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Press Release

TCF Reports Quarterly Net Income of $60.4 Million, or 33 Cents Per Share

Company Release - 7/24/2017 8:00 AM ET

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

SECOND QUARTER OBSERVATIONS

  • Revenue of $341.8 million, up 3.3 percent from the second quarter of 2016
  • Net interest income of $227.2 million, up 6.7 percent from the second quarter of 2016
  • Net interest margin of 4.52 percent, up 17 basis points from the second quarter of 2016
  • Period-end loans and leases of $18.4 billion, up 5.1 percent from June 30, 2016
  • Net charge-offs as a percentage of average loans and leases of 0.28 percent, up 5 basis points from the second quarter of 2016
  • Non-accrual loans and leases of $129.3 million, down 33.9 percent from June 30, 2016
  • Average deposits of $17.3 billion, up 0.2 percent from the second quarter of 2016
  • Efficiency ratio of 68.19%, down 50 bps from the second quarter of 2016
  • Effective income tax rate of 28.9 percent, down 400 basis points from the second quarter of 2016
  • Earnings per share of 33 cents, up 6.5 percent from the second quarter of 2016
                                 
Summary of Financial Results                   Table 1
        Percent Change      
(Dollars in thousands, except per-share data) 2Q 1Q 2Q 2Q17 vs   2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
Net income attributable to TCF $ 60,432 $ 46,278 $ 57,694 30.6 % 4.7 % $ 106,710 $ 105,740 0.9 %
Net interest income 227,161 222,114 212,984 2.3 6.7 449,275 424,642 5.8
Diluted earnings per common share 0.33 0.25 0.31 32.0 6.5 0.58 0.57 1.8
 
Financial Ratios(1)
Return on average assets 1.17 % 0.90 % 1.14 % 1.03 % 1.05 %
Return on average common equity 9.96 7.64 10.09 8.82 9.28
Return on average tangible common equity(2) 11.15 8.55 11.38 9.87 10.49
Net interest margin 4.52 4.46 4.35 4.49 4.36
Net charge-offs as a percentage of average loans and leases 0.28 0.11 0.23 0.20 0.25
 
(1) Annualized.

(2) See "Reconciliation of GAAP to Non-GAAP Financial Measures" table.

 

TCF Financial Corporation ("TCF" or the "Company") (NYSE: TCF) today reported net income of $60.4 million for the second quarter of 2017, compared with $57.7 million for the second quarter of 2016 and $46.3 million for the first quarter of 2017. Diluted earnings per common share was 33 cents for the second quarter of 2017, compared with 31 cents for the second quarter of 2016 and 25 cents for the first quarter of 2017.

"TCF reported solid second quarter results driven by strong revenue and balance sheet growth and stable credit quality," said Craig R. Dahl, chairman and chief executive officer. "TCF’s strong growth in net interest income was a key driver in creating a more stable source of revenue. We were able to generate margin expansion on both a linked quarter and year-over-year basis primarily due to our asset sensitive balance sheet. In addition, a strong quarter of leasing and equipment finance revenue continues to demonstrate the strength of our diversified model. We also continue to make important investments to enhance our technology capabilities and drive efficiencies.

"TCF’s auto finance business is performing as expected following the announced strategic shift last quarter. During the first full quarter of implementation, the auto finance business saw reduced loan originations, increased held for investment loan yield and risk-adjusted yield, reduced reliance on gain on sale revenue and a more efficient operating structure. As the transition continues, credit performance remains within our expectations and the business remains on track to support the organization’s focus on driving profitable growth and increasing operating leverage moving forward."

