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TCF Reports Quarterly Net Income of $52.3 Million, or 29 Cents Per Share, Up 6 Cents, or 26.1 Percent from the Third Quarter of 2013

Company Release - 10/24/2014 8:00 AM ET

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

THIRD QUARTER HIGHLIGHTS

-Revenue of $320.3 million, up 4.7 percent from the third quarter of 2013

-Loan and lease originations of $3.6 billion, up 14.9 percent from the third quarter of 2013

-Average deposits of $15.2 billion, up 5.9 percent from the third quarter of 2013

-Provision for credit losses of $15.7 million, down 36.0 percent from the third quarter of 2013

-Non-accrual loans and leases of $275.1 million, down 2.7 percent from the third quarter of 2013

-Return on average assets of 1.15 percent, up 18 basis points from the third quarter of 2013

-Return on average tangible common equity of 12.11 percent, up 120 basis points from the third quarter of 2013

     
Summary of Financial Results   Table 1
(Dollars in thousands, except per-share data)             Percent Change          
      3Q2Q3Q   3Q14 vs     3Q14 vs   YTDYTDPercent
2014     2014     2013     2Q14     3Q13     2014     2013     Change
Net income attributable to TCF $ 52,317 $ 53,125 $ 42,795 (1.5 )% 22.3 % $ 150,199 $ 111,673 34.5 %
Net interest income 204,180 206,101 199,627 (0.9 ) 2.3 611,555 600,762 1.8
Diluted earnings per common share 0.29 0.29 0.23 26.1 0.83 0.60 38.3
 

Financial Ratios (1)

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

2.13 % 2.05 % 2.04 % 2.02 % 2.00 %
Return on average assets 1.15 1.17 0.97 1.11 0.86
Return on average common equity 10.50 10.99 9.28 10.30 8.03
Return on average tangible common equity (3) 12.11 12.72 10.91 11.93 9.49
Net interest margin 4.60 4.65 4.62 4.64 4.69
Net charge-offs as a percentage of average loans and leases       0.66         0.45         0.71                         0.52         0.82          
(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 $52.3 million for the third quarter of 2014, compared with net income of $42.8 million for the third quarter of 2013, and net income of $53.1 million for the second quarter of 2014. Diluted earnings per common share was 29 cents for the third quarter of 2014, compared with 23 cents for the third quarter of 2013, and 29 cents for the second quarter of 2014.

TCF reported net income of $150.2 million for the first nine months of 2014, compared with net income of $111.7 million for the same period in 2013. Diluted earnings per common share was 83 cents for the first nine months of 2014, compared with 60 cents for the same period in 2013.

Chairman’s Statement

“TCF reported another steady quarter of profitability, with earnings of 29 cents per share and a strong return on average assets of 1.15 percent and return on average tangible common equity of 12.11 percent, while maintaining an industry-leading net interest margin of 4.60 percent,” said William A. Cooper, Chairman and Chief Executive Officer.

“TCF’s growth is driven by a unique loan and lease origination capability funded by an increasing, low-cost deposit base. Strong loan and lease originations during the quarter continued to provide a growing source of non-interest income through loan sales and servicing revenue, as well as TCF’s first auto loan securitization completed in July. I believe TCF’s ability to generate national loan and lease growth while developing a diversified revenue base positions us to deliver long-term shareholder value.”

                               
Revenue
                                                                 
Total Revenue                                                         Table 2
Percent Change
(Dollars in thousands) 3Q2Q3Q3Q14 vs3Q14 vsYTDYTDPercent
2014       2014       2013       2Q14     3Q13     2014       2013   Change  
Net interest income $ 204,180       $ 206,101       $ 199,627   (0.9 )% 2.3 % $ 611,555       $ 600,762   1.8 %
Fees and other revenue:
Fees and service charges 40,255 38,035 42,457 5.8 (5.2 ) 114,909 123,352 (6.8 )
Card revenue 12,994 13,249 13,167 (1.9 ) (1.3 ) 38,493 38,854 (0.9 )
ATM revenue 5,863       5,794       5,941   1.2 (1.3 ) 16,976       17,274   (1.7 )
Total banking fees 59,112 57,078 61,565 3.6 (4.0 ) 170,378 179,480 (5.1 )
Leasing and equipment finance 24,383 23,069 28,778 5.7 (15.3 ) 69,432 67,591 2.7
Gains on sales of auto loans, net 14,863 7,270 7,140 104.4 108.2 30,603 22,421 36.5
Gains on sales of consumer real estate loans, net 8,762 8,151 4,152 7.5 111.0 28,619 16,347 75.1
Servicing fee income 5,880 4,892 3,619 20.2 62.5 15,079 9,503 58.7
Other 3,170       2,789       986   13.7 N.M. 8,341       3,384   146.5
Total fees and other revenue 116,170       103,249       106,240   12.5 9.3 322,452       298,726   7.9
Subtotal 320,350 309,350 305,867 3.6 4.7 934,007 899,488 3.8
(Losses) gains on securities, net (94 )     767       (80 ) N.M. (17.5 ) 1,047       (80 ) N.M.
Total revenue $ 320,256       $ 310,117       $ 305,787   3.3 4.7 $ 935,054       $ 899,408   4.0
 
