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 7-May-2014All Recent SEC Filings

Show all filings for TCF FINANCIAL CORP

Form 10-Q for TCF FINANCIAL CORP


7-May-2014

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. References herein to "TCF Financial" refer to TCF Financial Corporation on an unconsolidated basis. At March 31, 2014, TCF had 381 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 specific 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's philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low interest-cost deposits. TCF's growth strategies may include organic growth in existing businesses, 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, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 66.1% of TCF's total revenue for the three months ended March 31, 2014. 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 changes in 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. In addition, and in order to diversify TCF's non-interest income sources, the Company continues to enhance and increase loan sales in auto finance and consumer real estate.

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 months ended March 31, 2014 and 2013, 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 24 cents for the first quarter of 2014, compared with diluted earnings per common share of 16 cents for the first quarter of 2013. TCF reported net income of $39.9 million for the three months ended March 31, 2014, compared with net income of $25.5 million for the three months ended March 31, 2013.

Return on average assets was 1% for the first quarter of 2014, compared with .7% for the same period in 2013. Return on average common equity was 9.35% for the first quarter of 2014, compared with 6.36% for the same period in 2013.


Table of Contents

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 $46.7 million for the first quarter of 2014, compared with net income of $24.5 million for same period in 2013.

Lending net interest income for the first quarter of 2014 was $144.8 million, up 4.6% from $138.4 million for the same period in 2013. This increase was primarily due to higher average loan and lease balances driven by continued growth in the auto finance and inventory finance businesses, 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.

Lending provision for credit losses totaled $14.2 million for the first quarter of 2014, down 62.7% from $38.2 million for the same period in 2013. The decrease 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, as well as decreased net charge-offs in the commercial and consumer real estate portfolios due to improved credit quality and continued efforts to actively work out problem loans.

Lending non-interest income totaled $51.3 million for the first quarter of 2014, up 38.7% from $37 million for the same period in 2013. The increase was primarily due to customer-driven events impacting sales-type lease revenue in the leasing and equipment finance portfolio and an increase in gains on sales of consumer real estate loans and auto loans compared to the first quarter of 2013.

Lending non-interest expense totaled $105.5 million for the first quarter of 2014, up 9.6% from $96.3 million for the same period in 2013. The increase was primarily due to increased staff levels to support the growth of auto finance, and expenses related to higher incentives based on production results. This was partially offset 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.

Funding TCF's funding is primarily derived from branch banking and treasury borrowings, with a focus on building and maintaining quality customer relationships through free checking. Deposits are generated from consumers and small businesses providing 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 loss available to common stockholders of $104 thousand for the first quarter of 2014, compared with a net income available to common stockholders of $5.8 million for the same period in 2013.

Funding net interest income for the first quarter of 2014 was $57.2 million, down 6.9% from $61.4 million for the same period in 2013. The decrease was primarily due to a reduction of interest income as a result of lower levels of mortgage-backed securities.

Funding non-interest income totaled $51.7 million for the first quarter of 2014, down 7.2% from $55.7 million for the same period in 2013. The decrease was primarily due to lower transaction activity and higher average checking account balances per customer as activity was negatively impacted by the harsh winter weather experienced across the footprint, partially offset by a larger account base.

Funding non-interest expense totaled $108.7 million in the first quarter of 2014, up 1% from $107.7 million for the same period in 2013.

