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TCF Reports Quarterly Net Income of $39.8 Million, or 21 Cents Per Share

Company Release - 4/21/2015 8:00 AM ET

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

FIRST QUARTER HIGHLIGHTS

  • Reinvested a portion of troubled debt restructuring loan sale proceeds into core businesses
  • Loan and lease originations of $3.6 billion, up 14.9 percent from the first quarter of 2014
  • Average deposits of $15.7 billion, up 7.8 percent from the first quarter of 2014
  • Provision for credit losses of $12.8 million, down 11.7 percent from the first quarter of 2014
  • Revenue of $304.1 million, flat to the first quarter of 2014
  • Non-accrual loans and leases of $222.1 million, down 16.7 percent from the first quarter of 2014
  • Return on average assets of 0.85 percent, down 15 basis points from the first quarter of 2014
                                 
Summary of Financial Results                               Table 1
                  Percent Change
(Dollars in thousands, except per-share data) 1Q 4Q 1Q 1Q15 vs     1Q15 vs
2015     2014     2014     4Q14     1Q14
Net income attributable to TCF $ 39,801 $ 23,988 $ 44,757 65.9 % (11.1 )%
Net interest income 203,420 204,074 201,274 (0.3 ) 1.1
Diluted earnings per common share 0.21 0.12 0.24 75.0 (12.5 )
 

Financial Ratios(1)

Pre-tax pre-provision return on average assets(2) 1.58 % 1.91 % 1.88 %
Return on average assets 0.85 0.53 1.00
Return on average common equity 7.47 4.15 9.35
Return on average tangible common equity(3) 8.58 4.80 10.89
Net interest margin 4.50 4.49 4.66
Net charge-offs as a percentage of average loans and leases 0.28 0.40 0.43
 
 
(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 $39.8 million for the first quarter of 2015, compared with net income of $44.8 million for the first quarter of 2014, and net income of $24.0 million for the fourth quarter of 2014. Diluted earnings per common share was 21 cents for the first quarter of 2015, compared with 24 cents for the first quarter of 2014, and 12 cents for the fourth quarter of 2014.

Chairman's Statement

"Following the sale of consumer troubled debt restructuring loans in the fourth quarter of 2014, TCF experienced continued credit quality improvement in the first quarter of 2015 as net charge-offs and consumer real estate non-accruals declined," said William A. Cooper, Chairman and Chief Executive Officer. "Loan and lease balances grew meaningfully as strong originations continued. As discussed in the fourth quarter, we began investing the proceeds from the sale of consumer troubled debt restructuring loans in our core businesses by holding more loans on the balance sheet during the quarter.

"Last month, TCF announced the promotion of Craig Dahl to President with expanded responsibilities. This further demonstrates our commitment to growing and developing strong executives who provide the continuity and background necessary to lead TCF into the future. I am very excited about this change as Craig has the experience and leadership skills necessary to excel in this new role and to help drive the next phase of TCF's strategic plan."

                     
Revenue
                                 
Total Revenue                               Table 2
Percent Change
(Dollars in thousands) 1Q 4Q 1Q 1Q15 vs 1Q15 vs
2015     2014     2014     4Q14     1Q14
Net interest income $ 203,420       $ 204,074       $ 201,274   (0.3 )% 1.1 %
Fees and other revenue:
Fees and service charges 33,972 39,477 36,619 (13.9 ) (7.2 )
Card revenue 12,901 12,830 12,250 0.6 5.3
ATM revenue 5,122       5,249       5,319   (2.4 ) (3.7 )
Total banking fees 51,995 57,556 54,188 (9.7 ) (4.0 )
Gains on sales of auto loans, net 6,265 12,962 8,470 (51.7 ) (26.0 )
Gains on sales of consumer real estate loans, net 8,763 6,175 11,706 41.9 (25.1 )
Servicing fee income 7,342       6,365       4,307   15.3 70.5
Subtotal 22,370 25,502 24,483 (12.3 ) (8.6 )
Leasing and equipment finance 22,224 24,367 21,980 (8.8 ) 1.1
Other 4,127       2,363       2,382   74.7 73.3
Total fees and other revenue 100,716 109,788 103,033 (8.3 ) (2.2 )
Gains (losses) on securities, net (78 )     (20 )     374   N.M. N.M.
Total non-interest income 100,638       109,768       103,407   (8.3 ) (2.7 )
Total revenue $ 304,058       $ 313,842       $ 304,681   (3.1 ) (0.2 )
 
Net interest margin(1) 4.50 % 4.49 % 4.66 %
Total non-interest income as a percentage of total revenue 33.1 35.0 33.9
 
N.M. Not Meaningful.
(1) Annualized.                                
 