Net interest margin (1) 4.60 % 4.65 % 4.62 % 4.64 % 4.69 %
Fees and other revenue as a % of total revenue 36.27 33.29 34.74 34.48 33.21
 
N.M. Not meaningful.
(1) Annualized.                                                                
 

Net Interest Income

  • Net interest income for the third quarter of 2014 increased $4.6 million, or 2.3 percent, compared with the third quarter of 2013. The increase was primarily 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 higher yielding fixed-rate loans of that type in the commercial and consumer real estate portfolios due to run-off exceeding originations.
  • Net interest income for the third quarter of 2014 decreased $1.9 million, or 0.9 percent, compared with the second quarter of 2014. The decrease was primarily due to lower average loan and lease balances in the inventory finance portfolio due to seasonality as well as higher rates on various deposit products as asset growth was funded with deposits at incremental market rates. The decrease was partially offset by higher average loan balances in the auto finance and leasing and equipment finance businesses.
  • Net interest margin in the third quarter of 2014 was 4.60 percent, compared with 4.62 percent in the third quarter of 2013 and 4.65 percent in the second quarter of 2014. The decreases from both periods were primarily due to continued margin compression resulting from the increasingly competitive low interest rate environment.

Non-interest Income

  • Fees and service charges in the third quarter of 2014 were $40.3 million, down $2.2 million, or 5.2 percent, from the third quarter of 2013 and up $2.2 million, or 5.8 percent, from the second quarter of 2014. The decrease from the third quarter of 2013 was primarily due to customer behavior changes, as well as higher average checking account balances per customer. The increase from the second quarter of 2014 was primarily due to seasonal differences in customer activity.
  • Leasing and equipment finance revenue was $24.4 million during the third quarter of 2014, down $4.4 million, or 15.3 percent, from the third quarter of 2013 and up$1.3 million, or 5.7 percent, from the second quarter of 2014. The decrease from the third quarter of 2013 and the increase from the second quarter of 2014 were primarily due to customer-driven events impacting sales-type lease revenue.
  • TCF sold $484.4 million, $182.5 million and $220.2 million of auto loans during the third quarters of 2014 and 2013, and the second quarter of 2014, respectively, resulting in net gains in the same respective periods. Included in auto loans sold for the third quarter of 2014 is $256.3 million related to the execution of the Company's inaugural auto loan securitization.
  • TCF sold $233.6 million, $142.4 million and $224.2 million of consumer real estate loans during the third quarters of 2014 and 2013, and the second quarter of 2014, respectively, resulting in net gains in the same respective periods.
  • Servicing fee income was $5.9 million on $3.1 billion of period-end loans and leases serviced for others during the third quarter of 2014 compared to $3.6 million on $1.7 billion of period-end loans and leases serviced for others during the third quarter of 2013 and $4.9 million on $2.6 billion of period-end loans and leases serviced for others during the second quarter of 2014.
                                         
Loans and Leases
                                                                 
Period-End and Average Loans and Leases                                               Table 3
Percent Change
(Dollars in thousands) 3Q2Q3Q3Q14 vs3Q14 vsYTDYTDPercent
2014       2014       2013       2Q14     3Q13     2014       2013       Change
Period-End:
Consumer real estate:
First mortgage lien $ 3,444,581 $ 3,542,324 $ 3,862,174 (2.8 )% (10.8 )%
Junior lien 2,526,486       2,480,763       2,553,458   1.8 (1.1 )
Total consumer real estate 5,971,067 6,023,087 6,415,632 (0.9 ) (6.9 )
Commercial 3,159,766 3,093,161 3,137,088 2.2 0.7
Leasing and equipment finance 3,632,793 3,526,264 3,286,506 3.0 10.5
Inventory finance 1,836,538 1,880,667 1,716,542 (2.3 ) 7.0
Auto finance 1,749,411 1,502,860 1,069,053 16.4 63.6
Other 24,003       24,486       26,827   (2.0 ) (10.5 )
Total $ 16,373,578       $ 16,050,525       $ 15,651,648   2.0 4.6
 