Consolidated Income Statement Analysis

Net Interest Income Net interest income, the difference between interest earned on loans and leases, securities, investments and other interest-earning assets (interest income), and interest paid on deposits and borrowings (interest expense), represented 66.1% of TCF's total revenue in the first quarter of 2014, compared with 68.2% in the first quarter of 2013. 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 both non-interest bearing deposits 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 table summarizes 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 March 31,
                                                                   2014                                        2013
                                                                                   Yields
                                                           Average                    and            Average             Yields and
                                                                                    Rates
(Dollars in thousands)                                     Balance        Interest    (1)            Balance    Interest  Rates (1)
Assets:
    Investments and other                        $        620,718   $       3,985   2.60  %   $     809,768  $    3,182       1.59  %
    Securities held to maturity                           142,181             964   2.71              5,652          64       4.53
    Securities available for sale:
         U.S. Government sponsored entities:
              Mortgage-backed securities, fixed
              rate                                        467,747           3,163   2.70            674,860       4,794       2.84
         U.S. Treasury securities                               -               -      -                900           -        .07
         Other securities                                      80               -   2.47                106           1       2.49
              Total securities available for
              sale (2)                                    467,827           3,163   2.70            675,866       4,795       2.84
    Loans and leases held for sale                        195,871           3,978   8.24            154,766       2,604       6.82
    Loans and leases:
         Consumer real estate:
              Fixed-rate                                3,498,832          48,532   5.62          3,916,709      57,058       5.91
              Variable-rate                             2,828,980          35,816   5.13          2,639,717      33,082       5.08
                    Total consumer real estate          6,327,812          84,348   5.41          6,556,426      90,140       5.58
         Commercial:
              Fixed-rate                                1,559,991          19,496   5.07          1,900,563      25,185       5.37
              Variable- and adjustable-rate             1,562,075          16,178   4.20          1,445,217      14,883       4.18
                    Total commercial                    3,122,066          35,674   4.63          3,345,780      40,068       4.86
         Leasing and equipment finance                  3,434,691          40,779   4.75          3,199,499      40,913       5.11
         Inventory finance                              1,862,745          27,469   5.98          1,686,364      25,605       6.16
         Auto finance                                   1,327,232          14,787   4.52            670,096       8,642       5.23
         Other                                             13,273             242   7.41             13,641         276       8.19
              Total loans and leases (3)               16,087,819         203,299   5.11         15,471,806     205,644       5.38
         Total interest-earning assets                 17,514,416         215,389   4.97         17,117,858     216,289       5.11
    Other assets (4)                                    1,094,923                                 1,126,694
         Total assets                            $     18,609,339                             $  18,244,552
Liabilities and Equity:
    Non-interest bearing deposits:
         Retail                                  $      1,537,066                             $   1,426,314
         Small business                                   771,825                                   744,168
         Commercial and custodial                         386,927                                   329,992
              Total non-interest bearing
              deposits                                  2,695,818                                 2,500,474
    Interest-bearing deposits:
         Checking                                       2,343,095             261    .05          2,308,263         497        .09
         Savings                                        6,120,155           2,529    .17          6,090,427       3,369        .22
         Money market                                     819,312             575    .28            815,374         630        .31
              Subtotal                                  9,282,562           3,365    .15          9,214,064       4,496        .20
         Certificates of deposit                        2,543,345           4,672    .74          2,323,267       5,185        .90
              Total interest-bearing deposits          11,825,907           8,037    .28         11,537,331       9,681        .34
         Total deposits                                14,521,725           8,037    .22         14,037,805       9,681        .28
    Borrowings:
         Short-term borrowings                             97,996              80    .33              8,631           8        .40
         Long-term borrowings                           1,494,095           5,236   1.41          1,927,139       6,770       1.41
              Total borrowings                          1,592,091           5,316   1.34          1,935,770       6,778       1.41
         Total interest-bearing liabilities            13,417,998          13,353    .40         13,473,101      16,459        .49
         Total deposits and borrowings                 16,113,816          13,353    .33         15,973,575      16,459        .42
    Other liabilities                                     508,689                                   390,825
         Total liabilities                             16,622,505                                16,364,400
    Total TCF Financial Corp. stockholders'
    equity                                              1,971,264                                 1,863,393
    Non-controlling interest in subsidiaries               15,570                                    16,759
         Total equity                                   1,986,834                                 1,880,152
         Total liabilities and equity            $     18,609,339                             $  18,244,552
Net interest income and margin                                      $     202,036   4.66  %                  $  199,830       4.72  %
(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 $762 thousand, was $202 million for the first quarter of 2014, an increase of 1.1% from $199.8 million for the same period of 2013. The increase in net interest income in the first quarter of 2014 was primarily 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 was 4.66% and 4.72% for the first quarter of 2014 and 2013, respectively. 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.

Provision for Credit Losses The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses which is a critical accounting estimate. TCF's methodologies for determining and allocating the allowance for loan and lease losses and the related provision for credit losses focus on 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 months ended March 31, 2014 and 2013.

