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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):  January 24, 2012

 

 

 

TCF FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

200 Lake Street East, Mail Code EX0-03-A, Wayzata, Minnesota 55391-1693

(Address of principal executive offices)

 

(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:

 

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02  Results of Operations and Financial Condition.

 

The following information, including Exhibit 99.1, shall not be deemed filed for purposes of Section 18 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 may be expressly set forth by specific reference in such a filing.

 

TCF Financial Corporation (the “Company”) issued a press release dated January 24, 2012, attached to this Form 8-K as Exhibit 99.1, announcing its results of operations for the quarter and year ended December 31, 2011.

 

The earnings release is also available on the Investor Relations section of the Company’s web site at http://ir.tcfbank.com.  The Company’s Annual Report to Shareholders and its reports on Forms 10-K, 10-Q and 8-K and other publicly available information should be consulted for other important information about the Company.

 

Item 9.01  Financial Statements and Exhibits.

 

(d)      Exhibits.

 

 

2

 

 

 

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.

 

 

 

Dated:  January 24, 2012

 

3

 

 

 

CONTACT:  Jason Korstange

(952) 745-2755

www.tcfbank.com

 

TCF FINANCIAL CORPORATION 200 Lake Street East, Wayzata, MN 55391-1693

 

TCF Reports 21st Consecutive Year of Net Income – Earns $109.4 Million

 

2011 HIGHLIGHTS

·                 Diluted earnings per common share of 71 cents

·                 Net income of $109.4 million

·                 Net interest margin of 3.99 percent

·                 Average deposits increased $404.3 million, or 3.5 percent

·                 Non-performing assets declined $53.1 million, or 10.9 percent

·                 Increased total equity by $398.5 million, Tier 1 common capital increased 18.4 percent to 11.74 percent of risk-weighted assets

 

FOURTH QUARTER HIGHLIGHTS

·                 Diluted earnings per common share of 10 cents

·                 Net income of $16.4 million

·                 Net interest margin of 3.92 percent

·                 Non-performing assets declined $4.9 million from the third quarter of 2011

·                 Completed acquisition of Gateway One Lending & Finance, LLC

·                 Announced quarterly cash dividend of 5 cents per common share, payable February 29, 2012

 

Earnings Summary																Table 1
($ in thousands, except per-share data)								Percent Change
		4Q 2011		3Q 2011		4Q 2010		4Q11 vs 3Q11		4Q11 vs 4Q10		YTD 2011		YTD 2010		Percent Change
Net income		$16,443		$32,255		$33,873		(49.0)%		(51.5)%		$109,394		$150,947		(27.5)%
Diluted earnings per common share		.10		.20		.24		(50.0)		(58.3)		.71		1.08		(34.3)
Financial Ratios (1)
Return on average assets		.37	%	.71	%	.75	%					.61	%	.85	%
Return on average common equity		3.55		7.12		9.09						6.32		10.67
Net interest margin		3.92		3.96		4.05						3.99		4.15
Net charge-offs as a percentage of average loans and leases		1.63		1.48		1.75						1.45		1.47
(1) Annualized.

 

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WAYZATA, MN, January 24, 2012 – TCF Financial Corporation (“TCF”) (NYSE: TCB) today reported net income for the fourth quarter of 2011 of $16.4 million, compared with $33.9 million in the fourth quarter of 2010 and $32.3 million in the third quarter of 2011.  Diluted earnings per common share was 10 cents for the fourth quarter of 2011, compared with 24 cents in the fourth quarter of 2010 and 20 cents in the third quarter of 2011. As previously reported, TCF elected to change its method of accounting for defined benefit retirement plans in 2011. All prior periods have been retrospectively restated for this accounting change.

 

Net income for the year ended December 31, 2011 was $109.4 million, compared with $150.9 million for 2010.  Diluted earnings per common share for the year ended December 31, 2011 was 71 cents, compared with $1.08 for 2010.