Average:
Consumer real estate:
First mortgage lien $ 3,498,068 $ 3,606,635 $ 3,918,411 (3.0 )% (10.7 )% $ 3,607,408 $ 4,056,845 (11.1 )%
Junior lien 2,607,811       2,498,151       2,484,201   4.4 5.0 2,571,271       2,405,832   6.9
Total consumer real estate 6,105,879 6,104,786 6,402,612 (4.6 ) 6,178,679 6,462,677 (4.4 )
Commercial 3,144,135 3,131,320 3,282,880 0.4 (4.2 ) 3,132,588 3,321,458 (5.7 )
Leasing and equipment finance 3,575,698 3,500,647 3,261,638 2.1 9.6 3,504,194 3,232,873 8.4
Inventory finance 1,806,271 2,061,437 1,637,538 (12.4 ) 10.3 1,908,628 1,731,022 10.3
Auto finance 1,603,392 1,518,194 973,418 5.6 64.7 1,483,951 823,316 80.2
Other 11,599       12,040       12,299   (3.7 ) (5.7 ) 12,299       12,996   (5.4 )
Total $ 16,246,974       $ 16,328,424       $ 15,570,385   (0.5 ) 4.3 $ 16,220,339       $ 15,584,342   4.1
                                                                           
 
  • Period-end loans and leases were $16.4 billion at September 30, 2014, an increase of $0.7 billion, or 4.6 percent, compared with September 30, 2013 and a increase of $0.3 billion, or 2.0 percent, compared with June 30, 2014. Average loans and leases were $16.2 billion for the third quarter of 2014, an increase of $0.7 billion, or 4.3 percent, compared with the third quarter of 2013 and a decrease of $0.1 billion, or 0.5 percent, compared with the second quarter of 2014.

    The increase in period-end loans and leases from both periods and the increase in average loans and leases from the third quarter of 2013 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.
  • Loan and lease originations were $3.6 billion for the third quarter of 2014, an increase of $461.3 million, or 14.9 percent, compared with the third quarter of 2013 and an increase of $92.8 million, or 2.7 percent, compared with the second quarter of 2014. The increase from the third quarter of 2013 was primarily due to the continued growth in auto finance and an increase in leasing and equipment finance and commercial originations. The increase from the second quarter of 2014 was primarily due to increased fundings in the commercial business and continued growth in auto finance, partially offset by seasonality within the inventory finance business.
  • Period-end and average loan and lease balances were impacted by $484.4 million of auto finance loan sales and $233.6 million of consumer real estate loan sales during the third quarter of 2014.
                 

Credit Quality

                                             
Credit Trends                                           Table 4
  Percent Change
(Dollars in thousands) 3Q2Q1Q4Q3Q3Q14 vs3Q14 vs
2014   2014   2014   2013   2013     2Q14   3Q13
Non-accrual loans and leases and other real estate owned $ 342,725 $ 325,374 $ 330,127 $ 345,896 $ 348,452 5.3 % (1.6 )%
Over 60-day delinquencies (1) 27,019 28,094 30,638 30,194 38,638 (3.8 ) (30.1 )
Net charge-offs 26,937 18,355 17,416 30,096 27,616 46.8 (2.5 )
Provision for credit losses 15,739 9,909 14,492 22,792 24,602 58.8 (36.0 )
 
