TCF Reports First Quarter 2020 Results

TCF also announces quarterly cash dividends on common and preferred stock

DETROIT–(BUSINESS WIRE)–TCF Financial Corporation (NASDAQ: TCF):

First Quarter 2020 Highlights

  • Quarterly net income of $51.9 million, or $0.32 per diluted share, down 53.8% from the fourth quarter of 2019
  • Adjusted diluted earnings per common share of $0.57(1), down 45.2% from the fourth quarter of 2019. Adjusted diluted earnings per common share excludes $38.0 million, or $0.25 per share, after-tax impact of merger-related expenses and notable items
  • Loan and lease growth of 4.1% compared to December 31, 2019, driven by $1.2 billion of commercial loan and lease portfolio growth
  • Deposit growth of 3.9% compared to December 31, 2019
  • Net charge-offs of $5.5 million, or 0.06% of average loans and leases (annualized)
  • Provision for credit losses of $96.9 million, including $74.1 million related to COVID-19, a $0.38 detriment to earnings per diluted common share
  • Assisted consumers via approximately 7,300 COVID-19-related loan modification requests for $825 million as of April 23, 2020
  • Assisted business and commercial customers via $1.2 billion of approved loans through the Payment Protection Program as of April 23, 2020
  • Efficiency ratio of 69.57%, improved 392 basis points from the fourth quarter of 2019. Adjusted efficiency ratio of 58.24%(1), improved 27 basis pointsfrom the fourth quarter of 2019
  • Common equity Tier 1 capital ratio of 10.44%
  • Repurchased 873 thousand common shares at a cost of $33.1 million in the first quarter of 2020; in response to the COVID-19 pandemic, TCF temporarily suspended buybacks under its share repurchase program, but retains the ability to reinstate as circumstances warrant
  • Declared quarterly cash dividends on common stock of $0.35 per share payable on June 1, 2020

Merger-related Expenses and Notable items in the First Quarter of 2020 and Fourth Quarter of 2019(1)

  • Pre-tax merger-related expenses of $36.7 million, $29.0 million net of tax, or $0.19 per diluted common share for the first quarter of 2020, compared to pre-tax merger-related expenses of $47.0 million, $36.1 million net of tax, or $0.24 per diluted common share for the fourth quarter of 2019
  • Pre-tax expenses of $11.3 million, $8.9 million net of tax, or $0.06 per diluted common share related to notable items for the first quarter of 2020, compared to pre-tax net expenses of $22.1 million, $13.1 million net of tax, or $0.08 per diluted common share related to notable items for the fourth quarter of 2019, see summary of notable items adjustments below

(1)

Denotes a non-GAAP financial measure. See “Reconciliation of GAAP to Non-GAAP Financial Measures” tables and the following table detailing merger-related expenses and notable items.

Note: TCF’s financial results for periods ended prior to August 1, 2019 reflect Legacy TCF financial results only on a standalone basis. In addition, TCF’s reported financial results for the first, second and third quarter of 2019 reflect Legacy TCF financial results for the period before August 1, 2019 and the post-merger combined TCF financial results on and after August 1, 2019, with the fourth quarter of 2019 and first quarter of 2020 financial results being solely of the post-merger combined TCF. The number of shares issued and outstanding, earnings per share, additional paid-in-capital, dividends paid and all references to share quantities of TCF have been retrospectively restated to reflect the equivalent number of shares issued in the Merger as the Merger was treated as a reverse merger.

Summary of Financial Results(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Quarter Ended

 

Change From

 

Mar. 31,

 

Dec. 31,

 

Sep. 30,

 

Jun. 30,

 

Mar. 31,

 

Dec. 31,

Mar. 31,

(Dollars in thousands, except per share data)

2020

 

2019

 

2019

 

2019

 

2019

 

2019

2019

Financial Results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to TCF

$

51,899

 

 

$

112,399

 

 

$

22,148

 

 

$

90,427

 

 

$

70,494

 

 

(53.8

)

%

(26.4

)

%

Net interest income

401,481

 

 

408,753

 

 

371,793

 

 

254,057

 

 

254,429

 

 

