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TCF Reports 62nd Consecutive Quarter of Net Income – Earns $36.9 Million, $.26 Per Share

Company Release - 10/21/2010 8:00 AM ET

THIRD QUARTER HIGHLIGHTS

  • Diluted earnings per common share of 26 cents
  • Net income of $36.9 million, up 111.4 percent
  • Total revenue increased by $22.2 million, or 7.7 percent
  • Net interest margin of 4.12 percent, up from 3.92 percent
  • Announced quarterly cash dividend of five cents per common share, payable November 30, 2010

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

Earnings Summary   Table 1
($ in thousands, except per-share data)     Percent Change  
 

3Q
2010

 

2Q
2010

 

3Q
2009

 

3Q10 vs
2Q10

 

3Q10 vs
3Q09

 

YTD
2010

 

YTD
2009

 

Percent
Change

Net income $ 36,893 $ 45,025   $ 17,451

(18.1

)

%

  111.4 % $ 115,839   $ 67,641   71.3 %
Diluted earnings per common share (1) .26 .32 .14

(18.8

)

 

85.7 .84 .39 115.4
 

Financial Ratios (2)

Return on average assets .84 % 1.02 % .39 % .87 % .52 %
Return on average common equity (1) 9.95 12.71 6.03 11.11 5.73
Net interest margin 4.12 4.18 3.92 4.17 3.80
Net charge-offs as a percentage of average loans and leases 1.58 1.30 1.52 1.37 1.33
 
(1) Includes a non-cash deemed preferred stock dividend of $12,025 recorded in the nine months ended September 30, 2009. Excluding this amount, diluted earnings per common share was $.48 and the return on average common equity was 7.13% for the nine months ended September 30, 2009.
(2) Annualized.
 

TCF Financial Corporation (“TCF”) (NYSE:TCB) today reported diluted earnings per common share of 26 cents for the third quarter of 2010, compared with 14 cents in the third quarter of 2009, an increase of 85.7 percent. Net income for the third quarter of 2010 was $36.9 million, compared with $17.5 million in the third quarter of 2009, an increase of 111.4 percent.

Diluted earnings per common share for the first nine months of 2010 was 84 cents, compared with 39 cents for the same 2009 period, an increase of 115.4 percent. Net income for the first nine months of 2010 was $115.8 million, compared with $67.6 million for the same 2009 period, an increase of 71.3 percent.

TCF declared a quarterly cash dividend of five cents per common share payable on November 30, 2010 to stockholders of record at the close of business on October 29, 2010.

Chairman’s Statement

“TCF’s long-term policy of secured lending to qualified customers, funded by low-cost core deposits, has continued to pay off with TCF reporting its 62nd consecutive profitable quarter,” said William A. Cooper, TCF Chairman and CEO. “While there are still storm clouds on the horizon with a slow economic recovery and increased regulatory burden, we continue to stay the course that has worked well for us in the past.”

Cooper adds, “On October 12, 2010, TCF filed a lawsuit challenging the constitutionality of the Durbin Amendment of the Dodd-Frank financial reform bill, which limits the fees that debit card issuers like TCF may receive for this product. After lengthy review by TCF and its counsel, we believe the Durbin Amendment is both unconstitutional and unfair. The amendment mandates a fee charged in the free market that denies TCF and similarly situated banks a reasonable rate of return on investment. In addition, the amendment affects only one percent of banks in the country, giving unaffected banks—those 99 percent of the nation’s banks—an unfair competitive advantage. We are confident the courts will find the Durbin Amendment unconstitutional and we will win this case.”

Total Revenue   Table 2
  Percent Change        
($ in thousands)  

3Q
2010

 

2Q
2010

 

3Q
2009

 

3Q10 vs
2Q10

   

3Q10 vs
3Q09

   

YTD
2010

 

YTD
2009

 

Percent
Change

Net interest income $ 173,755     $ 176,499     $ 161,489   (1.6 )%   7.6 % $ 524,916     $ 463,365   13.3 %
Fees and other revenue:    
Fees and service charges 67,684 77,845 77,433 (13.1 ) (12.6 ) 211,701 212,033 (.2 )
Card revenue 27,779 28,591 26,393 (2.8 ) 5.3 83,442 77,957 7.0
ATM revenue   7,985       7,844       7,861   1.8 1.6   22,851       23,432   (2.5 )
Total banking fees 103,448 114,280 111,687 (9.5 ) (7.4 ) 317,994 313,422 1.5

Leasing and equipment

finance
24,912 20,528 15,173 21.4 64.2 65,792 44,705 47.2
Other   1,077       1,235       1,197   (12.8 ) (10.0 )   4,767       2,475   92.6
Total fees and other revenue 129,437 136,043 128,057 (4.9 ) 1.1 388,553 360,602 7.8
Gains (losses) on securities, net   8,505       (137 )     -   N.M. N.M.   7,938       22,104   (64.1 )
Total non-interest income   137,942       135,906       128,057   1.5 7.7   396,491       382,706   3.6
Total revenue $ 311,697     $ 312,405     $ 289,546   (.2 ) 7.7 $ 921,407     $ 846,071   8.9
 
Net interest margin(1) 4.12 % 4.18 % 3.92 % 4.17 % 3.80 %

Fees and other revenue as a % of total revenue

41.53 43.55 44.23 42.17 42.62
 
N.M. = Not meaningful.
(1) Annualized.                                    
 