(1) Excludes acquired portfolios and non-accrual loans and leases
 
  • Non-accrual loans and leases and other real estate owned totaled $342.7 million at September 30, 2014, a decrease of $5.7 million, or 1.6 percent, from September 30, 2013, and an increase of $17.4 million, or 5.3 percent, from June 30, 2014. The decrease from September 30, 2013 was primarily due to improving credit quality trends and continued efforts to actively work out problem loans in the commercial portfolio. The increase from June 30, 2014 was driven by the migration of two commercial loans to non-accrual and an increase in the consumer loan portfolio.
  • The over 60-day delinquency rate, excluding acquired portfolios and non-accrual loans and leases, was 0.17 percent at September 30, 2014, down from 0.25 percent at September 30, 2013, and down slightly from 0.18 percent at June 30, 2014. The decrease from September 30, 2013 was primarily a result of the stabilization of the consumer real estate portfolio as economic conditions improved in our markets.
  • Net charge-offs were $26.9 million for the third quarter of 2014, a decrease of $0.7 million, or 2.5 percent, from the third quarter of 2013, and an increase of $8.6 million, or 46.8 percent, from the second quarter of 2014. The decrease from the third quarter of 2013 was primarily due to improved credit quality in the commercial portfolio resulting in net recoveries for the third quarter of 2014. The increase from the second quarter of 2014 was primarily due to increased charge-offs in the consumer loan portfolio as a result of a more conservative approach on credit. The over 60-day delinquent consumer real estate loan balance and delinquency rate, excluding acquired portfolios and non-accrual loans, were $17.1 million and 0.3 percent at September 30, 2014, compared to $23.1 million and 0.4 percent at June 30, 2014.
  • Provision for credit losses was $15.7 million for the third quarter of 2014, a decrease of $8.9 million, or 36.0 percent, from the third quarter of 2013, and an increase of $5.8 million, or 58.8 percent, from the second quarter of 2014. The decrease from the third quarter of 2013 was primarily due to reduced reserve requirements in the consumer real estate portfolio. The increase from the second quarter of 2014 was primarily due to increased charge-offs in the consumer loan portfolio as a result of a more conservative approach on credit. The over 60-day delinquent consumer real estate loan balance and delinquency rate, excluding acquired portfolios and non-accrual loans, were $17.1 million and 0.3 percent at September 30, 2014, compared to $23.1 million and 0.4 percent at June 30, 2014.
                               
Deposits
                                                                 
Average Deposits                                                     Table 5
Percent Change
(Dollars in thousands) 3Q2Q3Q3Q14 vs3Q14 vsYTDYTDPercent
2014       2014       2013       2Q14     3Q13     2014       2013     Change
 
Checking $ 5,077,753 $ 5,098,650 $ 4,833,196 (0.4 )% 5.1 % $ 5,064,401 $ 4,834,368 4.8 %
Savings 5,524,409 5,908,219 6,258,866 (6.5 ) (11.7 ) 5,856,259 6,152,292 (4.8 )
Money market 1,527,820       1,019,543       822,094   49.9 85.8 1,124,821       809,800   38.9
Subtotal 12,129,982 12,026,412 11,914,156 0.9 1.8 12,045,481 11,796,460 2.1
Certificates of deposit 3,028,259       2,742,832       2,401,811   10.4 26.1 2,773,254       2,362,274   17.4
Total average deposits $ 15,158,241       $ 14,769,244       $ 14,315,967   2.6 5.9 $ 14,818,735       $ 14,158,734   4.7
 
Average interest rate on deposits (1) 0.28 % 0.24 % 0.27 % 0.25 % 0.27 %
 
(1) Annualized.                                                                
 
  • Total average deposits for the third quarter of 2014 increased $842.3 million, or 5.9 percent, from the third quarter of 2013 and increased $389.0 million, or 2.6 percent, from the second quarter of 2014. The increases from both periods were primarily due to special campaigns for certificates of deposit and money market accounts. The increase from the third quarter of 2013 was further driven by higher average checking account balances per customer.
  • The average interest rate on deposits for the third quarter of 2014 was 0.28 percent, up 1 basis point from the third quarter of 2013 and up 4 basis points from the second quarter of 2014. The increases from both periods were primarily due to increased average interest rates resulting from promotions for money market accounts. The increase from the second quarter of 2014 was further driven by certificates of deposit promotions.
                                     
Non-interest Expense
                                                                 
Non-interest Expense                                                             Table 6  
Percent Change
(Dollars in thousands) 3Q2Q3Q3Q14 vs3Q14 vsYTDYTDPercent
2014       2014       2013       2Q14     3Q13     2014       2013       Change
 
Compensation and employee benefits $ 112,393 $ 109,664 $ 110,833 2.5 % 1.4 % $ 337,146 $ 320,599 5.2 %
Occupancy and equipment 34,121 34,316 33,253 (0.6 ) 2.6 103,276 99,190 4.1
FDIC insurance 7,292 7,625 8,102 (4.4 ) (10.0 ) 22,480 24,174 (7.0 )
Operating lease depreciation 7,434 6,613 6,706 12.4 10.9 20,274 18,491 9.6
Advertising and marketing 5,336 5,862 4,593 (9.0 ) 16.2 16,676 15,857 5.2
Deposit account premiums 320 383 664 (16.4 ) (51.8 ) 1,121 1,866 (39.9 )
Other 47,888       42,618       43,730   12.4 9.5 131,841       123,615   6.7
Subtotal 214,784 207,081 207,881 3.7 3.3 632,814 603,792 4.8
 