               
Revenue
                                 
Total Revenue                

 

Table 2

Percent Change
(Dollars in thousands) 2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
Net interest income $ 227,161     $ 222,114     $ 212,984   2.3 % 6.7 % $ 449,275     $ 424,642   5.8 %
Non-interest income:
Fees and service charges 32,733 31,282 34,622 4.6 (5.5 ) 64,015 67,439 (5.1 )
Card revenue 14,154 13,150 14,083 7.6 0.5 27,304 27,446 (0.5 )
ATM revenue   5,061       4,675       5,288   8.3 (4.3 )   9,736       10,309   (5.6 )
Subtotal 51,948 49,107 53,993 5.8 (3.8 ) 101,055 105,194 (3.9 )
Gains on sales of auto loans, net 380 2,864 10,143 (86.7 ) (96.3 ) 3,244 22,063 (85.3 )
Gains on sales of consumer real estate loans, net 8,980 8,891 10,839 1.0 (17.2 ) 17,871 20,223 (11.6 )
Servicing fee income   10,730       11,651       9,502   (7.9 ) 12.9   22,381       18,385   21.7
Subtotal 20,090 23,406 30,484 (14.2 ) (34.1 ) 43,496 60,671 (28.3 )
Leasing and equipment finance 39,830 28,298 31,074 40.8 28.2 68,128 59,561 14.4
Other   2,795       2,703       2,405   3.4 16.2   5,498       5,248   4.8
Fees and other revenue 114,663 103,514 117,956 10.8 (2.8 ) 218,177 230,674 (5.4 )
Gains (losses) on securities, net                         (116 ) (100.0 )
Total non-interest income   114,663       103,514       117,956   10.8 (2.8 )   218,177       230,558   (5.4 )
Total revenue $ 341,824     $ 325,628     $ 330,940   5.0 3.3 $ 667,452     $ 655,200   1.9
 
Net interest margin(1) 4.52 % 4.46 % 4.35 % 4.49 % 4.36 %
Total non-interest income as a percentage of total revenue 33.5 31.8 35.6 32.7 35.2
 
(1) Annualized.
 

Net Interest Income

  • Net interest income for the second quarter of 2017 increased $14.2 million, or 6.7 percent, from the second quarter of 2016 and increased $5.0 million, or 2.3 percent, from the first quarter of 2017. The increases in net interest income were primarily due to increases in interest income on loans and leases, partially offset by decreases in interest income on loans held for sale.
  • Total interest income increased $14.5 million, or 6.2 percent, from the second quarter of 2016 and increased $6.2 million, or 2.6 percent, from the first quarter of 2017, primarily due to increased average yields on the variable-rate inventory finance loans, variable- and adjustable-rate consumer real estate and commercial loans and fixed-rate auto finance loans. In addition, the increase from the second quarter of 2016 was due to higher average balances in the commercial, leasing and equipment finance and inventory finance portfolios, partially offset by a lower average balance in the consumer real estate portfolio.
  • Net interest margin for the second quarter of 2017 was 4.52 percent, compared with 4.35 percent for the second quarter of 2016 and 4.46 percent for the first quarter of 2017. The increases from both periods were primarily due to higher average yields on the variable- and adjustable-rate loans due to interest rate increases.

Non-interest Income

  • TCF sold $48.0 million, $533.4 million and $250.6 million of auto loans during the second quarters of 2017 and 2016 and the first quarter of 2017, respectively, resulting in net gains in each respective period. The decreases from both periods were due to the strategic shift in auto finance.
  • TCF sold $273.4 million, $344.6 million and $379.4 million of consumer real estate loans during the second quarters of 2017 and 2016 and the first quarter of 2017, respectively, resulting in net gains in each respective period.
  • Servicing fee income was $10.7 million on $5.3 billion of average loans and leases serviced for others for the second quarter of 2017, compared with $9.5 million on $4.7 billion for the second quarter of 2016 and $11.7 million on $5.6 billion for the first quarter of 2017. The increase from the second quarter of 2016 was due to the cumulative effect of the increase in the portfolio of consumer real estate and auto finance loans sold with servicing retained by TCF. The decrease from the first quarter of 2017 was primarily due to the shift in auto finance, resulting in a decrease in the portfolio of auto finance loans sold with servicing retained by TCF.
  • Leasing and equipment finance non-interest income for the second quarter of 2017 increased $8.8 million, or 28.2 percent, from the second quarter of 2016 and increased $11.5 million, or 40.8 percent, from the first quarter of 2017 due to customer-driven events resulting in increases in sales-type and operating lease revenue.
       
