neil. The consumers are spending less money than they used to. A relatively significant amount, it's like 8%. So we see the spending levels down and the transactions that they're engaging in are less per transaction than they used to be, but at the same time we're seeing increases in savings balances.

[William A. Cooper:]

There is some recent data that shows over the last couple of months some improvement in that per item card transaction, which is encouraging. And our revenue is based, on debit cards is based on the dollar amount of volume not the per transaction in general. And so actually the number of transactions has been growing with our checking account. The dollar amount per transaction shrank and that's mitigated our fee incumbent in that area, but there's been some improvement of that with, I guess, the somewhat of improvement in the economy.

[Operator:]

(Operator Instructions) Your next questions comes from David Konrad - KBW.

[Jordan Hymowitz:]

It's actually Jordan Hymowitz with Philadelphia Financial.

[William A. Cooper:]

Okay.

[Jordan Hymowitz:]

How many of your accounts currently exceed six per year which is kind of the cutoff for the Dodd bill? Like what percentage?

[William A. Cooper:]

What?

[Neil W. Brown:]

What percentage of our accounts have more than six NSFs a year which is the cutoff that's purposed in the Dodd bill.

[William A. Cooper:]

Explain to me what you mean, six incidents or six items?

[Jordan Hymowitz:]

Six incidents.

[William A. Cooper:]

Well, that's not what the bill says. It says six items.

[Jordan Hymowitz:]

Okay, do six items.

[William A. Cooper:]

Yes, half of them.

[Jordan Hymowitz:]

Okay. And my second question is it seems like when I read the Dodd bill what it's trying to do is get the deposits overdrafts back under [Reg Z or Teal] as opposed to being exempt under the double D today. So whether it's a daily fee or a one-time fee what it's trying to do is get it under the user re-cushion. So my question is whether you charge a $10 daily fee –

[William A. Cooper:]

I lost you there.

[Operator:]

I apologize, sir. Hymowitz, please go ahead.

[Jordan Hymowitz:]

Sorry about that. Thanks for getting me back in, I appreciate it. My questions is do you think that using a daily fee versus a one-time fee will get around [Teal or Reg Z] issues that the Fed may put on the product?

[William A. Cooper:]

I'm not sure what you mean by daily fee versus one-time fee, you mean per item fee?

[Jordan Hymowitz:]

Yes, that per item fee of $35 or whatever the deposits overdraft is versus a daily fee. I mean if you calculate that on a deposit balance it stills gets a very high interest rate and I guess my question is will they focus on that interest rate in regulating the product?

[William A. Cooper:]

We did not design this product to comply with the Dodd Bill or whatever. We designed this product to deal with what has been the criticism of the way that NSF revenue works, which is a per item fee where people with relatively small dollar amounts end up paying lots of fees. And given that it is an unusual nature, it is unpredictable how many items are going to clear that where people of modest means end up with a train wreck and pay $150 in NSF fees because they made a mistake. This is what it's designed to do, not to fit within one of these requirements or another. We believe that this will fit within the requirements when they eventually come down. If they don't we'll reexamine it. To some degree what you really have to understand in terms of retail banking, retail banking is expensive. We're open seven days a week. We provide lots of services to people. We have supermarket branches, ATM's etc., etc. Part of our fee structure is NSF fees. We will be introducing an account maintenance fee to take up some of the slack of what was NSF revenue. To the degree they take away from it, in the banking industry as a whole, the monthly account maintenance fee, not just the TCF but everywhere will go up and it is simply a necessary component to pay for the services that we're providing. The introduction of this fee will change to a significant degree who pays what in connection with there's a monthly maintenance fee, people who are never NSFed will be now paying for people who do, which is apparently the way the world is working these days. In addition to that on average some people will pay a little more, but you won't have the train wreck where some people have paid a lot because they made an accident. And that's really the way they've designed it and we designed this product, we got with our customers and our branch managers and so forth and we said how would you like this to work? And they said they want certainty. They want to know what's going to happen. And that's the way we designed the product. We didn't get into what is usury or whatnot and how it fits or whatever into the thing. And bank fees of this nature in general have not been considered usury in the past. If they want use to disclose an interest rate on it, we'll do it.

[Operator:]

There are no further questions in queue. I'd like to turn the call back over to Mr. Cooper for closing remarks.

[William A. Cooper:]

Thank you very much. You all have a good day.

[Operator:]

Thank you. Ladies and gentleman, this concludes TCF's 2009 Third Quarter Earnings call. We thank you for using ACT Teleconferencing and you may now disconnect.