TCF Financial's (TCB) CEO Craig Dahl on Q1 2016 Results - Earnings Call Transcript

| About: TCF Financial (TCB)

TCF Financial Corporation (NYSE:TCB)

Q1 2016 Earnings Conference Call

April 21, 2016 10:00 AM ET

Executives

Jason Korstange - Director of IR

Craig Dahl - CEO

Brian Maass - CFO

Mike Jones - EVP, Consumer Banking

Analysts

Jon Arfstrom - RBC Capital Markets

Steven Alexopoulos - J.P. Morgan

Ebrahim Poonawala - Bank of America Merrill Lynch

Dave Rochester - Deutsche Bank

Bob Ramsey - FBR

Jared Shaw - Wells Fargo Securities

Emlen Harmon - Jefferies

Terry Mcevoy - Stephens

Chris McGratty - KBW

Operator

Good morning, everyone, and welcome to TCF’s 2016 First Quarter Earnings Call. My name is Jamie, and I’ll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions]

At this time, I’d like to introduce Mr. Jason Korstange, TCF’s Director of Investor Relations to begin the conference call.

Jason Korstange

Good morning. Mr. Craig Dahl, Chief Executive Officer, will host this conference. Joining Mr. Dahl will be Mr. Tom Jasper, Chief Operating Officer; Mr. Brian Maass, Chief Financial Officer and Treasurer; Mr. Mike Jones, Executive Vice President, Consumer Banking; and Mr. Bill Henak, Executive Vice President, Wholesale Banking.

During this presentation, we may make projections and other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual events or results may differ materially. Please see the forward-looking statement disclosure in our 2016 first quarter earnings release for more information about risks and uncertainties which may affect us. The information we will provide today is accurate as of March 31, 2015, and we undertake no duty to update the information.

During our remarks today, we will be referencing a slide presentation that is available on our Investor Relations section of TCF’s website, ir.tcfbank.com. On today’s call, Mr. Dahl will begin with the discussion of the first quarter observation and highlights, revenue, loans and leases and credit. Mr. Maass will discuss expenses, deposits, interest rates and capital. Mr. Dahl will then provide closing comments and open it up for questions.

I will now turn the conference call over to TCF Chief Executive Officer, Craig Dahl.

Craig Dahl

Thank you, Jason. TCF had a good quarter with many positive trends as we continue to execute on our four strategic pillars which are shown on slide three. They remain the primary focus of our strategy going forward. Key observations for the first quarter begin with our consistent and sustainable loan and lease origination capabilities and the impact they have on revenue growth and diversification.

We continue to see favorable credit quality trends as net charge-offs, delinquencies and non-performing assets all improved during the quarter. In February as part of extending our retail banking relationship with Jewel-Osco we announced plans to close 33 in-store branches in the Chicago market and replace them with full function, image enabled ATMs. We executed a similar consolidation of 37 branches in 2014. Brian will talk more about what this efficiency initiative means for our branch and ATM network strategy in a few minutes.

Turning to slide four, provides an overview of why we feel we're well positioned for success. We have significantly higher revenue capabilities compared to our peers with strong revenue diversification. Our growth strategy is focused on profitable growth. We have also been able to maintain loan and lease yields well in excess of our peers without expanding our credit box due to our strong execution on pricing and unique blend of niche lending businesses. This mix of asset classes provides ample and flexible origination capabilities which have resulted in loans and leases making up a larger portion of our average assets.

We have been able to consistently generate organic originations while maintaining discipline on price, structure, and credit quality. Now our deposits, 94% of our deposits are insured compared to peers at just over 60%. This is a competitive advantage for us in a rising interest rate environment from a price and balance perspective. In addition, we have a preferred deposit composition primarily made up of low-balance retail deposits which have the highest liquidity value.

Finally, our net charge-offs which are slightly higher than peers have been driven by our legacy first mortgage portfolio. That is now changing as our growing wholesale portfolio with strong quality has just 6 basis points of net charge-offs in the first quarter of '16 and is having a bigger influence on our overall credit quality.

