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TCF Reports Quarterly Net Income of $35.1 Million, or 22 Cents Per Share and Annual Net Income of $132.6 Million, or 82 Cents Per Share

Company Release - 1/29/2014 8:00 AM ET

WAYZATA, Minn.--(BUSINESS WIRE)--

TCF Financial Corporation (NYSE:TCB):

2013 HIGHLIGHTS

  • Net interest margin of 4.68 percent, up 3 basis points from 2012
  • Core revenue(1) of $1.2 billion, up 3.2 percent from 2012
  • Provision for credit losses of $118.4 million, down 52.2 percent from 2012
  • Non-accrual loans and leases of $277 million, down 27 percent from 2012
  • Loan and lease originations increased $1.3 billion, or 12.4 percent, from 2012
  • Average deposits increased $1 billion, or 8 percent, from 2012

FOURTH QUARTER HIGHLIGHTS

  • Earnings per share of 22 cents, up 7 cents from the fourth quarter of 2012
  • Core revenue(1) of $306.2 million, up 1.5 percent from the fourth quarter of 2012
  • Provision for credit losses of $22.8 million, down 53 percent from the fourth quarter of 2012
  • Loan and lease originations increased $213.4 million, or 7.4 percent, from the fourth quarter of 2012
  • Average deposits increased $603.5 million, or 4.4 percent, from the fourth quarter of 2012
  • Announced that the OCC has lifted the regulatory order related to TCF’s BSA compliance program
  • Branch realignment after-tax charge of $5.6 million, or 3 cents per share, related to 46 branches to be consolidated in the first quarter of 2014
                                             
Summary of Financial Results                                           Table 1
(Dollars in thousands, except per-share data)     Percent Change
    4Q     3Q     4Q

 

4Q13 vs

  4Q13 vs     YTD     YTDPercent
2013       2013         2012      

3Q13

      4Q12       2013        

2012(2)

Change
Net income (loss) $ 35,148 $ 37,948 $ 23,551   (7.4 ) %   49.2 % $ 132,603 $ (218,490 )     N.M. %
Net interest income 201,862 199,627 201,063 1.1 .4 802,624 780,019 2.9

Diluted earnings (loss) per common share

.22 .23 .15 (4.3 ) 46.7 .82 (1.37 ) N.M.
 

Financial Ratios (3)

Pre-tax pre-provision return on average assets (4)

1.90 % 2.04 % 1.94 % 1.98 % (.51 ) %
Return on average assets .90 .97 .63 .87 (1.14 )
Return on average common equity 8.39 9.28 5.93 8.12 (13.33 )
Net interest margin 4.67 4.62 4.79 4.68 4.65

Net charge-offs as a percentage of average loans and leases

.76 .71 1.18 .81 1.54
 
N.M. Not Meaningful                                                                      
(1)   Core revenue is calculated as total revenue less gains (losses) on sales of securities of $1 million and $(528) thousand for the three months ended December 31, 2013 and 2012, respectively, and $964 thousand and $102.2 million for the year ended December 31, 2013 and 2012, respectively.
(2) Includes a net, after-tax charge of $295.8 million, or $1.87 per common share, related to the balance sheet repositioning.
(3) Annualized.
(4) Pre-tax pre-provision profit (''PTPP'') is calculated as total revenues less non-interest expense.
 

TCF Financial Corporation (“TCF” or the “Company”) (NYSE: TCB) today reported net income of $35.1 million for the fourth quarter of 2013, compared with net income of $23.6 million for the fourth quarter of 2012, and net income of $37.9 million for the third quarter of 2013. Diluted earnings per common share was 22 cents for the fourth quarter of 2013 (inclusive of a net after-tax charge of $5.6 million, or 3 cents per common share, related to the realignment of 46 branches), compared with 15 cents for the fourth quarter of 2012, and 23 cents for the third quarter of 2013.

TCF reported net income of $132.6 million for the year ended December 31, 2013, compared with a net loss of $218.5 million for the same period in 2012 (inclusive of a net after-tax charge of $295.8 million, or $1.87 per common share, related to a balance sheet repositioning involving certain investments and borrowings in the first quarter of 2012). Diluted earnings per common share was 82 cents for the year ended December 31, 2013, compared with a diluted loss per common share of $1.37 for the same period in 2012 (or earnings per common share of 49 cents when excluding the balance sheet repositioning charge).

Chairman’s Statement

“TCF’s focus in 2013 was to execute on the numerous investments we made in 2012,” said William A. Cooper, Chairman and Chief Executive Officer. “Earnings per share increased 67 percent to 82 cents in 2013 from 49 cents in 2012, excluding the balance sheet repositioning charge, reflecting the positive impact that the balance sheet repositioning had on the organization. Throughout the year, we have been successful on several initiatives as we maintained our strong pre-tax pre-provision return on average assets and significantly improved our overall credit quality. At 4.68 percent, TCF has one of the highest net interest margins in the industry. Loan and lease growth and strong origination volume and diversity continue to be a positive part of the TCF story while significant changes made to the branch system will pave the way for future customer experience enhancements in 2014.

“TCF is a much different looking bank than it was two years ago and we believe its strength and diversity will serve our customers and shareholders well in today’s banking environment. The investments in 2012 and the execution in 2013 have positioned TCF to capitalize on opportunities in 2014 and beyond. I am very excited about what lies ahead.”