Foreclosed real estate and repossessed assets, net 5,315 5,743 4,162 (7.5 ) 27.7 17,126 21,884 (21.7 )
Other credit costs, net (411 )     371       189   N.M. N.M. 79       (876 ) N.M.
Total non-interest expense $ 219,688       $ 213,195       $ 212,232   3.0 3.5 $ 650,019       $ 624,800   4.0
 
N.M. Not meaningful.                                                                
 
  • Compensation and employee benefits expense increased $1.6 million, or 1.4 percent, from the third quarter of 2013 and increased $2.7 million, or 2.5 percent, from the second quarter of 2014. The increase from the third quarter of 2013 was primarily due to increased staff levels to support the growth of auto finance and risk management. The increase from the second quarter of 2014 was primarily due to increased expenses related to higher commissions based on production results and performance incentives, as well as increased staff levels to support the growth of the auto finance business.
  • Foreclosed real estate and repossessed assets expense increased $1.2 million, or 27.7 percent, from the third quarter of 2013 and decreased $0.4 million, or 7.5 percent, compared to the second quarter of 2014. The increase from the third quarter of 2013 was primarily due to fewer gains on the sales of foreclosed consumer real estate properties and an increase in maintenance expense related to commercial properties. The decrease from the second quarter of 2014 was primarily due to a reduction in write-downs of existing foreclosed commercial properties as a result of improved exit values.
             
Capital
                               
Capital Information                           Table 7
At period end
(Dollars in thousands, except per-share data) 3Q 20144Q 2013
Total equity $ 2,113,432 $ 1,964,759
Book value per common share $ 10.98 $ 10.23
Tangible book value per common share (1) $ 9.60 $ 8.83
Tangible common equity to tangible assets (1) 8.54 % 8.03 %
Capital accumulation rate (2) 12.19 % 9.72 %
 
Risk-based capital (3)
Tier 1 $ 1,902,785 11.64 % $ 1,763,682 11.41 %
Total 2,232,412 13.65 2,107,981 13.64
 
Tier 1 leverage capital $ 1,902,785 10.19 % $ 1,763,682 9.71 %
 
Tier 1 common capital (4) $ 1,624,700 9.94 % $ 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.
  • On October 20, 2014, TCF’s Board of Directors declared a regular quarterly cash dividend of 5 cents per common share, payable on December 1, 2014, to stockholders of record at the close of business on November 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 December 1, 2014, to stockholders of record at the close of business on November 14, 2014.

Webcast Information

A live webcast of TCF’s conference call to discuss the third quarter earnings will be hosted at TCF’s website, http://ir.tcfbank.com, on October 24, 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 September 30, 2014, TCF had $19.0 billion in total assets and 382 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 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 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 deposit, 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, further regulation of financial institution campus banking programs, 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; changes affecting customer account charges and fee income, including changes to interchange rates; regulatory actions or changes in customer opt-in preferences with respect to overdrafts, which may have an adverse impact on TCF’s fee revenue; changes to bankruptcy laws which would result in the loss of all or part of TCF’s security interest due to collateral value declines; deficiencies in TCF’s compliance under the Bank Secrecy Act in past or future periods, which may result in regulatory enforcement action including monetary penalties; increased health care costs resulting from Federal health care reform legislation; regulatory criticism and resulting enforcement actions or other adverse consequences such as increased capital requirements, higher deposit insurance assessments or monetary damages or penalties; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to enterprise risk management, 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 future retail deposit account changes, including limitations on TCF’s ability to predict customer behavior and the impact on TCF’s fee revenues.

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, 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, including the failure to develop and maintain technology necessary to satisfy customer demands.

