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TCF Reports Quarterly Net Income of $39.9 Million, or 24 Cents Per Share, up 8 Cents, or 50 Percent, from the First Quarter of 2013

Company Release - 4/22/2014 8:00 AM ET

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

FIRST QUARTER HIGHLIGHTS

  • Revenue of $304.7 million, up 4.4 percent from the first quarter of 2013
  • Provision for credit losses of $14.5 million, down 62.2 percent from the first quarter of 2013
  • Non-accrual loans and leases of $266.7 million, down 22.3 percent from the first quarter of 2013
  • Loan and lease originations increased $422.2 million, or 15.5 percent, from the first quarter of 2013
  • Average deposits increased $483.9 million, or 3.4 percent, from the first quarter of 2013
                                 
Summary of Financial Results                           Table 1
(Dollars in thousands, except per-share data)            

 

 

Percent Change

1Q 4Q 1Q 1Q14 vs     1Q14 vs
2014       2013       2013     4Q13       1Q13  
Net income $ 39,910 $ 35,148 $ 25,450 13.5 % 56.8 %
Net interest income 201,274 201,862 199,091 (.3 ) 1.1
Diluted earnings per common share .24 .22 .16 9.1 50.0
 

Financial Ratios (1)

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

1.88 % 1.90 % 1.92 %
Return on average assets 1.00 .90 .70
Return on average common equity 9.35 8.39 6.36
Return on average tangible common equity (3) 10.89 9.83 7.60
Net interest margin 4.66 4.67 4.72

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

.43 .76 1.06
     

(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 $39.9 million for the first quarter of 2014, compared with net income of $25.5 million for the first quarter of 2013, and net income of $35.1 million for the fourth quarter of 2013. Diluted earnings per common share was 24 cents for the first quarter of 2014, compared with 16 cents for the first quarter of 2013, and 22 cents for the fourth quarter of 2013.

Chairman’s Statement

“TCF continued its momentum into the first quarter with return on average assets returning to 1.00 percent for the first time since the second quarter of 2010,” said William A. Cooper, Chairman and Chief Executive Officer.

“TCF’s first quarter results were positively impacted by the continuation of several key trends. Strong loan and lease originations and core deposit growth, decreased provision through continued credit quality improvement, and an industry-leading net interest margin more than offset the seasonal decline in banking fee revenue. In addition, TCF executed a significant expense reduction and efficiency initiative by completing the consolidation of 46 branches across our footprint late in the first quarter. As we continue to execute on our strategies and take advantage of opportunities, I believe we are well positioned to achieve strong returns for our stockholders.”

   
Revenue
                                         
Total Revenue                               Table 2
                Percent Change
1Q 4Q 1Q 1Q14 vs 1Q14 vs
(Dollars in thousands)     2014       2013       2013       4Q13       1Q13  
Net interest income $ 201,274       $ 201,862       $ 199,091 (.3 ) % 1.1 %
Fees and other revenue:
Fees and service charges 36,619 43,254 39,323 (15.3 ) (6.9 )
Card revenue 12,250 13,066 12,417 (6.2 ) (1.3 )
ATM revenue   5,319         5,382         5,505 (1.2 ) (3.4 )
Total banking fees 54,188 61,702 57,245 (12.2 ) (5.3 )
Leasing and equipment finance 22,288 23,624 16,460 (5.7 ) 35.4
Gains on sales of auto loans, net 8,470 7,278 7,146 16.4 18.5
Gains on sales of consumer real estate loans, net 11,706 5,345 8,126 119.0 44.1
Other   6,381         6,419         3,726 (0.6 ) 71.3
Total fees and other revenue   103,033         104,368         92,703 (1.3 ) 11.1
Subtotal 304,307 306,230 291,794 (.6 ) 4.3
Gains on securities, net   374         1,044         - (64.2 ) N.M.
Total revenue $ 304,681       $ 307,274       $ 291,794 (.8 ) 4.4
 
Net interest margin (1) 4.66 % 4.67 % 4.72 %
Fees and other revenue as a % of total revenue 33.82 33.97 31.77
 
N.M. Not meaningful.
(1) Annualized.

Net Interest Income

  • Net interest income for the first quarter of 2014 increased $2.2 million, or 1.1 percent, compared with the first quarter of 2013 and remained relatively flat compared to the fourth quarter of 2013. The increase from the first quarter of 2013 was driven by higher average loan balances in the auto finance and inventory finance businesses as well as decreased rates on various deposit products. This increase was partially offset by downward pressure on yields across the lending businesses in this increasingly competitive low interest rate environment as well as lower average balances of consumer real estate and higher yielding commercial fixed-rate loans due to run-off exceeding originations.
  • Net interest margin in the first quarter of 2014 was 4.66 percent, compared with 4.72 percent in the first quarter of 2013 and remained relatively flat compared to the fourth quarter of 2013. The decrease from the first quarter of 2013 was primarily due to downward pressure on origination yields in the leasing and equipment finance and consumer businesses due to the increasingly competitive low interest rate environment as well as a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable-rate loans due to marketplace demand.

