TCF Financial Corporation
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Good morning and welcome to TCF’s 2014 Third Quarter Earnings Call. My name is Amy 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 like to introduce Mr. Jason Korstange, TCF Director of Investor Relations, to begin the conference.

[James Korstange:]

Good morning. Mr. William Cooper, Chairman and CEO, will host this conference. Joining Mr. Cooper will be Mr. Craig Dahl, Vice Chairman; Mr. Tom Jasper, Vice Chairman; Mr. Mike Jones, Chief Financial Officer; Mr. Earl Stratton, Chief Operations Officer; Mr. Jim Costa, Chief Risk Officer and Mr. Mark Bagley, Chief Credit Officer. During this presentation, we may make projections and other forward-looking statements regarding future events for the future financial performance of the company. We caution you that such statements are predictions and actual events or results may differ materially. Please see the forward-looking statement disclosure contained in our 2014 third quarter earnings release for more information about risk and uncertainties which may affect us. The information we provide today is accurate as of September 30, 2014, and we undertake no duty to update the information. During our remarks today, we will be referencing a slide presentation that is available on the Investor Relations section of TCF’s website, ir.tcfbank.com. On today’s call, Mr. Cooper will begin by discussing third quarter highlights, Mike Jones will discuss credit and expenses, Craig Dahl will provide an overview of lending, Tom Jasper will review deposits and capital and Mr. Cooper will wrap up with a summary. We will then open it up for questions. I will now turn the conference call over to TCF Chairman and CEO, William Cooper.

[William Cooper:]

Thank you, Jason. TCF had another pretty good quarter. We earned $0.29 a share which is up 26% from a year ago. Revenues were $320 million which were up around 5% from year ago. Loan and lease originations continue to be strong at 3.6 billion, that’s up 15% from a year ago and average deposits are now at 15.2 billion and that’s up about 6%. Credit continue to improve in the bank, provision for loan losses at 15.7 million is down 36% and non-accrual loans and leases were down 2.5%. Our return on average assets 115 that’s up 18 basis points from a year ago at 115 is a 20% to 25% higher on return assets than our peers. Our return on tangible equity is 12.11% and that’s up 120 basis points from a year ago. Year-to-date it’s $0.83 a share, up 38% and revenues up 4% almost a $1 billion. Loan and lease originations were up 12.9% and 10.2 billion and deposits again up 4.5. Provision for loan loss, again reflecting the yearlong improvement in credit is down 58% from a year ago, charge offs were down 35% from a year ago. Return on average assets 111 year-to-date return on tangible equity about 12%. All very good and strong metrics in terms of performance of the bank. The revenue was $320 million, again a strong improvement over prior periods. One of the things I’ll point out is in terms of the diversification of our revenue, you can see from an interest income perspective how diverse our revenue streams are. We have 221 million of interest income, with split between wholesale and retail and split between the various categories of our businesses. And that diverse revenue stream is a very good position to be in and is a much superior position than our peers. It reduces risks and creates lots of different kinds of opportunities. You could see the same thing in our non-interest income again a very diverse set of revenue streams with deposits, services charges and leasing card revenue gains on sales, service income and so forth. Both of those charts are really strong highlights in terms of the performance of TCF’s plans. Comparing ourselves to the industry as a whole on page six of the deck, you can see that we have all of our metrics exceed our peer averages, net interest income, non-interest income, revenue. Total revenue was 663 as a percentage of assets versus 417. TCF is a revenue machine. Our returns on assets 111 from 87 basis points again our basic performance measure which is return on assets is much stronger than our peers. Reason for that is the yield on our loans is higher at 5.09 versus 4.60 and our rate on deposits is lower at 25 basis points versus 32 basis points. I might mention that higher yield on loans is even better than it appears because of the rate sensitivity in our loan portfolio either variable rate loans or fast term loans that revolve quickly, which really positions us when at some point in the future rates rise. And as you can see TCF is kind of a 1950s, we make loans and we fund them with deposits. 86% of our assets are in loans versus 65% for our peers, 78% of our funding of our assets are in deposits 90% of those deposits are core deposits and sure deposits which means they are not as rate sensitive. They are a large, large number of small deposits which means we have a lot less rate sensitivity in our funding side. We have a relatively low level of borrowings only 7.5%. We are a core funded bank that makes loans. And our return on tangible equity about 12% exceeds the peers by of around 10.5%. With that, I turn it over to, Mike.