       
Revenue
                                                                 
Total Revenue                                                         Table 2  
          Percent Change  
4Q3Q4Q4Q13 vs     4Q13 vsYTDYTDPercent
(Dollars in thousands)       2013       2013         2012       3Q13       4Q12         2013       2012Change
Net interest income $ 201,862     $ 199,627       $ 201,063   1.1 % .4 % $ 802,624     $ 780,019 2.9 %
Fees and other revenue:
Fees and service charges 43,254 42,457 44,262 1.9 (2.3 ) 166,606 177,953 (6.4 )
Card revenue 13,066 13,167 12,974 (.8 ) .7 51,920 52,638 (1.4 )
ATM revenue   5,382       5,941         5,584   (9.4 ) (3.6 )   22,656       24,181 (6.3 )
Total banking fees 61,702 61,565 62,820 .2 (1.8 ) 241,182 254,772 (5.3 )
Leasing and equipment finance 23,624 29,079 26,149 (18.8 ) (9.7 ) 92,037 92,721 (.7 )
Gains on sales of auto loans 7,278 7,140 6,869 1.9 6.0 29,699 22,101 34.4
Gains on sales of consumer real estate loans 5,345 4,152 854 28.7 N.M. 21,692 5,413 N.M.
Other   6,419       4,304         3,973   49.1 61.6   18,484       13,184 40.2
Total fees and other revenue   104,368       106,240         100,665   (1.8 ) 3.7   403,094       388,191 3.8
 
Subtotal - core revenue 306,230 305,867 301,728 .1 1.5 1,205,718 1,168,210 3.2
Gains (losses) on securities, net   1,044       (80 )       (528 ) N.M. N.M.   964       102,232 (99.1 )
 
Total revenue $ 307,274     $ 305,787       $ 301,200   .5 2.0 $ 1,206,682     $ 1,270,442 (5.0 )
 
Net interest margin (1) 4.67 % 4.62 % 4.79 % 4.68 % 4.65 %

Fees and other revenue as a % of total revenue

33.97 34.74 33.42 33.41 30.56
 
N.M. Not meaningful.
(1) Annualized.                                                                
 

Net Interest Income

  • Net interest income for the fourth quarter of 2013 increased $799 thousand, or .4 percent, compared with the fourth quarter of 2012. The increase was driven by higher average loan and lease balances in the auto finance and inventory finance businesses as well as decreased rates on various deposit products. This increase was partially offset by downward pressure on yields across the lending businesses in this low interest rate environment as well as lower average balances of consumer real estate and commercial fixed-rate loans due to run-off exceeding originations.
  • Net interest income for the fourth quarter of 2013 increased $2.2 million, or 1.1 percent, compared with the third quarter of 2013. The increase was attributable to higher average loan and lease balances in the auto finance and inventory finance businesses as well as decreased rates on various deposit products, partially offset by lower average balances of fixed-rate commercial loans primarily resulting from run-off and the impact of a portfolio loan sale.
  • Net interest margin in the fourth quarter of 2013 was 4.67 percent, compared with 4.79 percent in the fourth quarter of 2012 and 4.62 percent in the third quarter of 2013. The decrease from the fourth quarter of 2012 was primarily due to downward pressure on origination yields in the lending businesses due to the low interest rate environment as well as a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable-rate loans due to marketplace demand. The increase from the third quarter of 2013 was primarily due to cash balances held at the Federal Reserve in the previous quarter being utilized to fund asset growth and a decline in overall funding costs.

Non-interest Income

  • Fees and service charges in the fourth quarter of 2013 were $43.3 million, down $1 million, or 2.3 percent, from the fourth quarter of 2012. The decrease from the fourth quarter of 2012 was due to lower transaction activity and higher average checking account balances per customer, partially offset by a larger account base.
  • Leasing and equipment finance revenue was $23.6 million during the fourth quarter of 2013, down $2.5 million, or 9.7 percent, from the fourth quarter of 2012 and down$5.5 million, or 18.8 percent, from the third quarter of 2013. These decreases were primarily due to lower sales-type lease revenue in the leasing and equipment finance portfolio as a result of customer-driven events.
  • TCF sold $236 million, $159.6 million and $182.5 million of auto loans during the fourth quarters of 2013 and 2012, and the third quarter of 2013, respectively, resulting in gains in the same respective periods.
  • TCF sold $202.3 million, $25.7 million and $142.4 million of consumer real estate loans during the fourth quarters of 2013 and 2012, and the third quarter of 2013, respectively, resulting in gains in the same respective periods.
                               
Loans and Leases
                                                                   
Period-End and Average Loans and Leases                                             Table 3    
Percent Change
(Dollars in thousands) 4Q3Q4Q4Q13 vs4Q13 vsYTDYTDPercent
  2013       2013       2012     3Q13       4Q12         2013       2012     Change    
Period-End:
Consumer real estate $ 6,339,326 $ 6,415,632 $ 6,674,501 (1.2 ) % (5.0 ) %
Commercial 3,148,352 3,137,088 3,405,235 .4 (7.5 )
Leasing and equipment finance 3,428,755 3,286,506 3,198,017 4.3 7.2
Inventory finance 1,664,377 1,716,542 1,567,214 (3.0 ) 6.2
Auto finance 1,239,386 1,069,053 552,833 15.9 124.2
Other   26,743       26,827       27,924 (.3 ) (4.2 )
Total $ 15,846,939     $ 15,651,648     $ 15,425,724 1.2 2.7
 
Average:
Consumer real estate $ 6,412,182 $ 6,402,612 $ 6,663,660 .1 % (3.8 ) % $ 6,449,950 $ 6,757,512 (4.6 ) %
Commercial 3,088,524 3,282,880 3,452,768 (5.9 ) (10.5 ) 3,262,746 3,485,218 (6.4 )
Leasing and equipment finance 3,342,182 3,261,638 3,184,540 2.5 5.0 3,260,425 3,155,946 3.3
Inventory finance 1,734,286 1,637,538 1,570,829 5.9 10.4 1,723,253 1,434,643 20.1
Auto finance 1,157,586 973,418 504,565 18.9 129.4 907,571 296,083 N.M.
Other   13,369       12,299       14,704 8.7 (9.1 )   13,088       16,549 (20.9 )
Total $ 15,748,129     $ 15,570,385     $ 15,391,066 1.1 2.3 $ 15,617,033     $ 15,145,951 3.1
N.M. Not meaningful.  
 