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 September 30,Change
2014   2013   $%
Interest income:
Loans and leases $ 205,604 $ 203,879 $ 1,725 0.8 %
Securities available for sale 2,973 4,448 (1,475 ) (33.2 )
Securities held to maturity 1,445 57 1,388 N.M.
Investments and other 9,681   7,069   2,612   37.0
Total interest income 219,703   215,453   4,250   2.0
Interest expense:
Deposits 10,711 9,644 1,067 11.1
Borrowings 4,812   6,182   (1,370 ) (22.2 )
Total interest expense 15,523   15,826   (303 ) (1.9 )
Net interest income 204,180 199,627 4,553 2.3
Provision for credit losses 15,739   24,602   (8,863 ) (36.0 )
Net interest income after provision for credit losses 188,441   175,025   13,416   7.7
Non-interest income:
Fees and service charges 40,255 42,457 (2,202 ) (5.2 )
Card revenue 12,994 13,167 (173 ) (1.3 )
ATM revenue 5,863   5,941   (78 ) (1.3 )
Subtotal 59,112 61,565 (2,453 ) (4.0 )
Leasing and equipment finance 24,383 28,778 (4,395 ) (15.3 )
Gains on sales of auto loans, net 14,863 7,140 7,723 108.2
Gains on sales of consumer real estate loans, net 8,762 4,152 4,610 111.0
Servicing fee income 5,880 3,619 2,261 62.5
Other 3,170   986   2,184   N.M.
Fees and other revenue 116,170 106,240 9,930 9.3
Losses on securities, net (94 ) (80 ) (14 ) (17.5 )
Total non-interest income 116,076   106,160   9,916   9.3
Non-interest expense:
Compensation and employee benefits 112,393 110,833 1,560 1.4
Occupancy and equipment 34,121 33,253 868 2.6
FDIC insurance 7,292 8,102 (810 ) (10.0 )
Operating lease depreciation 7,434 6,706 728 10.9
Advertising and marketing 5,336 4,593 743 16.2
Deposit account premiums 320 664 (344 ) (51.8 )
Other 47,888   43,730   4,158   9.5

Subtotal

214,784 207,881 6,903 3.3
Foreclosed real estate and repossessed assets, net 5,315 4,162 1,153 27.7
Other credit costs, net (411 ) 189   (600 ) N.M.
Total non-interest expense 219,688   212,232   7,456   3.5
Income before income tax expense 84,829 68,953 15,876 23.0
Income tax expense 30,791   24,551   6,240   25.4
Income after income tax expense 54,038 44,402 9,636 21.7
Income attributable to non-controlling interest 1,721   1,607   114   7.1
Net income attributable to TCF Financial Corporation 52,317   42,795   9,522   22.3
Preferred stock dividends 4,847   4,847    
Net income available to common stockholders $ 47,470   $ 37,948   $ 9,522   25.1
 
Net income per common share:
Basic $ 0.29 $ 0.24 $ 0.05 20.8 %
Diluted 0.29 0.23 0.06 26.1
 
Dividends declared per common share $ 0.05 $ 0.05 $ %
 
Average common and common equivalent
shares outstanding (in thousands):
Basic 163,901 161,220 2,681 1.7 %
Diluted 164,480 162,184 2,296 1.4
 
N.M. Not meaningful.
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-share data)
(Unaudited)
                 
Nine Months Ended September 30,Change
2014   2013$%
Interest income:
Loans and leases $ 614,929 $ 615,459 $ (530 ) (0.1 )%
Securities available for sale 8,941 13,880 (4,939 ) (35.6 )
Securities held to maturity 3,852 183 3,669 N.M.
Investments and other 26,699   19,089   7,610   39.9
Total interest income 654,421   648,611   5,810   0.9
Interest expense:
Deposits 27,625 28,176 (551 ) (2.0 )
Borrowings 15,241   19,673   (4,432 ) (22.5 )
Total interest expense 42,866   47,849   (4,983 ) (10.4 )
Net interest income 611,555 600,762 10,793 1.8
Provision for credit losses 40,140   95,576   (55,436 ) (58.0 )
Net interest income after provision for credit losses 571,415   505,186   66,229   13.1
Non-interest income:
Fees and service charges 114,909 123,352 (8,443 ) (6.8 )
Card revenue 38,493 38,854 (361 ) (0.9 )
ATM revenue 16,976   17,274   (298 ) (1.7 )
Subtotal 170,378 179,480 (9,102 ) (5.1 )
Leasing and equipment finance 69,432 67,591 1,841 2.7
Gains on sales of auto loans, net 30,603 22,421 8,182 36.5
Gains on sales of consumer real estate loans, net 28,619 16,347 12,272 75.1
Servicing fee income 15,079 9,503 5,576 58.7
Other 8,341   3,384   4,957   146.5
Fees and other revenue 322,452 298,726 23,726 7.9
Gains (losses) on securities, net 1,047   (80 ) 1,127   N.M.
Total non-interest income 323,499   298,646   24,853   8.3
Non-interest expense:
Compensation and employee benefits 337,146 320,599 16,547 5.2
Occupancy and equipment 103,276 99,190 4,086 4.1
FDIC insurance 22,480 24,174 (1,694 ) (7.0 )
Operating lease depreciation 20,274 18,491 1,783 9.6
Advertising and marketing 16,676 15,857 819 5.2
Deposit account premiums 1,121 1,866 (745 ) (39.9 )
Other 131,841   123,615   8,226   6.7
Subtotal 632,814 603,792 29,022 4.8
Foreclosed real estate and repossessed assets, net 17,126 21,884 (4,758 ) (21.7 )
Other credit costs, net 79   (876 ) 955   N.M.
Total non-interest expense 650,019   624,800   25,219   4.0
Income before income tax expense 244,895 179,032 65,863 36.8
Income tax expense 88,755   61,554   27,201   44.2
Income after income tax expense 156,140 117,478 38,662 32.9
Income attributable to non-controlling interest 5,941   5,805   136   2.3
Net income attributable to TCF Financial Corporation 150,199   111,673   38,526   34.5
Preferred stock dividends 14,541   14,218   323   2.3
Net income available to common stockholders $ 135,658   $ 97,455   $ 38,203   39.2
 