Turning to slide five shows key year-over-year financial highlights for the first quarter with trends remaining very positive in these areas. Loan and lease originations increased 13% year-over-year while average deposits were up 8%. We also saw nice increases in revenue, ROA, tangible book value per common share and ROATCE. In addition, non-accruals were down over 10%. You will notice that we did see an uptick in provision year-over-year as we provided additional reserves related to changes in economic outlook and loan and lease growth.

Turning to slide six, this demonstrates similar encouraging trends when compared to the fourth quarter of 2015. We saw growth in loans and leases and deposits along with favorable credit trends. Meanwhile as expected we experienced seasonally lower fees and service charges and seasonally higher expenses in the first quarter which impacted ROA and ROATCE.

As you turn to slide seven, you will again notice in the upper right hand corner that we have indicated which of our strategic pillars the slide highlights. This helps critique the importance of these pillars top of mind.

Our total revenue increased 6.6% year-over-year. During the quarter we saw a 2 basis point increase in the margin largely due to increased balances in inventory finance which is our highest yielding business. Despite the rate hike in December we still anticipate margin pressure moving forward due to mix changes within our portfolio. We did experience our typical seasonal decline in fees and service charges which were also impacted by continuing consumer behavior changes and higher-average checking account balances.

We also saw increased gains on sales of loans and servicing revenue during the quarter and leasing fee income remains strong as well. I will remind you that leasing revenue tends to be customer driven and can some level of volatility from quarter to quarter. Finally, on the right side of the slide you can see the level of diversification we have from both an interest income and non-interest income perspective.

Turning to slide eight, you can see the diversification within our loan and lease portfolio as no asset class makes up more than 25% of the total. We are comfortable with our wholesale and retail mix of 55 to 45. Our portfolio had year-over-year loan and lease growth of 4.7%. Had we not sold any loans in the first quarter, we would have experienced an annualized growth rate of 28% which demonstrates the strength of our model.

Please note the seasonal increase in inventory finance. As we have said in the past, inventory finance balances peak in the first quarter and drop off in the second quarter due to the liquidation of the winter products and initial shipment of [indiscernible] [00:08:53] products.

Turning to slide nine, it's a new slide we’ve added to highlight our unique loan and lease origination capabilities which have resulted in consistent levels of originations. We have multiple origination channels that give us growth and flexibility while allowing us to maintain our discipline. Note that inventory finance origination levels are higher in relation to other asset classes due to the higher velocity of fundings and repayments with the dealers, but they are included in all of the comparison periods.

Turning to slide 10, it provides an overview of our loan sales which increased approximately 100 million quarter-over-quarter [technical difficulty] increasing auto loan sales. These were all whole loan sales as we elected not to participate in the auto securitization market during the quarter. We continued to optimize our hold versus sell strategy on a quarterly basis based on various factors including concentration management, capital and liquidity and revenue generation.

Turning to slide 11, you can see that our service for others' portfolio continues to grow and is now at $4.5 billion. This portfolio contributes revenue through both gains on sales of loans and servicing fee income. The servicing fee income continues to steadily grow now $8.9 million during the first quarter.

Turning to slide 12, this demonstrates the stability of our loan and lease yields which have remained relatively flat for four consecutive quarters despite a competitive marketplace. Our diversification strategy has allowed us to maintain a significant yield advantage over our peers while maintaining our discipline on price, structure and credit quality.

Turning to slide 13, you can see that credit quality has remained consisted at TCF. Our 60 day delinquencies declined to 10 basis points. This metric is a leading indicator for our equipment finance, auto finance and consumer real estate portfolios and is a good sign. Non-performing assets decreased by $9 million while net charge-offs have stabilized.

Turning to slide 14, net charges-offs continued to perform in the low end of our expected range driven largely by the strong performance of our wholesale businesses with 6 basis points of net charge-offs in the first quarter. Overall, we see no significant themes in our credit story with our net charge-offs at 27 basis points.

And with that I'll turn the call over to our Chief Financial after Brian Maass.

Brian Maass

Thank you, Craig. Turning to slide 15, non-interest expense increased less than 1% year-over-year while revenue increased 6.6%. This demonstrates our focus on creating operating leverage by maintaining a stable expense base while growing revenue. There is more work to do but we are making progress. We did have a year-over-year increase in compensation expense related to increased staff levels to support the continued growth of loan servicing and higher incentives based on production results.

