TCF Financial : Reports Quarterly Net Income of $57.7 Million, or 31 Cents Per Share

SECOND QUARTER HIGHLIGHTS

- Revenue of $330.9 million, up 3.6 percent from the second quarter of 2015

- Non-interest expense of $227.3 million, up 1.9 percent from the second quarter of 2015

- Efficiency ratio of 68.7 percent, down 115 basis points from the second quarter of 2015

- Period-end loans and leases of $17.5 billion, up 3.5 percent from June 30, 2015

- Loan and lease originations of $4.3 billion, up 8.4 percent from the second quarter of 2015

- Average deposits of $17.3 billion, up 9.0 percent from the second quarter of 2015

- Non-accrual loans and leases of $195.5 million, down 4.9 percent from June 30, 2015

- Net charge-offs as a percentage of average loans and leases of 0.23 percent, down 18 basis points from the second quarter of 2015

- Earnings per share of 31 cents, up 6.9 percent from the second quarter of 2015

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

TCF Financial Corporation ('TCF' or the 'Company') (NYSE: TCB) today reported net income of $57.7 million for the second quarter of 2016, compared with net income of $52.3 million for the second quarter of 2015, and net income of $48.0 million for the first quarter of 2016. Diluted earnings per common share was 31 cents for the second quarter of 2016, compared with 29 cents for the second quarter of 2015, and 26 cents for the first quarter of 2016.

TCF reported net income of $105.7 million for the first six months of 2016, compared with net income of $92.1 million for the same period in 2015. Diluted earnings per common share was 57 cents for the first six months of 2016, compared with 50 cents for the same period in 2015.

'TCF had a strong second quarter as year-over-year revenue growth continued to outpace expense growth,' said Craig R. Dahl, president and chief executive officer. 'Operating leverage, one of TCF's four strategic pillars, remained in focus during the quarter as we generated strong non-interest income from our national lending businesses while continuing to manage our overall expense base. Despite the ongoing headwinds from the rate environment, we managed to sustain our loan yields and manage our deposit costs during the quarter. Our diversification strategy continues to drive good outcomes with strong loan and lease originations taking place while maintaining stable credit quality across all business units.

'Our business results indicate true progress against our four strategic pillars: diversification, profitable growth, operating leverage and core funding. As we move to the second half of 2016 and beyond, the team at TCF is focused on improving the experience of our customer and accelerating value creation for our shareholders.'

Net Interest Income

• Net interest income for the second quarter of 2016 increased $7.0 million, or 3.4 percent, compared with the second quarter of 2015. The increase was primarily due to higher average loan and lease balances in the auto finance and inventory finance portfolios and higher average balances of securities available for sale and loans and leases held for sale. The increase was partially offset by the run-off of consumer real estate first mortgage lien loan balances, overall net margin compression and higher promotional rates paid on certificates of deposit.
• Net interest income for the second quarter of 2016 increased $1.3 million, or 0.6 percent, compared with the first quarter of 2016. The increase was primarily due to higher average loan balances in the inventory finance portfolio driven by peak seasonality balances during the first two months of the second quarter of 2016 and higher average balances of loans and leases held for sale, securities available for sale from growth of the municipal securities portfolio and loans in the auto finance portfolio due to maturation of the business model. The increase was partially offset by lower average consumer real estate loan balances due to the run-off of consumer real estate first mortgage lien loan balances and a net decrease in consumer real estate junior lien loan balances.
• Net interest margin for the second quarter of 2016 was 4.35 percent, compared with 4.44 percent for the second quarter of 2015 and 4.37 percent for the first quarter of 2016. The decrease compared with the second quarter of 2015 was primarily due to higher rates paid on certificates of deposit and margin compression resulting from the impact of the ongoing low interest rate environment. The decrease compared with the first quarter of 2016 was primarily due to the run-off of consumer real estate first mortgage lien loan balances and higher rates paid on certificates of deposit.