Net Interest Income

  • Net interest income for the first quarter of 2015 increased $2.1 million, or 1.1 percent, compared with the first quarter of 2014. The increase was primarily driven by higher average loan and lease balances in the auto finance, leasing and equipment finance and inventory finance businesses. This increase was mostly offset by downward pressure on yields across the lending businesses in this increasingly competitive low interest rate environment, lower average balances of higher yielding fixed-rate loans in the consumer real estate and commercial portfolios due to run-off exceeding originations, and the troubled debt restructuring ("TDR") loan sale in December 2014.
  • Net interest income for the first quarter of 2015 decreased $0.7 million, or 0.3 percent, compared with the fourth quarter of 2014. The decrease was primarily due to lower average loan and lease balances in the consumer real estate portfolios after the TDR loan sale in the fourth quarter of 2014, the proceeds of which are expected to be reinvested in our core businesses over the next several quarters. The decrease was primarily offset by higher average loan balances in the inventory finance and auto finance portfolios.
  • Net interest margin in the first quarter of 2015 was 4.50 percent, compared with 4.66 percent in the first quarter of 2014 and 4.49 percent in the fourth quarter of 2014. The decrease from the first quarter of 2014 was primarily due to margin compression resulting from the competitive low interest rate environment. The increase from the fourth quarter of 2014 was primarily due to higher consumer real estate and inventory finance yields in spite of the current interest rate environment.

Non-interest Income

  • Fees and service charges in the first quarter of 2015 were $34.0 million, down $2.6 million, or 7.2 percent, from the first quarter of 2014 and down $5.5 million, or 13.9 percent, from the fourth quarter of 2014. The decreases from both periods were primarily due to customer behavior changes, as well as higher average checking account balances per customer.
  • TCF sold $203.5 million, $261.7 million and $367.0 million of auto loans during the first quarters of 2015 and 2014, and the fourth quarter of 2014, respectively, resulting in net gains in each respective period.
  • TCF sold $264.3 million, $347.4 million and $613.7 million of consumer real estate loans during the first quarters of 2015 and 2014, and the fourth quarter of 2014, respectively, resulting in net gains in each respective period. Included in consumer real estate loans sold (servicing released) for the fourth quarter of 2014 is $405.9 million related to the TDR loan sale, the proceeds of which are expected to be reinvested in our core businesses over the next several quarters.
  • Servicing fee income was $7.3 million on $3.5 billion of period-end loans and leases serviced for others during the first quarter of 2015 compared with $4.3 million on $2.4 billion for the first quarter of 2014 and $6.4 million on $3.4 billion for the fourth quarter of 2014. The increases for both periods were primarily due to the cumulative effect of an increase in the portfolio of consumer real estate and auto loans sold with servicing retained by TCF.
                   
Loans and Leases
                                 
Period-End and Average Loans and Leases   Table 3
Percent Change
(Dollars in thousands) 1Q 4Q 1Q 1Q15 vs 1Q15 vs
2015     2014     2014     4Q14     1Q14
Period-End:
Consumer real estate:
First mortgage lien $ 3,011,166 $ 3,139,152 $ 3,668,245 (4.1 )% (17.9 )%
Junior lien 2,597,895       2,543,212       2,407,286   2.2 7.9
Total consumer real estate 5,609,061 5,682,364 6,075,531 (1.3 ) (7.7 )
Commercial 3,205,599 3,157,665 3,136,421 1.5 2.2
Leasing and equipment finance 3,729,386 3,745,322 3,456,759 (0.4 ) 7.9
Inventory finance 2,336,518 1,877,090 2,123,808 24.5 10.0
Auto finance 2,156,139 1,915,061 1,400,527 12.6 54.0
Other 20,448       24,144       22,550   (15.3 ) (9.3 )
Total $ 17,057,151       $ 16,401,646       $ 16,215,596   4.0 5.2
 

Average:

Consumer real estate:
First mortgage lien $ 3,076,802 $ 3,447,447 $ 3,719,961 (10.8 )% (17.3 )%
Junior lien 2,614,538       2,611,709       2,607,851   0.1 0.3
Total consumer real estate 5,691,340 6,059,156 6,327,812 (6.1 ) (10.1 )
Commercial 3,154,008 3,143,614 3,122,066 0.3 1.0
Leasing and equipment finance 3,729,481 3,611,557 3,434,691 3.3 8.6
Inventory finance 2,108,871 1,891,504 1,862,745 11.5 13.2
Auto finance 2,021,144 1,817,024 1,327,232 11.2 52.3
Other 11,616       11,396       13,273   1.9 (12.5 )
Total $ 16,716,460       $ 16,534,251       $ 16,087,819   1.1 3.9
                                                 
 
  • Period-end loans and leases were $17.1 billion at March 31, 2015, an increase of $0.8 billion, or 5.2 percent, compared with March 31, 2014 and an increase of $0.7 billion, or 4.0 percent, compared with December 31, 2014. Average loans and leases were $16.7 billion for the first quarter of 2015, an increase of $0.6 billion, or 3.9 percent, compared with the first quarter of 2014 and an increase of $0.2 billion, or 1.1 percent, compared with the fourth quarter of 2014.