(1.8

)

 

57.8

 

 

Basic earnings per common share

$

0.33

 

 

$

0.72

 

 

$

0.15

 

 

$

1.07

 

 

$

0.83

 

 

(54.2

)

 

(60.2

)

 

Diluted earnings per common share

0.32

 

 

0.72

 

 

0.15

 

 

1.07

 

 

0.83

 

 

(55.6

)

 

(61.4

)

 

Return on average assets (“ROAA”)(3)

0.46

%

 

0.99

%

 

0.26

%

 

1.54

%

 

1.22

%

 

(53

)

bps

(76

)

bps

ROACE(3)

3.64

 

 

8.00

 

 

1.75

 

 

14.27

 

 

11.40

 

 

(436

)

 

(776

)

 

ROATCE (non-GAAP)(2)(3)

5.42

 

 

11.35

 

 

2.68

 

 

15.46

 

 

12.42

 

 

(593

)

 

(700

)

 

Net interest margin

3.73

 

 

3.86

 

 

4.12

 

 

4.46

 

 

4.58

 

 

(13

)

 

(85

)

 

Net interest margin (FTE)(2)(3)

3.76

 

 

3.89

 

 

4.14

 

 

4.49

 

 

4.61

 

 

(13

)

 

(85

)

 

Net charge-offs as a percentage of average loans and leases(3)

0.06

 

 

0.07

 

 

0.39

 

 

0.29

 

 

0.39

 

 

(1

)

 

(33

)

 

Nonperforming assets as a percentage of total loans and leases and other real estate owned(4)

0.80

 

 

0.59

 

 

0.62

 

 

0.62

 

 

0.63

 

 

21

 

 

17

 

 

Efficiency ratio

69.57

 

 

73.49

 

 

91.32

 

 

65.11

 

 

70.70

 

 

(392

)

 

(113

)

 

Adjusted Financial Results (non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income attributable to TCF(2)

$

89,855

 

 

$

161,581

 

 

$

128,301

 

 

$

93,650

 

 

$

77,700

 

 

(44.4

)

%

15.6

 

%

Adjusted diluted earnings per common share(2)

$

0.57

 

 

$

1.04

 

 

$

0.98

 

 

$

1.11

 

 

$

0.91

 

 

(45.2

)

 

(37.4

)

 

Adjusted ROAA(2)(3)

0.78

%

 

1.42

%

 

1.34

%

 

1.59

%

 

1.34

%

 

(64

)

bps

(56

)

bps

Adjusted ROACE(2)(3)

6.43

 

 

11.57

 

 

11.21

 

 

14.79

 

 

12.61

 

 

(514

)

 

(618

)

 

Adjusted ROATCE(2)(3)

9.24

 

 

16.25

 

 

14.96

 

 

16.02

 

 

13.72

 

 

(701

)

 

(448

)

 

Adjusted efficiency ratio(2)

58.24

 

 

58.51

 

 

58.74

 

 

61.48

 

 

65.67

 

 

(27

)

 

(743

)

 

N.M. Not meaningful

(1)

Financial results for any periods ended prior to August 1, 2019 reflect Legacy TCF financials on a standalone basis. Certain reclassifications have been made to prior period financial information to conform to the current period presentation.

(2)

Denotes a non-GAAP financial measure. See “Reconciliation of GAAP to Non-GAAP Financial Measures” tables.

(3)

Annualized.

(4)

Prior to the adoption of CECL as of January 1, 2020, purchased credit impaired loans were not classified as nonaccrual loans because they were recorded at their net realizable value based on the principal and interest expected to be collected on the loans. At January 1, 2020, $73.4 million of previous purchased credit impaired loans were reclassified to nonaccrual loans as a result of the adoption of CECL.

The following table includes merger-related expenses and notable items used to arrive at adjusted net income in the Adjusted Financial Results (non-GAAP) (see Reconciliation of Non-GAAP Financial Measures).

