TCF Financial Introduces Sunday Hours

WAYZATA, Minn. — William Cooper, TCF Financial Corp.’s chairman and chief executive officer, revels in being a contrarian.

Though many banking companies target wealthy people in the belief that 20% of a bank’s customers generate 80% of its profits, Mr. Cooper sees potential in all depositors, no matter how small their average balances.

“You don’t have to get very much from a customer before he is marginally profitable,” he said in an interview last week.

And though some others continue to try to steer customers toward automated teller machines and the Internet, Mr. Cooper remains bullish on branches. The $11.7 billion-asset TCF announced last week that it would open 107 of its 137 traditional branches on Sundays, starting this weekend.

Though its 231 supermarket branches were already open Sundays, TCF will become one of just a handful of banking companies offering seven-day banking at free-standing branches.

“It’s not that people want to bank on Sunday. They want to know they can bank on Sunday,” Mr. Cooper said.

That about sums up his approach to banking.

Since Mr. Cooper took the helm at TCF in 1986, its growth strategy has been simple: Target the masses — particularly low- and middle-income people — and blanket TCF’s markets with branches.

In Mr. Cooper’s math, the amount TCF makes per account, no matter how small — multiplied by hundreds of thousands of accounts — equals big profits for the company.

“What most people believe, we believe something else,” said the 57-year-old Mr. Cooper.

TCF now has 369 branches in six midwestern states. Its third-quarter per-share earnings rose 18% from a year earlier, to 72 cents, on net income of $52.9 million. Last year it earned $194 million, up 30% from 1997, the year before its biggest expansion — the opening of 76 offices in Chicago-area Jewel-Osco supermarkets. And its per-share earnings, $2.44 last year, were up 41% from 1997.

A “positive about TCF is that they have been growing internally, which is a difficult way to grow but the best for stockholders,” said Stephen L. Covington, an analyst at Stifel, Nicolaus & Company Inc. in St. Louis.

TCF started putting branches in supermarkets in 1988, and it has no plan to stop anytime soon; it expects to open eight this quarter and 30 next year. Though its executives admit that de novo expansion requires more up-front investment — and patience — than acquisitions, they say it pays off in customer generation.

“The No. 1 reason people bank with someone is convenience,” said TCF president Lynn A. Nagorske.

Building, not buying, has been TCF’s strategy since Mr. Cooper took the helm. Though other banking companies cite economies of scale as a reason for making acquisitions, he said that, when it comes to return on assets, small banking companies generally outperform larger ones.

Banking companies with assets of $1 billion to $10 billion had an average return on assets of 1.32% in the first half of this year, and those with more than $10 billion averaged 1.23%, according to Federal Deposit Insurance Corp. numbers. TCF reported a third-quarter return of 1.81%, up from 1.71% a year earlier.

Jon G. Arfstom, an analyst at Royal Bank of Canada’s Dain Rauscher Inc. in Minneapolis, said that TCF’s build-it-and-they-will-come strategy has worked well for years and that he expects it to continue to drive earnings.

“It’s one of the few banks I’ve seen where you can look out several years and see where the earnings are going to come from,” he said, “and that’s the de novo branches as they mature.”

Shortly after joining TCF, Mr. Cooper introduced totally free checking accounts with no fees and no minimum balance. The plan was to make the liability side of the balance sheet profitable through overdraft charges and merchant fees from debit cards.

By making totally free checking its flagship product — Mr. Nagorske listed checking as the second reason customers choose a bank — TCF has drawn in almost $800 million of deposits since 1997. In the third quarter it recorded $48.8 million of fees and service charges, up 12.4% from a year earlier, and fees and other noninterest income made up 43% of the company’s total revenue.

Jacqueline Reeves, managing director of research at Putnam Lovell Securities Inc., said TCF’s emphasis on fee income would help it prosper, even in a sluggish economy.

Though most banking companies reject customers’ requests to withdraw more money than is available in their accounts, TCF, in most cases, will honor such a withdrawal, she said. The idea is that the customer will eventually replenish the account, and TCF will make money on the overdraft fee, she said.

“The bottom line is that they have a very solid business model,” Ms. Reeves said.

Described as a “data hound” by Mr. Nagorske, Mr. Cooper relies on numbers to back up TCF’s strategy, and these numbers — such as the more than $214 million of revenue the company realized last year from retail checking accounts — often lead him to go against the banking grain.

Though TCF competes against such giants as U.S. Bancorp, Fifth Third Bancorp, and Bank One Corp., few pursue the small depositor as aggressively as TCF, according to Mr. Cooper.

Commerce Bancorp, a $10 billion-asset company in Cherry Hill, N.J., employs a similar strategy, but it is not much of a threat to TCF because its markets are in New Jersey, Pennsylvania, Delaware, and New York.

“If they came in, we would probably be concerned” about competition, said Jason Korstange, TCF’s vice president for corporate communications.

After introducing its free checking account, the natural progression was to offer ATMs and then debit cards. TCF is now the country’s 12th-largest debit card issuer.

It “pounded on the card guys” to find ways to encourage people to use debit cards and generate vendor fees, Mr. Nagorske said.

The result: TCF handed out prepaid phone cards that rewarded customers with a minute for every purchase of $10 or more made on their debit cards. The company gave away 38.6 million minutes of phone time last year and has given 36.9 million so far this year. Its interchange revenue for the second quarter was $9.3 million, a 31% increase.

TCF is also moving, slowly, into discount brokerage. It started offering annuities in the 1980s and mutual funds in the 1990s, and under a pilot program begun in June, the company has 500 brokerage accounts. It plans to start marketing the brokerage service next year, once the pilot stage is complete.

Still, as long as Mr. Cooper is around, traditional consumer banking will always be TCF’s bread and butter.

Like Commerce’s chairman, Vernon W. Hill, Mr. Cooper likes to compare his company not to other banking companies, but to retailers.

“I’m the Wal-Mart or the Target of banking — I’m cheap, and I’m convenient,” Mr. Cooper said.

As for the rest of the banking world, he hopes that it holds to its course, too. “The error of their ways has been a real opportunity for us,” he said.