Net income per common share:
Basic $ 0.83 $ 0.61 $ 0.22 36.1 %
Diluted 0.83 0.60 0.23 38.3
 
Dividends declared per common share $ 0.15 $ 0.15 $ %
 

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

Basic 163,311 160,838 2,473 1.5 %
Diluted 163,823 161,694 2,129 1.3
 
N.M. Not meaningful.
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
               
Three Months Ended September 30,Change
20142013$%
Net income attributable to TCF Financial Corporation $ 52,317   $ 42,795   $ 9,522   22.3 %
Other comprehensive (loss) income:
Securities available for sale:
Unrealized (losses) gains arising during the period (862 ) 850 (1,712 ) N.M.
Reclassification of net losses to net income 254 254 N.M.
Net investment hedges:
Unrealized gains (losses) arising during the period 1,849 (647 ) 2,496 N.M.
Foreign currency translation adjustment:
Unrealized (losses) gains arising during the period (2,066 ) 615 (2,681 ) N.M.
Recognized postretirement prior service cost and transition obligation:
Net actuarial losses arising during the period (12 ) (11 ) (1 ) (9.1 )
Income tax expense (464 ) (72 ) (392 ) N.M.
Total other comprehensive (loss) income (1,301 ) 735   (2,036 ) N.M.
Comprehensive income $ 51,016   $ 43,530   $ 7,486   17.2
 
 
Nine Months Ended September 30,Change
20142013$%
Net income attributable to TCF Financial Corporation $ 150,199   $ 111,673   $ 38,526   34.5 %
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period 19,652 (47,399 ) 67,051 N.M.
Reclassification of net gains to net income (375 ) (375 ) N.M.
Net investment hedges:
Unrealized gains arising during the period 1,677 764 913 119.5

Foreign currency translation adjustment:

Unrealized losses arising during the period (2,043 ) (980 ) (1,063 ) (108.5 )
Recognized postretirement prior service cost and transition obligation:
Net actuarial losses arising during the period (35 ) (35 )
Income tax (expense) benefit (7,879 ) 17,609   (25,488 ) N.M.
Total other comprehensive income (loss) 10,997   (30,041 ) 41,038   N.M.
Comprehensive income $ 161,196   $ 81,632   $ 79,564   97.5
 
N.M. Not meaningful.
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per-share data)
(Unaudited)
               
At Sep. 30,   At Dec. 31,Change
20142013$%
ASSETS
Cash and due from banks $ 840,847 $ 915,076 $ (74,229 ) (8.1 )%
Investments 84,478 94,326 (9,848 ) (10.4 )
Securities held to maturity 215,371 19,912 195,459 N.M.
Securities available for sale 466,130 551,064 (84,934 ) (15.4 )
Loans and leases held for sale 156,390 79,768 76,622 96.1
Loans and leases:
Consumer real estate:
First mortgage lien 3,444,581 3,766,421 (321,840 ) (8.5 )
Junior lien 2,526,486   2,572,905   (46,419 ) (1.8 )
Total consumer real estate 5,971,067 6,339,326 (368,259 ) (5.8 )
Commercial 3,159,766 3,148,352 11,414 0.4
Leasing and equipment finance 3,632,793 3,428,755 204,038 6.0
Inventory finance 1,836,538 1,664,377 172,161 10.3
Auto finance 1,749,411 1,239,386 510,025 41.2
Other 24,003   26,743   (2,740 ) (10.2 )
Total loans and leases 16,373,578 15,846,939 526,639 3.3
Allowance for loan and lease losses (222,658 ) (252,230 ) 29,572   11.7
Net loans and leases 16,150,920 15,594,709 556,211 3.6
Premises and equipment, net 436,316 437,602 (1,286 ) (0.3 )
Goodwill 225,640 225,640
Other assets 446,011   461,743   (15,732 ) (3.4 )
Total assets $ 19,022,103   $ 18,379,840   $ 642,263   3.5
 