 

TCF declared a quarterly cash dividend of five cents per common share payable on February 29, 2012 to stockholders of record at the close of business on January 27, 2012.

 

Chairman’s Statement

 

“TCF’s 21st consecutive year of profitability was impacted by the full effect of the Durbin Amendment, start-up costs related to specialty finance and a sluggish economy,” said William A. Cooper, Chairman and Chief Executive Officer. “Despite non-performing assets declining for a fifth consecutive quarter, credit quality remains a challenge in the current environment and is delaying TCF’s return to more normal levels of provision. While the fourth quarter was not as profitable for us as other quarters during this economic cycle, we are excited about the strategic changes that have begun at TCF.”

 

“As we begin the new year, we are encouraged by the potential for strong asset growth as we reposition TCF for the future. We will continue to implement various revenue-producing and expense reduction strategies throughout the company to mitigate the impact of the current regulatory changes as well as maintain our focus on working through potential problem loans to minimize credit costs. I am pleased with the new direction in which TCF is headed and optimistic about our ability to increase shareholder value in 2012.”

 

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3

 

Total Revenue																		Table 2
								Percent Change
($ in thousands)		4Q 2011		3Q 2011		4Q 2010		4Q11 vs 3Q11			4Q11 vs 4Q10			YTD 2011		YTD 2010		Percent Change
Net interest income		$173,434		$176,064		$174,286		(1.5)	%		(.5)	%		$  699,688		$  699,202		.1%
Fees and other revenue:
Fees and service charges		51,002		58,452		61,480		(12.7)			(17.0)			219,363		273,181		(19.7)
Card revenue		13,643		27,701		27,625		(50.7)			(50.6)			96,147		111,067		(13.4)
ATM revenue		6,608		7,523		6,985		(12.2)			(5.4)			27,927		29,836		(6.4)
Total banking fees		71,253		93,676		96,090		(23.9)			(25.8)			343,437		414,084		(17.1)
Leasing and equipment finance		18,492		21,646		23,402		(14.6)			(21.0)			89,167		89,194		N.M.
Other		1,570		786		817		99.7			92.2			3,434		5,584		(38.5)
Total fees and other revenue		91,315		116,108		120,309		(21.4)			(24.1)			436,038		508,862		(14.3)
Subtotal		264,749		292,172		294,595		(9.4)			(10.1)			1,135,726		1,208,064		(6.0)
Gains on securities, net		5,842		1,648		21,185		N.M.			(72.4)			7,263		29,123		(75.1)
Gains on sales of loans		1,133		-		-		N.M.			N.M.			1,133		-		N.M.
Total revenue		$271,724		$293,820		$315,780		(7.5)			(14.0)			$1,144,122		$1,237,187		(7.5)
Net interest margin(1)		3.92	%	3.96	%	4.05	%							3.99	%	4.15	%
Fees and other revenue as a % of total revenue		33.61		39.52		38.10								38.11		41.13
N.M. = Not meaningful.
(1) Annualized.

 

Net Interest Income

 

·    Net interest income for the fourth quarter of 2011 decreased $852 thousand, or .5 percent, compared with the fourth quarter of 2010 and $2.6 million, or 1.5 percent, compared with the third quarter of 2011. The decrease in net interest income from the fourth quarter of 2010 was primarily due to the following changes in loans and leases: reduced levels of higher yielding fixed-rate consumer real estate loans and decreases in leasing and equipment finance and commercial real estate portfolio balances and average yields, partially offset by reductions in the average deposit rates. The decrease in net interest income from the third quarter of 2011 was primarily due to the following changes in loans and leases: lower average balances in inventory finance, commercial real estate and consumer real estate loans.

 

·    Net interest margin in the fourth quarter of 2011 was 3.92 percent, compared with 4.05 percent in the fourth quarter of 2010 and 3.96 percent in the third quarter of 2011. The decrease in net interest margin from both periods was primarily due to increased asset liquidity and decreased levels of higher yielding loans and leases as a result of the lower interest rate environment. These changes were partially offset by a lower average cost of deposits and borrowings.