Net Interest Income

  • Net interest income for the third quarter of 2010 was $173.8 million, up $12.3 million, or 7.6 percent, compared with the third quarter of 2009 and down $2.7 million, or 1.6 percent, compared with the second quarter of 2010. The increase in net interest income from the third quarter of 2009 was primarily due to decreased rates paid on deposits and growth in loans and leases, partially offset by increased levels of non-accrual and restructured loans and leases. The decrease from the second quarter of 2010 was primarily due to decreased yields on wholesale banking balances, which includes commercial banking, leasing and equipment finance and inventory finance loans and leases, change in the mix of consumer loans with lower yielding variable-rate loans replacing higher-yielding fixed-rate loans, a decrease in the yield of the investment portfolio due to a change in the mix, and a higher average balance of non-accrual loans, partially offset by lower average costs of deposits.
  • Net interest margin in the third quarter of 2010 was 4.12 percent, compared with 3.92 percent in the third quarter of 2009 and 4.18 percent in the second quarter of 2010. The increase in net interest margin from the third quarter of 2009 was primarily due to lower average rates on deposits, partially offset by lower yields on new loan and lease production and the impact of higher balances of non-accrual loans and leases. The decrease in net interest margin from the second quarter of 2010 was primarily due to decreased yields on wholesale banking balances and variable-rate consumer real estate loans and changes in the earning asset mix, partially offset by lower average rates on deposits. Since the end of 2009, when TCF's balance sheet was 6.6 percent liability sensitive, TCF has been repositioning its balance sheet for an eventual increase in interest rates. While this has negatively impacted the net interest margin rate in the short term, the balance sheet has shifted to an asset sensitive position of 2 percent as of September 30, 2010.

Non-interest Income

  • Banking fees and service charges in the third quarter of 2010 were $67.7 million, down $9.7 million, or 12.6 percent, from the third quarter of 2009 and down $10.2 million, or 13.1 percent, from the second quarter of 2010. The decrease from the third quarter of 2009 was primarily due to changes in customer banking and spending behavior resulting in less fee income. Additionally, the favorable impact of the new monthly maintenance fee income was largely offset by the impact of recent opt-out regulations. The decrease from the second quarter of 2010 was primarily due to implementation of the new Federal Reserve rule and a decrease in monthly service charges.
  • Card revenues in the third quarter of 2010 were $27.8 million, up $1.4 million, or 5.3 percent, from the third quarter of 2009 and down $812 thousand, or 2.8 percent from the second quarter of 2010. The increase from the third quarter of 2009 was primarily the result of an increase in average spending per active account and a small increase in interchange rates, partially offset by a decrease in active accounts. The decrease from the second quarter of 2010 was due mainly to a decrease in active accounts, partially offset by an increase in average spending per active account and a small increase in interchange rates.
  • Leasing and equipment finance revenues in the third quarter of 2010 were $24.9 million, up $9.7 million, or 64.2 percent, from the third quarter of 2009 and up $4.4 million, or 21.4 percent, from the second quarter of 2010. The increase from the third quarter of 2009 was primarily due to increased operating lease revenue which was partially offset by an increase in operating lease depreciation. These increases in operating leases were primarily due to the full quarter impact of the acquisition of Fidelity National Capital, Inc., which occurred during the third quarter of 2009. The increase in leasing revenues from the second quarter of 2010 was primarily due to increased sales-type lease activity which is based on customer-driven factors not within TCF’s control.

Loans and Leases

Average Loans and Leases   Table 3
        Percent Change      
($ in thousands)

3Q
2010

 

2Q
2010

 

3Q
2009

 

3Q10 vs
2Q10

 

3Q10 vs
3Q09

   

YTD
2010

 

YTD
2009

 

Percent
Change

 
Consumer real estate  
First mortgage lien $ 4,935,583 $ 4,930,801 $ 4,939,529 .1 % (.1 )% $ 4,937,578 $ 4,924,902 .3 %
Junior lien   2,297,433     2,303,400     2,329,096 (.3 ) (1.4 )   2,304,335     2,361,140 (2.4 )
Total 7,233,016 7,234,201 7,268,625 - (.5 ) 7,241,913 7,286,042 (.6 )
Consumer other   25,130     27,584     35,015 (8.9 ) (28.2 )   27,687     36,920 (25.0 )
Total consumer 7,258,146 7,261,785 7,303,640 (.1 ) (.6 ) 7,269,600 7,322,962 (.7 )
Commercial real estate 3,327,417 3,322,986 3,193,686 .1 4.2 3,307,932 3,101,459 6.7
Commercial business   346,431     398,829     477,041 (13.1 ) (27.4 )   391,263     486,680 (19.6 )
Total commercial 3,673,848 3,721,815 3,670,727 (1.3 ) .1 3,699,195 3,588,139 3.1

Leasing and equipment finance

3,002,714 3,021,532 2,811,165 (.6 ) 6.8 3,022,487 2,751,935 9.8
Inventory finance   655,485     692,816     185,914 (5.4 ) N.M.   634,182     111,479 N.M.
Total $ 14,590,193   $ 14,697,948   $ 13,971,446 (.7 ) 4.4 $ 14,625,464   $ 13,774,515 6.2
 
N.M. = Not meaningful.                    
 