Loans and Leases
                                 
Period-End and Average Loans and Leases                 Table 3
      Percent Change
(Dollars in thousands) 2Q 1Q 2Q 2Q17 vs   2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
Period-End:
Consumer real estate:
First mortgage lien $ 2,070,385 $ 2,166,691 $ 2,409,320 (4.4 )% (14.1 )%
Junior lien   2,701,592     2,494,696     2,677,522 8.3 0.9
Total consumer real estate 4,771,977 4,661,387 5,086,842 2.4 (6.2 )
Commercial 3,488,725 3,376,050 3,096,046 3.3 12.7
Leasing and equipment finance 4,333,735 4,276,008 4,120,359 1.4 5.2
Inventory finance 2,509,485 2,864,248 2,334,893 (12.4 ) 7.5
Auto finance 3,243,144 2,780,416 2,812,807 16.6 15.3
Other   19,459     16,785     20,890 15.9 (6.9 )
Total $ 18,366,525   $ 17,974,894   $ 17,471,837 2.2 5.1
 
Average:
Consumer real estate:
First mortgage lien $ 2,117,138 $ 2,237,801 $ 2,464,692 (5.4 )% (14.1 )% $ 2,177,136 $ 2,519,303 (13.6 )%
Junior lien   2,628,980     2,791,200     2,794,035 (5.8 ) (5.9 )   2,709,642     2,839,448 (4.6 )
Total consumer real estate 4,746,118 5,029,001 5,258,727 (5.6 ) (9.7 ) 4,886,778 5,358,751 (8.8 )
Commercial 3,417,052 3,302,891 3,109,946 3.5 9.9 3,360,287 3,134,023 7.2
Leasing and equipment finance 4,277,376 4,285,944 4,032,112 (0.2 ) 6.1 4,281,636 4,012,395 6.7
Inventory finance 2,723,340 2,696,787 2,564,648 1.0 6.2 2,710,137 2,499,091 8.4
Auto finance 3,149,974 2,714,862 2,751,679 16.0 14.5 2,933,620 2,727,779 7.5
Other   10,235     9,740     9,585 5.1 6.8   9,989     9,802 1.9
Total $ 18,324,095   $ 18,039,225   $ 17,726,697 1.6 3.4 $ 18,182,447   $ 17,741,841 2.5
                                                 
 
  • Period-end loans and leases were $18.4 billion at June 30, 2017, an increase of $0.9 billion, or 5.1 percent, from June 30, 2016 and an increase of $0.4 billion, or 2.2 percent, from March 31, 2017. Average loans and leases were $18.3 billion for the second quarter of 2017, an increase of $0.6 billion, or 3.4 percent, from the second quarter of 2016 and an increase of $0.3 billion, or 1.6 percent, from the first quarter of 2017.

    The increases from June 30, 2016 for period-end and average loans and leases were primarily due to increases in the auto finance and commercial portfolios, as well as increases in the leasing and equipment finance and inventory finance portfolios, partially offset by decreases in the consumer real estate portfolio. The increases in the auto finance portfolio were primarily due to the reclassification of approximately $345 million of loans from held for sale to held for investment during the second quarter of 2017. The increases in the commercial portfolio were primarily attributable to originations outpacing lower prepayments and pay-offs. The decreases in the consumer real estate portfolio were primarily due to decreases in the first mortgage lien portfolio due to run-off.