    The increases in period-end loans and leases and average loans and leases from both periods were primarily due to the continued growth of the auto finance portfolio as TCF expands the number of active dealers, driving increased originations and higher period-end and average loan balances net of loan sales, as well as an increase in the inventory finance portfolio. These increases were partially offset by a decrease in consumer real estate loans as a result of the TDR loan sale. Growth in the leasing and equipment finance portfolio also contributed to the increase in the period-end loans and leases from first quarter of 2014 and average loans and leases from both periods.
  • Loan and lease originations were $3.6 billion for the first quarter of 2015, an increase of $0.5 billion, or 14.9 percent, compared with the first quarter of 2014 and an increase of $0.1 billion, or 3.0 percent, compared with the fourth quarter of 2014. The increase from the first quarter of 2014 was primarily due to the continued growth in auto finance and an increase in consumer real estate and commercial originations. The increase from the fourth quarter of 2014 was primarily due to seasonality of inventory finance originations and the continued growth in auto finance, partially offset by a decrease in leasing and equipment finance originations.
                   
Credit Quality
                                   
Credit Trends                                 Table 4
Percent Change
(Dollars in thousands) 1Q 4Q 3Q 2Q 1Q 1Q15 vs 1Q15 vs
2015   2014   2014   2014   2014     4Q14   1Q14
Over 60-day delinquencies as a percentage of portfolio(1) 0.14 % 0.14 % 0.17 % 0.18 % 0.19 % bps

(5

) bps

Net charge-offs as a percentage of portfolio(2) 0.28 0.40 0.66 0.45 0.43 (12 )

(15

)

Non-accrual loans and leases and other real estate owned $ 284,541 $ 282,384 $ 342,725 $ 325,374 $ 330,127 0.8 %

(13.8

)%

Provision for credit losses 12,791 55,597 15,739 9,909 14,492 (77.0 ) (11.7 )
 
(1) Excludes acquired portfolios and non-accrual loans and leases.
(2) Annualized.
 
  • The over 60-day delinquency rate, excluding acquired portfolios and non-accrual loans and leases, was 0.14 percent at March 31, 2015, down from 0.19 percent at March 31, 2014, and unchanged from December 31, 2014. The decrease from March 31, 2014 was primarily a result of the stabilization of the consumer real estate portfolio as economic conditions improved in our markets.
  • The net charge-off rate was 0.28 percent at March 31, 2015, down from 0.43 percent at March 31, 2014, and down from 0.40 percent at December 31, 2014. The decreases from both periods were primarily due to improved credit quality in the consumer real estate and commercial portfolios.
  • Non-accrual loans and leases and other real estate owned totaled $284.5 million at March 31, 2015, a decrease of $45.6 million, or 13.8 percent, from March 31, 2014, and an increase of $2.2 million, or 0.8 percent, from December 31, 2014. The decrease from March 31, 2014 was primarily due to the TDR loan sale that occurred in the fourth quarter of 2014, which included $40.1 million of non-accrual loans, as well as improving credit quality trends and continued efforts to actively work out problem loans in the commercial portfolio.
  • Provision for credit losses was $12.8 million for the first quarter of 2015, a decrease of $1.7 million, or 11.7 percent, from the first quarter of 2014, and a decrease of $42.8 million, or 77.0 percent, from the fourth quarter of 2014. The decrease from the first quarter of 2014 was primarily due to reduced reserve requirements and net charge-offs in the consumer real estate portfolio as a result of improved credit quality. The decrease from the fourth quarter of 2014 was primarily due to provision expense recorded in the fourth quarter of 2014 related to the TDR loan sale in that period.
                     