  • Loans and leases were $15.8 billion at December 31, 2013, an increase of $421.2 million, or 2.7 percent, compared with December 31, 2012. Average loans and leases were $15.7 billion for the fourth quarter of 2013, an increase of $357.1 million, or 2.3 percent, compared with the fourth quarter of 2012. The increases in period-end and average loans and leases were primarily due to the continued growth of the auto finance portfolio as TCF expands the number of active dealers and sales force in its network and further penetrates existing territories, as well as an increase in both the leasing and equipment finance and inventory finance portfolios. These increases were partially offset by decreases in commercial loans, primarily due to run-off exceeding new originations, as well as decreases in consumer real estate loans driven by run-off in the first mortgage real estate business and ongoing loan sales.
  • Loan and lease originations were $3.1 billion for the fourth quarter of 2013, an increase of $213.4 million, or 7.4 percent, compared with the fourth quarter of 2012. This increase was due to the continued growth within auto finance, as well as an increase in leasing and equipment finance originations as a result of an improving economic environment and customer-driven events.

Credit Quality

(Table 4 - Credit Trends: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50791368&lang=en)

  • Non-accrual loans and leases were $277 million at December 31, 2013, a decrease of $102.4 million, or 27 percent, from December 31, 2012. The decrease from December 31, 2012 was primarily due to continued efforts to actively work out problem loans in the commercial portfolio. The decrease was further driven by fewer non-accrual consumer real estate loans as a result of improved credit quality, and the sale of $40.5 million of non-accrual loans during the second quarter of 2013. The reduction was partially offset by $48.6 million of delinquent loans entering non-accrual status due to a change in the non-accrual policy for consumer real estate loans during the third quarter of 2013.
  • Other real estate owned was $68.9 million at December 31, 2013, a decrease of $28.1 million from December 31, 2012. The decrease was primarily due to a portfolio sale of 184 consumer properties during the first quarter of 2013 and continued efforts to actively work out problem assets.
  • The over 60-day delinquency rate, excluding acquired portfolios and non-accrual loans and leases, at December 31, 2013 was .19 percent, down from .25 percent at September 30, 2013 and .64 percent at December 31, 2012. The decrease from September 30, 2013 was primarily driven by loans in the commercial portfolio which were previously delinquent becoming current during the quarter. The decrease from December 31, 2012 was primarily a result of reduced over 60-day delinquencies in the consumer real estate portfolio due to a change in the non-accrual policy for consumer real estate loans during the third quarter of 2013.
  • Net charge-offs were $30.1 million for the fourth quarter of 2013, an increase of $2.5 million from the third quarter of 2013 and a decrease of $15.4 million from the fourth quarter of 2012. The increase from September 30, 2013 was primarily driven by a charge-off on one large commercial loan reserved for in a previous quarter. The decrease from December 31, 2012 was primarily due to improved credit quality in the consumer real estate portfolio as home values improve and incident rates of default decline. Consumer real estate net charge-offs were down for the fifth consecutive quarter.
  • Provision for credit losses was $22.8 million for the fourth quarter of 2013, a decrease of $1.8 million from the third quarter of 2013 and a decrease of $25.7 million from the fourth quarter of 2012. The decrease from the third quarter of 2013 was due to reduced reserve requirements in the commercial and consumer real estate portfolios as credit quality in those portfolios improved. The decrease from the fourth quarter of 2012 was primarily due to decreased net charge-offs in the consumer real estate portfolio resulting from improved home values and a reduction in incidents of default.
                               
Deposits
                                                                 
Average Deposits                                                           Table 5  
Percent Change
(Dollars in thousands) 4Q3Q4Q4Q13 vs4Q13 vsYTDYTDPercent
2013     2013     2012     3Q13       4Q12       2013     2012     Change  
 
Checking $ 4,904,125 $ 4,833,196 $ 4,627,627 1.5 % 6.0 % $ 4,851,952 $ 4,602,881 5.4 %
Savings 6,217,662 6,258,866 6,103,302 (.7 ) 1.9 6,168,768 6,059,237 1.8
Money market   845,562         822,094         819,596   2.9 3.2   818,814         770,104   6.3
Subtotal 11,967,349 11,914,156 11,550,525 .4 3.6 11,839,534 11,432,222 3.6
Certificates of deposit   2,392,896         2,401,811         2,206,173   (.4 ) 8.5   2,369,992         1,727,859   37.2
Total average deposits $ 14,360,245       $ 14,315,967       $ 13,756,698   .3 4.4 $ 14,209,526       $ 13,160,081   8.0
 
Average interest rate on deposits (1) .23 % .27 % .32 % .26 % .31 %
 
(1) Annualized.                                                                
 
  • Total average deposits for the fourth quarter of 2013 increased $603.5 million, or 4.4 percent, from the fourth quarter of 2012 and increased $44.3 million, or .3 percent, from the third quarter of 2013. The increase from the fourth quarter of 2012 was primarily due to checking account growth, as well as special campaigns for certificates of deposit. The increase from the third quarter of 2013 was primarily due to higher average checking account balances per customer as well as higher average money market balances, partially offset by lower average savings balances.
  • The average interest rate on deposits in the fourth quarter of 2013 was .23 percent, down nine basis points from the fourth quarter of 2012 and down four basis points from the third quarter of 2013. The decreases from both periods were primarily due to reduced average interest rates on various savings accounts and certificates of deposit.
                               
Non-interest Expense
                                                                   
Non-interest Expense                                                             Table 6    
Percent Change
(Dollars in thousands) 4Q3Q4Q4Q13 vs4Q13 vsYTDYTDPercent
  2013       2013       2012     3Q13       4Q12         2013       2012     Change    

Compensation and employee benefits

$ 108,589 $ 110,833 $ 101,678 (2.0 ) % 6.8 % $ 429,188 $ 393,841 9.0 %
Occupancy and equipment 35,504 33,253 32,809 6.8 8.2 134,694 130,792 3.0
FDIC insurance 7,892 8,102 8,671 (2.6 ) (9.0 ) 32,066 30,425 5.4
Operating lease depreciation 6,009 6,706 5,905 (10.4 ) 1.8 24,500 25,378 (3.5 )
Advertising and marketing 3,275 4,593 4,303 (28.7 ) (23.9 ) 19,132 16,572 15.4
Deposit account premiums 479 664 523 (27.9 ) (8.4 ) 2,345 8,669 (72.9 )
Other   44,162         43,730       53,472   1.0 (17.4 )   167,777         163,897 2.4
Core operating expenses 205,910 207,881 207,361 (.9 ) (.7 ) 809,702 769,574 5.2
Loss on termination of debt - - - - - - 550,735 (100.0 )
Branch realignment 8,869 - - N.M. N.M. 8,869 - N.M.