 

·    TCF maintained a high level of asset liquidity during the fourth quarter of 2011, which had an impact on net interest margin.  Interest-bearing deposits held at the Federal Reserve and unencumbered securities

 

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4

 

were $1.4 billion at December 31, 2011, a decrease of $72 million from the third quarter of 2011 and an increase of $905 million from the fourth quarter of 2010.  Our strong liquidity position reduced net interest margin percentage for the fourth quarter of 2011 by 15 basis points, compared with the fourth quarter of 2010, and by 2 basis points from the third quarter of 2011.

 

Non-interest Income

 

·    Banking fees and service charges in the fourth quarter of 2011 were $51 million, down $10.5 million, or 17 percent, from the fourth quarter of 2010 and down $7.5 million, or 12.7 percent, from the third quarter of 2011. The decline in banking fees and revenues from the fourth quarter of 2010 was primarily due to changes in customer behavior and increased levels of checking account attrition, some of which is in connection with new fees and service charges introduced in the fourth quarter of 2011. The decline from the third quarter of 2011 was primarily due to changes in customer behavior, a lower number of checking accounts and seasonality of items processed.

 

·    Card revenues were $13.6 million in the fourth quarter of 2011, down $14 million, or 50.6 percent, from the fourth quarter of 2010 and down $14.1 million, or 50.7 percent, from the third quarter of 2011. Compared with the fourth quarter of 2010 and third quarter of 2011, the average interchange rate per transaction decreased slightly more than 50 percent due to new debit card interchange regulations which took effect on October 1, 2011.

 

·    Leasing and equipment finance revenues were $18.5 million in the fourth quarter of 2011, down $4.9 million, or 21 percent, from the fourth quarter of 2010 and down $3.2 million, or 14.6 percent, from the third quarter of 2011. Decreases from both the fourth quarter of 2010 and the third quarter of 2011 were attributable to lower levels of customer initiated lease activity.

 

·    Subsequent to the acquisition of Gateway One Lending & Finance (“Gateway One”) on November 30, 2011, TCF sold $37.4 million of auto loans and recognized $1.1 million in associated gains.

 

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Loans and Leases

 

Average Loans and Leases																		Table 3
								Percent Change
($ in thousands)		4Q 2011		3Q   2011		4Q   2010		4Q11 vs 3Q11			4Q11 vs 4Q10			YTD 2011		YTD 2010		Percent Change
Consumer real estate
First mortgage lien		$ 4,771,104		$ 4,808,881		$ 4,924,399		(.8)	%		(3.1)	%		$ 4,820,354		$ 4,934,257		(2.3)	%
Junior lien		2,161,947		2,176,940		2,272,857		(.7)			(4.9)			2,192,927		2,296,400		(4.5)
Total		6,933,051		6,985,821		7,197,256		(.8)			(3.7)			7,013,281		7,230,657		(3.0)
Consumer other		19,386		18,183		23,283		6.6			(16.7)			19,687		26,577		(25.9)
Total consumer		6,952,437		7,004,004		7,220,539		(.7)			(3.7)			7,032,968		7,257,234		(3.1)
Commercial		3,476,660		3,564,198		3,650,906		(2.5)			(4.8)			3,565,085		3,687,024		(3.3)
Leasing and equipment finance		3,043,329		3,066,208		3,155,472		(.7)			(3.6)			3,074,207		3,056,006		.6
Inventory finance		766,885		826,198		803,157		(7.2)			(4.5)			856,271		677,214		26.4)
Total		$14,239,311		$14,460,608		$14,830,074		(1.5)			(4.0)			$14,528,531		$14,677,478		(1.0)
N.M. Not meaningful

 

·         Average consumer real estate loan balances decreased $264.2 million, or 3.7 percent, from the fourth quarter of 2010 and declined $52.8 million, or .8 percent, from the third quarter of 2011.  Decreases reflect a decline in production of new loans, as marketplace yields available for fixed-rate loans are not as attractive to TCF versus variable-rate loans at their current levels.