There has been some volatility in the compensation line over the past two quarters driven by various factors that we have detailed in the last bullet but going forward we would expect to see a return to levels more in line with prior periods in 2015. Turning to slide 16. Slide 16 shows our deposit mix which is the primary funding source for our loan and lease growth. Average deposits have now increased 22 consecutive quarters.

We have seen growth in CDs and money markets due to targeted campaigns. A further breakdown of our CDs shows that 87% are under 250,000. Also note that our CD growth does provide longer term value as over 80% of our customers with promotional CDs also utilize additional TCF products. Checking account attrition continues to improve while deposit growth is outpacing our loan and lease growth. Finally, our deposits are granular in nature with 94% of them being FDIC insured.

Turning to slide 17, slide 17 provides an overview of our branch and ACM network strategy. Following the extension of our retail banking relationship with [indiscernible]. As part of this extension, we announced plans to close 33 in-store branches in the Chicago market and replace them with full function image enabled ATMs. We continued to view our branch network as a vital part of our business model both from an account opening and convenience perspective. At the same time, we had an opportunity to make our branch network more efficient as usage of ATMs and online and mobile banking have increased.

We will be able to maintain a strong customer experience in these 33 stores as customers will have most of their banking needs met via the image enabled ATMs. By the second quarter of 2016, we will have reduced our branch network by over 20% compared to year-end 2011. It is worth noting that our branch closures in 2014 performed as anticipated.

We expect similar results in 2016. Branch closures are one-way we are executing on our strategic pillar of improving operating leverage within the organization. We will continue to invest in ways to enhance our branch, ATM and digital channels. Slide 18 demonstrates how we are well-prepared for changing interest rates given our mix of short-term and variable rate loans. The shorter duration of our assets also allows for optionality and a changing interest rate environment. While the forecast for additional rate hike is unclear, we do expect to see a positive impact when rates rise as we are an asset-sensitive bank. That said, there are factors that may put pressure on the margin such as portfolio mix changes, growth and competition as well as the shape of the yield curve. Turning to slide 19, our capital ratios remain strong as earnings accumulation continues to support asset growth. We declared a common stock dividend of $0.075 per common share yesterday. With that I will turn the call back over to Craig Dahl.

Craig Dahl

Thank you Brian. Our summary slide is our slide 20 and provides a summary of our strategic pillars. We continue to generate strong loan and lease originations that provide portfolio diversifications and revenue role all while maintaining strong credit quality metrics. We are able to provide core operating revenue to the business through our ability to consistently execute on loan sales which remains a core competency for the company. We continue to make strides from an operating leverage perspective including the branch closures that will occur during the second quarter. And finally, we continue to generate ample deposits to support our loan and lease growth. With that I'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from Jon Arfstrom from RBC Capital Markets. Please go ahead with your question.

Jon Arfstrom

Lot to cover but maybe short-term margin and credit. Help us understand the margin outlook and first of all have you seen some benefits so far from the margin - from the rate hike, I know you talked a little bit about some margin erosion but have you seen any of that benefit and then also maybe walk us through some of the puts and takes in terms of the mix changes and the magnitude of the margin pressure that would help.

Craig Dahl

Yeah, so I can answer that for you Jon. So we did see some benefit to the margin as a result of Fed's December rate hike but part of the increase in our margin was also due to the seasonally high balances that we had in inventory finance, we get a little bit of a mix shift that's happening there. I'd say you know without the rate hike, you would have seen continued decline maybe a few basis points but instead it was up a couple of basis points that kind of helps guide you on that, I'd say while we expect you know the bottom line for benefit from the rising rates, we do still think that the impact on the margin due to these portfolio mix changes and competition as well the shape of the yield curve will have an impact.

Jon Arfstrom

And is the mix, is it anything in particular that would drive it?

Craig Dahl

And I just it's in general right, in the first quarter when you look at we have the seasonality of inventory finance, so you got the $500 million growth that's there. We also continue to just have run-off of our consumer real estate portfolio and those are some of the highest yielding portfolios and some of the other growth is coming on at lower levels so that's where the continued pressure comes from.