 

For the Quarter Ended March 31, 2020

 

For the Quarter Ended December 31, 2019

(Dollars in thousands, except per share data)

Pre-tax

income (loss)

 

After-tax

benefit (loss)(1)

 

Per Share

 

Pre-tax

income (loss)

 

After-tax

benefit (loss)(1)

 

Per Share

Merger-related expenses

$

(36,728

)

 

$

(29,026

)

 

$

(0.19

)

 

$

(47,025

)

 

(36,059

)

 

$

(0.24

)

Notable items:

 

 

 

 

 

 

 

 

 

 

 

Sale of Legacy TCF auto finance portfolio and related expenses(2)

(3,063

)

 

(2,421

)

 

(0.02

)

 

(12,864

)

 

(9,865

)

 

(0.06

)

Branch exit costs(3)

 

 

 

 

 

 

(3,494

)

 

(2,679

)

 

(0.02

)

Loan servicing rights (impairment) recovery(4)

(8,236

)

 

(6,509

)

 

(0.04

)

 

638

 

 

490

 

 

 

Pension fair valuation adjustment(4)

 

 

 

 

 

 

(6,341

)

 

(4,862

)

 

(0.03

)

Tax basis adjustment benefit(5)

 

 

 

 

 

 

 

 

3,793

 

 

0.03

 

Total notable items

(11,299

)

 

(8,930

)

 

(0.06

)

 

(22,061

)

 

(13,123

)

 

(0.08

)

Total merger-related and notable items

$

(48,027

)

 

$

(37,956

)

 

$

(0.25

)

 

$

(69,086

)

 

$

(49,182

)

 

$

(0.32

)

(1)

Net of tax benefit at our normal tax rate and other tax benefits.

(2)

First quarter of 2020 included within occupancy and equipment ($1.6 million), compensation and employee benefits ($0.9 million) and other noninterest expense ($0.6 million). Fourth quarter of 2019 included within net (loss) gain on sales of loans and leases ($8.2 million), other noninterest expense ($2.2 million), occupancy and equipment ($1.5 million) and compensation and employee benefits ($0.9 million).

(3)

Included within Other noninterest expense.

(4)

Included within Other noninterest income.

(5)

Included within Income tax expense.

TCF Financial Corporation (“TCF” or the “Corporation”) (NASDAQ: TCF) today reported net income of $51.9 million, or diluted earnings per common share of $0.32, for the first quarter of 2020, compared with $112.4 million, or diluted earnings per common share of $0.72, for the fourth quarter of 2019. Adjusted net income was $89.9 million, or $0.57 per diluted common share for the first quarter of 2020, compared with $161.6 million, or $1.04 per diluted common share, for the fourth quarter of 2019. (see “Reconciliation of GAAP to Non-GAAP Financial Measures” tables).

“As we work through the impacts related to COVID-19, I am continually impressed with the dedication of our teams and how our team members have rallied to support our customers as well as each other during these unprecedented times,” said Craig R. Dahl, president and chief executive officer. “Our top priorities continue to be on ensuring the health and well-being of our team members, the financial stability of our customers, and the overall wellness of the communities where we live and operate.

“We entered the year with momentum across the company and in January and February, we saw strong business performance that reflected the opportunity we see in our markets as a result of our merger of equals, including robust loan and deposit growth, stable credit quality and on-time execution of our integration initiatives. With the arrival of COVID-19, we quickly took numerous actions to prioritize the well-being of those we work with, both from a health and economic perspective. This included transitioning our branch services to drive-up only where possible, closing select other nearby branches, and implementing a work-from-home approach for many of our team members, all of which were designed to protect the health and safety of our employees. In addition, we are offering relief programs for impacted customers and we have deployed substantial resources to support applications for the Paycheck Protection Program.

“As we look ahead, our focus will remain on managing the impact of COVID-19 across the organization, completing our integration activities and capturing the related cost synergies, and continuing to actively manage the business in this volatile and fluid environment. We are operating with robust capital and liquidity levels, strong diversification across our portfolios as a result of the merger of equals, and an experienced management team that is providing strong leadership as we support our customers and employees in these difficult times.”