[Michael Jones:]

Thanks, Bill. Turning to slide seven on credit performance, if you look at the upper left hand corner there, TCF’s 60 day plus delinquency continues to remain stable, falling in the 17 basis point to 19 basis points range over the last several quarters. This consistent performance is experienced across all of our lending platforms. With delinquency as our leading indicator for credit performance, with low delinquency levels demonstrated the overall improvement in the portfolio and a good indicator of future performance. Provision for credit losses and charge-offs both increased in the quarter, as we take a conservative approach to credit and the consumer portfolio. This also resulted in non-performing assets increasing slightly from last quarter, as seen in the lower left hand corner of the slide. Non-performing assets remain down though from prior year-end. As you look at these non-performing assets, 94% of them come from the legacy consumer and commercial portfolios. With that said, 40% of the consumer non-accrual loans are current as the consumer Chapter 7 bankruptcy loans continue to pay. This percentage is even higher on our commercial non-accrual loans almost 60% of these loans are less than 60 days past two. The credit performance in our leasing and equipment inventory finance and auto finance businesses continue to perform at or better than the modeled levels. Turning to page eight, non-interest expense ended the quarter at 220 million, an increase of 3.3% on a linked quarter basis. This increase was driven by three factors. We continue to make investment in our compensation around auto finance and risk management. Within the quarter, there was a one-time charge related to optimism of office base in our Michigan market, where we sublet a portion of our space at a market rate which is below our average lease contract rate. This differential is recognized upfront and then amortized into the income statement over the sublease term. So we’ll get this back over the next two years and be in a better position economically for the organization. The third is outside consulting related to the validation of our models. This expense will ultimately be reduced significantly as we brought this process in-house and we deliver these validations in a more cost effective manner prospectively. Non-interest expense as a percentage of total average assets owned and service for others, ended the quarter at 4.05%. If you adjust for the one-time office space optimization charge, non-interest expense as a percentage of average assets in service portfolio remained relatively flat around 4% on a linked quarter basis. TCF continues to look for opportunities to optimize expenses leveraging the current expense base as we move into 2015. I’ll now turn the call over to, Craig Dahl.

[Craig Dahl:]

Thanks, Mike. Slide nine shows our loan and lease portfolio with a breakdown of wholesale and retail by asset class. This chart remains consistent on prior quarters with 52% of our assets in wholesale and 48% at retail. We show further reduction in our consumer real-estate exposure to 37% and our expected increase in auto to 11%. Our multiple business segments give us many options on where to invest and our year-over-year loan growth rate was 4.6%. Turning to slide 10, on loan and lease sales, the chart on the left addresses the loan categories of the sales, while the chart on the right addresses the gain amounts by loan category as well as our total servicing revenue. I would point out the highlight on the bottom of page right that shows that the increase in our auto sales reflects that TCF completed its first auto securitization in the third quarter and this represents an incremental sale in the quarter from prior periods. Turning to slide 11, this shows our managed portfolio which ended the quarter just under 20 billion managed. We have also detailed a gain on sale and servicing revenue that was realized in the quarter from our asset sales. Turning to slide 12, our loan and lease balance roll forward. We had strong originations in the quarter and our annualized growth rate was 22% prior to loan sales. The box on the right shows our year-over-year change and once again, you can see we were up over last year in all asset classes. This chart reinforces our continued strong origination capabilities and diversity across asset classes and shows the capacity for even greater earning asset growth in the future. Turning to slide 13, our loan and lease yields, you can see the benefits of our diverse origination strategy as auto and commercial yields declined in the quarter, yet the other categories offset much of that decline. Overall, this chart continues to indicate the strength of our focused origination strategy. And with that, I’ll turn it over to Tom Jasper.