Deposits
                                 
Average Deposits                         Table 5
Percent Change
(Dollars in thousands) 1Q 4Q 1Q 1Q15 vs 1Q15 vs
2015     2014     2014     4Q14     1Q14
 
Checking $ 5,300,699 $ 5,109,465 $ 5,016,118 3.7 % 5.7 %
Savings 5,161,697 5,289,435 6,142,950 (2.4 ) (16.0 )
Money market 2,149,340       1,869,350       819,312   15.0 162.3
Subtotal 12,611,736 12,268,250 11,978,380 2.8 5.3
Certificates of deposit 3,041,790       3,041,722       2,543,345   19.6
Total average deposits $ 15,653,526       $ 15,309,972       $ 14,521,725   2.2 7.8
 
Average interest rate on deposits(1) 0.29 % 0.28 % 0.22 %
 
(1) Annualized.                                
 
  • Total average deposits for the first quarter of 2015 increased $1.1 billion, or 7.8 percent, from the first quarter of 2014 and increased $0.3 billion, or 2.2 percent, from the fourth quarter of 2014. The increases from both periods were primarily due to special campaigns for money market accounts and higher average checking account balances per customer. The increase from the first quarter of 2014 also resulted from special campaigns for certificates of deposit.
  • The average interest rate on deposits for the first quarter of 2015 was 0.29 percent, up 7 basis points from the first quarter of 2014 and up 1 basis point from the fourth quarter of 2014. The increases from both periods were primarily due to increased average rates on money market and certificates of deposit accounts as a result of deposit campaigns to fund loan and lease growth at market rates.
                     
Non-interest Expense
                                 
Non-interest Expense                               Table 6
Percent Change
(Dollars in thousands) 1Q 4Q 1Q 1Q15 vs 1Q15 vs
2015     2014     2014     4Q14     1Q14
 
Compensation and employee benefits $ 115,815 $ 115,796 $ 115,089 % 0.6 %
Occupancy and equipment 36,827 35,747 34,839 3.0 5.7
FDIC insurance 5,393 2,643 7,563 104.0 (28.7 )
Operating lease depreciation 7,734 6,878 6,227 12.4 24.2
Advertising and marketing 6,523 5,146 5,896 26.8 10.6
Other 48,133       48,063       41,335   0.1 16.4
Subtotal 220,425 214,273 210,949 2.9 4.5
Foreclosed real estate and repossessed assets, net 6,196 7,441 6,068 (16.7 ) 2.1
Other credit costs, net 146       44       119   N.M. 22.7
Total non-interest expense $ 226,767       $ 221,758       $ 217,136   2.3 4.4
 
N.M. Not Meaningful.                                
 
  • FDIC insurance expense decreased $2.2 million, or 28.7 percent, from the first quarter of 2014 and increased $2.8 million, or 104.0 percent, from the fourth quarter of 2014. The decrease from the first quarter of 2014 was due to a lower assessment rate primarily as a result of the TDR loan sale in December 2014 and improved credit metrics. The increase from the fourth quarter of 2014 was due to a non-recurring assessment rate catch-up recognized in the fourth quarter of 2014.
  • Foreclosed real estate and repossessed assets expense remained consistent with the first quarter of 2014 and decreased $1.2 million, or 16.7 percent, compared with the fourth quarter of 2014. The decrease from the fourth quarter of 2014 was primarily due to a reduction in write-downs of existing foreclosed commercial properties.
  • Included within other non-interest income during the first quarter of 2015 is a gain of $1.7 million related to appreciation of a private bank investment related to the bank's merger with a publicly held financial institution. TCF subsequently donated the investment, with a carrying value of $2.8 million, to the TCF Foundation which is included within other non-interest expense.
         
Capital
 

Capital Information

            Table 7
 
(Dollars in thousands, except per-share data)

1Q 2015

4Q 2014

Total equity $ 2,181,682 $ 2,135,364
Book value per common share 11.28 11.10
Tangible book value per common share(1) 9.91 9.72
Tangible common equity to tangible assets(1) 8.44 % 8.50 %
Capital accumulation rate(2) 9.75 % 10.36 %
 

Regulatory Capital:

Under Basel III Under Basel I
Common equity Tier 1 capital $ 1,682,967 N.A.
Tier 1 capital 1,966,089 $ 1,919,887
Total capital 2,367,827 2,209,999
 

Regulatory Capital Ratios:

Common equity Tier 1 capital ratio 9.83 % N.A.
Tier 1 risk-based capital ratio 11.49 11.76 %
Total risk-based capital ratio 13.83 13.54
Tier 1 leverage ratio 10.14 10.07
 
N.A. Not Applicable.
(1) See "Reconciliation of GAAP to Non-GAAP Financial Measures" table.

(2) Calculated as the change in annualized year-to-date common equity Tier 1 capital as a percentage of prior year end common equity Tier 1 capital.