  • Average consumer real estate loan balances decreased $35.6 million, or .5 percent, from the third quarter of 2009 and were essentially flat with the second quarter of 2010. The decrease from the third quarter of 2009 reflects less consumer demand for financing due in part to declines in home values and reductions in spending in the continued weakened economy and a decrease in the average loan balances in Michigan of $88.7 million.
  • Variable-rate consumer real estate loans increased $339.2 million from September 30, 2009 and $131.8 million from June 30, 2010, while fixed-rate consumer real estate loans decreased $374.8 million from September 30, 2009 and $133 million from June 30, 2010. Variable-rate loans comprised 31.6 percent of total consumer real estate loans at September 30, 2010, up from 26 percent at September 30, 2009 and 29.8 percent at June 30, 2010.
  • TCF is in a first lien position on 74 percent of its consumer real estate loan portfolio as of September 30, 2010.
  • Average commercial loan balances increased $3.1 million, or .1 percent, from the third quarter of 2009 and decreased $48 million, or 1.3 percent, from the second quarter of 2010. The decrease from the second quarter of 2010 is due mainly to a decrease in average loan balances in Michigan of $14.5 million and a decrease in loan production caused by the continued weakened economy.
  • Average leasing and equipment finance balances increased $191.5 million, or 6.8 percent, from the third quarter of 2009 and were essentially flat with the second quarter of 2010. TCF’s acquisition of Fidelity National Capital, Inc., which occurred in the third quarter of 2009, contributed $205.2 million to the increase in year−over−year average balances. TCF Equipment Finance completed a portfolio acquisition of $186.8 million of middle market leases towards the end of the third quarter of 2010 which will increase average leasing and equipment finance balances in the fourth quarter of 2010.
  • Average inventory finance loans increased $469.6 million from the third quarter of 2009 and decreased $37.3 million, or 5.4 percent, from the second quarter of 2010. The increase from the third quarter of 2009 was primarily due to the impact of lawn and garden programs added in the fourth quarter of 2009 and TCF’s entrance into the power sports industry in the third quarter of 2010. The decrease from the second quarter of 2010 was primarily due to a seasonal decline in receivables in the lawn and garden programs, partially offset by the impact of power sports programs added in the third quarter of 2010. TCF Inventory Finance entered into an agreement with Arctic Cat Sales Inc. in the third quarter of 2010 which led to the acquisition of $125.8 million in loans towards the end of the third quarter of 2010. This acquisition will increase average inventory finance balances in the fourth quarter of 2010.

Securities Available for Sale

Average Securities Available for Sale   Table 4
        Yield       Yield
($ in thousands)

3Q
2010

 

2Q
2010

 

3Q
2009

 

3Q10

  3Q09  

YTD
2010

 

YTD
2009

 

YTD
2010

 

YTD
2009

U.S. Government sponsored entities:    
Mortgage-backed securities $ 1,796,348 $ 1,860,233 $ 1,432,670 4.43 % 4.80 % $ 1,846,895 $ 1,695,377 4.50 % 4.97 %
Debentures - - 600,098 - 2.19 - 381,022 - 2.16
U.S. Treasury Bills 69,705 14,167 - .13 - 28,212 - .14 -
Other securities   3,473     4,358     489 .57 4.91   4,306     497 .50 5.37
Total $ 1,869,526   $ 1,878,758   $ 2,033,257 4.26 4.03 $ 1,879,413   $ 2,076,896 4.43 4.45
                                                       
 
  • At September 30, 2010, the unrealized gains in the available for sale security portfolio were $63.5 million.
  • During the third quarter of 2010, $275.1 million of available for sale securities were sold and a $9.6 million gain was recognized. In addition, an impairment charge of $1 million was recorded on other securities.

Deposits

Average Deposits   Table 5
        Percent Change      
($ in thousands)

3Q
2010

 

2Q
2010

 

3Q
2009

 

3Q10 vs
2Q10

 

3Q10 vs
3Q09

 

YTD
2010

 

YTD
2009

 

Percent
Change

 
Checking $ 4,341,803 $ 4,529,356 $ 4,031,486 (4.1 )% 7.7 % $ 4,425,754 $ 4,012,917 10.3 %
Savings 5,446,852 5,494,723 5,089,783 (.9 ) 7.0 5,435,254 4,586,213 18.5
Money market   654,030       660,654       723,098   (1.0 ) (9.6 )   661,035       686,830   (3.8 )
Subtotal 10,442,685 10,684,733 9,844,367 (2.3 ) 6.1 10,522,043 9,285,960 13.3
Certificates   1,006,685       1,044,008       1,757,884   (3.6 ) (42.7 )   1,058,840       2,100,342   (49.6 )
Total deposits $ 11,449,370     $ 11,728,741     $ 11,602,251   (2.4 ) (1.3 ) $ 11,580,883     $ 11,386,302   1.7
 
Average interest rate on deposits     .48 %     .56 %     .94 %             .55 %     1.19 %    
 
  • Total average deposits in the third quarter of 2010 were $11.4 billion, down $152.9 million, or 1.3 percent, from the third quarter of 2009 and down $279.4 million, or 2.4 percent, from the second quarter of 2010. The decrease from the third quarter of 2009 was primarily due to a $751.2 million decline in average certificates of deposits resulting from pricing strategies to reduce higher cost funds, partially offset by a $667.4 million growth in average checking and savings balances. The decrease from the second quarter of 2010 reflects our current deposit gathering strategies and related pricing and marketing efforts in light of the recent decrease in total assets.
  • The average interest cost of deposits in the third quarter of 2010 was .48 percent, down 46 basis points from the third quarter of 2009 and down 8 basis points from the second quarter of 2010. The average interest cost of deposits declined for both periods due to pricing strategies on certain deposit products and mix changes. The weighted average interest cost of deposits on September 30, 2010 was .48 percent, compared with .55 percent on June 30, 2010.

