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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

 FORM 8-K
 
 CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):
November 27, 2017
 
 391240783_deluxetcfcorplogorgba35.jpg
 
TCF FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation)
001-10253
(Commission File Number)
41-1591444
(IRS Employer Identification No.)
 
200 Lake Street East, Mail Code EX0-03-A, Wayzata, Minnesota 55391-1693
(Address of principal executive offices, including Zip Code)
 
(952) 745-2760
(Registrant’s telephone number, including area code)
  
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

¨ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨







Item 2.05 Costs Associated With Exit or Disposal Activities.

On November 27, 2017, the Board of Directors of TCF Financial Corporation, a Delaware corporation (“TCF” or the “Company”) approved an executive management plan to discontinue all indirect auto loan originations by the Company, effective December 1, 2017. The determination was based on management’s review of strategic alternatives and the financial outlook of the indirect auto loan origination business compared with alternative uses of capital as part of the development of the Company's 2018 annual plan. TCF will continue to service existing auto loans on its balance sheet and auto loans serviced for others. Actions to wind down operations that support indirect auto originations will begin immediately and the servicing operations will be adjusted over time to support business requirements including the retention of the necessary staff. Additional costs may be incurred as the Company executes the plan.

As a result of these actions, TCF expects to recognize a one-time, after-tax charge in the fourth quarter of 2017 in an approximate amount between $80.4 million and $85.4 million consisting primarily of:
 
Approximately $73.4 million of goodwill and other intangible assets impairment; and
Between approximately $7.0 million and approximately $12.0 million related to items including severance, asset impairment and lease termination write-offs.

Of the amounts above, on a pre-tax basis, approximately $8.0 million to $16.0 million are expected to result in future cash expenditures. It is anticipated that the actions described will be substantially completed by the end of the first quarter of 2018. The ranges described above are only estimates and the actual charges incurred could differ materially from these estimates.

A copy of the news release announcing this action is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 2.06 Material Impairments.

The information set forth under Item 2.05 of this report on Form 8-K is incorporated by reference into this item 2.06.

Item 7.01 Regulation FD Disclosure.

Information is being furnished herein in Exhibit 99.2 with respect to the slide presentation prepared for use with the press release. The presentation is also available on the Investor Relations section of the Company’s web site at http://ir.tcfbank.com. Information contained herein, including Exhibit 99.2, shall not be deemed filed for the purposes of the Securities Exchange Act of 1934, nor shall such information and Exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such a filing.

Item 8.01. Other Events.

On November 27, 2017, the Company issued a news release announcing the replacement of its previous share repurchase program. Pursuant to the share repurchase program, the Company is authorized to repurchase up to $150.0 million in aggregate value of shares of the Company’s common stock. The timing and extent of any repurchases will depend upon market conditions, the trading price of the Company's shares and other factors. There are no assurances the Company will repurchase any shares, and the share repurchase may be commenced or suspended at any time or from time to time by the Company.

A copy of the news release announcing this action is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.
 
(d)         Exhibits.    
Exhibit No.
Description
 
 
 
 
 
 
 
 





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
TCF FINANCIAL CORPORATION
 
 
 
 
 
/s/ Craig R. Dahl
 
Craig R. Dahl,
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
/s/ Brian W. Maass
 
Brian W. Maass,
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
 
 
 
 
 
/s/ Susan D. Bode
 
Susan D. Bode,
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
 
Dated:  November 27, 2017



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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1

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NEWS RELEASE

TCF Financial Corporation • 200 Lake Street East • Wayzata MN 55391


FOR IMMEDIATE RELEASE    

Contact:
Mark Goldman     (952) 475-7050     news@tcfbank.com     (Media)
Jason Korstange     (952) 745-2755        investor@tcfbank.com    (Investors)



TCF TO DISCONTINUE INDIRECT AUTO ORIGINATIONS,
AUTHORIZES NEW SHARE REPURCHASE PROGRAM
    
Actions expected to improve return on capital and earnings per share in 2018
TCF to continue servicing existing auto portfolio (owned and serviced for others)
    
WAYZATA, Minn. (November 27, 2017) - TCF Financial Corporation (TCF) (NYSE: TCF) today announced that it will discontinue all indirect auto loan originations, effective December 1, 2017. TCF will continue to service existing auto loans on its balance sheet and auto loans serviced for others. Concurrent with the discontinuation of indirect auto originations, TCF’s board of directors has approved the replacement of its previous share repurchase program with a new authorization to repurchase up to $150 million of TCF common stock. The shares are expected to be acquired from time to time subject to market conditions.

“After a thorough review of our businesses by our executive management team and board of directors, we determined that the financial outlook of the indirect auto loan origination business was less favorable compared to alternative uses of capital,” said Craig R. Dahl, chairman and chief executive officer. “As a result, we believe this is the appropriate time to discontinue originating indirect auto loans. While the business performed as expected under the new direction we set earlier in the year, we believe there are better opportunities to deploy our capital and earn a higher return for our shareholders.”