 

·         Average fixed-rate consumer real estate loans decreased $346.5 million from the fourth quarter of 2010 and $64.7 million from the third quarter of 2011, while average variable-rate consumer real estate loans increased $82.3 million from the fourth quarter of 2010 and $11.9 million from the third quarter of 2011. Variable-rate loans comprised 35 percent of total consumer real estate loans at December 31, 2011, up from 33 percent at December 31, 2010 and 34.5 percent at September 30, 2011.

 

·                 Average commercial loan balances in the fourth quarter of 2011 decreased $174.2 million, or 4.8 percent, from the fourth quarter of 2010 and decreased $87.5 million, or 2.5 percent, from the third quarter of 2011.  The decreases for both periods were primarily due to higher levels of payments in excess of new origination volume.

 

·         Average leasing and equipment finance loan and lease balances in the fourth quarter of 2011 decreased $112.1 million, or 3.6 percent, from the fourth quarter of 2010 and $22.9 million, or .7 percent, from the third quarter of 2011. The decrease from both periods was primarily due to runoff of acquired portfolios, partially offset by growth in core market segments. Leasing and equipment finance originations of $1.5 billion during 2011 represent an increase of $224.2 million, or 17.8 percent, compared with 2010.

 

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·    Average inventory finance loans were $766.9 million in the fourth quarter of 2011, a decrease of $36.3 million, or 4.5 percent, from the fourth quarter of 2010 and $59.3 million, or 7.2 percent, from the third quarter of 2011.  The decrease from the fourth quarter of 2010 was primarily due to the termination of a lawn and garden program and the transitioning of an electronics and appliance program to a servicing-only program. The decrease from the third quarter of 2011 was primarily due to the termination of the lawn and garden program.

 

·    Gateway One provides strong growth potential due to the large auto lending marketplace (2nd largest consumer finance market in the U.S.). Auto loans, which are included in consumer other and loans and leases held for sale, are expected to grow throughout 2012 while Gateway One transitions from an originate-to-sell model to an originate-to-hold model. Gateway One increased its portfolio of managed loans, including loans held for investment, loans held for sale and loans sold and serviced, to $437.7 million at December 31, 2011 from $416.1 million at November 30, 2011.

 

·    TCF increased small business lending 2.5 percent since the fourth quarter of 2010 while small business lending across the U.S. declined 3.8 percent through the third quarter of 2011.

 

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Credit Quality

 

 

 

·                  Overall favorable trends in non-performing assets continue and over 60-day delinquencies and net charge-offs remain below peak 2010 levels.

 