    The increase from March 31, 2017 for period-end loans and leases was primarily due to an increase in the auto finance portfolio due to the strategic shift and an increase in the consumer real estate junior lien portfolio, partially offset by a seasonal decrease in the inventory finance portfolio. The increase from the first quarter of 2017 for average loans and leases was primarily due to an increase in the auto finance portfolio, partially offset by a decrease in the consumer real estate portfolio.
  • Loan and lease originations were $4.1 billion for the second quarter of 2017, a decrease of $0.2 billion, or 4.8 percent, from the second quarter of 2016 and an increase of $0.1 billion, or 2.0 percent, from the first quarter of 2017. The decrease from the second quarter of 2016 was primarily due to decreased originations in auto finance, partially offset by higher inventory finance originations. The increase from the first quarter of 2017 was primarily due to increased originations in consumer real estate and leasing and equipment finance, partially offset by lower auto finance originations.
             
Credit Quality
                             
Credit Trends                           Table 4
Change
(Dollars in thousands) 2Q 1Q 4Q 3Q 2Q 2Q17 vs 2Q17 vs
2017   2017   2016   2016   2016   1Q17   2Q16
Over 60-day delinquencies as a percentage of period-end loans and leases(1) 0.11 % 0.09 % 0.12 % 0.12 % 0.12 % 2 bps (1 ) bps
Net charge-offs as a percentage of average loans and leases(2) 0.28 0.11 0.27 0.26 0.23 17 5
Non-accrual loans and leases and other real estate owned $ 158,000 $ 170,940 $ 228,242 $ 223,759 $ 232,334 (7.6 )% (32.0 )%
Provision for credit losses 19,446 12,193 19,888 13,894 13,250 59.5 46.8
 
(1) Excludes non-accrual loans and leases.
(2) Annualized.
 
  • The over 60-day delinquency rate, excluding non-accrual loans and leases, was 0.11 percent at June 30, 2017, down from 0.12 percent at June 30, 2016, and up from 0.09 percent at March 31, 2017. The decrease from June 30, 2016 was primarily driven by improved delinquencies in the commercial and consumer real estate first mortgage lien portfolios, partially offset by higher delinquencies in the auto finance portfolio. The increase from March 31, 2017 was primarily driven by higher delinquencies in the auto finance portfolio.
  • The net charge-off rate was 0.28 percent for the second quarter of 2017, up from 0.23 percent for the second quarter of 2016 and up from 0.11 percent for the first quarter of 2017. The increase from the second quarter of 2016 was primarily due to increased net charge-offs in the commercial and auto finance portfolios, partially offset by decreased net charge-offs in the consumer real estate first mortgage lien portfolio. The increase from the first quarter of 2017 was primarily due to an $8.7 million recovery of previously charged-off consumer real estate non-accrual loans that were sold in the first quarter of 2017, partially offset by decreased net charge-offs in the auto finance portfolio. Excluding the $8.7 million recovery from the consumer real estate non-accrual loan sale, the net charge-off rate was 0.31% for the first quarter of 2017.
  • Non-accrual loans and leases and other real estate owned were $158.0 million at June 30, 2017, a decrease of $74.3 million, or 32.0 percent, from June 30, 2016, and a decrease of $12.9 million, or 7.6 percent, from March 31, 2017. Non-accrual loans and leases were $129.3 million at June 30, 2017, a decrease of $66.3 million, or 33.9 percent, from June 30, 2016 and a decrease of $9.7 million, or 7.0 percent, from March 31, 2017. The decrease from June 30, 2016 was primarily due to a decrease in consumer real estate non-accrual loans driven by the sale of $49.4 million of non-accrual loans in the first quarter of 2017. The decrease from March 31, 2017 was primarily due to decreases in commercial, consumer real estate and inventory finance non-accrual loans. Other real estate owned was $28.7 million at June 30, 2017, a decrease of $8.1 million, or 21.9 percent, from June 30, 2016, and a decrease of $3.2 million, or 10.1 percent, from March 31, 2017. The decreases from both periods were primarily due to the sales of consumer real estate properties outpacing additions.
  • Provision for credit losses was $19.4 million for the second quarter of 2017, an increase of $6.2 million, or 46.8 percent, from the second quarter of 2016, and an increase of $7.3 million, or 59.5 percent, from the first quarter of 2017.