Non-interest Income

• Fees and service charges in the second quarter of 2016 were $34.6 million, down $1.7 million, or 4.6 percent, from the second quarter of 2015 and up $1.8 million, or 5.5 percent, from the first quarter of 2016. The decrease compared with the second quarter of 2015 was primarily due to ongoing consumer behavior changes, as well as higher average checking account balances per customer. The increase compared with the first quarter of 2016 was primarily due to seasonality resulting in an increase in transaction activity.
• TCF sold $533.4 million, $436.4 million and $444.3 million of auto loans during the second quarters of 2016 and 2015, and the first quarter of 2016, respectively, resulting in net gains in each period.
• TCF sold $344.6 million, $364.9 million and $321.4 million of consumer real estate loans during the second quarters of 2016 and 2015, and the first quarter of 2016, respectively, resulting in net gains in each period. TCF has two consumer real estate loan sale programs; one that sells nationally originated junior lien loans and the other that originates first mortgage lien loans in our primary banking markets and sells the loans through a correspondent relationship.
• Servicing fee income was $9.5 million on $4.7 billion of average loans and leases serviced for others during the second quarter of 2016, compared with $7.2 million on $3.7 billion for the second quarter of 2015 and $8.9 million on $4.4 billion for the first quarter of 2016. The increases from both periods were primarily due to the cumulative effect of the increase in the portfolio of auto and consumer real estate loans sold with servicing retained by TCF.

• Period-end loans and leases were $17.5 billion at June 30, 2016, an increase of $0.6 billion, or 3.5 percent, compared with June 30, 2015 and a decrease of $0.4 billion, or 2.1 percent, compared with March 31, 2016. Average loans and leases were $17.7 billion for the second quarter of 2016, an increase of $0.7 billion, or 4.3 percent, compared with the second quarter of 2015 and consistent with the first quarter of 2016.

  The increases from June 30, 2015 were primarily due to the maturation of the business model in auto finance and an increase in the leasing and equipment finance portfolio due to strong originations, as well as expansion of the lawn and garden segment of inventory finance, partially offset by run-off in the consumer real estate first mortgage lien portfolio. The decrease from March 31, 2016 for period-end loans and leases was primarily due to seasonal decreases in the inventory finance portfolio and run-off in the consumer real estate first mortgage lien portfolio, partially offset by an increase in the leasing and equipment finance portfolio due to strong originations.

• Loan and lease originations were $4.3 billion for the second quarter of 2016, an increase of $0.3 billion, or 8.4 percent, compared with the second quarter of 2015 and an increase of $0.2 billion, or 6.1 percent, compared with the first quarter of 2016. The increase from the second quarter of 2015 was primarily due to strong growth in the lawn and garden segment of inventory finance and increases in auto finance and leasing and equipment finance originations, partially offset by a decrease in consumer real estate originations. The increase from the first quarter of 2016 was primarily due to increases in consumer real estate and leasing and equipment finance originations, partially offset by a decrease in inventory finance originations.

• The over 60-day delinquency rate, excluding acquired portfolios and non-accrual loans and leases, was 0.12 percent at June 30, 2016, up from 0.10 percent at both June 30, 2015 and March 31, 2016. The increases from both periods were primarily driven by delinquencies in the commercial real estate portfolio.
• The net charge-off rate was 0.23 percent for the second quarter of 2016, down from 0.41 percent for the second quarter of 2015, and down from 0.27 percent for the first quarter of 2016. The decreases from both periods were primarily due to improved credit quality in the consumer real estate portfolio.
• Non-accrual loans and leases and other real estate owned was $232.3 million at June 30, 2016, a decrease of $31.4 million, or 11.9 percent, from June 30, 2015, and a decrease of $8.8 million, or 3.6 percent, from March 31, 2016. The decrease from June 30, 2015 was primarily due to sales of consumer real estate and commercial properties, improving credit quality trends and continued efforts to actively work out problem loans in the commercial real estate portfolio. The decrease from March 31, 2016 was primarily due to sales of consumer real estate properties outpacing additions and improving credit quality trends in the consumer real estate portfolio. Non-accrual loans and leases and other real estate owned at June 30, 2016 was the lowest balance since the third quarter of 2008.
• Provision for credit losses was $13.3 million for the second quarter of 2016, an increase of $0.7 million, or 5.8 percent, from the second quarter of 2015, and a decrease of $5.6 million, or 29.7 percent, from the first quarter of 2016. The increase from the second quarter of 2015 was primarily due to increased reserve requirements related to growth in the auto finance, leasing and equipment finance and inventory finance portfolios as well as increased reserve requirements related to changes in economic outlook, partially offset by decreased net charge-offs and improved credit quality in the consumer real estate and commercial portfolios. The decrease from the first quarter of 2016 was primarily due to lower net charge-offs and reduced reserve requirements in the consumer real estate portfolio.