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Credit Quality Summary of Performing and Underperforming Loans and Leases																				Table 5
											60+ Days
($ in thousands)		Performing Loans and Leases									Delinquent and			Accruing			Non-accrual			Total Loans
December 31, 2011:		Non-classified			Classified(1)			Total			Accruing(2)			TDRs			Loans and Leases			and Leases
Consumer real estate and other		$	6,271,575		$	-		$	6,271,575		$	79,765		$	433,078		$	149,386		$	6,933,804
Commercial		2,987,876			234,501			3,222,377			1,148			98,448			127,519			3,449,492
Leasing and equipment finance		3,093,194			21,451			3,114,645			6,255			776			20,583			3,142,259
Inventory finance		616,677			7,040			623,717			160			-			823			624,700
Total loans and leases		$	12,969,322		$	262,992		$	13,232,314		$	87,328		$	532,302		$	298,311		$	14,150,255
Percent of total loans and leases		91.6%			1.9%			93.5%			.6%			3.8%			2.1%			100.0%
											60+ Days
($ in thousands)		Performing Loans and Leases									Delinquent and			Accruing			Non-accrual			Total Loans
September 30, 2011:		Non-classified			Classified(1)			Total			Accruing(2)			TDRs			Loans and Leases			and Leases
Consumer real estate and other		$	6,405,059		$	-		$	6,405,059		$	71,179		$	378,773		$	148,898		$	7,003,909
Commercial		2,969,048			304,613			3,273,661			1,266			87,610			133,260			3,495,797
Leasing and equipment finance		2,953,215			28,574			2,981,789			4,709			860			24,437			3,011,795
Inventory finance		819,727			7,102			826,829			308			-			1,077			828,214
Total loans and leases		$	13,147,049		$	340,289		$	13,487,338		$	77,462		$	467,243		$	307,672		$	14,339,715
Percent of total loans and leases		91.7%			2.4%			94.1%			.5%			3.3%			2.1%			100.0%
											60+ Days
		Performing Loans and Leases									Delinquent and			Accruing			Non-accrual			Total Loans
December 31 , 2010:		Non-classified			Classified(1)			Total			Accruing(2)			TDRs			Loans and Leases			and Leases
Consumer real estate and other		$	6,613,610		$	-		$	6,613,610		$	76,711		$	337,401		$	167,547		$	7,195,269
Commercial		3,091,911			354,185			3,446,096			9,021			48,838			142,248			3,646,203
Leasing and equipment finance		3,073,347			35,695			3,109,042			11,029			-			34,407			3,154,478
Inventory finance		785,245			5,710			790,955			344			-			1,055			792,354
Total loans and leases		$	13,564,113		$	395,590		$	13,959,703		$	97,105		$	386,239		$	345,257		$	14,788,304
Percent of total loans and leases		91.7%			2.7%			94.4%			.7%			2.6%			2.3%			100.0%
(1) Excludes classified loans and leases that are 60+ days delinquent and accruing or accruing TDRs.
(2) Excludes accruing TDRs that are 60+ days delinquent.

At December 31, 2011:

 

·                 The combined balance of performing classified loans and leases, over 60-day delinquent and accruing loans and leases, accruing troubled debt restructurings (“TDR”) and non-accrual loans and leases was $1.2 billion at December 31, 2011, a decrease of $11.7 million from September 30, 2011, down for the fourth consecutive quarter. This was primarily due to decreases in classified and non-accrual commercial real estate loans, partially offset by increases in accruing TDRs in both the commercial real estate and consumer real estate portfolios.

 

·                 Over 60-day delinquency rate was .85 percent, up from .80 percent at December 31, 2010 and up from .75 percent at September 30, 2011. The increase from the fourth quarter of 2010 and from the third quarter of 2011 was primarily due to increases in consumer real estate first mortgage delinquencies, partially offset by decreases in commercial real estate delinquencies.

 

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9

 

·                 Total non-accrual loans and leases and other real estate owned (non-performing assets) were $433.2 million at December 31, 2011, a decrease of $53.1 million, or 10.9 percent, from December 31, 2010 and a decrease of $4.9 million, or 1.1 percent, from September 30, 2011, the fifth consecutive quarter of declining non-performing assets.

 

·    Non-accrual loans and leases were $298.3 million at December 31, 2011, a decrease of $46.9 million, or 13.6 percent, from December 31, 2010 and a decrease of $9.4 million, or 3 percent, from September 30, 2011.  The decrease from December 31, 2010 was primarily due to a $28.6 million decrease in commercial and leasing and equipment finance non-accrual loans and leases as a result of fewer loans and leases entering non-accrual status and increased customer payments on commercial non-accrual loans in 2011, compared with 2010, and an $18.1 million decrease in consumer real estate non-accrual loans, as fewer loans were placed on non-accrual status and more loans returned to accrual status. The decrease from September 30, 2011 was primarily due to a $5.7 million decrease in commercial non-accrual loans as a result of increased customer payments received during the fourth quarter of 2011. TCF continues to experience improvements in non-accrual loan and lease balances as additions are down $72.1 million and loans returning to accrual status were up $29.3 million for the year ended December 31, 2011, compared with the prior year.