    The increase from the second quarter of 2016 was primarily due to increases in the provision for credit losses attributable to the auto finance and commercial portfolios, partially offset by decreases in the provision for credit losses attributable to the inventory finance and consumer real estate portfolios. The increase in the provision for credit losses attributable to the auto finance portfolio was primarily due to growth in the portfolio, increased net charge-offs and increased reserve requirements due to the reclassification of loans from held for sale to held for investment. The increase in the provision for credit losses attributable to the commercial portfolio was primarily due to increased net charge-offs related to the work-out activities of three loans transferred to non-accrual during the first quarter of 2017 and growth in the portfolio. The decrease in provision for credit losses attributable to the inventory finance portfolio was primarily due to improving credit quality and the decrease in provision for credit losses attributable to the consumer real estate portfolio was primarily due to a decrease in the loan balance and net charge-offs in the consumer real estate first mortgage lien portfolio.

    The increase from the first quarter of 2017 was primarily due to the recovery of $8.7 million in the first quarter of 2017 on previous charge-offs related to the consumer real estate non-accrual loans that were sold and an increase in the provision for credit losses in the second quarter of 2017 attributable to the reclassification of auto finance loans from held for sale to held for investment, partially offset by a decrease in the provision for credit losses attributable to the inventory finance portfolio due to a decrease in the portfolio.
               
Deposits
                                 
Average Deposits                               Table 5
Percent Change
(Dollars in thousands) 2Q 1Q 2Q 2Q17 vs 2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Checking $ 6,012,235 $ 5,914,203 $ 5,727,147 1.7 % 5.0 % $ 5,963,488 $ 5,660,223 5.4 %
Savings 4,822,338 4,773,788 4,690,376 1.0 2.8 4,798,198 4,702,072 2.0
Money market 2,221,807 2,385,353 2,557,897 (6.9 ) (13.1 ) 2,303,129 2,515,324 (8.4 )
Certificates of deposit   4,266,488       4,033,143       4,308,367   5.8 (1.0 )   4,150,460       4,206,659   (1.3 )
Total average deposits $ 17,322,868     $ 17,106,487     $ 17,283,787   1.3 0.2 $ 17,215,275     $ 17,084,278   0.8
 
Average interest rate on deposits(1) 0.33 % 0.33 % 0.37 % 0.33 % 0.36 %
 
(1) Annualized.
 
  • Total average deposits for the second quarter of 2017 increased $39.1 million, or 0.2 percent, from the second quarter of 2016 and increased $216.4 million or 1.3 percent, from the first quarter of 2017. The increase from the second quarter of 2016 was primarily due to growth in average checking and savings balances, partially offset by a decrease in money market balances. The increase from the first quarter of 2017 was primarily due to growth in average certificates of deposit, partially offset by a decrease in money market balances.
  • The average interest rate on deposits for the second quarter of 2017 was 0.33 percent, down 4 basis points from the second quarter of 2016 and consistent with the first quarter of 2017. The decrease from the second quarter of 2016 was primarily due to decreased average interest rates on money market balances.
 
Non-interest Expense
                                       
Non-interest Expense                                   Table 6
        Change      
(Dollars in thousands) 2Q 1Q 2Q 2Q17 vs   2Q17 vs YTD YTD Percent
2017   2017   2016   1Q17   2Q16   2017   2016   Change
 
