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TCF Reports Quarterly Net Income of $53.1 Million, or 29 Cents Per Share, Up 8 Cents, or 38.1 Percent from the Second Quarter of 2013

Company Release - 7/25/2014 8:00 AM ET

WAYZATA, Minn.--(BUSINESS WIRE)-- TCF Financial Corporation (NYSE:TCB):

SECOND QUARTER HIGHLIGHTS

- Revenue of $310.1 million, up 2.7 percent from the second quarter of 2013

- Loan and lease originations of $3.5 billion, up 8.6 percent from the second quarter of 2013

- Average deposits of $14.8 billion, up 4.6 percent from the second quarter of 2013

- Provision for credit losses of $9.9 million, down 69.6 percent from the second quarter of 2013

- Non-accrual loans and leases of $260.3 million, down 6.5 percent from the second quarter of 2013

- Return on average assets of 1.17 percent, up 27 basis points from the second quarter of 2013

- Return on average tangible common equity of 12.72 percent, up 282 basis points from the second quarter of 2013

Summary of Financial Results Table 1
(Dollars in thousands, except per-share data)       Percent Change      
2Q 1Q 2Q

 

2Q14 vs

    2Q14 vs YTD YTD Percent
2014     2014       2013   1Q14       2Q13         2014       2013 Change
Net income attributable to TCF $ 53,125 $ 44,757 $ 38,904 18.7 % 36.6 % $ 97,882 $ 68,878 42.1 %
Net interest income 206,101 201,274 202,044 2.4 2.0 407,375 401,135 1.6
Diluted earnings per common share .29 .24 .21 20.8 38.1 .54 .37 45.9
 

Financial Ratios (1)

Pre-tax pre-provision return on average assets (2)

2.05 % 1.88 % 2.04 % 1.96 % 1.98 %
Return on average assets 1.17 1.00 .90 1.09 .80
Return on average common equity 10.99 9.35 8.39 10.18 7.39

Return on average tangible common equity (3)

12.72 10.89 9.90 11.82 8.76
Net interest margin 4.65 4.66 4.72 4.66 4.72

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

    .45       .43       .70                     .44       .88      
(1) Annualized.
(2) Pre-tax pre-provision profit is calculated as total revenues less non-interest expense.
(3) See "Reconciliation of GAAP to Non-GAAP Financial Measures" table.
 

TCF Financial Corporation (“TCF” or the “Company”) (NYSE: TCB) today reported net income of $53.1 million for the second quarter of 2014, compared with net income of $38.9 million for the second quarter of 2013, and net income of $44.8 million for the first quarter of 2014. Diluted earnings per common share was 29 cents for the second quarter of 2014, compared with 21 cents for the second quarter of 2013, and 24 cents for the first quarter of 2014.

TCF reported net income of $97.9 million for the first six months of 2014, compared with net income of $68.9 million for the same period in 2013. Diluted earnings per common share was 54 cents for the first six months of 2014, compared with 37 cents for the same period in 2013.

Chairman’s Statement

“TCF’s financial metrics continued to improve in the second quarter,” said William A. Cooper, Chairman and Chief Executive Officer. “TCF earned 29 cents per common share during the quarter, up 38 percent from a year ago. Return on average assets was 1.17 percent while return on average tangible common equity was 12.72 percent.

“TCF experienced strong loan and lease originations and deposit growth. Our net interest margin was 4.65 percent, relatively flat with the first quarter of 2014. Fee income was strong and overall credit quality showed continued improvement. The efforts of our employees and the support from our Board of Directors have contributed to the transformation of the Company which is reflected in our current performance. TCF’s net income of $53.1 million during the quarter was the highest level since the fourth quarter of 2007.”