[Tom Jasper:]

Thank you, Craig. If you turn to page 14, we continue to take a measured approach with deposit growth driven by our success in our loan and lease portfolio. Average deposits for the third quarter were up 5.9% versus third quarter of last year funding had a 4.6% growth in our loan and lease portfolio. Average deposits increased 2.6% from the second quarter or about 3.89 million. The average interest cost of deposits for the third quarter was 28 basis points and year-to-date it’s 25 basis points. TCF continues to focus on generating quality checking accounts and improving the customer experience for all of our customers. The efforts of our team members in the branches and the contact centers along with the enhancements to our product offerings have enabled 12.5% reduction in our checking account attrition year-over-year. If you turn to page 15, TCF earnings continue to drive improvement in our capital ratios, despite our growth. All ratio shown on page 15 have improved both year-over-year and on a linked quarter basis. Tier 1 common capital is now at just shy of 10%. And with that, I’ll turn the call back over to Bill Cooper.

[William Cooper:]

On page 16, I have some interesting ratios I think in connection that kind of finishes off our story. The first one is the year-over-year loan and lease growth rates and you can see the improvements in those levels. The good thing about that area for TCF is that we have such strong loan origination capacity along with our ability to sell loans, we can drive this rate up and down depending on the concentration we want credit limits and so forth and the balance sheet growth we want. TCF as compared to peers have very significant loans origination capacity. The capital accumulation rate is an important number. What this really shows is our ability to grow our capital even after our dividend. And everything being equal, it shows you after what we reached the capital levels are appropriate our ability to grow the balance sheet or increase our dividends or take other actions associated with our capital levels. Our tangible book value has increased almost a $1 from a year ago up from $8.69 to $9.60 that is an important metric in terms of the stock price, in terms of the price to your tangible book value. And you can see that you’ve had significant improvements in that area and that’s from accumulating capital off of that capital accumulation rate. And a significant improvement return on average assets as I mentioned, it’s 20% or 25% higher return than our peers which shows the strong performance of our diversified balance sheet and return on tangible equity of just over 12% up from 10.9%. All of those indexes are significant improvements and are strong as compared to our peers. One other point I’ll make is rates are falling and it looks like it’s going to be down for a while, but at some point rates will rise and our fast turn of our asset portfolio due to the amortized quickly auto loans etcetera for our variable rates mirrored with our slow turn in our deposit means that a rising rate environment would be improvement in our return on assets and margins at TCF. So, we’re positioned for that to happen at some point in the future. With that, I would just open it up for questions.

[Operator:]

[Operator Instructions]. Our first question comes from Jon Arfstrom at RBC Capital Markets.

[Jon Arfstrom:]

Hey, good morning guys. Just couple of questions here, question on loan production probably for you Craig, but this $3.5 billion number that you put this quarter it seems like continuing to go up sequentially. What do you view as kind of the peak production for the producers that you have in place now? Is this the number that you think over time goes to 4 billion or greater or help us understand what’s possible here?

[Craig Dahl:]

This is Craig Dahl. Well Jon, there is a couple of variables that were there. There is a seasonality impact and we would look where the fourth quarter to the up or the third quarter doing to that seasonality. In addition, though inventory finance business is a large portion of this and can have seasonality as well, based on what the season of the product that they are shipping. So, we believe we can continue to grow off of this number, but we will see variability in the seasons.

[Jon Arfstrom:]

Okay. And I guess may be this ties into that slide 16 as well Bill, and may be even 15 on capital, but how do you think about the balance sheet growth of the company? Obviously the gains are getting bigger as your production number goes up, but at the same time you continue to build capital and you have this high class problem to trying to figure out what to do with it. But over time is this something where do you think the balance sheet growth continues to increase over time?