Foreclosed real estate and repossessed assets, net

6,066 4,162 7,582 45.7 (20.0 ) 27,950 41,358 (32.4 )
Other credit costs, net   (376 )       189       (894 ) N.M. 57.9   (1,252 )       887 N.M.
 
Total non-interest expense $ 220,469       $ 212,232     $ 214,049   3.9 3.0 $ 845,269       $ 1,362,554 (38.0 )
 
N.M. Not meaningful.                                                                  
 
  • Compensation and employee benefits expense for the fourth quarter of 2013 increased $6.9 million, or 6.8 percent, from the fourth quarter of 2012. The increase from the fourth quarter of 2012 was primarily due to increased staff levels to support the growth of auto finance and expenses related to higher commissions based on production results and performance incentives.
  • Foreclosed real estate and repossessed assets expense decreased $1.5 million, or 20 percent, from the fourth quarter of 2012 and increased $1.9 million, or 45.7 percent, from the third quarter of 2013. The decrease from the fourth quarter of 2012 was driven by reduced expenses related to fewer foreclosed consumer properties and a reduction in write-downs in balances of existing foreclosed real estate properties as a result of improved real estate property values. The increase from the third quarter of 2013 was primarily due to continued efforts to actively work out problem commercial loans.
  • TCF executed a realignment of its retail banking system to support its strategic initiatives, which resulted in a pre-tax charge of $8.9 million in the fourth quarter of 2013. The consolidation of 46 branches in Illinois and Minnesota (45 in-store branches and 1 traditional branch) will occur near the end of the first quarter of 2014. The ongoing benefit of this branch realignment is expected to exceed the pre-tax charges, together with the estimated financial impact of related ongoing account attrition, over a period of approximately one year.
       
Capital
                             
Capital Information                         Table 7  
At period end
(Dollars in thousands, except per-share data) 4Q4Q
20132012
Total equity $ 1,964,759 $ 1,876,643
Book value per common share $ 10.23 $ 9.79
Tangible realized common equity to tangible assets (1) 8.18 % 7.52 %
 
Risk-based capital (2)
Tier 1 $ 1,763,682 11.41 % $ 1,633,336 11.09 %
Total 2,107,981 13.64 2,007,835 13.63
 
Tier 1 leverage capital $ 1,763,682 9.71 % $ 1,633,336 9.21 %
 
Tier 1 common capital (3) $ 1,488,651 9.63 % $ 1,356,826 9.21 %

(1)

 

Excludes the impact of preferred shares, goodwill, other intangibles and accumulated other comprehensive (loss) income (see “Reconciliation of GAAP to Non-GAAP Financial Measures” table).

(2)

The Company's capital ratios continue to be in excess of "well-capitalized" regulatory benchmarks.

(3)

 

Excludes the effect of preferred shares and qualifying non-controlling interest in subsidiaries (see “Reconciliation of GAAP to Non-GAAP Financial Measures” table).

  • On January 25, 2014, the Board of Directors of TCF declared a regular quarterly cash dividend of 5 cents per common share, payable on March 3, 2014, to stockholders of record at the close of business on February 14, 2014. TCF also declared dividends on the 7.50% Series A and 6.45% Series B Non-Cumulative Perpetual Preferred Stock, both payable on March 3, 2014, to stockholders of record at the close of business on February 14, 2014.
  • All capital ratios improved during the period, with retained earnings less dividends supporting the asset growth of the organization.

Webcast Information

A live webcast of TCF’s conference call to discuss the 2013 year-end and fourth quarter earnings will be hosted at TCF’s website, http://ir.tcfbank.com, on January 29, 2014 at 8:00 a.m. CT. A slide presentation for the call will be available on the website prior to the call. Additionally, the webcast will be available for replay at TCF’s website after the conference call. The website also includes free access to company news releases, TCF’s annual report, investor presentations and SEC filings.

__________________________________________________________________________________________

TCF is a Wayzata, Minnesota-based national bank holding company. As of December 31, 2013, TCF had $18.4 billion in total assets and nearly 430 branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota, providing retail and commercial banking services. TCF, through its subsidiaries, also conducts commercial leasing and equipment finance business in all 50 states, commercial inventory finance business in the U.S. and Canada, and indirect auto finance business in 45 states. For more information about TCF, please visit http://ir.tcfbank.com.

__________________________________________________________________________________________

Cautionary Statements for Purposes of the Safe Harbor Provisions of the Securities Litigation Reform Act

Any statements contained in this earnings release regarding the outlook for the Company’s businesses and their respective markets, such as projections of future performance, guidance, statements of the Company’s plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on the Company’s assumptions and beliefs. Such statements may be identified by such words or phrases as “will likely result,” “are expected to,” “will continue,” “outlook,” “will benefit,” “is anticipated,” “estimate,” “project,” “management believes” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, TCF claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.

Certain factors could cause the Company’s future results to differ materially from those expressed or implied in any forward-looking statements contained in this earnings release. These factors include the factors discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K under the heading “Risk Factors,” the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive.