 

·    Other real estate owned was $134.9 million at December 31, 2011, a decrease of $6.2 million from December 31, 2010 and an increase of $4.5 million from September 30, 2011.  The decrease from December 31, 2010 was primarily due to valuation writedowns on commercial real estate properties combined with a decrease in consumer properties. The increase from September 30, 2011 was primarily due to increased transfers from non-accrual to other real estate owned in commercial real estate during the fourth quarter of 2011.

 

·    Consumer real estate TDRs include loans where a payment modification (but not a reduction of principal) has been granted to a residential real estate customer. Performing consumer real estate TDRs have a weighted average yield of 3.7 percent, carry a 13.5 percent reserve and 7 percent are over 60-days delinquent at December 31, 2011.

 

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10

 

·                 Commercial TDRs include loans where a payment or other modification (but not a reduction of principal) has been granted. Performing commercial TDRs have a weighted average yield of 5.6 percent. There are no commercial TDRs over 60-days delinquent at December 31, 2011.

 

Allowance for Loan and Lease Losses

 

Credit Quality Summary																Table 6
($ in thousands)
								Percent Change
		4Q		3Q		4Q		4Q11 vs		4Q11 vs		YTD		YTD		Percent
Allowance for Loan and Lease Losses		2011		2011		2010		3Q11		4Q10		2011		2010		Change
Balance at beginning of period	$	254,325	$	255,472	$	253,120		(0.4) %		0.5 %	$	265,819	$	244,471		8.7
Charge-offs		(62,973)		(57,761)		(69,913)		9.0		(9.9)		(230,295)		(237,063)		(2.9)
Recoveries		5,051		4,359		4,966		15.9		1.7		19,313		21,974		(12.1)
Net charge-offs		(57,922)		(53,402)		(64,947)		8.5		(10.8)		(210,982)		(215,089)		(1.9)
Provision for credit losses		59,249		52,315		77,646		13.3		(23.7)		200,843		236,437		(15.1)
Other		20		(60)		-		N.M.		N.M.		(8)		-		N.M.
Balance at end of period	$	255,672	$	254,235	$	265,819		.5		(3.8)	$	255,672	$	265,819		(3.8)
Net charge-offs as a percentage of
average loans and leases (1)
Consumer real estate and other:
First mortgage lien		1.94	%	2.29	%	1.88	%	(35) bps		6 bps		1.95	%	1.55	%	40 bps
Junior lien		2.63		2.99		2.37		(36)		26		2.69		2.33		36
Total consumer real estate		2.15		2.51		2.04		(36)		11		2.18		1.80		38
Total consumer real estate and other		2.23		2.59		2.10		(36)		13		2.23		1.86		37
Commercial		1.79		.57		2.04		122		(25)		1.15		1.31		(16)
Leasing and equipment finance		.46		.36		.99		10		(53)		.41		1.00		(59)
Inventory finance		.03		.13		.28		(10)		(25)		.10		.17		(7)
Total		1.63		1.48		1.75		15		(12)		1.45		1.47		(2)
Allowance as a percentage of period
end loans and leases		1.81	%	1.77	%	1.80	%					1.81	%	1.80	%
Ratio of allowance to net charge-offs (1)		1.1	X	1.2	X	1.0	X					1.2	X	1.2	X
N.M. = Not meaningful.
(1) Annualized.

 

At December 31, 2011:

 

·                 Allowance for loan and lease losses was $255.7 million, or 1.81 percent of loans and leases, compared with $265.8 million, or 1.80 percent, at December 31, 2010 and $254.3 million, or 1.77 percent, at September 30, 2011.

 

For the quarter ended December 31, 2011:

 

·             Provision for credit losses was $59.2 million, down from $77.6 million in the fourth quarter of 2010 and up from $52.3 million recorded in the third quarter of 2011. The decrease from the fourth quarter of 2010 was primarily due to decreased net charge-offs and reserves in the commercial real estate and leasing and equipment finance portfolios. The increase from the third quarter of 2011 was primarily due to increased net charge-offs in the commercial portfolio.

 

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