[William Cooper:]

This is a great problem that we have and what’s unique of the banking business for us we have a decision capability of how fast we want to grow the balance sheet and grow the margin as opposed to take gains. Part of that is a concentration risk management how many loans I want to have California? How many auto loans do I want to have in the balance sheet? What kind of loans? As we’ve said in the past, we sold off the lower cycle [sure] loans in our auto business etcetera. So that’s kind of an ongoing analysis in terms of how we look at that and the question is as to whether you sell a loan or keep it is a complex question. If you sell it, you take the gain, increase capital, reduce risk lots of good things happen. If you keep it interest margin you probably make money over the pool, but you use up capital and you increase risk. So you kind of have to balance those things and there is a judgment factor in all of that. But get to the nut of your question, over time we will probably increase that asset loan growth rate in the balance sheet to increase the core earnings of the bank and some level of banks that grow too fast tend to get in a crack. And we’ve seen that over and over in my career and somewhere between a 7% to 10% growth in assets is a reasonable rate to be able to keep control of your credit risks and so forth. And I think we’re edging toward that kind of an asset loan growth over time.

[Jon Arfstrom:]

All right. And then just one quick one for you Mike, frequency of securitization and size this and every other quarter occurrence?

[Michael Jones:]

Yeah, I think we will be evaluating it Jon, this is Mike, on a quarterly basis. We have established it as a program. We think it’s a great diversification to our loan sale strategy. So we’ll be out there at least what we’ve talked about with investors at least once a year and then, we’ll be looking at it and evaluate it on a quarterly basis what makes the best economic sense for TCF.

[Jon Arfstrom:]

Okay. All right. Thanks guys.

[Operator:]

The next question comes from Scott Siefers at Sandler O’Neill.

[Scott Siefers:]

Good morning, guys. Just a couple of questions on credit I was hoping you could discuss two other things. One just some color on the migration of those two commercial credit into non-accrual and then you referenced in the release and in your prepared remarks the more conservative approach to consumer credit for being partly responsible for the higher sequential charge-offs. So as it relates to just specifically to how you’re looking at the consumer piece, are there any specific portfolios, are they legacy or newer stuff? And if that’s the kind of thing then just sort of transitory here in the third quarter in order words, kind of a one-time charge off or is it going to keep things elevated going forward?

[William Cooper:]

Well, first of all let me say that credit in general all of our credit metrics continue to improve significantly or stay really good. The two loans that moved over non-accrual were kind of one-offs like any portfolio things happen. Those were not systemic in any fashion there were a couple of odd situations where tenants disappeared in buildings because of some changes that occurred in the market place, can’t get into too much specific, but they are one offs I would say. I’ve given the other to say that you’re in the commercial lending business you have one offs, should happen if you know what I mean. And on the consumer portfolio, that portfolio continues to improve as well in all the metrics in that portfolio improved. We changed the metrics of the way we classify non-accruals etcetera within a piece of that portfolio. We did some fine tuning which I believe is more of a one-off than a systemic thing as well. And so there isn’t really any story there in my opinion in connection with our credit continues to improve. Now, one other things that does happen is since we’re in a loan growth mode, we put reserves on when we grow assets and regardless of what happens with charge offs and so forth, and if we increase our loan growth we’re going to increase our provision associated with that and that will tend to fall out in line. That isn’t necessarily a measure of increase in losses it is however, a measure of increasing risks. You grow loans, you’re increasing risks. So that’s kind of the story. Did I answer that for you?

[Scott Siefers:]

Yeah you did and I appreciate the color. And may be just one quick follow-up or kind of unrelated question, it was just on the commentary regarding the cost related to outside validation of processes that you’ve now brought in-house. Are you able to say what those costs are and then how much and how quickly they would go down?

[Michael Jones:]

This is Mike Jones. I’d say within the quarter the elevation was about a 1.5 million from a dollar figure standpoint and we would see that those costs come down as we roll into 2015.

[Scott Siefers:]

Okay. That’s perfect. Thanks Mike.

[Operator:]

The next question comes from Steven Alexopoulos at JP Morgan.

