Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TCB > SEC Filings for TCB > Form 10-Q on 5-Nov-2013All Recent SEC Filings

Show all filings for TCF FINANCIAL CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for TCF FINANCIAL CORP


5-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations

Overview

TCF Financial Corporation, a Delaware corporation ("TCF" or the "Company"), is a national bank holding company based in Wayzata, Minnesota. Unless otherwise indicated, references herein to "TCF" include its direct and indirect subsidiaries. Its principal subsidiary, TCF National Bank ("TCF Bank"), is headquartered in South Dakota. At September 30, 2013, TCF had 427 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, Indiana and South Dakota (TCF's primary banking markets).

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the needs of the largest consumer segments in the market. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week and on most holidays, extensive full-service supermarket branches, automated teller machine ("ATM") networks, and internet, mobile and telephone banking. TCF generates interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low or no interest-cost deposits. The Company's growth strategies may include organic growth in existing businesses, the development of new products and services, new branch expansion and acquisitions. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. TCF continues to focus on asset growth in its leasing and equipment finance, inventory finance and auto finance businesses and on making these businesses a more substantial part of its loan and lease portfolio.

Net interest income, the difference between interest income earned on loans and leases, securities available for sale, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 65.3% of TCF's total revenue for the three months ended September 30, 2013. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings. TCF manages the risk of changes in interest rates on its net interest income through an Asset/Liability Management Committee and through related interest-rate risk monitoring and management policies. See "Part I, Item
3. Quantitative and Qualitative Disclosures about Market Risk" and "Part II, Item 1A. Risk Factors" for further discussion.

Non-interest income is a significant source of revenue for TCF and an important component of TCF's results of operations. Increasing fee and service charge revenue has been challenging as a result of changing customer behavior and the impact of additional regulations. Providing a wide range of retail banking services is an integral component of TCF's business philosophy and a major strategy for generating non-interest income. Key drivers of bank fees and service charges are the number of deposit accounts and related transaction activity.

The following portions of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management's Discussion and Analysis") focus in more detail on the results of operations for the three and nine months ended September 30, 2013 and 2012, and on information about TCF's balance sheet, loan and lease portfolio, liquidity, funding resources, capital and other matters.

Results of Operations

Performance Summary TCF reported diluted earnings per common share of 23 cents and 60 cents for the third quarter and first nine months of 2013, respectively, compared with diluted earnings per common share of 6 cents and diluted loss per common share of $1.52 for the same periods in 2012. TCF reported net income of $37.9 million and $97.5 million for the third quarter and first nine months of 2013, respectively, compared with net income of $9.3 million and net loss of $242 million for the same periods in 2012. TCF's net loss for the first nine months of 2012 included a non-recurring net after-tax charge of $295.8 million, or $1.87 per common share, related to the repositioning of TCF's balance sheet completed in the first quarter of 2012, as well as the non-recurring net after-tax gain of $8.2 million, or 5 cents per common share, related to the sale of Visa Class B stock in the second quarter of 2012.


Table of Contents

On March 13, 2012, TCF announced it had repositioned its balance sheet by prepaying $3.6 billion of long-term debt and selling $1.9 billion of mortgage-backed securities. The impact of these transactions during the nine months ended September 30, 2013, was a $29.9 million reduction to the cost of borrowings partially offset by a $16.6 million reduction of interest income on lower levels of mortgage-backed securities. TCF's long-term, fixed-rate debt was originated at market rates that prevailed prior to the 2008 economic crisis and was significantly above market rates at the time of repositioning. In addition, in late January 2012 the Federal Reserve forecasted interest rates to remain at historically low levels through at least 2014. As a result, this action better positioned TCF for the current interest rate outlook and reduced TCF's interest rate risk.

Return on average assets was .97% and .86% for the third quarter and first nine months of 2013, respectively, compared with .3% and negative 1.73% for the same periods in 2012. Return on average common equity was 9.28% and 8.03% for the third quarter and first nine months of 2013, respectively, compared with 2.36% and negative 19.5% for the same periods in 2012. The negative returns on average assets and average common equity for the first nine months of 2012 were due to the balance sheet repositioning discussed above.