 
  • Maintained strong capital ratios as the Company accumulates capital through earnings. The decrease in the Tier 1 risk-based capital ratio from the fourth quarter of 2014 was primarily the result of strong asset growth.
  • Prior to 2015, the regulatory capital requirements effective for the Company followed the Basel I capital standard. In 2013, U.S. banking regulators approved final regulatory capital rule enhancements which became effective for the Company on January 1, 2015. The Basel III capital standard phases in through 2019 and revises the definition of capital, increases minimum capital ratios, introduces regulatory capital buffers above those minimums, introduces a common equity Tier 1 capital ratio and revises the rules for calculating risk-weighted assets. The adoption of the new capital standard had an immaterial impact to TCF's capital levels and related ratios.
  • On April 20, 2015, TCF's Board of Directors declared a regular quarterly cash dividend of 5 cents per common share, payable on June 1, 2015, to stockholders of record at the close of business on May 15, 2015. TCF also declared dividends on the 7.50% Series A and 6.45% Series B Non-Cumulative Perpetual Preferred Stock, both payable on June 1, 2015, to stockholders of record at the close of business on May 15, 2015.

Webcast Information

A live webcast of TCF's conference call to discuss the first quarter earnings will be hosted at TCF's website, http://ir.tcfbank.com, on April 21, 2015 at 9:00 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 March 31, 2015, TCF had $20.0 billion in total assets and 379 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana, 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 all 50 states 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, 2014, 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, increased deposit costs due to competition for deposit growth and evolving payment system developments, 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, securities held to maturity 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 the 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 such as mortgage foreclosure moratorium laws, further regulation of financial institution campus banking programs, use by municipalities of eminent domain on property securing troubled residential mortgage loans, or imposition of underwriting or other limitations that impact the ability to offer 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; 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 impact on banks of regulatory reform, including additional capital, leverage, liquidity and risk management requirements or changes in the composition of qualifying regulatory capital; 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 or 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 new or expanded programs or 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 or government enforcement actions, including class action litigation or enforcement actions concerning TCF's lending or deposit activities, including account servicing processes or fees or charges, or employment practices; 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 March 31,

Change
2015 2014 $ %
Interest income:
Loans and leases $ 205,976 $ 202,537 $ 3,439 1.7 %
Securities available for sale 3,080 3,163 (83 ) (2.6 )
Securities held to maturity 1,405 964 441 45.7
Investments and other 9,333   7,963   1,370   17.2
Total interest income 219,794   214,627   5,167   2.4
Interest expense:
Deposits 11,072 8,037 3,035 37.8
Borrowings 5,302   5,316   (14 ) (0.3 )
Total interest expense 16,374   13,353   3,021   22.6
Net interest income 203,420 201,274 2,146 1.1
Provision for credit losses 12,791   14,492   (1,701 ) (11.7 )
Net interest income after provision for credit losses 190,629   186,782   3,847   2.1
Non-interest income:
Fees and service charges 33,972 36,619 (2,647 ) (7.2 )
Card revenue 12,901 12,250 651 5.3
ATM revenue 5,122   5,319   (197 ) (3.7 )
Subtotal 51,995 54,188 (2,193 ) (4.0 )
Gains on sales of auto loans, net 6,265 8,470 (2,205 ) (26.0 )
Gains on sales of consumer real estate loans, net 8,763 11,706 (2,943 ) (25.1 )
Servicing fee income 7,342     4,307     3,035   70.5
Subtotal 22,370 24,483 (2,113 ) (8.6 )
Leasing and equipment finance 22,224 21,980 244 1.1
Other 4,127   2,382   1,745   73.3
Fees and other revenue 100,716 103,033 (2,317 ) (2.2 )
Gains (losses) on securities, net (78 ) 374   (452 ) N.M.
Total non-interest income 100,638   103,407   (2,769 ) (2.7 )
Non-interest expense:
Compensation and employee benefits 115,815 115,089 726 0.6
Occupancy and equipment 36,827 34,839 1,988 5.7
FDIC insurance 5,393 7,563 (2,170 ) (28.7 )
Operating lease depreciation 7,734 6,227 1,507 24.2
Advertising and marketing 6,523 5,896 627 10.6
Other 48,133   41,335   6,798   16.4
Subtotal 220,425 210,949 9,476 4.5
Foreclosed real estate and repossessed assets, net 6,196 6,068 128 2.1
Other credit costs, net 146   119   27   22.7
Total non-interest expense 226,767   217,136   9,631   4.4
Income before income tax expense 64,500 73,053 (8,553 ) (11.7 )
Income tax expense 22,828   26,579   (3,751 ) (14.1 )
Income after income tax expense 41,672 46,474 (4,802 ) (10.3 )
Income attributable to non-controlling interest 1,871   1,717   154   9.0
Net income attributable to TCF Financial Corporation 39,801   44,757   (4,956 ) (11.1 )
Preferred stock dividends 4,847   4,847    
Net income available to common stockholders $ 34,954   $ 39,910   $ (4,956 ) (12.4 )
 