Compensation and employee benefits $ 115,918 $ 124,477 $ 118,093 (6.9 )% (1.8 )% $ 240,395 $ 242,566 (0.9 )%
Occupancy and equipment 38,965 39,600 36,884 (1.6 ) 5.6 78,565 73,892 6.3
Other   61,075       64,037       59,416   (4.6 ) 2.8   125,112       112,764   11.0
Subtotal 215,958 228,114 214,393 (5.3 ) 0.7 444,072 429,222 3.5
Operating lease depreciation 12,466 11,242 9,842 10.9 26.7 23,708 19,415 22.1
Foreclosed real estate and repossessed assets, net 4,639 4,549 3,135 2.0 48.0 9,188 7,055 30.2
Other credit costs, net   24       101       (54 ) (76.2 ) N.M.   125       (42 ) N.M.
Total non-interest expense $ 233,087     $ 244,006     $ 227,316   (4.5 ) 2.5 $ 477,093     $ 455,650   4.7
 
Efficiency ratio 68.19 % 74.93 % 68.69 %

(674

)bps

(50

)bps

71.48 % 69.54 %

194

bps

 
N.M. Not Meaningful.
 
  • Compensation and employee benefits expense decreased $2.2 million, or 1.8 percent, from the second quarter of 2016 and decreased $8.6 million, or 6.9 percent, from the first quarter of 2017. The decrease from the second quarter of 2016 was primarily due to reduced headcount in auto finance, partially offset by higher enterprise services contract labor utilization. The decrease from the first quarter of 2017 was primarily due to seasonality of payroll taxes and reduced headcount in auto finance.
  • Other non-interest expense increased $1.7 million, or 2.8 percent, from the second quarter of 2016 and decreased $3.0 million, or 4.6 percent, from the first quarter of 2017. The increase from the second quarter of 2016 was primarily due to higher professional fees related to strategic investments in technology capabilities, as well as advertising and marketing expenses, partially offset by $2.9 million of branch realignment expense incurred in the second quarter of 2016. The decrease from the first quarter of 2017 was primarily due to lower severance expense in the auto finance business.
  • Net expenses related to foreclosed real estate and repossessed assets increased $1.5 million, or 48.0 percent, from the second quarter of 2016 and were consistent with the first quarter of 2017. The increase from the second quarter of 2016 was primarily due to lower gains on sales of consumer real estate properties and higher repossessed assets expense attributable to auto finance, partially offset by lower operating costs.

Income Tax Expense

  • The Company’s effective income tax rate was 28.9 percent for the second quarter of 2017, compared with 32.9 percent for the second quarter of 2016 and 30.0 percent for the first quarter of 2017. The effective income tax rate for the second quarter of 2017 was impacted by a $3.4 million favorable state tax settlement and $0.7 million of tax benefits related to stock compensation. The effective income tax rate for the first quarter of 2017 was impacted by $2.0 million of tax benefits related to stock compensation.
   
Capital
         
Capital Information       Table 7
At Jun. 30, At Dec. 31,
(Dollars in thousands, except per-share data) 2017 2016
Total equity $ 2,549,831 $ 2,444,645
Book value per common share 13.20 12.66
Tangible book value per common share(1) 11.74 11.33
Common equity to assets 10.26 % 10.09 %
Tangible common equity to tangible assets(1) 9.24 9.13
Capital accumulation rate(2) 6.70 8.59
 
At Jun. 30, At Dec. 31,
Regulatory Capital:

2017(3)

2016
Common equity Tier 1 capital $ 2,036,369 $ 1,970,323
Tier 1 capital 2,317,915 2,248,221
Total capital 2,683,319 2,635,925
 
Regulatory Capital Ratios:
Common equity Tier 1 capital ratio 10.24 % 10.24 %
Tier 1 risk-based capital ratio 11.66 11.68
Total risk-based capital ratio 13.49 13.69
Tier 1 leverage ratio 10.76 10.73
 
(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.
(3) The regulatory capital ratios for 2Q 2017 are preliminary pending completion and filing of the Company's regulatory reports.
 