                                                 Three Months Ended March 31,                       Change
(Dollars in thousands)                         2014                      2013                   $          %
Consumer real estate               $    7,079      48.8   %    $  31,957      83.3   %    $  (24,878)    (77.8) %
Commercial                                120        .8            4,830      12.6            (4,710)    (97.5)
Leasing and equipment finance             639       4.4           (2,286)     (6.0)            2,925       N.M.
Inventory finance                       1,677      11.6            1,625       4.2                52       3.2
Auto finance                            4,827      33.3            2,114       5.5             2,713     128.3
Other                                     150       1.1              143        .4                 7       4.9
           Total                   $   14,492     100.0   %    $  38,383     100.0   %    $  (23,891)    (62.2) %

TCF provided $14.5 million and $38.4 million for credit losses in the first quarters of 2014 and 2013, respectively. The decrease from the first quarter of 2013 was primarily due to decreased net charge-offs in the consumer real estate portfolio.

Net loan and lease charge-offs for the first quarters of 2014 and 2013 were $17.4 million, or .43% (annualized) of average loans and leases, and $41 million, or 1.06% (annualized) of average loans and leases, respectively. The decrease was primarily driven by improved credit quality in the consumer real estate portfolio as home values improve and incident rates of default decline as well as continued efforts to actively work out problem loans within the commercial portfolio.

For additional information, see "Consolidated Financial Condition Analysis - Credit Quality - Allowance for Loan and Lease Losses" in this Management's Discussion and Analysis.

Non-Interest Income Non-interest income is a significant source of revenue for TCF, representing 33.9% and 31.8% of total revenues for the first quarter of 2014 and 2013, respectively, and is an important factor in TCF's results of operations. Fees and other revenue were $103 million for the first quarter of 2014, compared with $92.7 million for the first quarter of 2013.

Fees and Service Charges Banking and service fees totaled $36.6 million and $39.3 million for the first quarter of 2014 and 2013, respectively. 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.

Card Revenue Card revenue, primarily interchange fees, totaled $12.3 million for the first quarter of 2014, compared with $12.4 million for the same period in 2013.


Table of Contents

TCF is the 15th largest issuer of Visa consumer debit cards and the 13th largest issuer of Visa small business debit cards in the United States, based on payment volume for the three months ended December 31, 2013, as provided by Visa. TCF earns interchange revenue from customer card transactions paid primarily by merchants, not TCF's customers. Card revenue represented 22.6% and 21.7% of banking fee revenue for the first quarter of 2014 and 2013, respectively.

Gains on Sales of Consumer Real Estate Loans, Net TCF sold $347.4 million and $279.2 million of consumer real estate loans and recognized gains of $11.7 million and $8.1 million for the first quarter of 2014 and 2013, respectively.

Gains on Sales of Auto Loans, Net TCF sold $261.7 million and $179.8 million of auto loans and recognized gains of $8.8 million and $7.1 million for the first quarter of 2014 and 2013, respectively. The increase in sales was primarily due to the continued growth of the auto finance business as TCF continues to sell a percentage of its originations each quarter.

Other Non-Interest Income Total other non-interest income totaled $6.4 million for the first quarter of 2014, compared with $3.7 million for the same period in 2013. The increase was primarily due to higher servicing fee income related to the continued growth of the auto finance and consumer real estate serviced for others portfolios.

Non-Interest Expense Non-interest expense totaled $217.1 million and $204.1 million for the three months ended March 31, 2014 and 2013, respectively, an increase of $13.1 million, or 6.4%.

Compensation and Employee Benefits Compensation and employee benefits expense totaled $115.1 million and $104.2 million for the first quarter of 2014 and 2013, respectively. The increase was 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.

Foreclosed Real Estate and Repossessed Assets, Net Foreclosed real estate and repossessed assets expense, net totaled $6.1 million for the three months ended March 31, 2014, compared to $10.2 million for the three months ended March 31, 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.

Income Taxes TCF recorded an income tax expense of $26.6 million for the first quarter of 2014, or 36.4% of income before income tax expense, compared with $17.6 million, or 35.6% for the comparable period in 2013.

Consolidated Financial Condition Analysis

Loans and Leases The following table sets forth information about loans and leases held in TCF's portfolio.

  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
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.