Net income per common share:
Basic $ 0.21 $ 0.25 $ (0.04 ) (16.0 )%
Diluted 0.21 0.24 (0.03 ) (12.5 )
 
Dividends declared per common share $ 0.05 $ 0.05 $ %
 

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

Basic 164,845 162,767 2,078 1.3 %
Diluted 165,366 163,267 2,099 1.3
 
N.M. Not Meaningful.
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
                 
Three Months Ended March 31, Change
2015 2014 $ %
Net income attributable to TCF Financial Corporation $ 39,801   $ 44,757   $ (4,956 ) (11.1 )%
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period 4,139 11,866 (7,727 ) (65.1 )
Reclassification of net (gains) losses to net income 304 (177 ) 481 N.M.
Net investment hedges:
Unrealized gains (losses) arising during the period 3,588 1,210 2,378 196.5
Foreign currency translation adjustment:
Unrealized gains (losses) arising during the period (3,886 ) (1,376 ) (2,510 ) (182.4 )
Recognized postretirement prior service cost:
Reclassification of net (gains) losses to net income (12 ) (12 )
Income tax (expense) benefit (3,029 ) (4,854 ) 1,825   37.6
Total other comprehensive income (loss) 1,104   6,657   (5,553 ) (83.4 )
Comprehensive income $ 40,905   $ 51,414   $ (10,509 ) (20.4 )
 
N.M. Not Meaningful.
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per-share data)
(Unaudited)
               
At Mar. 31,   At Dec. 31,   Change
2015   2014   $   %
ASSETS:
Cash and due from banks $ 925,146 $ 1,115,250 $ (190,104 ) (17.0 )%
Investments 79,495 85,492 (5,997 ) (7.0 )
Securities held to maturity 211,061 214,454 (3,393 ) (1.6 )
Securities available for sale 556,151 463,294 92,857 20.0
Loans and leases held for sale 223,787 132,266 91,521 69.2
Loans and leases:
Consumer real estate:
First mortgage lien 3,011,166 3,139,152 (127,986 ) (4.1 )
Junior lien 2,597,895   2,543,212   54,683   2.2
Total consumer real estate 5,609,061 5,682,364 (73,303 ) (1.3 )
Commercial 3,205,599 3,157,665 47,934 1.5
Leasing and equipment finance 3,729,386 3,745,322 (15,936 ) (0.4 )
Inventory finance 2,336,518 1,877,090 459,428 24.5
Auto finance 2,156,139 1,915,061 241,078 12.6
Other 20,448   24,144   (3,696 ) (15.3 )
Total loans and leases 17,057,151 16,401,646 655,505 4.0
Allowance for loan and lease losses (163,799 ) (164,169 ) 370   0.2
Net loans and leases 16,893,352 16,237,477 655,875 4.0
Premises and equipment, net 433,984 436,361 (2,377 ) (0.5 )
Goodwill 225,640 225,640
Other assets 435,957   484,377   (48,420 ) (10.0 )
Total assets $ 19,984,573   $ 19,394,611   $ 589,962   3.0
 

LIABILITIES AND EQUITY:

Deposits:
Checking $ 5,487,311 $ 5,195,243 $ 292,068 5.6
Savings 5,148,993 5,212,320 (63,327 ) (1.2 )
Money market 2,261,761   1,993,130   268,631   13.5
Subtotal 12,898,065 12,400,693 497,372 4.0
Certificates of deposit 3,055,328   3,049,189   6,139   0.2
Total deposits 15,953,393   15,449,882   503,511   3.3
Short-term borrowings 8,348 4,425 3,923 88.7
Long-term borrowings 1,236,636   1,232,065   4,571   0.4
Total borrowings 1,244,984 1,236,490 8,494 0.7
Accrued expenses and other liabilities 604,514   572,875   31,639   5.5
Total liabilities 17,802,891   17,259,247   543,644   3.1
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; 168,141,710 and 167,503,568 shares issued, respectively