• Total average deposits for the second quarter of 2016 increased $1.4 billion, or 9.0 percent, from the second quarter of 2015 and increased $0.4 billion, or 2.4 percent, from the first quarter of 2016. The increases from both periods were primarily due to special campaigns for certificates of deposit as well as growth in checking and money market balances.
• The average interest rate on deposits for the second quarter of 2016 was 0.37 percent, up 9 basis points from the second quarter of 2015 and up 1 basis point from the first quarter of 2016. The increases from both periods were primarily due to increased average interest rates resulting from promotions for certificates of deposit.

• Compensation and employee benefits expense increased $1.9 million, or 1.7 percent, from the second quarter of 2015 and decreased $6.4 million, or 5.1 percent, from the first quarter of 2016. The increase from the second quarter of 2015 was primarily due to higher incentives based on production results. The decrease from the first quarter of 2016 was primarily due to seasonality of payroll taxes.
• Branch realignment expense of $2.9 million during the second quarter of 2016 relating to the pending closure of two traditional branches was included within other non-interest expense. There was no branch realignment expense during 2015.
• Operating lease depreciation is a transactional cost that is typically more than offset by increases in leasing and equipment finance non-interest income.
• Foreclosed real estate and repossessed assets, net, decreased $3.2 million, or 50.8 percent from the second quarter of 2015 and decreased $0.8 million, or 20.0 percent, from the first quarter of 2016. The decrease from the second quarter of 2015 was primarily due to lower write-downs on existing foreclosed commercial properties and lower operating costs associated with maintaining fewer consumer and commercial properties, partially offset by higher repossessed asset expense. The decrease from the first quarter of 2016 was primarily due to lower write-downs on existing foreclosed consumer and commercial properties and lower operating costs associated with maintaining fewer consumer properties.

• TCF maintained strong capital ratios as the Company accumulates capital through earnings. The decrease in the Tier 1 leverage ratio from the fourth quarter of 2015 was primarily the result of asset growth.
• On July 20, 2016, TCF's Board of Directors declared a regular quarterly cash dividend of 7.5 cents per common share, payable on September 1, 2016, to stockholders of record at the close of business on August 15, 2016. TCF also declared dividends on the 7.50% Series A and 6.45% Series B Non-Cumulative Perpetual Preferred Stock, both payable on September 1, 2016, to stockholders of record at the close of business on August 15, 2016.

Webcast Information
A live webcast of TCF's conference call to discuss the second quarter earnings will be hosted at TCF's website, http://ir.tcfbank.com, on July 22, 2016 at 9:00 a.m. CDT. A slide presentation for the call will be available on the website prior to the call. Additionally, the webcast will be available for replay on TCF's website after the conference call. The website also includes free access to company news releases, TCF's annual report, investor presentations and SEC filings.

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

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

Certain factors could cause the Company's future results to differ materially from those expressed or implied in any forward-looking statements contained herein. These factors include the factors discussed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2015 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.

Legislative and Regulatory Requirements. New consumer protection and supervisory requirements and regulations, including those resulting from action by the Consumer Financial Protection Bureau 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, use by municipalities of eminent domain on property securing troubled residential mortgage loans, or imposition of underwriting or other limitations that impact the ability to offer certain variable-rate products; changes affecting customer account charges and fee income, including changes to interchange rates; regulatory actions or changes in customer opt-in preferences with respect to overdrafts, which may have an adverse impact on TCF; changes to bankruptcy laws which would result in the loss of all or part of TCF's security interest due to collateral value declines; deficiencies in TCF's compliance under the Bank Secrecy Act in past or future periods, which may result in regulatory enforcement action including monetary penalties; increased health care costs resulting from Federal 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 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 any of the 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 cross-selling opportunities; failure to expand or diversify TCF's balance sheet through new or expanded programs or opportunities; failure to successfully attract and retain new customers, including the failure to attract and retain manufacturers and dealers to expand the inventory finance business; 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, including the failure to develop and maintain technology necessary to satisfy customer demands; ability to attract and retain employees given competitive conditions.

Litigation Risks. Results of litigation or government enforcement actions, 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; and 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.