Adverse Economic or Business Conditions; Competitive Conditions; Credit and Other Risks. Deterioration in general economic and banking industry conditions, including those arising from government shutdowns, defaults, anticipated defaults or rating agency downgrades of sovereign debt (including debt of the U.S.), or continued high rates of or increases in unemployment in TCF’s primary banking markets; adverse economic, business and competitive developments such as shrinking interest margins, reduced demand for financial services and loan and lease products, deposit outflows, deposit account attrition or an inability to increase the number of deposit accounts; customers completing financial transactions without using a bank; adverse changes in credit quality and other risks posed by TCF’s loan, lease, investment and securities available for sale portfolios, including declines in commercial or residential real estate values, changes in the allowance for loan and lease losses dictated by new market conditions or regulatory requirements, or the inability of home equity line borrowers to make increased payments caused by increased interest rates or amortization of principal; deviations from estimates of prepayment rates and fluctuations in interest rates that result in decreases in value of assets such as interest-only strips that arise in connection with TCF’s loan sales activity; interest rate risks resulting from fluctuations in prevailing interest rates or other factors that result in a mismatch between yields earned on TCF’s interest-earning assets and the rates paid on its deposits and borrowings; foreign currency exchange risks; counterparty risk, including the risk of defaults by our counterparties or diminished availability of counterparties who satisfy our credit quality requirements; decreases in demand for the types of equipment that TCF leases or finances; the effect of any negative publicity.

Legislative and Regulatory Requirements. New consumer protection and supervisory requirements and regulations, including those resulting from action by the Consumer Financial Protection Bureau and changes in the scope of Federal preemption of state laws that could be applied to national banks and their subsidiaries; the imposition of requirements that adversely impact TCF’s lending, loan collection and other business activities as a result of the Dodd-Frank Act, or other legislative or regulatory developments such as mortgage foreclosure moratorium laws, use by municipalities of eminent domain on underwater mortgages, or imposition of underwriting or other limitations that impact the ability to use certain variable-rate products; impact of legislative, regulatory or other changes affecting customer account charges and fee income; application of bankruptcy laws which result in the loss of all or part of TCF’s security interest due to collateral value declines; deficiencies in TCF’s regulatory compliance programs, which may result in regulatory enforcement actions, including monetary penalties; increased health care costs resulting from Federal health care reform legislation; adverse regulatory examinations and resulting adverse consequences such as increased capital requirements or higher deposit insurance assessments; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to the Bank Secrecy Act and anti-money laundering compliance activity.

Earnings/Capital Risks and Constraints, Liquidity Risks. Limitations on TCF’s ability to pay dividends or to increase dividends because of financial performance deterioration, regulatory restrictions or limitations; increased deposit insurance premiums, special assessments or other costs related to adverse conditions in the banking industry, the economic impact on banks of the Dodd-Frank Act and other regulatory reform legislation; the impact of financial regulatory reform, including additional capital, leverage, liquidity and risk management requirements or changes in the composition of qualifying regulatory capital (including those resulting from U.S. implementation of Basel III requirements); adverse changes in securities markets directly or indirectly affecting TCF’s ability to sell assets or to fund its operations; diminished unsecured borrowing capacity resulting from TCF credit rating downgrades and unfavorable conditions in the credit markets that restrict or limit various funding sources; costs associated with new regulatory requirements or interpretive guidance relating to liquidity; uncertainties relating to regulatory requirements or customer opt-in preferences with respect to overdraft, which may have an adverse impact on TCF’s fee revenue; uncertainties relating to future retail deposit account changes, including limitations on TCF’s ability to predict customer behavior and the impact on TCF’s fee revenues.

Supermarket Branching Risk; Growth Risks. Adverse developments affecting TCF’s supermarket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches; costs related to closing underperforming branches; slower than anticipated growth in existing or acquired businesses; inability to successfully execute on TCF’s growth strategy through acquisitions or cross-selling opportunities; failure to expand or diversify TCF’s balance sheet through programs or new opportunities; failure to successfully attract and retain new customers, including the failure to attract and retain manufacturers and dealers to expand the inventory finance business; failure to effectuate, and risks of claims related to, sales and securitizations of loans; risks related to new product additions and addition of distribution channels (or entry into new markets) for existing products.

Technological and Operational Matters. Technological or operational difficulties, loss or theft of information (including the loss of account information by, or theft from, third parties such as merchants), cyber-attacks and other security breaches, counterparty failures and the possibility that deposit account losses (fraudulent checks, etc.) may increase; failure to keep pace with technological change.

Litigation Risks. Results of litigation, including class action litigation concerning TCF’s lending or deposit activities including account servicing processes or fees or charges, or employment practices, the effect of interchange rate litigation against the Federal Reserve on debit card interchange fees and possible increases in indemnification obligations for certain litigation against Visa U.S.A. and potential reductions in card revenues resulting from such litigation or other litigation against Visa.

Accounting, Audit, Tax and Insurance Matters. Changes in accounting standards or interpretations of existing standards; federal or state monetary, fiscal or tax policies, including adoption of state legislation that would increase state taxes; ineffective internal controls; adverse federal, state or foreign tax assessments or findings in tax audits; lack of or inadequate insurance coverage for claims against TCF; potential for claims and legal action related to TCF’s fiduciary responsibilities.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-share data)
(Unaudited)
               