1,681 1,675 6 0.4
Additional paid-in capital 828,128 817,130 10,998 1.3
Retained earnings, subject to certain restrictions 1,126,627 1,099,914 26,713 2.4
Accumulated other comprehensive income (loss) (9,806 ) (10,910 ) 1,104 10.1
Treasury stock at cost, 42,566 shares, and other (50,078 ) (49,400 ) (678 ) (1.4 )
Total TCF Financial Corporation stockholders' equity 2,159,792 2,121,649 38,143 1.8
Non-controlling interest in subsidiaries 21,890   13,715   8,175   59.6
Total equity 2,181,682   2,135,364   46,318   2.2
Total liabilities and equity $ 19,984,573   $ 19,394,611   $ 589,962   3.0
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF CREDIT QUALITY DATA
(Dollars in thousands)
(Unaudited)
 

Delinquency Data as a Percentage of Portfolio(1)

                         
At At At At At Change from
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Mar. 31,
2015 2014 2014 2014 2014 2014 2014
60 days or more:
Consumer real estate:
First mortgage lien 0.53 % 0.49 % 0.45 % 0.61 % 0.57 % 4 bps (4 ) bps
Junior lien 0.11 0.08 0.10 0.10 0.17 3 (6 )
Total consumer real estate 0.32 0.30 0.30 0.40 0.41 2 (9 )
Commercial 0.13 0.06 (6 )
Leasing and equipment finance 0.09 0.07 0.06 0.08 0.08 2 1
Inventory finance 0.01 0.01 0.01 (1 )
Auto finance 0.16 0.22 0.21 0.14 0.11 (6 ) 5
Other 0.02 0.02 0.01 0.01 2 1
Subtotal 0.14 0.14 0.17 0.18 0.19 (5 )
Acquired portfolios 0.21 0.03 2.27 2.26 1.38 18 (117 )
Total delinquencies 0.14 0.14 0.17 0.18 0.19 (5 )
 
(1) Excludes non-accrual loans and leases.
 
 

Net Charge-Offs as a Percentage of Average Loans and Leases

       
Quarter Ended(1)

Change from
Quarter Ended

Mar. 31,     Dec. 31,     Sep. 30,     Jun. 30,     Mar. 31, Dec. 31,   Mar. 31,
2015 2014 2014 2014 2014 2014 2014
Consumer real estate:
First mortgage lien 0.62 % 0.80 % 2.10 % 0.79 % 1.04 % (18 ) bps (42 ) bps
Junior lien 0.38 0.46 0.59 0.69 0.46 (8 ) (8 )
Total consumer real estate 0.51 0.66 1.45 0.75 0.80 (15 ) (29 )
Commercial (0.07 ) 0.12 (0.02 ) 0.44 0.19 (19 ) (26 )
Leasing and equipment finance 0.10 0.08 0.13 0.11 0.09 2 1
Inventory finance 0.08 0.12 0.06 0.02 (0.03 ) (4 ) 11
Auto finance 0.66 0.83 0.61 0.48 0.69 (17 ) (3 )
Other N.M. N.M. N.M. N.M. N.M. N.M. N.M.
Total 0.28 0.40 0.66 0.45 0.43 (12 ) (15 )
 
N.M. Not Meaningful.
(1) Annualized.
 
 

Non-Accrual Loans and Leases

                             
At At At At At Change from
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Mar. 31,
2015 2014 2014 2014 2014 2014 2014
Non-accrual loans and leases - rollforward:
Balance, beginning of period $ 216,734 $ 275,111 $ 260,294 $ 266,679 $ 277,022 $ (58,377 ) $ (60,288 )
Additions 51,647 44,626 83,597 61,242 54,432 7,021 (2,785 )
Charge-offs (8,921 ) (14,456 ) (24,430 ) (15,135 ) (15,323 ) 5,535 6,402
Transfers to other assets (16,781 ) (18,471 ) (17,404 ) (17,994 ) (15,609 ) 1,690 (1,172 )
Return to accrual status (7,668 ) (8,280 ) (12,966 ) (18,224 ) (16,334 ) 612 8,666
Payments received (10,974 ) (21,859 ) (13,459 ) (14,910 ) (17,925 ) 10,885 6,951
Sales (2,250 ) (40,354 ) (1,900 ) 38,104 (2,250 )
Other, net 356   417   (521 ) 536   416   (61 ) (60 )
Balance, end of period $ 222,143   $ 216,734   $ 275,111   $ 260,294   $ 266,679   $ 5,409   $ (44,536 )
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF CREDIT QUALITY DATA, CONTINUED
(Dollars in thousands)
(Unaudited)
 