[Steven Alexopoulos:]

Hey, good morning guys. May be to follow up on the fine tuning of the credit practice, is the end result of lower threshold to move loans into non-performer may be with the corresponding impact for the provision rate?

[William Cooper:]

What this was, was kind of a take a look at a portfolio what’s in there and these things are a little odd. And so let’s have as we further analyzed it lets handle these a little different or little odd as compared to the rest of the portfolio in summary what that is.

[Steven Alexopoulos:]

Okay. And may be switching to deposits for a minute, it looks like most of the growth was in money markets and the average rate there is bumping up to 60 bps. Do you guys need to keep stair-stepping deposit rates further here to drive this incremental funding? Is that the way you’re thinking about it ?

[William Cooper:]

Well, we have various funding sources. We can borrow or we can increase deposits. I would hand that out to, Tom.

[Tom Jasper:]

Yeah this is Tom Jasper. As it relates to our measured approach, so if we’re going to be in the market to raise deposits, we’re going to have to have a competitive rate. And so we look at that on balance market-to-market and look for opportunities to both introduce new products and with leading pricing into markets. And then look at our rest of our deposit portfolio and look for opportunities to potentially reduce the cost so that the blended incremental cost of deposits is appropriate. So to grow our deposits we’re going to have to offer market rates that are appealing and so we’re going to look to manage that against other funding opportunities, as Bill mentioned, both within the borrowings area and as well as things such as securitizations which Mike referenced earlier.

[William Cooper:]

In the market rates where they are or not you can borrow two years of 50 basis points 60 basis points so there is various options. What happens at TCF now again you just look at our balance sheet what do we have? We have loans and deposits and I really like the way it operates. Now Craig says I’m going to grow $500 million in loans and Tom says okay I’m going to raise $500 million to fund it. And then they found it in the most economical safest way possible that’s the way that process works. So it is a measured we’re raising the money to fund the balance sheet do you want to add something Tom?

[Tom Jasper:]

Yeah this is, Tom I would just mention that our money market campaign has been successful in driving new customers into the branches. So that’s part of – on balance what we’re trying to do is both attract new deposits from existing customers, but also attract new customers and we’ve been successful in that over the year.

[Steven Alexopoulos:]

Okay. May be just one final one, could you guys give some color on the customer behavior changes you cite in the release is impacting fee revenue? Thanks.

[William Cooper:]

I’m going to turn that over to, Tom but with all of this cyber security target everybody reading every day what’s going on there people and the impact of the Durbin amendment itself in terms of the Durbin amendment which revolves around energy change on debit cards is driven I saw a study the other day it’s driven a million people out of the banking system who can’t afford to pay its fees. In addition to that, people are worried about the, in my opinion at least, worried about the unnecessarily, but worried about the security of the cards and so forth and there has been a shift from cards to cash which affects those numbers. Tom, you want to add?

[Tom Jasper:]

Yeah. This is Tom Jasper. If you look at, there is couple of different things to look at one is what are the average number of transactions that are going through a checking account and on a year-over-year basis the total transactions when you look at all the debits are down than little more than 1% at 1.3% reduction in year-over-year. That really is one part of the behavior and then the other part is the incidents as it relates to overdraft etcetera and if you look at the incidents in terms of how often customers are over-drafting on the account and what might be leading to that behavior to be things as it relates to what Bill mentioned etcetera, the incidents are down on a year-over-year basis. So that’s part of the issue as it relates to what’s going on within the fee revenue line on customer behavioral changes.

[William Cooper:]

A lot of that incident rate is driven by better information that customers have today. Mobile banking allows them to pull their balances up at any time etcetera, etcetera and plus the training if you will the financial training that we give to people that tend to run into problems and so forth and that. And so better information, better programs and so forth have reduced that number that’s also had an impact on it.

[Steven Alexopoulos:]

Okay. Thanks for all the color.

[Operator:]

The next question comes from Ken Zerbe at Morgan Stanley.