Reportable Segment Results

Lending TCF's lending strategy is primarily to originate high credit quality, secured, loans and leases. The lending portfolio consists of retail lending, commercial real estate and business lending, leasing and equipment finance, inventory finance and auto finance. Lending's disciplined portfolio growth generates earning assets and, along with its fee generating capabilities, produces a significant portion of the Company's revenue. Lending generated net income available to common stockholders of $39.3 million and $96.4 million for the third quarter and first nine months of 2013, respectively, compared with a net loss of $11.7 million and net income of $6.9 million for the same periods in 2012.

Lending net interest income for the third quarter and first nine months of 2013 was $142.3 million and $422.9 million, respectively, compared with $133 million and $384.8 million for the same periods in 2012. These increases were primarily due to higher average balances driven by growth in the auto finance, inventory finance and leasing and equipment finance businesses, partially offset by downward pressure on yields across the lending businesses due to the prolonged low-interest rate environment.

Lending provision for credit losses totaled $23.5 million and $93.6 million for the third quarter and first nine months of 2013, respectively, compared with $95.3 million and $198 million for the same periods in 2012. The decreases were primarily due to decreased net charge-offs in the consumer real estate portfolio due to improved credit quality and the impact of the clarifying bankruptcy-related regulatory guidance implemented in the third quarter of 2012, as well as decreased net charge-offs in the commercial portfolio due to improved credit quality and continued efforts to actively workout problem loans.

Lending non-interest income totaled $46.1 million and $123.8 million for the third quarter and first nine months of 2013, respectively, compared with $37.7 million and $100.2 million for the same periods in 2012. The quarter over quarter increase was primarily due to higher sales-type lease revenue in the leasing and equipment finance portfolio as a result of customer-driven events. The nine-month comparison increase was primarily due to gains on sales of auto and consumer real estate loans. Over the last several quarters, the lending segment has developed its originate-to-sell capabilities that provide the organization the ability to manage credit exposure, generate organic capital and generate fee income.

Lending non-interest expense totaled $101.4 million and $297.4 million for the third quarter and first nine months of 2013, respectively, compared with $91.2 million and $268.9 million for the same periods in 2012. The increases were primarily due to increased staffing levels to support the growth of auto finance and expenses related to higher commissions based on production results and performance incentives, partially offset by reduced expenses related to fewer consumer and commercial foreclosed properties.

Funding TCF's funding is primarily derived from branch banking, consumer and small business deposits, and treasury borrowings, with a focus on building and maintaining quality customer relationships through free checking, deposits provide a source of low-cost funds and fee income. Borrowings may be used to offset reductions in deposits or to support lending activities. Funding reported net income available to common stockholders of $6.1 million and $19.3 million for the third quarter and first nine months of 2013, respectively, compared with net income available to common stockholders of $31.4 million for the third quarter of 2012 and a net loss available to common stockholders of $249.9 million for the first nine months of 2012. The decrease from the third quarter of 2012 was primarily the result of a $13 million net gain related to the sales of mortgage backed securities in 2012. The increase in the first nine months of 2013 compared to 2012 was due to the balance sheet repositioning completed in the first quarter of 2012.


Table of Contents

Funding net interest income for the third quarter and first nine months of 2013 was $58.1 million and $180.1 million, respectively, compared with $68.2 million and $196.1 million for the same periods in 2012. The decrease was primarily related to reduction of interest income as a result of lower levels of mortgage-backed securities, partially offset by the reduced cost of borrowings resulting from the balance sheet repositioning and the redemption of trust preferred securities in July 2012.

Funding non-interest income totaled $60 million and $174.8 million in the third quarter and first nine months of 2013, respectively, compared with $74.6 million and $277.1 million for the same periods in 2012. The decreases were primarily due to gains on sales of securities during the first nine months of 2012 related to the balance sheet repositioning, partially offset by continued growth in TCF's account base for the fifth consecutive quarter.