Non-interest Expense

Non-interest Expense   Table 6
        Percent Change        
($ in thousands)

3Q
2010

 

2Q
2010

 

3Q
2009

 

3Q10 vs
2Q10

   

3Q10 vs
3Q09

   

YTD
2010

 

YTD
2009

 

Percent
Change

Compensation and  
employee benefits $ 90,282 $ 86,983 $ 90,680 3.8 % (.4 )% $ 265,490 $ 267,622 (.8 )%
Occupancy and equipment 32,091 31,311 31,619 2.5 1.5 95,583 95,193 .4
FDIC premiums 5,486 5,219 5,085 5.1 7.9 16,186 13,821 17.1
Advertising and marketing 3,354 3,734 4,766 (10.2 ) (29.6 ) 9,908 13,345 (25.8 )
Deposit account premiums 3,340 5,478 7,472 (39.0 ) (55.3 ) 15,616 21,335 (26.8 )
Other   39,481       35,053     34,736 12.6 13.7   108,944     102,625 6.2
Core operating expenses 174,034 167,778 174,358 3.7 (.2 ) 511,727 513,941 (.4 )
Operating lease depreciation 8,965 9,812 3,734 (8.6 ) 140.1 28,817 11,618 148.0

Foreclosed real estate and repossessed assets, net

9,588 8,756 8,461 9.5 13.3 27,604 19,349 42.7
Other credit costs, net (834 ) 2,723 3,714 N.M. N.M. 4,476 7,751 (42.3 )
FDIC special assessment   -       -     - - -   -     8,362 (100.0 )
Total non-interest expense $ 191,753     $ 189,069   $ 190,267 1.4 .8 $ 572,624   $ 561,021 2.1
N.M. = Not meaningful.                                    
 
  • Core operating expenses were flat with the third quarter of 2009 and increased $6.3 million, or 3.7 percent, from the second quarter of 2010. The increase from the second quarter of 2010 was primarily attributable to increased compensation and employee benefits and increased regulatory, legal and compliance-related costs.
  • Compensation and employee benefits costs were $90.3 million for the third quarter of 2010, essentially flat with the third quarter of 2009 and up $3.3 million, or 3.8 percent, from the second quarter of 2010. Compensation and benefits expenses were flat from the third quarter of 2009 primarily due to headcount reductions in Branch Banking and decreased employee medical plan expenses, offset by increased costs in the Specialty Finance businesses as a result of expansion and growth. The increase from the second quarter of 2010 was primarily due to an increase in medical plan expenses.
  • Deposit account premiums were $3.3 million for the third quarter of 2010, down $4.1 million, or 55.3 percent, from the third quarter of 2009 and down $2.1 million, or 39 percent, from the second quarter of 2010. The decreases in deposit account premiums were due to revised marketing strategies and lower checking account production.
  • Other non-interest expense was $39.5 million for the third quarter of 2010, up $4.7 million, or 13.7 percent, from the third quarter of 2009 and up $4.4 million, or 12.6 percent, from the second quarter of 2010. The increases were primarily attributable to increased consulting costs related to the administration of the company’s Bank Secrecy Act program and, to a lesser extent, other legal costs including the challenge of the Durbin Amendment of the Dodd-Frank Act.
  • Foreclosed real estate and repossessed asset expenses were $9.6 million for the third quarter of 2010, up $1.1 million, or 13.3 percent, from the third quarter of 2009 and up $832 thousand, or 9.5 percent, from the second quarter of 2010. The increases were primarily due to an increase in the number of consumer real estate properties owned and the associated expenses.
  • Other credit costs, net provided a benefit of $834 thousand during the third quarter of 2010, compared with net expenses of $3.7 million during the third quarter of 2009 and $2.7 million during the second quarter of 2010. The current quarter’s benefit was primarily attributable to a decrease in reserves on commercial letters of credit due to the elimination of an exposure on an impaired loan in Michigan and lower premium costs related to consumer real estate loan pool insurance.

Credit Quality

Credit Quality Summary       Table 7
        Percent Change        
($ in thousands)

3Q
2010

   

2Q
2010

   

3Q
2009

   

3Q10 vs
2Q10

   

3Q10 vs
3Q09

   

YTD
2010

   

YTD
2009

   

Percent
Change

Allowance for Loan and Lease Losses  
Balance at beginning of period $ 251,643 $ 250,430 $ 193,445 .5 % 30.1 % $ 244,471 $ 172,442 41.8 %
Charge-offs (62,945 ) (53,654 ) (57,214 ) 17.3 10.0 (167,150 ) (149,557 ) 11.8
Recoveries   5,135       5,854       3,957   (12.3 ) 29.8   17,008       11,700   45.4
Net charge-offs (57,810 ) (47,800 ) (53,257 ) 20.9 8.5 (150,142 ) (137,857 ) 8.9
Provision for credit losses   59,287       49,013       75,544   21.0 (21.5 )   158,791       181,147   (12.3 )
Balance at end of period $ 253,120     $ 251,643     $ 215,732   .6 17.3 $ 253,120     $ 215,732   17.3
 
Allowance as a percentage of period end loans and leases 1.70 % 1.72 % 1.51 % 1.70 % 1.51 %
Ratio of allowance to net charge-offs(1)

1.1

X

1.3

X

1.0

X

1.3

X

1.2

X

Net charge-offs as a percentage of average loans and leases(1) 1.58 % 1.30 % 1.52 % 1.37 % 1.33 %
 

Credit Loss Reserves

Allowance for loan and lease losses $ 253,120 $ 251,643 $ 215,732 .6 17.3
Reserves for unfunded commitments   2,696       4,581       2,871   (41.1 ) (6.1 )
Total credit loss reserves $ 255,816     $ 256,224     $ 218,603   (.2 ) 17.0
 