[Ken Zerbe:]

Great, thanks. Quick question just on the auto portfolio securitizations now that you guys have established yourself, you’re able to do securitization. I guess I was surprised about the comment that you may do one a year. Is there any hold up are you guys being a little bit more aggressive in terms of what you originate I guess more advantage of the securitization market bring in more fees or are you operating at essentially 100% capacity right now?

[William Cooper:]

The reason for – the good news about that securitization is that it opens another avenue for us in connection with our ability to sell loans. We’ve traditionally sold loans and we have a division that does this to other financial institutions, we get a little better deal on that than we do it through a securitization, but we want to have a diversity of sources. So we’ll stay with our partners in terms of financial partners in selling that because we get a little better deal, but we will continue to stay in the securitization market to make sure that we have that capacity. Pretty well explained that?

[Ken Zerbe:]

It does. So should we read into that, that if you did say the 484 million of auto loan sales this quarter, next quarter if you do it same, it doesn’t really matter so much the extra [inaudible] whether you securitize it or you sell it through your partners, you’re still going to do the same volume it’s just a function of how it gets sold? Is that right?

[William Cooper:]

And we’ll do a lot we have historically done a little better selling to partners than securitization not a whole lot, but a little bit. And plus there is the cost of doing a securitization and so forth. But we really like having the diversity of sources and we want to make sure that, that line of business stays a stable line of business.

[Michael Jones:]

Ken, this is, Mike Jones. I think how you think about it is at least once a year I think that’s how you have to think about it as Bill alluded to ensure that we have the capabilities and keep it fresh. We’ll definitely look at it on a quarter by quarter basis and make that decision on what’s the most economic for the shareholder.

[William Cooper:]

One of the things on securitization, we would be hopeful at some point that the consumer loan securitization market will open up over time as well and we’ll be able to do that side of the business through securitization as well. Right now that is not an open market, but I am optimistic that it will become so.

[Ken Zerbe:]

Got it. And then just one other question on the first lane of the resi mortgages looks like the balances were down little more than normal. I know this isn’t a big area of focus for you guys but does this mark any kind of change in terms of shift or your thinking in terms of letting it running off?

[William Cooper:]

No, there is room in our balance sheet for a residential loan portfolio. We have funding sources that matches that very well. I’m not enthused about putting on a whole bunch of fixed rate 30 year paper rent to these rates regardless I think in the next couple of years we’re going to get a better opportunity to do that and we indeed may turn stick it on we’re running that portfolio $400 million or $500 million a year. That’s one of the things when we talk about loan growth you have to remember that we’re growing loans after shrinking that fixed rate portfolio something like $400 million $500 million a year. We feel that we have had in the past, too large a percentage of fixed rate residential loans in our portfolio and as a matter of fact, that concentration hurt us when home values fell and we liked the concept of having more diversification. At some point, it may make sense to go back into that business. Craig you want to add any to that?

[Craig Dahl:]

No, I think that’s right on and that’s why we show on our asset class that we have 52% wholesale and 48% retail and the amount of consumer real-estate is down to 37% at the total portfolio.

[William Cooper:]

But this one-off currently was just market stuff re-fi etcetera there was Tom you want to add something here?

[Tom Jasper:]

Yeah I would just say that we continue to build out a correspondent channel within our business. So we’re originating first mortgages but not for our own balance sheet, but in the branches enter some other channels. So that is still part of our product offering to customers, but not something that we’re looking to put on our balance sheet.

[William Cooper:]

And that will probably accelerate as time goes on too, it’s kind of in its infancy it will get stronger.

[Ken Zerbe:]

All right. Great. That helps. Thank you.

[Operator:]

The next question comes from Bob Ramsey at FBR.

[Bob Ramsey:]

Hey good morning guys. Thanks for taking the questions. I know you’ve touched earlier on deposit fees, I was just curious with the CFPB coming out with some work in the – and they were so concerned about the low level of deposit fees being charged across the industry if you have any thoughts? And it looks like the fees are still high relative to your deposits relative to other guys that are out there. I think some of the concern has to do with proportionality and that if people overdraft by $1 do they 35.