Three Months Ended December 31,Change
20132012$%
Interest income:
Loans and leases $ 204,042 $ 210,490 $ (6,448 ) (3.1 ) %
Securities available for sale 4,194 4,615 (421 ) (9.1 )
Investments and other   7,693     3,922     3,771   96.1
Total interest income   215,929     219,027     (3,098 ) (1.4 )
Interest expense:
Deposits 8,428 10,972 (2,544 ) (23.2 )
Borrowings   5,639     6,992     (1,353 ) (19.4 )
Total interest expense   14,067     17,964     (3,897 ) (21.7 )
Net interest income 201,862 201,063 799 .4
Provision for credit losses   22,792     48,520     (25,728 ) (53.0 )
Net interest income after provision for credit losses   179,070     152,543     26,527   17.4
Non-interest income:
Fees and service charges 43,254 44,262 (1,008 ) (2.3 )
Card revenue 13,066 12,974 92 .7
ATM revenue   5,382     5,584     (202 ) (3.6 )
Subtotal 61,702 62,820 (1,118 ) (1.8 )
Leasing and equipment finance 23,624 26,149 (2,525 ) (9.7 )
Gains on sales of auto loans 7,278 6,869 409 6.0
Gains on sales of consumer real estate loans 5,345 854 4,491 N.M.
Other   6,419     3,973     2,446   61.6
Fees and other revenue 104,368 100,665 3,703 3.7
Gains (losses) on securities, net   1,044     (528 )   1,572   N.M.
Total non-interest income   105,412     100,137     5,275   5.3
Non-interest expense:
Compensation and employee benefits 108,589 101,678 6,911 6.8
Occupancy and equipment 35,504 32,809 2,695 8.2
FDIC insurance 7,892 8,671 (779 ) (9.0 )
Operating lease depreciation 6,009 5,905 104 1.8
Advertising and marketing 3,275 4,303 (1,028 ) (23.9 )
Deposit account premiums 479 523 (44 ) (8.4 )
Other   44,162     53,472     (9,310 ) (17.4 )
Subtotal 205,910 207,361 (1,451 ) (.7 )
Branch realignment 8,869 - 8,869 N.M.
Foreclosed real estate and repossessed assets, net 6,066 7,582 (1,516 ) (20.0 )
Other credit costs, net   (376 )   (894 )   518   57.9
Total non-interest expense   220,469     214,049     6,420   3.0
Income before income tax expense 64,013 38,631 25,382 65.7
Income tax expense   22,791     10,540     12,251   116.2
Income after income tax expense 41,222 28,091 13,131 46.7
Income attributable to non-controlling interest   1,227     1,306     (79 ) (6.0 )
Net income attributable to TCF Financial Corporation   39,995     26,785     13,210   49.3
Preferred stock dividends   4,847     3,234     1,613   49.9
Net income available to common stockholders $ 35,148   $ 23,551   $ 11,597   49.2
 
Net income per common share:
Basic $ .22 $ .15 $ .07 46.7

%

Diluted .22 .15 .07 46.7

 

 
Dividends declared per common share $ .05 $ .05 $ - -

%

 

Average common and common equivalent shares outstanding (in thousands):

Basic 161,544 159,914 1,630 1.0

%

Diluted 162,625 160,500 2,125 1.3
 
N.M. Not meaningful.
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-share data)
(Unaudited)
               
Year Ended December 31,Change
20132012$%
Interest income:
Loans and leases $ 819,501 $ 835,380 $ (15,879 ) (1.9 ) %
Securities available for sale 18,074 35,150 (17,076 ) (48.6 )
Investments and other   26,965     14,093     12,872   91.3
Total interest income   864,540     884,623     (20,083 ) (2.3 )
Interest expense:
Deposits 36,604 40,987 (4,383 ) (10.7 )
Borrowings   25,312     63,617     (38,305 ) (60.2 )
Total interest expense   61,916     104,604     (42,688 ) (40.8 )
Net interest income 802,624 780,019 22,605 2.9
Provision for credit losses   118,368     247,443     (129,075 ) (52.2 )
Net interest income after provision for credit losses   684,256     532,576     151,680   28.5
Non-interest income:
Fees and service charges 166,606 177,953 (11,347 ) (6.4 )
Card revenue 51,920 52,638 (718 ) (1.4 )
ATM revenue   22,656     24,181     (1,525 ) (6.3 )
Subtotal 241,182 254,772 (13,590 ) (5.3 )
Leasing and equipment finance 92,037 92,721 (684 ) (.7 )
Gains on sales of auto loans 29,699 22,101 7,598 34.4
Gains on sales of consumer real estate loans 21,692 5,413 16,279 N.M.
Other   18,484     13,184     5,300   40.2
Fees and other revenue 403,094 388,191 14,903 3.8
Gains on securities, net   964     102,232     (101,268 ) (99.1 )
Total non-interest income   404,058     490,423     (86,365 ) (17.6 )
Non-interest expense:
Compensation and employee benefits 429,188 393,841 35,347 9.0
Occupancy and equipment 134,694 130,792 3,902 3.0
FDIC insurance 32,066 30,425 1,641 5.4
Operating lease depreciation 24,500 25,378 (878 ) (3.5 )
Advertising and marketing 19,132 16,572 2,560 15.4
Deposit account premiums 2,345 8,669 (6,324 ) (72.9 )
Other   167,777     163,897     3,880   2.4
Subtotal 809,702 769,574 40,128 5.2
Loss on termination of debt - 550,735 (550,735 ) (100.0 )
Branch realignment 8,869 - 8,869 N.M.
Foreclosed real estate and repossessed assets, net 27,950 41,358 (13,408 ) (32.4 )
Other credit costs, net   (1,252 )   887     (2,139 ) N.M.
Total non-interest expense   845,269     1,362,554     (517,285 ) (38.0 )
Income (loss) before income tax expense (benefit) 243,045 (339,555 ) 582,600 N.M.
Income tax expense (benefit)   84,345     (132,858 )   217,203   N.M.
Income (loss) after income tax expense (benefit) 158,700 (206,697 ) 365,397 N.M.
Income attributable to non-controlling interest   7,032     6,187     845   13.7
Net income (loss) attributable to TCF Financial Corporation   151,668     (212,884 )   364,552   N.M.
Preferred stock dividends   19,065     5,606     13,459   N.M.
Net income (loss) available to common stockholders $ 132,603   $ (218,490 ) $ 351,093   N.M.
 
Net income (loss) per common share:
Basic $ .82 $ (1.37 ) $ 2.19 N.M.
Diluted .82 (1.37 ) 2.19 N.M.
 
Dividends declared per common share $ .20 $ .20 $ - -

%

 

Average common and common equivalent shares outstanding (in thousands):

Basic 161,016 159,269 1,747 1.1

%

Diluted 161,927 159,269 2,658 1.7
 
N.M. Not meaningful.
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
               
Three Months Ended December 31,Change
2013   2012   $   %
Net income attributable to TCF Financial Corporation $ 39,995   $ 26,785   $ 13,210   49.3 %
Other comprehensive loss:

Reclassification adjustment for securities gains included in net income

(860 ) - (860 ) N.M.