Funding non-interest expense totaled $107.7 million and $322.7 million in the third quarter and first nine months of 2013, respectively, compared with $92.4 million and $865.7 million for the same periods in 2012. The increase in the third quarter of 2013 compared with 2012 was attributable to changes in the relative size of the balance sheet causing a favorable adjustment to the management expense allocation. The decrease from the first nine months of 2013, was primarily due to the termination of debt in the first quarter of 2012 in connection with the balance sheet repositioning.

Consolidated Income Statement Analysis

Net Interest Income Net interest income, the difference between interest earned on loans and leases, investments and other interest-earning assets (interest income), and interest paid on deposits and borrowings (interest expense), represented 65.3% of TCF's total revenue in the third quarter of 2013 and 64.2% in the third quarter of 2012. Net interest income divided by average interest-earning assets is referred to as the net interest margin, expressed as a percentage. Net interest income and net interest margin are affected by changes in prevailing short- and long-term interest rates, loan and deposit pricing strategies and competitive conditions, the volume and the mix of interest-earning assets and interest-bearing liabilities, the level of non-accrual loans and leases and other real estate owned, and the impact of modified loans and leases.


Table of Contents

The following tables summarize TCF's average balances, interest, dividends, and yields and rates on major categories of TCF's interest-earning assets and interest-bearing liabilities on a fully tax-equivalent basis.

                                             Three Months Ended                      Three Months Ended
                                             September 30, 2013                      September 30, 2012
                                         Average               Yields and        Average               Yields and
(Dollars in thousands)                   Balance    Interest    Rates (1)        Balance    Interest    Rates (1)
Assets:
Investments and other             $      876,685   $   4,161       1.89 %   $    479,083   $   2,508       2.09 %
U.S. Government sponsored
entities:
Mortgage-backed securities, fixed
rate                                     638,418       4,448         2.79        710,835       5,605         3.15
U.S. Treasury securities                       -           -            -              -           -            -
Other securities                             110           -         2.04            154           2         3.32
Total securities available for
sale (2)                                 638,528       4,448         2.79        710,989       5,607         3.15
Loans and leases held for sale           156,593       2,965         7.51         80,549       1,597         7.89
Loans and leases:
Consumer real estate:
Fixed-rate                             3,678,665      53,120         5.73      4,197,903      62,679         5.94
Variable-rate                          2,723,947      34,987         5.10      2,531,351      32,071         5.04
Total consumer real estate             6,402,612      88,107         5.46      6,729,254      94,750         5.60
Commercial:
Fixed- and adjustable-rate             2,284,318      30,479         5.29      2,682,193      37,565         5.57
Variable-rate                            998,562       9,124         3.62        855,918       8,116         3.77
Total commercial                       3,282,880      39,603         4.79      3,538,111      45,681         5.14
Leasing and equipment finance          3,261,638      40,281         4.94      3,164,592      42,152         5.33
Inventory finance                      1,637,538      24,820         6.01      1,440,298      22,395         6.19
Auto finance                             973,418      11,544         4.70        367,271       5,515         5.97
Other                                     12,299         258         8.34         16,280         320         7.83
Total loans and leases (3)            15,570,385     204,613         5.22     15,255,806     210,813         5.50
Total interest-earning assets         17,242,191     216,187         4.98     16,526,427     220,525         5.32
Other assets (4)                       1,060,409                               1,190,094
Total assets                      $   18,302,600                            $ 17,716,521
Liabilities and Equity:
Non-interest bearing deposits:
Retail                            $    1,435,958                            $  1,275,722
Small business                           777,538                                 746,511
Commercial and custodial                 347,971                                 324,739
Total non-interest bearing
deposits                               2,561,467                               2,346,972
Interest-bearing deposits:
Checking                               2,292,133         350          .06      2,255,561         698          .12
Savings                                6,238,462       3,574          .23      6,153,079       4,720          .31
Money market                             822,094         588          .28        848,899         816          .38
Subtotal                               9,352,689       4,512          .19      9,257,539       6,234          .27
Certificates of deposit                2,401,811       5,132          .85      1,953,208       4,523          .92
Total interest-bearing deposits       11,754,500       9,644          .33     11,210,747      10,757          .38
Total deposits                        14,315,967       9,644          .27     13,557,719      10,757          .32
Borrowings:
Short-term borrowings                      6,545          11          .59         65,531          39          .24
Long-term borrowings                   1,609,211       6,171         1.53      1,985,094       8,497         1.71
Total borrowings                       1,615,756       6,182         1.52      2,050,625       8,536         1.66
Total interest-bearing
liabilities                           13,370,256      15,826          .47     13,261,372      19,293          .58
Total deposits and borrowings         15,931,723      15,826          .39     15,608,344      19,293          .49
Other liabilities                        455,911                                 343,336
Total liabilities                     16,387,634                              15,951,680
Total TCF Financial Corp.
stockholders' equity                   1,899,282                               1,749,951
Non-controlling interest in
subsidiaries                              15,684                                  14,890
Total equity                           1,914,966                               1,764,841
Total liabilities and equity      $   18,302,600                            $ 17,716,521
Net interest income and margin                     $ 200,361       4.62 %                  $ 201,232       4.85 %