Non-interest Income

  • Fees and service charges in the first quarter of 2014 were $36.6 million, down $2.7 million, or 6.9 percent, from the first quarter of 2013 and down $6.6 million or 15.3 percent, from the fourth quarter of 2013. The decrease from the first quarter of 2013 was primarily due to lower transaction activity, which was negatively impacted by the harsh winter weather experienced across the bank’s footprint, and by higher average checking account balances per customer, partially offset by a larger account base. The decrease from the fourth quarter of 2013 was primarily due to seasonality resulting in a decline in transaction activity, which was negatively impacted by the adverse weather as mentioned above, and by an increase in average checking account balances per customer.
  • Leasing and equipment finance revenue was $22.3 million during the first quarter of 2014, up $5.8 million, or 35.4 percent, from the first quarter of 2013 and down $1.3 million, or 5.7 percent, from the fourth quarter of 2013. The increase from the first quarter of 2013 and the decrease from the fourth quarter of 2013 were primarily due to customer-driven events impacting sales-type lease revenue.
  • TCF sold $347.4 million, $279.2 million and $202.3 million of consumer real estate loans during the first quarters of 2014 and 2013, and the fourth quarter of 2013, respectively, resulting in net gains in the same respective periods.
  • TCF sold $261.7 million, $179.8 million and $236 million of auto loans during the first quarters of 2014 and 2013, and the fourth quarter of 2013, respectively, resulting in net gains in the same respective periods.
                   
Loans and Leases
                                   
Period-End and Average Loans and Leases                       Table 3
Percent Change
(Dollars in thousands) 1Q 4Q 1Q 1Q14 vs 1Q14 vs
2014     2013     2013     4Q13       1Q13  
Period-End:
Consumer real estate:
First mortgage lien $ 3,668,245 $ 3,766,421 $ 4,136,823 (2.6 ) % (11.3 ) %
Junior lien   2,407,286       2,572,905       2,281,843 (6.4 ) 5.5
Total consumer real estate 6,075,531 6,339,326 6,418,666 (4.2 ) (5.3 )
Commercial 3,136,421 3,148,352 3,334,716 (.4 ) (5.9 )
Leasing and equipment finance 3,456,759 3,428,755 3,185,234 .8 8.5
Inventory finance 2,123,808 1,664,377 1,931,363 27.6 10.0
Auto finance 1,400,527 1,239,386 719,666 13.0 94.6
Other   22,550       26,743       23,701 (15.7 ) (4.9 )
Total $ 16,215,596     $ 15,846,939     $ 15,613,346 2.3 3.9
 
Average:
Consumer real estate:
First mortgage lien $ 3,719,961 $ 3,814,365 $ 4,187,057 (2.5 ) % (11.2 ) %
Junior lien   2,607,851       2,597,817       2,369,369 .4 10.1
Total consumer real estate 6,327,812 6,412,182 6,556,426 (1.3 ) (3.5 )
Commercial 3,122,066 3,088,524 3,345,780 1.1 (6.7 )
Leasing and equipment finance 3,434,691 3,342,182 3,199,499 2.8 7.4
Inventory finance 1,862,745 1,734,286 1,686,364 7.4 10.5
Auto finance 1,327,232 1,157,586 670,096 14.7 98.1
Other   13,273       13,369       13,641 (.7 ) (2.7 )
Total $ 16,087,819     $ 15,748,129     $ 15,471,806 2.2 4.0
 
  • Loans and leases were $16.2 billion at March 31, 2014, an increase of $602.3 million, or 3.9 percent, compared with March 31, 2013 and an increase of $368.7 million, or 2.3 percent, compared with December 31, 2013. Average loans and leases were $16.1 billion for the first quarter of 2014, an increase of $616 million, or 4 percent, compared with the first quarter of 2013 and an increase of $339.7 million, or 2.2 percent, compared with the fourth quarter of 2013. The increases in both periods for the period-end and average loans and leases were primarily due to the continued growth of the auto finance portfolio as TCF expands the number of active dealers and sales force in its network and further penetrates existing territories, as well as an increase in the inventory finance portfolio. The increases from the first quarter of 2013 were also driven by an increase in leasing and equipment finance. These increases were partially offset by a decrease in total consumer real estate loans driven by run-off in the first mortgage real estate business and ongoing loan sales. The increases from the first quarter of 2013 were also partially offset by a decrease in commercial loans, primarily due to run-off exceeding new originations.
  • Loan and lease originations were $3.1 billion for the first quarter of 2014, an increase of $422.2 million, or 15.5 percent, compared with the first quarter of 2013 and an increase of $59.7 million, or 1.9 percent, compared with the fourth quarter of 2013. The increase from the first quarter of 2013 was due to the continued growth in auto finance and an increase in commercial and inventory finance originations as a result of an improving economic environment. The increase from the fourth quarter of 2013 was due to seasonality of inventory finance originations and the continued growth in auto finance.