Unrealized holding losses arising during the period on securities available for sale

(13,778 ) (8,589 ) (5,189 ) (60.4 )
Foreign currency hedge 861 136 725 N.M.
Foreign currency translation adjustment (999 ) (170 ) (829 ) N.M.

Recognized postretirement prior service cost and transition obligation

(11 ) 144 (155 ) N.M.
Income tax benefit   5,172     2,855     2,317   81.2
Total other comprehensive loss   (9,615 )   (5,624 )   (3,991 ) (71.0 )
Comprehensive income $ 30,380   $ 21,161   $ 9,219   43.6
 
 
Year Ended December 31,Change
20132012$%
Net income (loss) attributable to TCF Financial Corporation $ 151,668   $ (212,884 ) $ 364,552   N.M. %
Other comprehensive loss:

Reclassification adjustment for securities gains included in net income

(860 ) (89,879 ) 89,019 99.0

Unrealized holding (losses) gains arising during the period on securities available for sale

(61,177 ) 19,794 (80,971 ) N.M.
Foreign currency hedge 1,625 (630 ) 2,255 N.M.
Foreign currency translation adjustment (1,979 ) 531 (2,510 ) N.M.

Recognized postretirement prior service cost and transition obligation

(46 ) 123 (169 ) N.M.
Income tax benefit   22,781     25,678     (2,897 ) (11.3 )
Total other comprehensive loss   (39,656 )   (44,383 )   4,727   10.7
Comprehensive income (loss) $ 112,012   $ (257,267 ) $ 369,279   N.M.
 
N.M. Not meaningful.
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per-share data)
(Unaudited)
               
At Dec. 31,Change
20132012$%
ASSETS
 
Cash and due from banks $ 915,076 $ 1,100,347 $ (185,271 ) (16.8 ) %
Investments 114,238 120,867 (6,629 ) (5.5 )
Securities available for sale 551,064 712,091 (161,027 ) (22.6 )
Loans and leases held for sale 79,768 10,289 69,479 N.M.
Loans and leases:
Consumer real estate 6,339,326 6,674,501 (335,175 ) (5.0 )
Commercial 3,148,352 3,405,235 (256,883 ) (7.5 )
Leasing and equipment finance 3,428,755 3,198,017 230,738 7.2
Inventory finance 1,664,377 1,567,214 97,163 6.2
Auto finance 1,239,386 552,833 686,553 124.2
Other loans and leases   26,743     27,924     (1,181 ) (4.2 )
Total loans and leases 15,846,939 15,425,724 421,215 2.7
Allowance for loan and lease losses   (252,230 )   (267,128 )   14,898   5.6
Net loans and leases 15,594,709 15,158,596 436,113 2.9
Premises and equipment, net 437,602 440,466 (2,864 ) (.7 )
Goodwill 225,640 225,640 - -
Other assets   461,743     457,621     4,122   .9
Total assets $ 18,379,840   $ 18,225,917   $ 153,923   .8
 
LIABILITIES AND EQUITY
 
Deposits:
Checking $ 4,980,451 $ 4,834,632 $ 145,819 3.0
Savings 6,194,003 6,104,104 89,899 1.5
Money market   831,910     820,553     11,357   1.4
Subtotal 12,006,364 11,759,289 247,075 2.1
Certificates of deposit   2,426,412     2,291,497     134,915   5.9
Total deposits   14,432,776     14,050,786     381,990   2.7
Short-term borrowings 4,918 2,619 2,299 87.8
Long-term borrowings   1,483,325     1,931,196     (447,871 ) (23.2 )
Total borrowings 1,488,243 1,933,815 (445,572 ) (23.0 )
Accrued expenses and other liabilities   494,062     364,673     129,389   35.5
Total liabilities   16,415,081     16,349,274     65,807   .4
Equity:

Preferred stock, par value $.01 per share, 30,000,000 authorized; and 4,006,900 shares issued

263,240 263,240 - -

Common stock, par value $.01 per share, 280,000,000 shares authorized; 165,164,861 and 163,428,763 shares issued, respectively

1,652 1,634 18 1.1
Additional paid-in capital 779,641 750,040 29,601 3.9
Retained earnings, subject to certain restrictions 977,846 877,445 100,401 11.4
Accumulated other comprehensive (loss) income (27,213 ) 12,443 (39,656 ) N.M.
Treasury stock at cost, 42,566 shares, and other   (42,198 )   (41,429 )   (769 ) (1.9 )
Total TCF Financial Corporation stockholders' equity 1,952,968 1,863,373 89,595 4.8
Non-controlling interest in subsidiaries   11,791     13,270     (1,479 ) (11.1 )
Total equity   1,964,759     1,876,643     88,116   4.7
Total liabilities and equity $ 18,379,840   $ 18,225,917   $ 153,923   .8
 
N.M. Not Meaningful.
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF CREDIT QUALITY DATA
(Dollars in thousands)
(Unaudited)
   
AtAtAtAtAtChange from
Dec. 31,Sep. 30,Jun. 30,Mar. 31,Dec. 31,Sep. 30,Dec. 31,
2013201320132013201220132012

Delinquency Data - Principal Balances (1)

60 days or more:
Consumer real estate
First mortgage lien $ 20,894 $ 23,576 $ 66,876 $ 66,164 $ 76,020 $ (2,682 ) $ (55,126 )
Junior lien 3,532   3,822   8,022   9,674   13,141   (290 ) (9,609 )
Total consumer real estate 24,426 27,398 74,898 75,838 89,161 (2,972 ) (64,735 )
Commercial 1,430 7,201 1,679 906 2,630 (5,771 ) (1,200 )
Leasing and equipment finance 2,401 2,539 1,840 2,067 2,568 (138 ) (167 )
Inventory finance 50 71 33 156 119 (21 ) (69 )
Auto finance 1,877 1,429 868 563 532 448 1,345
Other 10   -   26   -   31   10   (21 )
Subtotal 30,194 38,638 79,344 79,530 95,041 (8,444 ) (64,847 )
Acquired portfolios 458   334   627   578   982   124   (524 )
Total delinquencies $ 30,652   $ 38,972   $ 79,971   $ 80,108   $ 96,023   $ (8,320 ) $ (65,371 )
 