LIABILITIES AND EQUITY
Deposits:
Checking $ 5,075,309 $ 4,980,451 $ 94,858 1.9
Savings 5,385,611 6,194,003 (808,392 ) (13.1 )
Money market 1,706,206   831,910   874,296   105.1
Subtotal 12,167,126 12,006,364 160,762 1.3
Certificates of deposit 3,022,394   2,426,412   595,982   24.6
Total deposits 15,189,520   14,432,776   756,744   5.2
Short-term borrowings 3,384 4,918 (1,534 ) (31.2 )
Long-term borrowings 1,198,297   1,483,325   (285,028 ) (19.2 )
Total borrowings 1,201,681 1,488,243 (286,562 ) (19.3 )
Accrued expenses and other liabilities 517,470   494,062   23,408   4.7
Total liabilities 16,908,671   16,415,081   493,590   3.0
Equity:
Preferred stock, par value $0.01 per share, 30,000,000 shares authorized; 4,006,900 issued 263,240 263,240
Common stock, par value $0.01 per share, 280,000,000 shares authorized; 167,160,721 and 165,164,861 shares issued, respectively 1,672 1,652 20 1.2
Additional paid-in capital 809,778 779,641 30,137 3.9
Retained earnings, subject to certain restrictions 1,088,992 977,846 111,146 11.4
Accumulated other comprehensive loss (16,216 ) (27,213 ) 10,997 40.4
Treasury stock at cost, 42,566 shares, and other (48,879 ) (42,198 ) (6,681 ) (15.8 )
Total TCF Financial Corporation stockholders' equity 2,098,587 1,952,968 145,619 7.5
Non-controlling interest in subsidiaries 14,845   11,791   3,054   25.9
Total equity 2,113,432   1,964,759   148,673   7.6
Total liabilities and equity $ 19,022,103   $ 18,379,840   $ 642,263   3.5
 
N.M. Not Meaningful.
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF CREDIT QUALITY DATA
(Dollars in thousands)
(Unaudited)
                           
AtAtAtAt

At

Change from
Sep. 30,Jun. 30,Mar. 31,Dec. 31,Sep. 30,Jun. 30,Sep. 30,
2014201420142013201320142013

Delinquency Data - Principal Balances (1)

60 days or more:
Consumer real estate
First mortgage lien $ 14,582 $ 20,678 $ 20,051 $ 20,894 $ 23,576 $ (6,096 ) $ (8,994 )
Junior lien 2,554   2,415   4,049   3,532   3,822   139   (1,268 )
Total consumer real estate 17,136 23,093 24,100 24,426 27,398 (5,957 ) (10,262 )
Commercial 4,117 1,905 1,430 7,201 4,117 (3,084 )
Leasing and equipment finance 2,045 2,642 2,864 2,401 2,539 (597 ) (494 )
Inventory finance 110 204 212 50 71 (94 ) 39
Auto finance 3,606 2,152 1,554 1,877 1,429 1,454 2,177
Other 5   3   3   10     2   5  
Subtotal 27,019 28,094 30,638 30,194 38,638 (1,075 ) (11,619 )
Acquired portfolios 165   251   240   458   334   (86 ) (169 )
Total delinquencies $ 27,184   $ 28,345   $ 30,878   $ 30,652   $ 38,972   $ (1,161 ) $ (11,788 )
 

Delinquency Data - % of Portfolio (1)

60 days or more:
Consumer real estate
First mortgage lien 0.45 % 0.61 % 0.57 % 0.58 % 0.64 % (16 ) bps (19 ) bps
Junior lien 0.10 0.10 0.17 0.14 0.15 (5 )
Total consumer real estate 0.30 0.40 0.41 0.40 0.44 (10 ) (14 )
Commercial 0.13 0.06 0.05 0.23 13 (10 )
Leasing and equipment finance 0.06 0.08 0.08 0.07 0.08 (2 ) (2 )
Inventory finance 0.01 0.01 0.01 1
Auto finance 0.21 0.14 0.11 0.15 0.13 7 8
Other 0.02 0.01 0.01