Jon Arfstrom

And then just on credit, Craig I think you talked about the provision and a change in the economic outlook. Maybe touch on what you mean by that and then obviously auto dominated the last call and you see the delinquency backed down this which is good but maybe touch a little bit on how you're feeling about auto as well?

Craig Dahl

I mean the economic outlook there, one of the things I talked about in many of the meetings I've had subsequent to the first quarter earnings call is that it's really hard to make strategic decisions in the first quarter that January and February activities are not always supported then by the - by March and by March you kind of know and I think that's a little case here, I think there was a lot more skepticism generally on the economy in January and February and we've seen our numbers pretty much true-up here through the first quarter. As it relates to auto, a lot of the questions Jon in the first quarter were really not specifically tied to TCF's portfolio where we're tied to maybe auto industry in general and base participation with it. So we have not loosened our credit standards and we have not lowered our pricing hurdles and those are the two - and we continue to implement we believe a very sound collection process. And those are the three keys to our performance in the auto and so we are a little different with our 25% new, 75% used basis that does give us more pricing flexibility and gives us less LTV risk and smaller transaction sizes. So we still feel good about our auto business.

Jon Arfstrom

And then maybe one just one quick one on inventory finance Craig, obviously the big competitor changed hands, can you talk a little bit about what kind of impacts you think that might have on your business and if you still feel there is money and motion in that business and opportunity?

Craig Dahl

Again, there were several different businesses that we competed against GE on, the inventory finance business sold to Wells Fargo obviously that's new to have and we have not had really any short-term impact to that. The other businesses where more equipment finance oriented Jon and had more - had larger portfolios that would not make us a player to acquire the whole portfolio but we continue to be very active in attracting talent inside the equipment finance business and ultimately we hope that leads to programs and then transactions. So we're still positive about that impact.

Operator

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

Steven Alexopoulos

Maybe I could start on the constant benefit plan, I'm trying to better understand the guidance, I guess you said it's going to go back to where it was the last couple of quarters. What in there this quarter that's expected to come out?

Brian Maass

So I think, this is Brian Maass, the increase quarter-over-quarter was primarily due to payable taxes in the first quarter as well as continued growth in our managed portfolios as well as higher incentives based on production results and in fourth as we mentioned before, we did have some non-recurring items there, so that's why that comes down. So I'd say yes, the guidance that we are giving is kind of just ignore the last two quarters and if you - the other three quarters in 2015 are kind of your best forward guidance.

Steven Alexopoulos

In the release, where you guys said higher auto loan balances tied to the maturation of the business model. Is this now the - you said you are more competitive, I'm trying to better understand the implication?

Craig Dahl

We've been adding 500 dealers a quarter and we've also led adding up to a certain number of sales teams. And so we are not increasing our sales teams and the impact of 500 dealers a quarter of a 12,000 dealer base isn't nearly as much as it was during the timeframe when we were starting out the business. SO it's really just additional penetration of those dealers, it's having more of the sales teams up to scale on where they're expected levels are and it's still a robust market. So it's all three of those factors.

Steven Alexopoulos

And if I could ask one question on capital, you guys continued to accrue capital each quarter, what are your thoughts on buybacks here? Thanks.

Brian Maass

Well, I was going to wait to answer that when Chris McGratty asked it, but I guess I can cover it now. We continue to have discussions with our board regarding our capital position and we kind of look at capital with four different options in mind. Certainly, number one would be dividends and as you know, we increased our dividend in the third quarter of 2015. Next would be the role of what a buyback would play and as you know, having followed the stock for a while, historically TCF did use stock buyback, but hasn’t done it in recent past.

The third option is really the corporate development option, whether it’s whole company acquisitions, bank acquisitions or portfolio acquisitions and making sure that we have appropriate capital to address that forward-looking and then lastly is our organic growth scenario, which we have more leverage in the bank intra quarter than we certainly end the quarter after our loan sales are completed. And, well, it’s not growth at all cost, it’s profitable growth and we have a lot of opportunities to continue to have organic growth. So that’s kind of how the discussion has played with our board and with our executive management team.

Operator

Our next question comes from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead with your question.