As a result of the decision to discontinue all indirect auto loan originations, TCF expects to recognize a one-time, after-tax charge in the fourth quarter of 2017 in two components; 1) an after-tax charge for goodwill and other intangibles of $73.4 million and 2) an after-tax restructuring charge between approximately $7.0 million and $12.0 million for items such as severance, asset impairment and lease termination write-offs. Actions to wind down operations that support indirect auto originations will begin immediately and the servicing operations will be adjusted over time to support business requirements, including the retention of the necessary staff. Additional costs may be incurred as the Company executes the plan.




“We are confident that the actions we are taking will meaningfully improve our return on capital and earnings per share in 2018,” added Dahl. “We remain committed to making decisions that will drive shareholder value moving forward.”

A slide presentation with additional management commentary regarding today’s announcements is available on the Investor Relations section of TCF’s website, http://ir.tcfbank.com.

About TCF
TCF is a Wayzata, Minnesota-based national bank holding company. As of September 30, 2017, TCF had $23.0 billion in total assets and 321 bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota, providing retail and commercial banking services. TCF, through its subsidiaries, also conducts commercial leasing, equipment finance, and auto finance business in all 50 states and commercial inventory finance business in all 50 states and Canada. For more information about TCF, please visit http://ir.tcfbank.com.

Safe Harbor for Forward-Looking Information
This press release contains “forward-looking” statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements deal with future results, plans or performance. Such statements may be identified by such words or phrases as "will likely result," "expect," "outlook," "will benefit," "is anticipated," "estimate," "project," " believes" or similar expressions. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from our expectations, including, among other things, (i) the risk that impairment charges related to discontinuing indirect auto loan originations may be larger than currently anticipated, (ii) the risk that investments in other opportunities may not achieve rates of return that meet our expectations, and (iii) the risk that we may not be able to achieve increases in our return on capital and earnings per share. Please see the forward-looking statement disclosure contained in TCF’s 2017 third quarter Report on Form 10-Q for more information about risks and uncertainties. Forward-looking statements speak only as of the date made and TCF undertakes no duty to update the information.

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TCF to Discontinue Indirect Auto Originations, Authorizes New Share Repurchase Program - page 2

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Section 3: EX-99.2 (EXHIBIT 99.2)

exhibit992presentation11
TCF to Discontinue Indirect Auto Originations, Authorizes New Share Repurchase Program November 27, 2017


 
TCF Discontinues Indirect Auto Originations • Effective December 1, 2017, TCF will discontinue all indirect auto loan originations • Will continue to service existing auto portfolio (owned and serviced for others) • Capital to be redeployed via capital optimization strategies, including a share repurchase program • Cash from run-off of indirect auto balances to be reinvested into investment portfolios or used to fund loan and lease growth 2 EXPECTED 4Q17 IMPACT • One-time, after-tax charge with two components: • Approximately $73.4 million charge related to goodwill and other intangible assets • Approximately $7.0 million to $12.0 million restructuring charge for items such as severance, asset impairment and lease termination write-offs


 
Rationale for Discontinuing Indirect Auto Originations • Based primarily on long-term profitability expectations and capital optimization • Believe opportunities exist to earn a higher return on capital by reallocating funding and capital currently invested in indirect auto • Aligns with board of directors and executive management focus on optimizing shareholder value 3


 
Share Repurchase Program and 2018 Outlook • TCF's board of directors has replaced the previous share repurchase authorization with a new authorization to repurchase up to $150 million of common stock • Discontinuation of indirect auto originations and share repurchase authorization expected to result in meaningful improvements in 2018 key metrics: • Improvement in earnings per share • Improvement in return on average tangible common equity1 • Reduction in efficiency ratio • Expected tangible book value2 payback period of less than one year 4 1 For information on how TCF calculates return on average tangible common equity and for TCF's return on average tangible common equity as of September 30, 2017, see "Reconciliation of GAAP to Non-GAAP Financial Measures - Return on Average Tangible Common Equity" slide 2 See "Reconciliation of GAAP to Non-GAAP Financial Measures - Tangible Common Equity Ratio and Tangible Book Value Per Common Share" slide


 
Closing Thoughts Actions Expected to Drive Improved Profitability Committed to Decisions that Drive Shareholder Value • Improved profitability of standalone auto business in 2018 • Redeployment of capital into share repurchase program • Reinvestment of funding into other asset classes • Taking actions to discontinue indirect auto loan originations and restart share repurchase program at this time are in the best long- term interest of our shareholders 5