[William Cooper:]

We have files that’s stuffed diligently at our disclosures product structure we don’t do sort order we noticed people trying to help them we think that they are abusing their talents etcetera and we think that we are doing everything that we can. We are kind of leader in the industry. The reason that fee number is bigger for us isn’t because individual customer paying more of it it’s because we have more customers. We have over 1 million checking accounts that’s a number of the checking accounts you might find in $80 billion bank rather than $20 billion. So that number we think we’ve managed that well. We don’t know frankly where the CFPB is going with that. We’re watching it diligently and looking for signs to make sure that we do what’s appropriate in the regulatory world. But I really can’t give you a lot more color, because I really don’t know where they’re going with it. The best I can say is that we’re being as conservative and aggressive as possible. Tom, you got anything to add to that?

[Tom Jasper:]

I agree with all of your comments. We led the pack in many ways around our disclosures we adopted one of the first banks in the country to adapt our few disclosures that clearly talked about how our accounts work and as Bill mentioned we changed our sort order in 2013 as it relates to that disclosures that banks are still looking to do going forward. But for us that issue is really behind us and as Bill mentioned we continue to pay attention and take into account what we can do to best serve our customers.

[Bob Ramsey:]

All right. That’s all helpful. Appreciate it. Could you may be also on talking about checking accounts I know you highlighted that you’ve seen a 12.5% drop in checking account attrition. What do you attribute that to? What’s driving that improved performance?

[William Cooper:]

Good management.

[Bob Ramsey:]

Naturally.

[William Cooper:]

Tom you want to comment on that?

[Tom Jasper:]

First of all, thank you, Bill. We really have focused on originating high quality accounts and then we have made improvements in a lot of different aspects in terms of improvement in our mobile technology in terms of expanding the use beyond just Apple to Android phones all these things lots of different things different types of customers expect different things in the product line up. So I would say if there is any one thing we do continue to focus on the level of service that we provide in the branches and between the focus on quality accounts and some of the improvements that we manage to do in our technology and the level of service that people our team members in our branches high level of service fee are providing we’ve just seen that attrition reduce and to me it’s just a good sign for us and we’re hopeful we continue to show that improvement going forward.

[Bob Ramsey:]

Okay. That’s helpful. You mentioned the mobile apps I’m just curious if you could just share any stats around sort of adoption and usage of mobile now versus a year ago?

[Tom Jasper:]

It’s improved significantly on a year-over-year basis I don’t have the stats right in front of me and we continue to look at additional functions and features for those and as it relates to that technology. So we’ve seen both significant improvement in that but I don’t have the stats in front of me but we can get back to you on that.

[Bob Ramsey:]

All right. Great. Thank you guys.

[Operator:]

Your next question comes from Chris McGratty at KBW.

[Chris McGratty:]

Good morning.

[William Cooper:]

Good morning.

[Chris McGratty:]

Tom, on the promotions that you guys talked about with the funding, can you give us the rate and the duration of which the CDs were put on in the quarter? What you guys are currently offering?

[Tom Jasper:]

Well, there are different products various branches of 14 15 months and it depends on the market. So in various markets we can be closer to 1% and in some markets we can be less than that. So it’s a market to market we don’t have the blended offer in the quarter but if we continue to look for opportunities I think in total the CDs inside of the quarter rough about 341 million and we had about 313 million of CDs balances increasing so we continue to grow it on the net but the relatively shorter duration less than 15 months.

[Chris McGratty:]

All right. Great. Thank you. On the provision, Mike, can you help us with the outlook for the provision. I think your long term guidance is 50 basis points of assets this quarter you pulled up 30 35 but there was as a jump in the quarter between 10 and 16 million. How should we be thinking about the near term structure?