Revenue
 
Total Revenue Table 2
        Percent Change      
(Dollars in thousands) 2Q 1Q 2Q 2Q14 vs   2Q14 vs YTD YTD Percent
  2014       2014       2013     1Q14     2Q13       2014       2013 Change
Net interest income $ 206,101     $ 201,274     $ 202,044 2.4 % 2.0 % $ 407,375     $ 401,135 1.6 %
Fees and other revenue:
Fees and service charges 38,035 36,619 41,572 3.9 (8.5) 74,654 80,895 (7.7)
Card revenue 13,249 12,250 13,270 8.2 (.2) 25,499 25,687 (.7)
ATM revenue   5,794       5,319       5,828 8.9 (.6)   11,113       11,333 (1.9)
Total banking fees 57,078 54,188 60,670 5.3 (5.9) 111,266 117,915 (5.6)
Leasing and equipment finance 23,069 21,980 22,609 5.0 2.0 45,049 38,813 16.1
Gains on sales of auto loans, net 7,270 8,470 8,135 (14.2) (10.6) 15,740 15,281 3.0

Gains on sales of consumer real estate loans, net

8,151 11,706 4,069 (30.4) 100.3 19,857 12,195 62.8
Servicing fee income 4,892 4,307 3,128 13.6 56.4 9,199 5,884 56.3
Other   2,789       2,382       1,172 17.1 138.0   5,171       2,398 115.6
Total fees and other revenue   103,249       103,033       99,783 .2 3.5   206,282       192,486 7.2
Subtotal 309,350 304,307 301,827 1.7 2.5 613,657 593,621 3.4
Gains on securities, net   767       374       - 105.1 N.M.   1,141       - N.M.
Total revenue $ 310,117     $ 304,681     $ 301,827 1.8 2.7 $ 614,798     $ 593,621 3.6
 
Net interest margin (1) 4.65 % 4.66 % 4.72 % 4.66 % 4.72 %

Fees and other revenue as a % of total revenue

33.29 33.82 33.06 33.55 32.43
 
N.M. Not meaningful.
(1) Annualized.                                                          

Net Interest Income

  • Net interest income for the second quarter of 2014 increased $4.1 million, or 2 percent, compared with the second quarter of 2013. The increase from the second quarter of 2013 was driven by higher average loan and lease balances in the auto finance, inventory finance and leasing and equipment finance businesses as well as a reduced cost of borrowings. This increase was partially offset by downward pressure on yields across the lending businesses in this increasingly competitive low interest rate environment as well as lower average balances of consumer real estate and higher yielding commercial fixed-rate loans due to run-off exceeding originations.
  • Net interest income for the second quarter of 2014 increased $4.8 million, or 2.4 percent, compared with first quarter of 2014. The increase was primarily due to higher average loan balances in the auto finance portfolio due to continued growth and in the inventory finance portfolio due to seasonality. The increase was partially offset by reduced interest income from lower average balances of consumer real estate loans.
  • Net interest margin in the second quarter of 2014 was 4.65 percent, compared with 4.72 percent in the second quarter of 2013 and remained relatively flat compared to the first quarter of 2014. The decrease from the second quarter of 2013 was primarily due to downward pressure on origination yields in consumer real estate due to the increasingly competitive 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.

Non-interest Income

  • Fees and service charges in the second quarter of 2014 were $38 million, down $3.5 million, or 8.5 percent, from the second quarter of 2013 and up $1.4 million, or 3.9 percent, from the first quarter of 2014. The decrease from the second quarter of 2013 was primarily due to customer behavior changes, as well as higher average checking account balances per customer. The increase from the first quarter of 2014 was primarily due to seasonality resulting in an increase in transaction activity and a decrease in average checking account balances per customer.
  • Leasing and equipment finance revenue was $23.1 million during the second quarter of 2014, up $460 thousand, or 2 percent, from the second quarter of 2013 and up $1.1 million, or 5 percent, from the first quarter of 2014. The increases in both periods were primarily due to customer-driven events impacting sales-type lease revenue.
  • TCF sold $224.2 million, $139.2 million and $347.4 million of consumer real estate loans during the second quarters of 2014 and 2013, and the first quarter of 2014, respectively, resulting in net gains in the same respective periods.
  • TCF sold $220.2 million, $196.9 million and $261.7 million of auto loans during the second quarters of 2014 and 2013, and the first quarter of 2014, respectively, resulting in net gains in the same respective periods.
  • Servicing fee income was $4.9 million on $2.6 billion of loans and leases serviced for others during the second quarter of 2014 compared to $3.1 million on $ 1.6 billion of loans and leases serviced for others during the second quarter of 2013 and $4.3 million on $2.4 billion of loans and leases serviced for others during the first quarter of 2014. The increases in servicing fee income in both periods were primarily due to an increase in consumer real estate and auto finance loans serviced for others.
Loans and Leases
 