 
Cautionary Statements for Purposes of the Safe Harbor Provisions of the Securities Litigation Reform Act Any statements contained in this presentation regarding the outlook for the Company's businesses and their respective markets, such as projections of future performance, targets, guidance, statements of the Company's plans and objectives, forecasts of market trends and other matters, are forward- looking statements based on the Company's assumptions and beliefs. Such statements may be identified by such words or phrases as "will likely result," "are expected to," "will continue," "outlook," "will benefit," "is anticipated," "estimate," "project," "management believes" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, TCF claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events. Certain factors could cause the Company's future results to differ materially from those expressed or implied in any forward-looking statements contained herein. These factors include the factors discussed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2016 under the heading "Risk Factors", the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive. Adverse Economic or Business Conditions; Competitive Conditions; Credit and Other Risks. Deterioration in general economic and banking industry conditions, including those arising from government shutdowns, defaults, anticipated defaults or rating agency downgrades of sovereign debt (including debt of the U.S.), or increases in unemployment; adverse economic, business and competitive developments such as shrinking interest margins, reduced demand for financial services and loan and lease products, deposit outflows, increased deposit costs due to competition for deposit growth and evolving payment system developments, deposit account attrition or an inability to increase the number of deposit accounts; customers completing financial transactions without using a bank; adverse changes in credit quality and other risks posed by TCF's loan, lease, investment, securities held to maturity and securities available for sale portfolios, including declines in commercial or residential real estate values, changes in the allowance for loan and lease losses dictated by new market conditions or regulatory requirements, or the inability of home equity line borrowers to make increased payments caused by increased interest rates or amortization of principal; deviations from estimates of prepayment rates and fluctuations in interest rates that result in decreases in the value of assets such as interest-only strips that arise in connection with TCF's loan sales activity; interest rate risks resulting from fluctuations in prevailing interest rates or other factors that result in a mismatch between yields earned on TCF's interest-earning assets and the rates paid on its deposits and borrowings; foreign currency exchange risks; counterparty risk, including the risk of defaults by our counterparties or diminished availability of counterparties who satisfy our credit quality requirements; decreases in demand for the types of equipment that TCF leases or finances; the effect of any negative publicity; the effects of man-made and natural disasters, including fires, floods, tornadoes, hurricanes, acts of terrorism, civil disturbances and environmental damage, which may negatively affect our operations and/or our customers. Legislative and Regulatory Requirements. New consumer protection and supervisory requirements and regulations, including those resulting from action by the Consumer Financial Protection Bureau ("CFPB") and changes in the scope of Federal preemption of state laws that could be applied to national banks and their subsidiaries; the imposition of requirements that adversely impact TCF's deposit, lending, loan collection and other business activities such as mortgage foreclosure moratorium laws, further regulation of financial institution campus banking programs, restrictions on arbitration, or new restrictions on loan and lease products; changes affecting customer account charges and fee income, including changes to interchange rates; (continued) 6


 
Cautionary Statements for Purposes of the Safe Harbor Provisions of the Securities Litigation Reform Act (cont.) regulatory actions or changes in customer opt-in preferences with respect to overdrafts, which may have an adverse impact on TCF; governmental regulations or judicial actions affecting the security interests of creditors; deficiencies in TCF's compliance programs, including under the Bank Secrecy Act in past or future periods, which may result in regulatory enforcement action including monetary penalties; increased health care costs including those resulting from health care reform; regulatory criticism and resulting enforcement actions or other adverse consequences such as increased capital requirements, higher deposit insurance assessments or monetary damages or penalties; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to enterprise risk management, the Bank Secrecy Act and anti-money laundering compliance activity. Earnings/Capital Risks and Constraints, Liquidity Risks. Limitations on TCF's ability to pay dividends or to increase dividends because of financial performance deterioration, regulatory restrictions or limitations; increased deposit insurance premiums, special assessments or other costs related to adverse conditions in the banking industry; the impact on banks of regulatory reform, including additional capital, leverage, liquidity and risk management requirements or changes in the composition of qualifying regulatory capital; adverse changes in securities markets directly or indirectly affecting TCF's ability to sell assets or to fund its operations; diminished unsecured borrowing capacity resulting from TCF credit rating downgrades or unfavorable conditions in the credit markets that restrict or limit various funding sources; costs associated with new regulatory requirements or interpretive guidance including those relating to liquidity; uncertainties relating to future retail deposit account changes, including limitations on TCF's ability to predict customer behavior and the impact on TCF's fee revenues. Branching Risk; Growth Risks. Adverse developments affecting TCF's supermarket banking relationships or either of the primary supermarket chains in which TCF maintains supermarket branches; costs related to closing underperforming branches; inability to timely close underperforming branches due to long-term lease obligations; slower than anticipated growth in existing or acquired businesses; inability to successfully execute on TCF's growth strategy through acquisitions or expanding existing business relationships; failure to expand or diversify TCF's balance sheet through new or expanded programs or opportunities; failure to effectuate, and risks of claims related to, sales and securitizations of loans; risks related to new product additions and addition of distribution channels (or entry into new markets) for existing products. Technological and Operational Matters. Technological or operational difficulties, loss or theft of information, cyber-attacks and other security breaches, counterparty failures and the possibility that deposit account losses (fraudulent checks, etc.) may increase; failure to keep pace with technological change, such as by failing to develop and maintain technology necessary to satisfy customer demands, costs and possible disruptions related to upgrading systems; the failure to attract and retain key employees. Litigation Risks. Results of litigation or government enforcement actions such as TCF's pending litigation with the CFPB and related matters, including class action litigation or enforcement actions concerning TCF's lending or deposit activities, including account opening/origination, servicing practices, fees or charges, employment practices, or checking account overdraft program "opt in" requirements; possible increases in indemnification obligations for certain litigation against Visa U.S.A. Accounting, Audit, Tax and Insurance Matters. Changes in accounting standards or interpretations of existing standards; federal or state monetary, fiscal or tax policies, including adoption of state legislation that would increase state taxes; ineffective internal controls; adverse federal, state or foreign tax assessments or findings in tax audits; lack of or inadequate insurance coverage for claims against TCF; potential for claims and legal action related to TCF's fiduciary responsibilities. 7