Non-accrual loans and leases $ 369,812 $ 330,182 $ 268,834 12.0 37.6
Real estate owned   136,144       117,931       94,167   15.4 44.6
Total non-performing assets $ 505,956     $ 448,113     $ 363,001   12.9 39.4
 
Non-performing assets as a percentage of loans and leases and real estate owned 3.37 % 3.04 %

2.52

%

 
 
Restructured Loans
Accruing:
Consumer real estate $ 315,588 $ 297,083 $ 159,881 6.2 97.4
Commercial real estate 5,468 - - N.M. N.M.
Non-accruing:
Consumer real estate 25,489 21,570 14,227 18.2 79.2
Commercial real estate   9,339       10,620       10,523   (12.1 ) (11.3 )
Total restructured loans $ 355,884     $ 329,273     $ 184,631   8.1 92.8
 
N.M. = Not meaningful.
(1) Annualized.                  
 

At September 30, 2010:

  • Allowance for loan and lease losses was $253.1 million, or 1.70 percent of loans and leases, compared with $215.7 million, or 1.51 percent, at September 30, 2009 and $251.6 million, or 1.72 percent, at June 30, 2010.
  • Over 60-day delinquency rate was .78 percent, down from .81 percent at September 30, 2009 and down from .87 percent at June 30, 2010. The decrease from the third quarter of 2009 was primarily due to decreases in specialty finance loan delinquencies, partially offset by increases in consumer real estate loan delinquencies. The decrease from the second quarter of 2010 was primarily due to decreases in commercial real estate and leasing and equipment finance loan delinquencies.
  • Non-accrual loans and leases increased $101 million, or 37.6 percent, from September 30, 2009 and $39.6 million, or 12 percent, from June 30, 2010 primarily due to increases in non-accrual commercial and consumer real estate loans.
  • Total accruing restructured consumer real estate loans were $315.6 million, up $18.5 million, or 6.2 percent, from June 30, 2010. The allowance for loan losses on accruing restructured consumer real estate loans was $34 million, or 10.8 percent of the outstanding balance, at September 30, 2010. The over 60-day delinquency rate on these loans was 5.5 percent at September 30, 2010.

“Many large banks with large residential mortgage outstandings and servicing portfolios have announced foreclosure moratoriums due to process and documentation issues,” said William A. Cooper. “TCF does not have these issues and continues to process foreclosures in an orderly manner.”

For the quarter ended September 30, 2010:

  • Provision for credit losses was $59.3 million, down from $75.5 million in the third quarter of 2009 and up from $49 million recorded in the second quarter of 2010. The decrease from the third quarter of 2009 was primarily due to a lower level of increase in restructured consumer real estate loans and lower levels of provision in excess of net charge-offs in the consumer real estate portfolio as the rate of increase in losses slowed. The increase from the second quarter of 2010 was primarily due to reserve rate increases in the consumer real estate portfolio and increases in consumer and commercial real estate loan charge-offs.
  • Net loan and lease charge-offs were $57.8 million, or 1.58 percent annualized, of average loans and leases, up from $53.3 million, or 1.52 percent annualized, of average loans and leases in the third quarter of 2009 and up from $47.8 million, or 1.30 percent annualized, of average loans and leases in the second quarter of 2010. Increases over the third quarter of 2009 were primarily due to increases in consumer real estate and commercial real estate net charge-offs, partially offset by decreases in commercial business net charge-offs. The increase from the second quarter of 2010 was primarily the result of increases in consumer real estate and commercial real estate net charge-offs, both primarily in Illinois. Leasing and equipment finance net charge-offs were $8.7 million, or 1.16 percent annualized, of average loans and leases, up from $7.5 million, or .99 percent annualized, of average loans and leases in the second quarter of 2010, primarily due to charge-offs of previously reserved non-accrual loans and leases, which resulted in a significant decrease in the non-accrual balances in the leasing and equipment finance portfolio.

Income Taxes

  • Income tax expense was $22.9 million for the third quarter of 2010, or 37.7 percent of pre-tax income, compared with $6.5 million, or 27.4 percent of pre-tax income, for the comparable 2009 period and $28.1 million, or 37.8 percent of pre-tax income, for the second quarter of 2010. The third quarter of 2009 income tax expense included a $3 million decrease in income tax expense related to favorable developments in uncertain tax positions, partially offset by a slight increase in the annual effective income tax rate. Excluding these items, the effective income tax rate for the third quarter of 2009 was 38.8 percent.

Capital and Liquidity

Capital Information   Table 8
At period end        
($ in thousands, except per-share data)

3Q

2010

4Q

2009

Total equity $ 1,505,962 $ 1,179,755
Total equity to total assets 8.22 % 6.60 %
Book value per common share $ 10.49 $ 9.10
Tangible realized common equity to tangible assets(1) 7.27 % 5.86 %
 
Risk-based capital
Tier 1 $ 1,447,070 10.35 % $ 1,161,750 8.52 %
Total 1,780,484 12.73 1,514,940 11.12
Excess over stated “10% well-capitalized” requirement 382,066 2.73 152,153 1.12
 
Tier 1 common capital(2) $ 1,322,063 9.45 $ 1,042,357 7.65
 
(1) Excludes the impact of goodwill, other intangibles and accumulated other comprehensive income (loss) (see “Reconciliation of GAAP to Non-GAAP Measures” table).