Period-End and Average Loans and Leases   Table 3
        Percent Change      
(Dollars in thousands) 2Q 1Q 2Q 2Q14 vs   2Q14 vs YTD YTD Percent
  2014     2014     2013   1Q14     2Q13       2014     2013   Change
Period-End:
Consumer real estate:
First mortgage lien $ 3,542,324 $ 3,668,245 $ 3,982,481 (3.4) % (11.1) %
Junior lien   2,480,763     2,407,286     2,373,945 3.1 4.5
Total consumer real estate 6,023,087 6,075,531 6,356,426 (.9) (5.2)
Commercial 3,093,161 3,136,421 3,350,334 (1.4) (7.7)
Leasing and equipment finance 3,526,264 3,456,759 3,251,703 2.0 8.4
Inventory finance 1,880,667 2,123,808 1,713,528 (11.4) 9.8
Auto finance 1,502,860 1,400,527 882,202 7.3 70.4
Other   24,486     22,550     25,099 8.6 (2.4)
Total $ 16,050,525   $ 16,215,596   $ 15,579,292 (1.0) 3.0
 
Average:
Consumer real estate:
First mortgage lien $ 3,606,635 $ 3,719,961 $ 4,068,020 (3.0) % (11.3) % $ 3,662,985 $ 4,127,209 (11.2) %
Junior lien   2,498,151     2,607,851     2,362,665 (4.2) 5.7   2,552,698     2,365,999 7.9
Total consumer real estate 6,104,786 6,327,812 6,430,685 (3.5) (5.1) 6,215,683 6,493,208 (4.3)
Commercial 3,131,320 3,122,066 3,336,406 .3 (6.1) 3,126,718 3,341,067 (6.4)
Leasing and equipment finance 3,500,647 3,434,691 3,236,799 1.9 8.2 3,467,851 3,218,252 7.8
Inventory finance 2,061,437 1,862,745 1,875,810 10.7 9.9 1,968,431 1,780,058 10.6
Auto finance 1,518,194 1,327,232 823,102 14.4 84.4 1,423,240 747,022 90.5
Other   12,040     13,273     13,060 (9.3) (7.8)   12,654     13,348 (5.2)
Total $ 16,328,424   $ 16,087,819   $ 15,715,862 1.5 3.9 $ 16,214,577   $ 15,592,955 4.0
  • Loans and leases were $16.1 billion at June 30, 2014, an increase of $471.2 million, or 3 percent, compared with June 30, 2013 and a decrease of $165.1 million, or 1 percent, compared with March 31, 2014. Average loans and leases were $16.3 billion for the second quarter of 2014, an increase of $612.6 million, or 3.9 percent, compared with the second quarter of 2013 and an increase of $240.6 million, or 1.5 percent, compared with the first quarter of 2014.

The increase from the second quarter of 2013 for period-end loans and leases and the increase from both periods for 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 the leasing and equipment finance portfolio. These increases were partially offset by a decrease in commercial real estate loans, primarily due to run-off exceeding new originations, as well as a decrease in total consumer real estate loans driven by run-off in the first mortgage real estate business and on-going loan sales.

The decrease from the first quarter of 2014 for period-end loans and leases was primarily due to seasonality within the inventory finance business, partially offset by the continued growth of the auto finance portfolio, coupled with assets moved to held for sale at the end of the quarter in anticipation of executing the Company’s inaugural auto loan securitization.

  • Loan and lease originations were $3.5 billion for the second quarter of 2014, an increase of $273.8 million, or 8.6 percent, compared with the second quarter of 2013 and an increase of $311.2 million, or 9.9 percent, compared with the first quarter of 2014. The increase from the second quarter of 2013 was primarily due to the continued growth in auto finance and an increase in inventory finance and leasing and equipment finance originations as a result of an improving economic environment, partially offset by a decrease in commercial originations. The increase from the first quarter of 2014 was primarily due to an increase in consumer real estate, auto finance and leasing and equipment finance originations, partially offset by seasonality within the inventory finance business.