Credit Quality

(Table 4 - Credit Trends: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50847192&lang=en)

  • Non-accrual loans and leases were $266.7 million at March 31, 2014, a decrease of $76.7 million, or 22.3 percent, from March 31, 2013, and a decrease of $10.3 million, or 3.7 percent, from December 31, 2013. The decrease from both periods was primarily due to improving credit quality trends and continued efforts to actively work out problem loans in the commercial portfolio. The decrease from March 31, 2013 was further driven by fewer non-accrual consumer real estate loans as a result of improved credit quality, and the sale of $40.5 million of non-accrual loans during the second quarter of 2013. The reduction was partially offset by $48.6 million of delinquent loans being transferred to non-accrual status due to a change in the non-accrual policy for consumer real estate loans during the third quarter of 2013.
  • Other real estate owned was $63.4 million at March 31, 2014, a decrease of $8.3 million from March 31, 2013 and a decrease of $5.4 million from December 31, 2013. The decrease from March 31, 2013 was primarily due to continued efforts to actively work out problem loans and fewer transfers from consumer real estate non-accrual loans and leases. The decrease from December 31, 2013 was primarily due to increased property sales from the consumer real estate portfolio.
  • The over 60-day delinquency rate, excluding acquired portfolios and non-accrual loans and leases, was .19 percent at March 31, 2014, down from .53 percent at March 31, 2013, and flat with December 31, 2013. The decrease from March 31, 2013 was primarily a result of reduced over 60-day delinquencies in the consumer real estate portfolio due to a change in the non-accrual policy for consumer real estate loans during the third quarter of 2013, which increased non-accrual loans and leases.
  • Net charge-offs were $17.4 million for the first quarter of 2014, a decrease of $23.6 million from the first quarter of 2013 and a decrease of $12.7 million from the fourth quarter of 2013. The decrease from the first quarter of 2013 was primarily due to improved credit quality in the consumer real estate portfolio as home values improved and incident rates of default declined. The decrease from the fourth quarter of 2013 was driven by one previously reserved large commercial loan which was charged off during the fourth quarter of 2013 and continued improvement in consumer real estate credit quality. Consumer real estate net charge-offs decreased for the sixth consecutive quarter.
  • Provision for credit losses was $14.5 million for the first quarter of 2014, a decrease of $23.9 million from the first quarter of 2013 and a decrease of $8.3 million from the fourth quarter of 2013. The decrease from the first quarter of 2013 was primarily due to decreased net charge-offs in the consumer real estate portfolio resulting from improved home values and a reduction in incidents of default. The decrease from the fourth quarter of 2013 was due to reduced reserve requirements in the commercial and consumer real estate portfolios as credit quality in those portfolios improved, and a reduction in net charge-offs.
                   
Deposits
                                   
Average Deposits                       Table 5
Percent Change
(Dollars in thousands) 1Q 4Q 1Q 1Q14 vs 1Q14 vs
2014     2013     2013     4Q13       1Q13  
 
Checking $ 5,016,118 $ 4,904,125 $ 4,784,945 2.3 % 4.8 %
Savings 6,142,950 6,217,662 6,114,219 (1.2 ) .5
Money market   819,312         845,562         815,374   (3.1 ) .5
Subtotal 11,978,380 11,967,349 11,714,538 .1 2.3
Certificates of deposit   2,543,345         2,392,896         2,323,267   6.3 9.5
Total average deposits $ 14,521,725       $ 14,360,245       $ 14,037,805   1.1 3.4
 
Average interest rate on deposits (1) .22 % .23 % .28 %
 
(1) Annualized.                                  
 
  • Total average deposits for the first quarter of 2014 increased $483.9 million, or 3.4 percent, from the first quarter of 2013 and increased $161.5 million, or 1.1 percent, from the fourth quarter of 2013. The increase from the first quarter of 2013 was primarily due to growth in the number of checking accounts, as well as special campaigns for certificates of deposit. The increase from the fourth quarter of 2013 was primarily due to special campaigns for certificates of deposit, as well as higher average checking account balances per customer.
  • The average interest rate on deposits for the first quarter of 2014 was .22 percent, down six basis points from the first quarter of 2013 and down one basis point from the fourth quarter of 2013. The decrease from the first quarter of 2013 was primarily due to reduced average interest rates on various savings accounts and certificates of deposit.
                   