  • TCF maintained strong capital ratios as the Company accumulated capital through earnings.
  • On July 19, 2017, TCF's Board of Directors declared a regular quarterly cash dividend of 7.5 cents per common share, payable on September 1, 2017, to stockholders of record at the close of business on August 15, 2017. TCF also declared dividends on the 7.50% Series A and 6.45% Series B Non-Cumulative Perpetual Preferred Stock, both payable on September 1, 2017, to stockholders of record at the close of business on August 15, 2017.

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 24, 2017 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 on 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, 2017, TCF had $22.1 billion in total assets and 321 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, 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 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, targets, 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, 2016 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; 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 ("CFPB") 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, or new restrictions on loan and lease 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; governmental regulations or judicial actions affecting the security interests of creditors; deficiencies in TCF's compliance programs, including under the Bank Secrecy Act in past or future periods, which may result in regulatory enforcement action including monetary penalties; increased health care costs including those resulting from 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 including those 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 either of the primary supermarket chains in which TCF maintains supermarket branches; costs related to closing underperforming branches; inability to timely close underperforming branches due to long-term lease obligations; slower than anticipated growth in existing or acquired businesses; inability to successfully execute on TCF's growth strategy through acquisitions or expanding existing business relationships; failure to expand or diversify TCF's balance sheet through new or expanded programs or opportunities; 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, such as by failing to develop and maintain technology necessary to satisfy customer demands, costs and possible disruptions related to upgrading systems; the failure to attract and retain key employees.

Litigation Risks. Results of litigation or government enforcement actions such as TCF's pending litigation with the CFPB and related matters, including class action litigation or enforcement actions concerning TCF's lending or deposit activities, including account opening/origination, servicing practices, fees or charges, employment practices, or checking account overdraft program "opt in" requirements; possible increases in indemnification obligations for certain litigation against Visa U.S.A.

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 June 30, Change
2017 2016 $ %
Interest income:
Loans and leases $ 234,092 $ 214,128 $ 19,964 9.3 %
Securities available for sale 8,052 6,396 1,656 25.9
Securities held to maturity 1,035 1,116 (81 ) (7.3 )
Loans held for sale and other   5,338   12,364     (7,026 ) (56.8 )
Total interest income   248,517   234,004     14,513   6.2
Interest expense:
Deposits 14,436 15,893 (1,457 ) (9.2 )
Borrowings   6,920   5,127     1,793   35.0
Total interest expense   21,356   21,020     336   1.6
Net interest income 227,161 212,984 14,177 6.7
Provision for credit losses   19,446   13,250     6,196   46.8
Net interest income after provision for credit losses   207,715   199,734     7,981   4.0
Non-interest income:
Fees and service charges 32,733 34,622 (1,889 ) (5.5 )
Card revenue 14,154 14,083 71 0.5
ATM revenue   5,061   5,288     (227 ) (4.3 )
Subtotal 51,948 53,993 (2,045 ) (3.8 )
Gains on sales of auto loans, net 380 10,143 (9,763 ) (96.3 )
Gains on sales of consumer real estate loans, net 8,980 10,839 (1,859 ) (17.2 )
Servicing fee income   10,730   9,502     1,228   12.9
Subtotal 20,090 30,484

  (10,394

)

     (34.1

)
Leasing and equipment finance 39,830 31,074 8,756 28.2
Other   2,795   2,405     390   16.2
Fees and other revenue 114,663 117,956 (3,293 ) (2.8 )
Gains (losses) on securities, net          
Total non-interest income   114,663   117,956     (3,293 ) (2.8 )
Non-interest expense:
Compensation and employee benefits 115,918 118,093 (2,175 ) (1.8 )
Occupancy and equipment 38,965 36,884 2,081 5.6
Other   61,075   59,416     1,659   2.8
Subtotal 215,958 214,393 1,565 0.7
Operating lease depreciation 12,466 9,842 2,624 26.7
Foreclosed real estate and repossessed assets, net 4,639 3,135 1,504 48.0
Other credit costs, net   24   (54 )   78   N.M.
Total non-interest expense   233,087   227,316     5,771   2.5
Income before income tax expense 89,291 90,374 (1,083 ) (1.2 )
Income tax expense   25,794   29,706     (3,912 ) (13.2 )
Income after income tax expense 63,497 60,668 2,829 4.7
Income attributable to non-controlling interest   3,065   2,974     91   3.1
Net income attributable to TCF Financial Corporation 60,432 57,694 2,738 4.7
Preferred stock dividends   4,847   4,847      
Net income available to common stockholders $ 55,585 $ 52,847   $ 2,738   5.2
 