 
Reconciliation of GAAP to Non-GAAP Financial Measures – Return on Average Tangible Common Equity1 QTD QTD Dec. 31, 20162 Sep. 30, 20172 Net income available to common stockholders (a) $ 45,245 $ 48,285 Plus: Other intangibles amortization 290 806 Less: Income tax expense attributable to other intangibles amortization 103 277 Adjusted net income available to common stockholders (b) $ 45,432 $ 48,814 Average balances: Total equity $ 2,436,136 $ 2,577,017 Less: Non-controlling interest in subsidiaries 18,914 22,350 Total TCF Financial Corporation stockholders' equity 2,417,222 2,554,667 Less: Preferred stock 263,240 265,556 Average total common stockholders' equity (c) 2,153,982 2,289,111 Less: Goodwill 225,640 227,539 Other intangibles 1,872 22,279 Average tangible common equity (d) $ 1,926,470 $ 2,039,293 Return on average common equity3 (a) / (c) 8.40% 8.44% Return on average tangible common equity3 (b) / (d) 9.43% 9.57% ($ thousands) 1 When evaluating capital adequacy and utilization, management considers financial measures such as return on average tangible common equity. This measure is a non-GAAP financial measure and is viewed by management as a useful indicator of capital levels available to withstand unexpected market or economic conditions, and also provide investors, regulators and other users with information to be viewed in relation to other banking institutions. 2 Amounts are as previously reported in the 2017 Third Quarter Earnings Presentation, dated October 27, 2017 3 Annualized 8


 
Reconciliation of GAAP to Non-GAAP Financial Measures – Tangible Common Equity Ratio and Tangible Book Value Per Common Share1 At Adjusted3 Sep. 30, 20172 Sep. 30, 2017 Total equity $ 2,596,514 $ 2,513,596 Less: Non-controlling interest in subsidiaries 19,906 19,906 Total TCF Financial Corporation stockholders' equity 2,576,608 2,493,690 Less: Preferred stock 265,967 265,967 Total common stockholders' equity (a) 2,310,641 2,227,723 Less: Goodwill 227,798 154,757 Other intangibles 21,874 21,497 Tangible common equity (b) $ 2,060,969 $ 2,051,469 Total assets (c) $ 23,005,038 $ 22,931,620 Less: Goodwill 227,798 154,757 Other intangibles 21,874 21,497 Tangible assets (d) $ 22,755,366 $ 22,755,366 Common stock shares outstanding (e) 171,833,926 171,833,926 Common equity ratio (a) / (c) 10.04% 9.71% Tangible common equity ratio (b) / (d) 9.06% 9.02% Book value per common share (a) / (e) $ 13.45 $ 12.96 Tangible book value per common share (b) / (e) $ 11.99 $ 11.94 1 When evaluating capital adequacy and utilization, management considers financial measures such as the tangible common equity ratio and tangible book value per common share. These measures are non-GAAP financial measures and are viewed by management as useful indicators of capital levels available to withstand unexpected market or economic conditions, and also provide investors, regulators and other users with information to be viewed in relation to other banking institutions. 2 Amounts are as previously reported in the 2017 Third Quarter Earnings Release, dated October 27, 2017 3 Adjusted for one-time, after-tax charges of $73.4 million in relation to goodwill and other intangible assets impairment and $9.5 million, representing the mid-range estimate, of restructuring charges ($ thousands, except per share data) 9


 
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