Non-interest Expense
                                   
Non-interest Expense                       Table 6
Percent Change
(Dollars in thousands) 1Q 4Q 1Q 1Q14 vs 1Q14 vs
2014     2013     2013     4Q13       1Q13  
Compensation and employee benefits $ 115,089 $ 108,589 $ 104,229 6.0 % 10.4 %
Occupancy and equipment 34,839 35,504 32,875 (1.9 ) 6.0
FDIC insurance 7,563 7,892 7,710 (4.2 ) (1.9 )
Operating lease depreciation 6,227 6,009 5,635 3.6 10.5
Advertising and marketing 5,478 3,275 5,732 67.3 (4.4 )
Deposit account premiums 418 479 602 (12.7 ) (30.6 )
Other   41,335       44,162         37,939   (6.4 ) 9.0
Subtotal 210,949 205,910 194,722 2.4 8.3
Branch realignment - 8,869 - (100.0 ) -
Foreclosed real estate and repossessed assets, net 6,068 6,066 10,167 - (40.3 )
Other credit costs, net   119       (376 )       (837 ) N.M. N.M.
Total non-interest expense $ 217,136     $ 220,469       $ 204,052   (1.5 ) 6.4
N.M. Not meaningful.
 
  • Compensation and employee benefits expense increased $10.9 million, or 10.4 percent, from the first quarter of 2013 and increased $6.5 million, or 6 percent, from the fourth quarter of 2013. The increases from both periods were primarily due to increased staff levels to support the growth of auto finance and risk management, and expenses related to higher incentives based on production results. The increase from the fourth quarter of 2013 was also due to the seasonality of payroll taxes.
  • Foreclosed real estate and repossessed assets expense decreased $4.1 million, or 40.3 percent, from the first quarter of 2013 and remained relatively flat compared to the fourth quarter of 2013. The decrease from the first quarter of 2013 was driven by accelerated expenses in the first quarter of 2013 related to a portfolio sale of consumer properties, a reduction in write-downs in balances of existing foreclosed real estate properties as a result of improved real estate property values, and improved exit values on consumer real estate.
               
Capital
                                 
Capital Information                     Table 7
At period end
(Dollars in thousands, except per-share data) 1Q 4Q
2014       2013
Total equity $ 2,021,825 $ 1,964,759
Book value per common share $ 10.46 $ 10.23
Tangible book value per common share (1) $ 9.06 $ 8.83
Tangible common equity to tangible assets (1) 8.13 % 8.03 %
 
Risk-based capital (2)
Tier 1 $ 1,814,561 11.37 % $ 1,763,682 11.41 %
Total 2,139,901 13.41 2,107,981 13.64
 
Tier 1 leverage capital $ 1,814,561 9.84 % $ 1,763,682 9.71 %
 
Tier 1 common capital (3) $ 1,530,037 9.59 % $ 1,488,651 9.63 %
 

(1) Excludes the impact of preferred shares, goodwill and other intangibles (see “Reconciliation of GAAP to Non-GAAP Financial Measures” table).

(2) The Company's capital ratios continue to be in excess of "well-capitalized" regulatory benchmarks.

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

 
  • On April 21, 2014, TCF’s Board of Directors declared a regular quarterly cash dividend of 5 cents per common share, payable on June 2, 2014, to stockholders of record at the close of business on May 15, 2014. TCF also declared dividends on the 7.50% Series A and 6.45% Series B Non-Cumulative Perpetual Preferred Stock, both payable on June 2, 2014, to stockholders of record at the close of business on May 15, 2014.

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 22, 2014 at 8:00 a.m. CT. 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, 2014, TCF had $18.8 billion in total assets and 381 branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota, providing retail and commercial banking services. TCF, through its subsidiaries, also conducts commercial leasing and equipment finance business in all 50 states, commercial inventory finance business in the U.S. and Canada, and indirect auto finance business in 48 states. For more information about TCF, please visit http://ir.tcfbank.com.

 

Cautionary Statements for Purposes of the Safe Harbor Provisions of the Securities Litigation Reform Act

Any statements contained in this earnings release regarding the outlook for the Company’s businesses and their respective markets, such as projections of future performance, guidance, statements of the Company’s plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on the Company’s assumptions and beliefs. Such statements may be identified by such words or phrases as “will likely result,” “are expected to,” “will continue,” “outlook,” “will benefit,” “is anticipated,” “estimate,” “project,” “management believes” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, TCF claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.

Certain factors could cause the Company’s future results to differ materially from those expressed or implied in any forward-looking statements contained herein. These factors include the factors discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, under the heading “Risk Factors,” the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as compl