Credit Quality

(Table 4 - Credit Trends: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50911437&lang=en)

  • Non-accrual loans and leases and other real estate owned totaled $325.4 million at June 30, 2014, a decrease of $19.3 million, or 5.6 percent, from June 30, 2013, and a decrease of $4.8 million, or 1.4 percent, from March 31, 2014. The decrease from June 30, 2013 was primarily due to improving credit quality trends and continued efforts to actively work out problem loans in the commercial portfolio, partially offset by $48.6 million of delinquent loans being transferred to non-accrual status due to a change in the non-accrual policy for consumer real estate loans during the third quarter of 2013. The decrease from March 31, 2014 was driven by improved credit quality in the consumer real estate and commercial portfolios.
  • The over 60-day delinquency rate, excluding acquired portfolios and non-accrual loans and leases, was .18 percent at June 30, 2014, down from .52 percent at June 30, 2013, and down slightly from .19 percent at March 31, 2014. The decrease from June 30, 2013 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, which increased non-accrual loans and leases, along with stabilization of our consumer real estate portfolio as property values improved in our markets.
  • Net charge-offs were $18.4 million for the second quarter of 2014, a decrease of $9.3 million, or 33.7 percent, from the second quarter of 2013, and an increase of $939 thousand, or 5.4 percent, from the first quarter of 2014. The decrease from the second quarter of 2013 was primarily due to improved credit quality in the consumer real estate portfolio as home values improved and incident rates of default declined. The increase from the first quarter of 2014 was driven by one previously reserved commercial loan charge-off. Consumer real estate net charge-offs decreased for the seventh consecutive quarter.
  • Provision for credit losses was $9.9 million for the second quarter of 2014, a decrease of $22.7 million, or 69.6 percent, from the second quarter of 2013, and a decrease of $4.6 million, or 31.6 percent, from the first quarter of 2014. The decrease from the second quarter of 2013 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. The decrease from the first quarter of 2014 was due to reduced reserve requirements in the commercial and consumer real estate portfolios as credit quality in those portfolios improved.
Deposits
 
Average Deposits Table 5
        Percent Change    
(Dollars in thousands) 2Q 1Q 2Q 2Q14 vs   2Q14 vs YTD YTD Percent
2014   2014   2013   1Q14     2Q13     2014   2013   Change  
 
Checking $ 5,098,650 $ 5,016,118 $ 4,884,433 1.6 % 4.4 % $ 5,057,612 $ 4,834,964 4.6 %
Savings 5,908,219 6,142,950 6,082,200 (3.8) (2.9) 6,024,936 6,098,121 (1.2)
Money market   1,019,543     819,312     791,859 24.4 28.8   919,981     803,551 14.5
Subtotal 12,026,412 11,978,380 11,758,492 .4 2.3 12,002,529 11,736,636 2.3
Certificates of deposit   2,742,832     2,543,345     2,360,881 7.8 16.2   2,643,639     2,342,178 12.9
Total average deposits $ 14,769,244   $ 14,521,725   $ 14,119,373 1.7 4.6 $ 14,646,168   $ 14,078,814 4.0
 
Average interest rate on deposits (1) .24% .22% .25% .23% .27%
 
(1) Annualized.
  • Total average deposits for the second quarter of 2014 increased $649.9 million, or 4.6 percent, from the second quarter of 2013 and increased $247.5 million, or 1.7 percent, from the first quarter of 2014. The increase from the second quarter of 2013 was primarily due to special campaigns for certificates of deposit and money market accounts, as well as higher average checking account balances per customer. The increase from the first quarter of 2014 was primarily due to special campaigns for certificates of deposit and money market accounts, partially offset by a reduction in savings.
  • The average interest rate on deposits for the second quarter of 2014 was .24 percent, down one basis point from the second quarter of 2013 and up two basis points from the first quarter of 2014. The decrease from the second quarter of 2013 was primarily due to a reduction in average interest rates on various certificates of deposit, checking, and savings, partially offset by increased average interest rates on various money market accounts. The increase from the first quarter of 2014 was primarily due to increased average interest rates on various money market accounts and certificates of deposit.
Non-interest Expense
 
Non-interest Expense Table 6
        Percent Change    
(Dollars in thousands) 2Q 1Q 2Q 2Q14 vs   2Q14 vs YTD YTD Percent
  2014     2014     2013   1Q14     2Q13       2014     2013   Change  