Ebrahim Poonawala

Good morning, guys. If I could just follow-up on Steve’s question on expenses, so I get the reset in second quarter. I guess going forward from there, what’s sort of the best way to think about expenses and expense growth, given what you’re doing on the brand side in terms of the technology investments and upgrading the brand’s infrastructure, like how do we think about it following the 2Q reset?

Brian Maass

Yeah. So this is Brian Maass. Expense control is top of mind for us. Our focus continues to be growing revenue faster than we’re growing expense and I think we proved that in first quarter with revenue up 6.6% and expenses being up 0.7%. We are looking for ways to tighten the belt and I’d say, if revenue slows, we would look to take additional actions on the expense side, but in general, you’re going to see expense levels, I think we had said it before, up this 1%, 2% type of thing, presuming that we’ve got revenue growing at a faster pace.

Ebrahim Poonawala

Got it. So this should be positive operating leverage one way or the other?

Brian Maass

Correct.

Ebrahim Poonawala

Got it. And in terms of - we had sizable sort of loan sales on both consumers’ real estate and auto, what’s the outlook on there, I know it’s hard to predict, but if you can give any sense there, that would be helpful.

Brian Maass

Sure. We have very good execution in the first quarter and that’s something that is hard to have quarter-over-quarter. However, having both the opportunity for home loan sales and securitization in auto, gives us a lot more flexibility as we go within the quarter to decide which path that we prefer and so we’re still optimistic based on the origination levels that we have that we’ll be looking to be sort of in between the fourth and first quarter as we look forward on loan sales.

Operator

Our next question comes from Dave Rochester from Deutsche Bank. Please go ahead with your question.

Dave Rochester

Hey, good morning, guys. Just back on expenses, sorry to be on this, but can you just talk about how much in the way cost saves you think you will get at closing the branches and at what point we’ll see that fully realized in the P&L.

Brian Maass

So, I’d say - this is Brian Maass. Much of the cost savings that we’re going to see from that will be reinvested into other digital distribution channels in the coming periods.

Dave Rochester

Okay. And then how do you think about the positive attrition related to that.

Craig Dahl

So the positive attrition, so we have some experience back in 2014, we closed branches and we very much outperformed what our expectations were. So we think it will be very small and moderate. I mean it’s not going to be meaningful to us.

Dave Rochester

Okay. And then just switching to the NIM, the loan yields really didn’t move much this past quarter, you talked about seeing a little bit of a bump on the NIM from that, and I guess I’m just looking at the loan yields here on the commercial side, we saw both buckets actually had a little bit of a downtick and we’re just wondering what drove the downtick especially in the variable rates?

Brian Maass

Yeah. I’d say in general, this is Brian. In general, there continues to be mix in that portfolio, so we continue to see prepayments and runoffs and some of the reason it’s just coming on the lower balance happens to be the new volume that would be rolling into that line.

Dave Rochester

Okay. So I guess with future rake hikes, you’re anticipating a similar move and then maybe 3, 4 basis points higher, ex which we normally see?

Brian Maass

Correct. If we had another increase in rates?

Dave Rochester

Yes.

Brian Maass

Yeah. I think that seems reasonable.

Dave Rochester

Okay. And then just real quick on the auto net charge-offs, those were up a little bit this quarter, is this kind of a new level that you’re expecting around the 80 basis point level, I know that tends to be somewhat seasonal, but how should we think about that going forward, year-over-year?

Craig Dahl

Yeah. That’s a good question. I mean, that, I would say that our January was weaker than we would have had planned it to be and that had a little bit of impact, but again, as I commented earlier, February and March came right back in line. So you see there is no change in delinquency, no change in non-accrual there and I just think that that’s probably and we’re looking pretty good for the second quarter as well.

Dave Rochester

Great. And one last one, any update on the NORA letter and any kind of dialog that you guys have had related to that, any color there would be helpful? Thanks.

Craig Dahl

Yeah. No. We don’t really have any information to share at this point. We are in discussions, where both sides are clearly looking for a resolution, but we’re still in the discussion phase.

Dave Rochester

Okay. So that’s an active dialog that’s ongoing?

Craig Dahl

Correct.

Dave Rochester

Okay. Are you anticipating that kind of resolution to occur this year?