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

 
  • Total risk-based capital at September 30, 2010 of $1.8 billion, or 12.73 percent of risk-weighted assets, was $382.1 million in excess of the stated “10 percent well-capitalized” requirement.
  • On October 18, 2010, the Board of Directors of TCF declared a regular quarterly cash dividend of five cents per common share payable on November 30, 2010 to stockholders of record at the close of business on October 29, 2010.
  • At September 30, 2010, TCF had $2 billion in unused, secured borrowing capacity at the FHLB of Des Moines and $529 million in unused, secured borrowing capacity at the Federal Reserve Discount Window.

Website Information

A live webcast of TCF’s conference call to discuss third quarter earnings will be hosted at TCF’s website, http://ir.tcfbank.com, on October 21, 2010 at 10:00 a.m., CT. Additionally, the webcast is 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, quarterly reports, investor presentations and SEC filings.

 

TCF is a Wayzata, Minnesota-based national bank holding company with $18.3 billion in total assets. TCF has 440 banking offices in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota, providing retail and commercial banking services. TCF also conducts commercial leasing and equipment finance business in all 50 states and commercial inventory finance business in the U.S. and Canada. For more information about TCF, please visit www.tcfbank.com.

Forward-Looking Information

This earnings release and other reports issued by the Company, including reports filed with the SEC, may contain “forward-looking” statements that deal with future results, plans or performance. In addition, TCF’s management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCF’s future results may differ materially from historical performance and forward-looking statements about TCF’s expected financial results or other plans and are subject to a number of risks and uncertainties. These include, but are not limited to the following:

Adverse Economic or Business Conditions, Credit Risks.Continued or deepening deterioration in general economic and banking industry conditions, or continued increases in unemployment in TCF’s primary banking markets; adverse economic, business and competitive developments such as shrinking interest margins, deposit outflows, deposit account attrition, or an inability to increase the number of deposit accounts; adverse changes in credit and other risks posed by TCF’s loan, lease, investment, and securities available for sale portfolios, including continuing declines in commercial or residential real estate values or changes in the allowance for loan and lease losses dictated by new market conditions or regulatory requirements; 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.

Earnings/Capital Constraints, Liquidity Risks.Limitations on TCF’s ability to pay dividends or to increase dividends in the future because of financial performance deterioration, regulatory restrictions or limitations; increased deposit insurance premiums, special assessments or other costs related to deteriorating conditions in the banking industry,the economic impact on banks of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) and Emergency Economic Stabilization Act of 2008, as amended (“EESA”), and other regulatory reform legislation; the impact of financial regulatory reform, including the phase out of trust preferred securities in Tier 1 capital called for by the Act, or 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 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.

Legislative and Regulatory Requirements.New consumer protection and supervisory requirements, including the Act’s creation of a new consumer protection bureau and limits on Federal preemption for state laws that could be applied to national banks; the imposition of requirements with an adverse impact relating to TCF’s lending, loan collection and other business activities as a result of the EESA and the Act,or other legislative or regulatory developments such as mortgage foreclosure moratorium laws or imposition of underwriting or other limitations that impact the ability to use certain variable-rate products; reduction of interchange revenue from debit card transactions resulting from the so-called Durbin Amendment (the “Amendment”) to the Act, which limits debit card interchange fees to amounts that will only allow issuers to recover incremental costs of authorization, clearance and settlement of debit card transactions, plus possibly some costs relating to fraud prevention; impact of legislative, regulatory or other changes affecting customer account charges and fee income; changes to bankruptcy laws which would result in the loss of all or part of TCF’s security interest due to collateral value declines (so-called “cramdown” provisions); any material failure of TCF to comply with the terms of its Consent Order with the Office of the Comptroller of the Currency relating to TCF’s Bank Secrecy Act compliance, which may result in regulatory enforcement action including monetary penalties; increased health care costs resulting from recently enacted Federal health care reform legislation; adverse regulatory examinations and resulting enforcement actions or other adverse consequences such as increased capital requirements or higher deposit insurance assessments; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to the Bank Secrecy Act and anti-money laundering compliance activity.

Risks Relating to New Product Introduction.TCF has introduced a new anchor retail deposit account product that replaces TCF Totally Free Checking, and that calls for a monthly maintenance fee on accounts not meeting certain specific requirements. TCF has also implemented new regulatory requirements that prohibit financial institutions from charging NSF fees on point-of-sale and ATM transactions unless customers opt-in.Customer acceptance of the new product changes and regulatory requirements cannot be predicted with certainty, and these changes may have an adverse impact on TCF’s ability to generate and retain accounts and on its fee revenue.

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, and possible increases in indemnification obligations for certain litigation against Visa U.S.A. (“covered litigation”) and potential reductions in card revenues resulting from covered litigation or other litigation against Visa.

Competitive Conditions; Supermarket Branching Risk.Reduced demand for financial services and loan and lease products; adverse developments affecting TCF’s supermarket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches.

Accounting, Audit, Tax and Insurance Matters.Changes in accounting standards or interpretations of existing standards; monetary, fiscal or tax policies of the federal or state governments, including adoption of state legislation that would increase state taxes; adverse state or Federal tax assessments or findings in tax audits; lack of or inadequate insurance coverage for claims against TCF.

Technological and Operational Matters.Technological, computer-related or operational difficulties or loss or theft of information and the possibility that deposit account losses (fraudulent checks, etc.) may increase.

Investors should consult TCF’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K for additional important information about the Company.