Delinquency Data - % of Portfolio (1)

60 days or more:
Consumer real estate
First mortgage lien .58 % .64 % 1.74 % 1.67 % 1.88 % (6 ) bps (130 ) bps
Junior lien .14 .15 .34 .43 .55 (1 ) (41 )
Total consumer real estate .40 .44 1.21 1.22 1.38 (4 ) (98 )
Commercial .05 .23 .05 .03 .08 (18 ) (3 )
Leasing and equipment finance .07 .08 .06 .07 .08 (1 ) (1 )
Inventory finance - - - .01 .01 - (1 )
Auto finance .15 .13 .10 .08 .10 2 5
Other .04 - .11 - .12 4 (8 )
Subtotal .19 .25 .52 .53 .64 (6 ) (45 )
Acquired portfolios 1.64 .80 .99 .65 .89 84 75
Total delinquencies .20 .25 .52 .52 .64 (5 ) (44 )
 
(1) Excludes non-accrual loans and leases.
AtAtAtAtAtChange from
Dec. 31,Sep. 30,Jun. 30,Mar. 31,Dec. 31,Sep. 30,Dec. 31,
2013201320132013201220132012

Non-Accrual Loans and Leases

Non-accrual loans and leases:
Consumer real estate
First mortgage lien $ 180,811 $ 170,306 $ 132,586 $ 186,218 $ 199,631 $ 10,505 $ (18,820 )
Junior lien 38,222   35,732   30,744   33,907   35,269   2,490   2,953  
Total consumer real estate 219,033 206,038 163,330 220,125 234,900 12,995 (15,867 )
Commercial 40,539 62,273 102,103 108,505 127,746 (21,734 ) (87,207 )
Leasing and equipment finance 14,041 11,820 11,103 11,695 13,652 2,221 389
Inventory finance 2,529 1,802 1,008 1,480 1,487 727 1,042
Auto finance 470 212 118 106 101 258 369
Other 410   728   809   1,477   1,571   (318 ) (1,161 )
Total non-accrual loans and leases $ 277,022   $ 282,873   $ 278,471   $ 343,388   $ 379,457   $ (5,851 ) $ (102,435 )
 
Non-accrual loans and leases - rollforward
Balance, beginning of period $ 282,873 $ 278,471 $ 343,388 $ 379,457 $ 421,813 $ 4,402 $ (138,940 )
Additions 71,513 93,337 41,549 56,712 88,235 (21,824 ) (16,722 )
Charge-offs (25,195 ) (10,225 ) (12,780 ) (23,773 ) (27,657 ) (14,970 ) 2,462
Transfers to other assets (23,085 ) (23,810 ) (16,014 ) (20,087 ) (17,305 ) 725 (5,780 )
Return to accrual status (13,085 ) (16,218 ) (21,360 ) (34,692 ) (55,261 ) 3,133 42,176
Payments received (13,331 ) (40,319 ) (16,977 ) (15,399 ) (30,832 ) 26,988 17,501
Sales (3,602 ) - (40,461 ) (133 ) - (3,602 ) (3,602 )
Other, net 934   1,637   1,126   1,303   464   (703 ) 470  
Balance, end of period $ 277,022   $ 282,873   $ 278,471   $ 343,388   $ 379,457   $ (5,851 ) $ (102,435 )
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF CREDIT QUALITY DATA, CONTINUED
(Dollars in thousands)
(Unaudited)
               
 
 
Change from
Dec 31,Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,Dec 31,
2013201320132013201220132012

Other Real Estate Owned

Other real estate owned (1)
Consumer real estate $ 47,637 $ 48,910 $ 44,759 $ 46,404 $ 69,599 $ (1,273 ) $ (21,962 )
Commercial real estate 21,237   16,669   21,473   25,359   27,379   4,568   (6,142 )
Total other real estate owned $ 68,874   $ 65,579   $ 66,232   $ 71,763   $ 96,978   $ 3,295   $ (28,104 )
 
Other real estate owned - rollforward
Balance, beginning of period $ 65,579 $ 66,232 $ 71,763 $ 96,978 $ 120,426 $ (653 ) $ (54,847 )
Transferred in 21,045 23,339 16,503 20,855 18,444 (2,294 ) 2,601
Sales (15,939 ) (22,683 ) (17,895 ) (40,456 ) (39,528 ) 6,744 23,589
Writedowns (3,496 ) (2,197 ) (4,270 ) (5,294 ) (4,614 ) (1,299 ) 1,118
Other, net 1,685   888   131   (320 ) 2,250   797   (565 )
Balance, end of period $ 68,874   $ 65,579   $ 66,232   $ 71,763   $ 96,978   $ 3,295   $ (28,104 )
 
Ending number of properties owned
Consumer real estate 336 327 246 224 418 9 (82 )
Commercial real estate 18   18   20   18   18   -   -  
Total 354   345   266   242   436   9   (82 )
 
(1) Includes properties owned and foreclosed properties subject to redemption.
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF CREDIT QUALITY DATA, CONTINUED
(Dollars in thousands)
(Unaudited)
         
 
 

Allowance for Loan and Lease Losses

At December 31, 2013At September 30, 2013At December 31, 2012Change from
% of% of% ofSep. 30,Dec. 31,
BalancePortfolioBalancePortfolioBalancePortfolio20132012
Consumer real estate $ 176,030 2.78 % $ 177,970 2.77

%

 

$ 182,013 2.73

%

 

1

bps

 

5 bps
Commercial 37,467 1.19 46,638 1.49 51,575 1.51 (30 ) (32 )

Leasing and equipment finance

18,733 .55 18,216