(1) Annualized.

(2) Average balances and yields of securities available for sale are based upon the historical amortized cost and exclude equity securities.

(3) Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.

(4) Includes operating leases.


Table of Contents

                                              Nine Months Ended                       Nine Months Ended
                                             September 30, 2013                      September 30, 2012
                                         Average               Yields and        Average               Yields and
(Dollars in thousands)                   Balance    Interest    Rates (1)        Balance    Interest    Rates (1)
Assets:
Investments and other             $      809,237   $  11,168       1.84 %   $    551,653   $   7,550       1.83 %
U.S. Government sponsored
entities:
Mortgage-backed securities, fixed
rate                                     655,949      13,878         2.82      1,175,514      30,529         3.46
U.S. Treasury securities                     461           -          .07              -           -            -
Other securities                             103           2         2.35            203           6         3.92
Total securities available for
sale (2)                                 656,513      13,880         2.82      1,175,717      30,535         3.46
Loans and leases held for sale           142,590       8,104         7.60         43,871       2,621         7.98
Loans and leases:
Consumer real estate:
Fixed-rate                             3,800,608     166,155         5.84      4,335,073     192,263         5.92
Variable-rate                          2,662,069     101,614         5.10      2,453,953      92,341         5.03
Total consumer real estate             6,462,677     267,769         5.54      6,789,026     284,604         5.60
Commercial:
Fixed- and adjustable-rate             2,384,194      94,287         5.29      2,716,583     113,017         5.56
Variable-rate                            937,264      24,992         3.57        779,531      23,179         3.97
Total commercial                       3,321,458     119,279         4.80      3,496,114     136,196         5.20
Leasing and equipment finance          3,232,873     121,184         5.00      3,146,345     129,261         5.48
Inventory finance                      1,731,022      78,285         6.05      1,392,828      64,811         6.22
Auto finance                             823,316      30,379         4.93        226,092      10,933         6.46
Other                                     12,996         797         8.21         17,166       1,025         7.97
Total loans and leases (3)            15,584,342     617,693         5.30     15,067,571     626,830         5.55
Total interest-earning assets         17,192,682     650,845         5.06     16,838,812     667,536         5.29
Other assets (4)                       1,098,845                               1,256,931
Total assets                      $   18,291,527                            $ 18,095,743
Liabilities and Equity:
Non-interest bearing deposits:
Retail                            $    1,446,184                            $  1,317,448
Small business                           758,156                                 726,732
Commercial and custodial                 334,978                                 313,240
Total non-interest bearing
deposits                               2,539,318                               2,357,420
Interest-bearing deposits:
Checking                               2,317,290       1,224          .07      2,258,843       2,482          .15
Savings                                6,130,052       9,733          .21      6,022,751      15,323          .34
Money market                             809,800       1,765          .29        753,486       2,144          .38
Subtotal                               9,257,142      12,722          .18      9,035,080      19,949          .29
Certificates of deposit                2,362,274      15,454          .87      1,567,258      10,067          .86
Total interest-bearing deposits       11,619,416      28,176          .32     10,602,338      30,016          .38
Total deposits                        14,158,734      28,176          .27     12,959,758      30,016          .31
Borrowings:
Short-term borrowings                      7,487          27          .47        401,305         904          .31
Long-term borrowings                   1,804,144      19,646         1.45      2,593,917      55,720         2.86
Total borrowings                       1,811,631      19,673         1.45      2,995,222      56,624         2.52
Total interest-bearing
liabilities                           13,431,047      47,849          .48     13,597,560      86,640          .85
Total deposits and borrowings         15,970,365      47,849          .40     15,954,980      86,640          .72
Other liabilities                        421,222                                 411,114
Total liabilities                     16,391,587                              16,366,094
Total TCF Financial Corp.
stockholders' equity                   1,882,363                               1,714,238
Non-controlling interest in
subsidiaries                              17,577                                  15,411
Total equity                           1,899,940                               1,729,649
Total liabilities and equity      $   18,291,527                            $ 18,095,743
Net interest income and margin                     $ 602,996       4.69 %                  $ 580,896       4.61 %