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-share data)
(Unaudited)
             
 
Three Months Ended
September 30,Change
  2010     2009     $   %  
Interest income:
Loans and leases$219,974$217,307$2,6671.2%
Securities available for sale19,90120,474(573)(2.8)
Investments and other   1,232     1,217     15   1.2
Total interest income   241,107     238,998     2,109   .9
Interest expense:
Deposits13,97427,512(13,538)(49.2)
Borrowings   53,378     49,997     3,381   6.8
Total interest expense   67,352     77,509     (10,157)(13.1)
Net interest income173,755161,48912,2667.6
Provision for credit losses   59,287     75,544     (16,257)(21.5)

Net interest income after provision for credit losses

  114,468     85,945     28,523   33.2
Non-interest income:
Fees and service charges67,68477,433(9,749)(12.6)
Card revenue27,77926,3931,3865.3
ATM revenue   7,985     7,861     124   1.6
Subtotal103,448111,687(8,239)(7.4)
Leasing and equipment finance24,91215,1739,73964.2
Other   1,077     1,197     (120)(10.0)
Fees and other revenue129,437128,0571,3801.1
Gains on securities, net   8,505     -     8,505   N.M.
Total non-interest income   137,942     128,057     9,885   7.7
Non-interest expense:
Compensation and employee benefits90,28290,680(398)(.4)
Occupancy and equipment32,09131,6194721.5
FDIC premiums5,4865,0854017.9
Advertising and marketing3,3544,766(1,412)(29.6)
Deposit account premiums3,3407,472(4,132)(55.3)
Other   39,481     34,736     4,745   13.7
Subtotal174,034174,358(324)(.2)
Operating lease depreciation8,9653,7345,231140.1
Foreclosed real estate and repossessed assets, net9,5888,4611,12713.3
Other credit costs, net   (834)   3,714     (4,548)(122.5)
Total non-interest expense   191,753     190,267     1,486   .8
Income before income tax expense60,65723,73536,922155.6
Income tax expense   22,852     6,491     16,361   N.M.
Income after income tax expense37,80517,24420,561119.2
Income (loss) attributable to non-controlling interest   912     (207)   1,119   N.M.
Net income available to common stockholders$36,893   $17,451   $19,442   111.4
 
Net income per common share:
Basic$.26$.14$.1285.7
Diluted.26.14.1285.7
 
Dividends declared per common share$.05$.05$--
 

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

Basic140,684126,81113,87310.9
Diluted140,922126,83314,08911.1
 
 
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
  2010   2009     $   %  
Interest income:
Loans and leases$663,151$642,084$21,0673.3%
Securities available for sale62,37369,392(7,019)(10.1)
Investments and other   3,609   3,210     399   12.4
Total interest income   729,133   714,686     14,447   2.0
Interest expense:
Deposits47,859100,941(53,082)(52.6)
Borrowings   156,358   150,380     5,978   4.0
Total interest expense   204,217   251,321     (47,104)(18.7)
Net interest income524,916463,36561,55113.3
Provision for credit losses   158,791   181,147     (22,356)(12.3)

Net interest income after provision for credit losses

  366,125   282,218     83,907   29.7
Non-interest income:
Fees and service charges211,701212,033(332)(.2)
Card revenue83,44277,9575,4857.0
ATM revenue   22,851   23,432     (581)(2.5)
Subtotal317,994313,4224,5721.5
Leasing and equipment finance65,79244,70521,08747.2
Other   4,767   2,475     2,292   92.6
Fees and other revenue388,553360,60227,9517.8
Gains on securities, net   7,938   22,104     (14,166)(64.1)
Total non-interest income   396,491   382,706     13,785   3.6
Non-interest expense:
Compensation and employee benefits265,490267,622(2,132)(.8)
Occupancy and equipment95,58395,193390.4
FDIC premiums16,18613,8212,36517.1
Advertising and marketing9,90813,345(3,437)(25.8)
Deposit account premiums15,61621,335(5,719)(26.8)
Other   108,944   102,625     6,319   6.2
Subtotal511,727513,941(2,214)(.4)
Operating lease depreciation28,81711,61817,199148.0
Foreclosed real estate and repossessed assets, net27,60419,3498,25542.7
Other credit costs, net4,4767,751(3,275)(42.3)
FDIC special assessment   -   8,362     (8,362)(100.0)
Total non-interest expense   572,624   561,021     11,603   2.1
Income before income tax expense189,992103,90386,08982.9
Income tax expense   71,754   36,469     35,285   96.8
Income after income tax expense118,23867,43450,80475.3
Income (loss) attributable to non-controlling interest   2,399   (207)   2,606   N.M.
Net income115,83967,64148,19871.3
Preferred stock dividends-6,378(6,378)(100.0)
Non-cash deemed preferred stock dividend   -   12,025     (12,025)(100.0)
Net income available to common stockholders$115,839$49,238   $66,601   135.3
 
Net income per common share:
Basic$.84$.39$.45115.4
Diluted.84.39.45115.4
 
Dividends declared per common share$.15$.35$(.20)(57.1)
 

 

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

Basic137,824126,40311,4219.0
Diluted138,004126,40311,6019.2
 
 
N.M. Not meaningful.
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per-share data)
(Unaudited)
             
 
AtAtAt% Change From  
September 30,December 31,September 30,December 31,September 30,
  2010     2009     2009   20092009
ASSETS
 
Cash and due from banks$386,671$299,127$329,66329.3%17.3%
Investments169,877163,692155,6273.89.2
Securities available for sale1,947,4621,910,4762,060,2271.9(5.5)
Loans and leases:
Consumer real estate and other7,280,4547,331,9917,335,061(.7)(.7)
Commercial real estate3,323,0183,269,0033,240,8461.72.5
Commercial business340,035449,516466,991(24.4)(27.2)
Leasing and equipment finance3,157,4723,071,4293,061,5592.83.1
Inventory finance   795,622     468,805     224,807   69.7N.M.
Total loans and leases14,896,60114,590,74414,329,2642.14.0
Allowance for loan and lease losses   (253,120)   (244,471)   (215,732)3.517.3
Net loans and leases14,643,48114,346,27314,113,5322.13.8
Premises and equipment, net446,398447,930449,264(.3)(.6)
Goodwill152,599152,599152,599--
Other assets   567,120     565,078     482,097   .417.6
Total assets$18,313,608   $17,885,175   $17,743,009   2.43.2
 