Craig Dahl

No. The timing of that is, I’m unable to comment on that.

Operator

Our next question comes from Bob Ramsey from FBR. Please go ahead with your question.

Bob Ramsey

Hey. Good morning, guys. Just curious, if you could remind me after shifting the Jewel-Osco branches to smart ATMs, how many in store branches do you guys have left and how do you think about the value of keeping those as branches versus converting them to image enabled ATMs?

Mike Jones

Yes. This is Mike Jones. Afterwards, we’ll have about 145 in store branches across our footprint and you guys keep in mind that we don’t just have a relationship with Jewel, we also have a relationship with Supervalu and Cub stores here in Minneapolis. And how I think about the supermarkets is, it’s an excellent way to raise deposits. We get access to a tremendous amount of transaction flow that we don’t get the opportunity vis-à-vis the branches. So it’s a strong part of our franchise and we have good relationships with those partners. So we see those as continued opportunities to drive the franchise forward.

Bob Ramsey

Okay. But I mean it sounds like those are still goals that you should be able to accomplish with the Jewel-Osco branches post sort of changing on the ATMs, I mean are there opportunities to sort of pursue a similar strategy elsewhere down the road.

Mike Jones

We’ll continue to evaluate it and look at it. I think these are actions that put us in a great position from our franchise standpoint and I think as you look at the industry, it’s clearly shifting to more self-served, it’s clearly shifting to more digital and online access. And as Brian mentioned, the reinvestment in technology in that channel is kind of where we’re going to put the focus prospectively.

Operator

Our next question comes from Jared Shaw from Wells Fargo Securities. Please go ahead with your question.

Jared Shaw

Hi, good morning. On the auto portfolio, can you tell us where you’re running right now in terms of new monthly production levels as well as what you’re seeing on monthly cash flow coming in, so basically how much you have to be originating to stay even at this level?

Craig Dahl

Well, I think we have disclosed this quarter our auto finance originations. It’s on page 9 of the deck. So we originated 915 million, we sold, what’s the exact number, 77. Okay. I’m sorry, 450 million and we grew, I think you have all the pieces there to put that together.

Jared Shaw

Okay. And then in terms of looking at the size of that network now, taking that 915 million, what could that potentially grow to with still keeping comfort with the underwriting levels that parameters that you have in place, how could we see significant growth from that if there is an opportunity [Technical Difficulty]?

Craig Dahl

I think the best way to look at their auto portfolio is not how big can it get, but how profitable can it get. And so that becomes, so certainly the origination level is the front part of that, the loan sales strategy ties right into that, but then the mix in credit quality and price underlying that is the other piece and we’ve got a lot of confidence and our management team has a tremendous amount of experience and so I’m very confident that it’s not going to become a size issue for us, it’s going to become a profitability issue for us and that we are going to have - we have the opportunity to stand out there.

Jared Shaw

Okay, great. Thanks. And then circling back on the branch side, separate from the in-store branches. When you look at the rest of your footprint, do you see any opportunities for optimization of either further branch sizes or consolidation of locations or do you feel pretty comfortable with the standalone franchise at this point?

Mike Jones

Yes, this is Mike Jones. I would say that we are pretty comfortable with our traditional footprint. I think we will look to prune that as necessary, so it will be more of a scalpel approach versus just cutting off significant amounts in specific markets. So we are always looking for an opportunity where we can cover our customer experience vis-à-vis a more efficient channel, but we are pretty comfortable with the footprint that we have right now.

Jared Shaw

Okay, thanks. And then finally just on the inventory finance, do you see any opportunities for significant expansion there over the next 12 to 18 months?

Craig Dahl

Well, we talked a lot about - first of all, how long it takes to get a manufacturer program to switch, there is a long lead time involved and even after you announced the contract signing, there is a transition period. So that would be - that would have - that would be the long-term play. We don’t really right now see what the transfer from GE to Wells Fargo occurring in the first quarter that there is any reason or any rule to move right at this point, any new program over the last five [ph]. All of these program development activities have been our long-term process. So we continue to keep our eyes out for that opportunity.

Jared Shaw

Great. Thank you.

Operator

Our next question comes from Emlen Harmon from Jefferies. Please go ahead with your question.