Earnings per common share:
Basic $ 0.33 $ 0.32 $ 0.01 3.1 %
Diluted 0.33 0.31 0.02 6.5
 
Dividends declared per common share $ 0.075 $ 0.075 $ %
 

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

Basic 168,594 167,334 1,260 0.8 %
Diluted 168,857 167,849 1,008 0.6
 

N.M. Not Meaningful.

 
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-share data)
(Unaudited)
       
Six Months Ended June 30, Change
2017 2016 $ %
Interest income:
Loans and leases $ 453,640 $ 428,933 $ 24,707 5.8 %
Securities available for sale 16,032 11,894 4,138 34.8
Securities held to maturity 2,315 2,435 (120 ) (4.9 )
Loans held for sale and other   18,837   23,084     (4,247 ) (18.4 )
Total interest income   490,824   466,346     24,478   5.2
Interest expense:
Deposits 28,151 30,884 (2,733 ) (8.8 )
Borrowings   13,398   10,820     2,578   23.8
Total interest expense   41,549   41,704     (155 ) (0.4 )
Net interest income 449,275 424,642 24,633 5.8
Provision for credit losses   31,639   32,092     (453 ) (1.4 )
Net interest income after provision for credit losses   417,636   392,550     25,086   6.4
Non-interest income:
Fees and service charges 64,015 67,439 (3,424 ) (5.1 )
Card revenue 27,304 27,446 (142 ) (0.5 )
ATM revenue   9,736   10,309     (573 ) (5.6 )
Subtotal 101,055 105,194 (4,139 ) (3.9 )
Gains on sales of auto loans, net 3,244 22,063

  (18,819

) (85.3 )
Gains on sales of consumer real estate loans, net 17,871 20,223 (2,352 ) (11.6 )
Servicing fee income   22,381   18,385     3,996   21.7
Subtotal 43,496 60,671 (17,175 ) (28.3 )
Leasing and equipment finance 68,128 59,561 8,567 14.4
Other   5,498   5,248     250   4.8
Fees and other revenue 218,177 230,674 (12,497 ) (5.4 )
Gains (losses) on securities, net     (116 )   116  

    (100.0

)
Total non-interest income   218,177   230,558     (12,381 ) (5.4 )
Non-interest expense:
Compensation and employee benefits 240,395 242,566 (2,171 ) (0.9 )
Occupancy and equipment 78,565 73,892 4,673 6.3
Other   125,112   112,764     12,348   11.0
Subtotal 444,072 429,222 14,850 3.5
Operating lease depreciation 23,708 19,415 4,293 22.1
Foreclosed real estate and repossessed assets, net 9,188 7,055 2,133 30.2
Other credit costs, net   125   (42 )   167   N.M.
Total non-interest expense   477,093   455,650     21,443   4.7
Income before income tax expense 158,720 167,458 (8,738 ) (5.2 )
Income tax expense   46,637   56,509     (9,872 ) (17.5 )
Income after income tax expense 112,083 110,949 1,134 1.0
Income attributable to non-controlling interest   5,373   5,209     164   3.1
Net income attributable to TCF Financial Corporation 106,710 105,740 970 0.9
Preferred stock dividends   9,694   9,694      
Net income available to common stockholders $ 97,016 $ 96,046   $ 970   1.0
 
Earnings per common share:
Basic $ 0.58 $ 0.57 $ 0.01 1.8 %
Diluted 0.58