LIABILITIES AND EQUITY
 
Deposits:
Checking$4,352,506$4,400,290$4,098,643(1.1)6.2
Savings5,424,6795,339,9555,144,6611.65.4
Money market   639,007     640,569     730,046   (.2)(12.5)
Subtotal10,416,19210,380,8149,973,350.34.4
Certificates of deposit   1,045,327     1,187,505     1,652,661   (12.0)(36.7)
Total deposits   11,461,519     11,568,319     11,626,011   (.9)(1.4)
Short-term borrowings344,681244,60421,39740.9N.M.
Long-term borrowings   4,581,511     4,510,895     4,524,955   1.61.2
Total borrowings4,926,1924,755,4994,546,3523.68.4
Accrued expenses and other liabilities   419,935     381,602     390,807   10.07.5
Total liabilities   16,807,646     16,705,420     16,563,170   .61.5
Equity:

Preferred stock, par value $.01 per share, 30,000,000 authorized; 0 shares issued

-----

Common stock, par value $.01 per share, 280,000,000 shares authorized; 142,685,276, 130,339,500 and 130,373,208 shares issued

1,4271,3031,3049.59.4
Additional paid-in capital454,139297,429304,19052.749.3
Retained earnings, subject to certain restrictions1,041,331946,002932,88210.111.6
Accumulated other comprehensive income (loss)22,458(18,545)805N.M.N.M.

Treasury stock at cost, 54,413, 1,136,688 and 1,623,705 shares, and other

  (23,400)   (50,827)   (62,946)(54.0)(62.8)
Total TCF Financial Corp. stockholders' equity   1,495,955     1,175,362     1,176,235   27.327.2
Non-controlling interest in subsidiaries   10,007     4,393     3,604   127.8177.7
Total equity   1,505,962     1,179,755     1,179,839   27.727.6
Total liabilities and equity$18,313,608   $17,885,175   $17,743,009   2.43.2
 
 
N.M. Not meaningful.
 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CREDIT QUALITY DATA
(Dollars in thousands)
(Unaudited)
                 
 
 

Allowance for Loan and Lease Losses

At September 30, 2010   At June 30, 2010At September 30, 2009Change from  
Jun. 30,Sep. 30,
Balance% of Portfolio   Balance% of PortfolioBalance% of Portfolio   2010     2009  
Consumer real estate$169,7432.35%$168,8352.33%$136,7831.88%2bps47bps
Consumer other   2,0694.74   2,5455.14   2,9455.15(40)(41)
Total consumer real estate and other171,8122.36171,3802.35139,7281.90146
Commercial real estate41,2481.2441,1141.2338,3351.1816
Commercial business8,3362.454,1411.147,7061.6513180
Leasing and equipment finance28,974.9232,4431.0829,130.95(16)(3)
Inventory finance   2,750.35   2,565.40   833.37(5)(2)
Total$253,1201.70$251,6431.72$215,7321.51(2)19
 
 

Credit Loss Reserves

At September 30, 2010   At June 30, 2010At September 30, 2009Change from  
Jun. 30,Sep. 30,
Balance% of Portfolio   Balance% of PortfolioBalance% of Portfolio   2010     2009  
Allowance for loan and lease losses$253,1201.70%$251,6431.72%$215,7321.51%(2)bps19bps
Reserves for unfunded commitments   2,696N.M.   4,581N.M.   2,871N.M.N.M.N.M.
Total$255,8161.72$256,2241.75$218,6031.53(3)19
 
 

Net Charge-Offs

Change from
Quarter EndedQuarter Ended  
Sep. 30,Jun. 30,Mar. 31,Dec. 31,Sep. 30,Jun. 30,Sep. 30,
  2010   2010201020092009   2010     2009  
Consumer real estate
First mortgage lien$20,119$16,775$16,266$16,646$15,694$3,344$4,425
Junior lien   14,374     12,672   12,996   14,757   14,201   1,702     173  
Total consumer real estate34,49329,44729,26231,40329,8955,0464,598
Consumer other   1,737     1,622   365   2,219   2,587   115     (850)
Total consumer real estate and other36,23031,06929,62733,62232,4825,1613,748
Commercial real estate12,9628,1816,5215,5856,7584,7816,204
Commercial business(136)9621,3161,6744,514(1,098)(4,650)
Leasing and equipment finance8,6747,5146,6437,6819,4091,160(735)
Inventory finance   80     74   425   88   94   6     (14)
Total$57,810   $47,800$44,532$48,650$53,257$10,010   $4,553  
 
 

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

Change from
Quarter Ended (1)Quarter Ended  
Sep. 30,Jun. 30,Mar. 31,Dec. 31,Sep. 30,Jun. 30,Sep. 30,
2010   2010201020092009   2010     2009  
Consumer real estate
First mortgage lien1.63%1.36%1.32%1.34%1.27%27bps36bps
Junior lien2.502.202.252.542.44306
Total consumer real estate1.911.631.611.731.652826
Consumer otherN.M.N.M.N.M.N.M.N.M.N.M.N.M.
Total consumer real estate and other2.001.711.631.841.782922
Commercial real estate1.56.98.80