Compensation and employee benefits

$ 109,664 $ 115,089 $ 105,537 (4.7) % 3.9 % $ 224,753 $ 209,766 7.1 %
Occupancy and equipment 34,316 34,839 33,062 (1.5) 3.8 69,155 65,937 4.9
FDIC insurance 7,625 7,563 8,362 .8 (8.8) 15,188 16,072 (5.5)
Operating lease depreciation 6,613 6,227 6,150 6.2 7.5 12,840 11,785 9.0
Advertising and marketing 5,862 5,478 5,532 7.0 6.0 11,340 11,264 .7
Deposit account premiums 383 418 600 (8.4) (36.2) 801 1,202 (33.4)
Other   42,618     41,335     41,946 3.1 1.6   83,953     79,885 5.1
Subtotal 207,081 210,949 201,189 (1.8) 2.9 418,030 395,911 5.6

Foreclosed real estate and repossessed assets, net

5,743 6,068 7,555 (5.4) (24.0) 11,811 17,722 (33.4)
Other credit costs, net   371     119     (228) N.M. N.M.   490     (1,065) N.M.
Total non-interest expense $ 213,195   $ 217,136   $ 208,516 (1.8) 2.2 $ 430,331   $ 412,568 4.3
N.M. Not meaningful.
  • Compensation and employee benefits expense increased $4.1 million, or 3.9 percent, from the second quarter of 2013 and decreased $5.4 million, or 4.7 percent, from the first quarter of 2014. The increase from the second quarter of 2013 was primarily due to increased staff levels to support the growth of auto finance and risk management. The decrease from the first quarter of 2014 was due to the seasonality of payroll taxes and the reduction in personnel expense related to the branch realignment completed during the first quarter of 2014.
  • Foreclosed real estate and repossessed assets expense decreased $1.8 million, or 24 percent, from the second quarter of 2013 and decreased $325 thousand, or 5.4 percent compared to the first quarter of 2014. The decreases from both periods were driven by a reduction in write-downs of existing foreclosed properties as a result of improved property values, and improved exit values on commercial properties.
Capital
 
Capital Information Table 7
At period end      
(Dollars in thousands, except per-share data) 2Q 4Q
2014   2013
Total equity $ 2,071,711 $ 1,964,759
Book value per common share $ 10.74 $ 10.23
Tangible book value per common share (1) $ 9.35 $ 8.83
Tangible common equity to tangible assets (1) 8.39 % 8.03 %
Capital accumulation rate (2) 12.17 % 9.72 %
 
Risk-based capital (3)
Tier 1 $ 1,859,271 11.56 % $ 1,763,682 11.41 %
Total 2,185,783 13.59 2,107,981 13.64
 
Tier 1 leverage capital $ 1,859,271 9.91 % $ 1,763,682 9.71 %
 
Tier 1 common capital (4) $ 1,579,226 9.82 % $ 1,488,651 9.63 %
 
(1) Excludes the impact of preferred shares, goodwill and other intangibles (see “Reconciliation of GAAP to Non-GAAP Financial Measures” table).
(2) Calculated as the change in annualized year to date Tier 1 common capital as a percentage of prior period Tier 1 common capital.
(3) The Company's capital ratios continue to be in excess of "well-capitalized" regulatory benchmarks.
(4) Excludes the effect of preferred shares and qualifying non-controlling interest in subsidiaries (see “Reconciliation of GAAP to Non-GAAP Financial Measures” table).
  • Capital ratios continue to improve as the Company accumulates capital through earnings. Total risk-based capital decreased slightly as the Company grows its risk-based assets.
  • On July 21, 2014, TCF’s Board of Directors declared a regular quarterly cash dividend of 5 cents per common share, payable on September 2, 2014, to stockholders of record at the close of business on August 15, 2014. TCF also declared dividends on the 7.50% Series A and 6.45% Series B Non-Cumulative Perpetual Preferred Stock, both payable on September 2, 2014, to stockholders of record at the close of business on August 15, 2014.

Webcast Information

A live webcast of TCF’s conference call to discuss the second quarter earnings will be hosted at TCF’s website, http://ir.tcfbank.com, on July 25, 2014 at 8:00 a.m. CDT. 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 June 30, 2014, TCF had $18.8 billion in total assets and 380 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, equipment finance, and auto finance business in all 50 states and commercial inventory finance business in the U.S. and Canada. 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 herein. These factors include the factors discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, 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 su