[Michael Jones:]

Chris, this is Mike. I think Bill talked about it a little bit last quarter where that as you hit towards the bottom and your credit improves to these type of level you’re going to have a little bit of volatility as you go from quarter to quarter but hopefully around the range that we’re following in right now it has seen from kind of first quarter second quarter and third quarter. I don’t know Bill if

[William Cooper:]

In general, we all operate under generally accepted accounting principles in general it’s a good idea to put some acorns away in the summer if you know what I mean provisions in reserves and right now things have gotten considerably better and provisions will probably exceed charge-offs in the future.

[Chris McGratty:]

Okay. Billion is what you’re saying?

[William Cooper:]

A little bit.

[Chris McGratty:]

Okay. But maybe this quarter’s provision is the average of last three quarters is probably in your fair term

[William Cooper:]

The one of the things that happens is the number gets so small that anything you do suddenly bumps around, you know what I mean. But a 50 basis points provision for us is a pretty good conservative level given the nature of our secured credit quality loan originations. And we’ve talked about this as we’ve been out on the road with you Chris as well as in investor conferences well we feel that 50 basis points is kind of the normalized level based on our risk appetite diversification of our loan portfolios in good times we would expect it to perform better than that and in bad times it may creep above that, but on a normalized basis throughout the whole cycle with the risk appetite and the portfolio that we have, we think that that’s a pretty good number.

[Chris McGratty:]

Okay. Thanks a lot.

[Operator:]

[Operator Instructions]. Our next question comes from Terry McEvoy at Sterne Agee.

[Terry McEvoy:]

Mike, earlier in the call you talked about areas to optimize your spent base in ‘15. Is most of that real-estate branch related or is there anything else you can share with us this morning?

[Michael Jones:]

I think the majority of it is getting leverage from our current expense base going forward. So if you think about that in a couple of ways on the lending side leveraging the fixed cost in our business and as we’re getting the auto finance business to scale leveraging that if you think about it on the branch side and Tom talked a little bit about this a little bit earlier is how can we get more value added products in the brand that generates revenue organization. And we get more leverage from the infrastructure that we have within that branch network. So I think you’re going to see us driving down those two strategies to get some more leverage as we go into ‘15.

[Terry McEvoy:]

Okay. And then question for Bill, TCF was ahead of the curve in terms of getting into all these specialized businesses other than catching on whether policing auto you name it and I guess the question is how do you protect that you’ve built over the last few years?

[William Cooper:]

One of the good things about that and first of all the big competition in the banking business is not mid-sized banks the big competition is the big national banks. If you take all the banks between 10 billion and 100 billion add them up they don’t add up to a size of a largest bank in America. The smaller banks getting into these businesses are there you can see them but that really doesn’t change the marketplace that much. So a lot of the businesses that we’re in take the inventory finance business for instance you have to have trained people and a platform etcetera to deliver that product and we not only have that we have one of the best may be the best in that business. The auto business, the auto origination business you need a system, you need people hundreds of people etcetera we bought a platform in that and it isn’t you don’t take a bunch of mortgage originators and put them in the auto business and have a satisfactory happening etcetera. All our equipment financed business etcetera all of which operate on a national scale with people who know how to run a business on a national scale. And so the ease of the entry into those business isn’t as easy as it might sound and to a significant degree we’re already competing against very large significant competitors. I mean we’re what percentage is auto business now 3% or something 1% and who is the big competitors well Wells Fargo, U.S. Bank those are the big competitors in that market. We’re doing well in that competitive market because we do a really good job we’re getting it done and so I don’t really look at other mid-sized banks getting into the auto business or the equipment finance business changing that marketplace that much.

[Terry McEvoy:]

Thank you.

[Operator:]

Thank you for your questions today. Should any investors have further questions, James Korstange Director of Investor Relations will be available for the remainder of the day at the phone number listed on the earnings release. I will now turn the call back over to Mr. William Cooper for any closing remarks.

[William Cooper:]

I’d like to again thank all of you for attendance. I think this is my 110th earnings release. Thank you for your attention and thank you for your investment. Have a good day.

[Operator:]

The conference has now concluded. Thank you for attending. You may now disconnect.