(1) Annualized.

(2) Average balances and yields of securities available for sale are based upon the historical amortized cost and exclude equity securities.

(3) Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.

(4) Includes operating leases.


Table of Contents

Net interest income, including the impact of tax-equivalent adjustments of $734 thousand, was $200.4 million for the third quarter of 2013, a decrease of .4% from $201.2 million for the same period of 2012. The decrease was driven by downward pressure on yields across the lending businesses due to the prolonged low interest rate environment, partially offset by increases in average loan and lease balances mainly driven by growth in the auto finance, inventory finance, and leasing and equipment finance businesses.

Net interest income, including the impact of tax-equivalent adjustments of $2.2 million, was $603 million for the first nine months of 2013, an increase of 3.8% from $580.9 million for the same period of 2012. The increase was primarily due to higher average loan balances mainly in the auto finance and inventory finance portfolios in addition to a significant reduction of interest costs on borrowings related to the balance sheet repositioning completed during the first quarter of 2012, partially offset by reduced interest income due to lower yields across the lending businesses.

Net interest margin was 4.62% and 4.85% for the third quarters of 2013 and 2012, respectively. The decrease from the third quarter of 2012 was primarily due to increased cash held at the Federal Reserve. Net interest margin was 4.69% and 4.61% for the first nine months of 2013 and 2012, respectively. The increase in the first nine months of 2013 was primarily due to lower average cost of borrowings as a result of the balance sheet repositioning in the first quarter of 2012, partially offset by lower yields on new loan originations.

Provision for Credit Losses The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses. The determination of the allowance for loan and lease losses and the related provision for credit losses is a critical accounting estimate which involves a number of factors, such as historical trends in net charge-offs, delinquencies in the loan and lease portfolio, value of collateral, general economic conditions and management's assessment of credit risk in the current loan and lease portfolio.

The following table summarizes the composition of TCF's provision for credit losses for the three and nine months ended September 30, 2013 and 2012.

                                    Three Months Ended September 30,            Change
(Dollars in thousands)                  2013                 2012            $         %
Consumer real estate          $   15,377      62.5 %  $ 66,231    68.8 % $ (50,854 ) (76.8 ) %
Commercial                         3,505      14.2      23,604    24.5     (20,099 ) (85.2 )
Leasing and equipment finance        899       3.7       3,402     3.5      (2,503 ) (73.6 )
Inventory finance                    390       1.6         313      .3          77    24.6
Auto finance                       3,430      13.9       1,887     2.0       1,543    81.8
Other                              1,001       4.1         838      .9         163    19.5
Total                         $   24,602     100.0 %  $ 96,275   100.0 % $ (71,673 ) (74.4 ) %




                                    Nine Months Ended September 30,             Change
(Dollars in thousands)                 2013                2012             $          %
Consumer real estate          $  71,729    75.0  % $ 141,428    71.1  % $  (69,699 ) (49.3 ) %
Commercial                       12,299    12.9       37,328    18.8       (25,029 ) (67.1 )
. . .
  Add TCB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TCB - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.