Other Real Estate Owned

                             
Change from
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Mar. 31,
2015 2014 2014 2014 2014 2014 2014
Other real estate owned - rollforward:
Balance, beginning of period $ 65,650 $ 67,614 $ 65,080 $ 63,448 $ 68,874 $ (1,964 ) $ (3,224 )
Transferred in 15,513 18,220 14,854 15,751 14,160 (2,707 ) 1,353
Sales (15,399 ) (13,766 ) (11,943 ) (15,998 ) (17,526 ) (1,633 ) 2,127
Writedowns (3,424 ) (5,753 ) (2,750 ) (2,782 ) (3,147 ) 2,329 (277 )
Other, net 58   (665 ) 2,373   4,661   1,087   723   (1,029 )
Balance, end of period $ 62,398   $ 65,650   $ 67,614   $ 65,080   $ 63,448   $ (3,252 ) $ (1,050 )
 
 

Allowance for Loan and Lease Losses

                               
At March 31, At December 31, At March 31,
2015 2014 2014 Change from
% of % of % of Dec. 31, Mar. 31,
Balance Portfolio Balance Portfolio Balance Portfolio 2014 2014
Consumer real estate $ 80,292 1.43 % $ 85,361 1.50 % $ 169,367 2.79 % (7 ) bps (136 ) bps
Commercial 32,121 1.00 31,367 0.99 36,062 1.15 1 (15 )
Leasing and equipment finance 17,921 0.48 18,446 0.49 18,623 0.54 (1 ) (6 )
Inventory finance 12,409 0.53 10,020 0.53 10,309 0.49 4
Auto finance 20,426 0.95 18,230 0.95 12,062 0.86 9
Other 630   3.08 745   3.09 623   2.76 (1 ) 32
Total $ 163,799   0.96 $ 164,169   1.00 $ 247,046   1.52 (4 ) (56 )
 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Dollars in thousands)
(Unaudited)
                         
Three Months Ended March 31,
2015 2014
Average Yields and Average Yields and
Balance Interest(1) Rates(1)(2) Balance Interest(1) Rates(1)(2)
ASSETS:
Investments and other $ 665,606 $ 3,497 2.13 % $ 620,718 $ 3,985 2.60 %
Securities held to maturity 211,646 1,405 2.66 142,181 964 2.71
Securities available for sale(3) 474,697 3,080 2.60 467,827 3,163 2.70
Loans and leases held for sale 276,149 5,836 8.57 195,871 3,978 8.24
Loans and leases:
Consumer real estate:
Fixed-rate 2,912,535 43,360 6.03 3,498,832 48,532 5.62
Variable-rate 2,778,805   35,216   5.14 2,828,980   35,816   5.13
Total consumer real estate 5,691,340 78,576 5.60 6,327,812 84,348 5.41
Commercial:
Fixed-rate 1,273,806 15,730 5.01 1,559,991 19,496 5.07
Variable- and adjustable-rate 1,880,202   18,249   3.94 1,562,075   16,178   4.20
Total commercial 3,154,008 33,979 4.37 3,122,066 35,674 4.63
Leasing and equipment finance 3,729,481 43,485 4.66 3,434,691 40,779 4.75
Inventory finance 2,108,871 29,692 5.71 1,862,745 27,469 5.98
Auto finance 2,021,144 20,851 4.18 1,327,232 14,787 4.52
Other 11,616   213   7.44 13,273   242   7.41
Total loans and leases(4) 16,716,460   206,796   5.00 16,087,819   203,299   5.11
Total interest-earning assets 18,344,558 220,614 4.86 17,514,416 215,389 4.97
Other assets(5) 1,235,328   1,094,923  
Total assets $ 19,579,886   $ 18,609,339  
LIABILITIES AND EQUITY:
Non-interest bearing deposits:
Retail $ 1,646,769 $ 1,537,066
Small business 804,323 771,825
Commercial and custodial 489,248   386,927  
Total non-interest bearing deposits 2,940,340 2,695,818
Interest-bearing deposits:
Checking 2,378,761 151 0.03 2,343,095 261 0.05
Savings 5,143,295 1,101 0.09 6,120,155 2,529 0.17
Money market 2,149,340   3,567   0.67 819,312   575   0.28
Subtotal 9,671,396 4,819 0.20 9,282,562 3,365 0.15
Certificates of deposit 3,041,790   6,253   0.83 2,543,345   4,672   0.74
Total interest-bearing deposits 12,713,186   11,072   0.35 11,825,907   8,037   0.28
Total deposits 15,653,526   11,072   0.29 14,521,725   8,037   0.22
Borrowings:
Short-term borrowings 7,999 18 0.89 97,996 80 0.33
Long-term borrowings 1,178,962   5,284   1.80 1,494,095   5,236   1.41
Total borrowings 1,186,961   5,302   1.79 1,592,091   5,316   1.34
Total interest-bearing liabilities 13,900,147   16,374   0.48 13,417,998   13,353   0.40
Total deposits and borrowings