Emlen Harmon

Hey, guys. Just one quick last one for me. Just noticing that you started from low base, but you started investing in the [indiscernible] the last few quarters. Should we expect that to continue? How does that affect the asset sensitivity and is that in effect kind of a way? Are you guys making a bet that maybe we get a slower fed fund cycle here, is that a way to kind of capture some interest income in light of that.

Brian Maass

Yes, this is Brian. What I would say is we have made some changes to the composition of our investment portfolio as a way to enhance the return on our liquidity. As you mentioned, we do have some tax exempt high quality municipals that are part of that book. And like we said, I mean, this is really - these have a slightly longer duration than probably the book was, but we feel comfortable doing that like we had talked about before at some other composition mixes that we have going on within our loan book. Our loan book is getting shorter and shorter from an average life’s perspective, so this is just a little bit. On the other side, that pushes out a little bit of duration on our portfolio.

Emlen Harmon

Great. Thanks. That was it for me.

Operator

Our next question comes from Terry Mcevoy from Stephens. Please go ahead with your question.

Terry Mcevoy

Hi, thanks. Good morning. You changed and tweaked your checking account product a lot over the last decade. I guess, what’s driving the improvement in checking account attrition?

Mike Jones

Yes, this is Mike Jones again. I would say it’s a couple of things. I think one, it’s consumer behavior and they are holding more balances in their checking account. And then secondly, I think over the last several years, we have focused on originating quality over originating volume. And as we get more quality accounts that’s one, the products that we provide and generate a great outcome for the bank as a funding source, that has driven down the customer attrition.

Terry Mcevoy

And then as you look at the 33 in-store branches that are going to be replaced with the ATMs, how much of an impact will that have on the revenue side or just opening new checking accounts as well as maybe some consumer loan products.

Mike Jones

Yes, I believe it will have some impact, but as Brian mentioned, we think it will be very minimal to the overall book. We have a great franchise in Chicago. We have other distribution that kind of surrounds those that are getting closed. As I mentioned before, we believe customers are moving more towards a self-service model and us putting those image enable ATMs in those branches will enable us to keep satisfying those customers’ needs.

Terry Mcevoy

Great. Thank you.

Operator

[Operator Instructions] Our next question comes from Chris McGratty from KBW. Please go ahead with your question.

Chris McGratty

Good morning, everyone. Maybe a question on funding. You guys have - CDs are a small proportion of your deposits, but they’ve been growing and the rate has been ticking up. Can you remind us what the strategy is here, the rates you are offering promotionally and kind of outlook for that portfolio? Thanks.

Brian Maass

Yes, so this is Brian. What I can say is the rates that we offer there, a lot of times are a function of what the forward curve in the market is saying. I would say the positive is, as we talk about rates not going higher, the expectation for rates not going higher has been that we have seen our promotional rates decline. So they are probably down 15 or 25 basis points from rates that we had in January. I think there is a positive note there. In general, just around CDs, we do see these as in some ways the cost of our promotion of CD is the way to acquire new customer into the bank. And as we get that customer, we have the ability to sell them other products or potentially reprice that CD at its maturity.

Chris McGratty

Just one quick modeling question. The FDIC insurance line tick down, is this a good run rate or should we be going back to where it’s been kind of in the $5 million range last year?

Brian Maass

You know, that has trended down in general. I would say, it can’t be sensitive to growth in the balance sheet. But I would say in general that this quarter is a pretty good run rate.

Chris McGratty

Great. Thanks.

Operator

And ladies and gentlemen, at this time, we thank you for your questions today. Should any investors have further questions, Jason Korstange, Director of Investor Relations will be available for the remainder of the day at the phone number listed on the earnings release. We would now like to turn the conference call back over to Mr. Craig Dahl for any closing remarks.

Craig Dahl

Well, thank you. TCF feels really good about first quarter here. I am very encouraged by the teams and strategies we have in place. While we are operating in a challenging environment, we do have a unique business model that gives us the flexibility needed to be successful. I look forward to further discussing our story with many of you throughout the remainder of the year. Thank you.

Operator

Ladies and gentlemen, that does conclude today’s conference call. Thank you for attending. You may now disconnect your lines.

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