Net Interest Income and Net Interest Margin

Net interest income was $401.5 million for the first quarter of 2020, a decrease of $7.3 million, or 1.8%, from the fourth quarter of 2019. Purchase accounting accretion and amortization included in net interest income was $25.3 million for the first quarter of 2020, compared to $30.5 million for the fourth quarter of 2019. Net interest income, excluding purchase accounting accretion and amortization, was $376.2 million for the first quarter of 2020, compared to $378.2 million for the fourth quarter of 2019. Net interest margin was 3.73% for the first quarter of 2020, compared to 3.86% in the fourth quarter of 2019, while net interest margin on a fully tax-equivalent basis (FTE) was 3.76%, down 13 basis points from the fourth quarter of 2019. The decrease in net interest margin from the fourth quarter of 2019 was driven primarily by the Federal Reserve’s rate cuts in addition to a decrease in the benefit provided by purchase accounting accretion and amortization. Net interest margin FTE, excluding purchase accounting accretion and amortization, was 3.53% in the first quarter of 2020, compared to 3.60% in the fourth quarter of 2019 (see “Reconciliation of GAAP to Non-GAAP Financial Measures” tables).

Noninterest Income

Noninterest income was $137.0 million for the first quarter of 2020, a decrease of $21.1 million, or 13.3%, from the fourth quarter of 2019. Noninterest income for the first quarter of 2020 included an $8.2 million loan servicing rights impairment, included in other noninterest income, a notable item. Noninterest income for the fourth quarter of 2019 included the following notable items: an $8.2 million loss related to the sale of the Legacy TCF auto finance portfolio, included in net gains (losses) on sales of loans and leases, and a $0.6 million recovery of prior loan servicing rights impairment, included in other noninterest income. Adjusted noninterest income for the first quarter of 2020 was $145.2 million, compared to $165.6 million in the fourth quarter of 2019 (see “Reconciliation of GAAP to Non-GAAP Financial Measures” tables). The first quarter of 2020 also included a $6.0 million favorable interest rate swap mark-to-market adjustment resulting from changes in the interest rate environment, included in other noninterest income, a $7.7 million increase in net gains on sales of loans and leases, and decreases of $13.1 million in leasing revenue, primarily due to a seasonal decline in sales-type leasing revenue, and of $4.8 million and $3.1 million in service charges on deposit accounts and card and ATM revenue, respectively. The fourth quarter of 2019 included a $3.7 million gain on sale of loans and leases related to a nonaccrual and TDR loan sale, included in net gains (losses) on sales of loans and leases and a $2.4 million favorable interest rate swap mark-to-market adjustment resulting from changes in the interest rate environment, included in other noninterest income.

Noninterest Expense

Noninterest expense was $374.6 million for the first quarter of 2020, a decrease of $42.0 million, or 10.1%, from the fourth quarter of 2019. The first quarter of 2020 included $36.7 million of merger-related expenses, compared to $47.0 million for the fourth quarter of 2019. Noninterest expense also included $3.1 million of expense related to the sale of the Legacy TCF auto finance portfolio ($1.6 million in occupancy and equipment expense, $0.9 million in compensation and employee benefits and $0.6 million in other noninterest expense) considered a notable item for the first quarter of 2020. Noninterest expense for the fourth quarter of 2019 included the following notable items: $6.3 million of expense related to pension fair valuation adjustment on plans with previously announced terminations, included in other noninterest expense, $4.6 million of expense related to the sale of the Legacy TCF auto finance portfolio ($2.2 million in other noninterest expense, $1.5 million in occupancy and equipment expense and $0.9 million in compensation and employee benefits) and $3.5 million of expense related to branch exit costs, included in other noninterest expense. Excluding merger-related expenses and notable items, adjusted noninterest expense was $334.8 million for the first quarter of 2020, compared to $355.0 million for the fourth quarter of 2019 (see “Reconciliation of GAAP to Non-GAAP Financial Measures” tables). The first quarter of 2020 also included $1.5 million of impairment related to federal historic tax credits placed into service, included in other noninterest expense. The fourth quarter of 2019 also included $4.0 million of impairment related to federal historic tax credits placed into service, included in other noninterest expense, and a $1.3 million impairment charge recognized on a branch we intend to sell in the future, included within occupancy and equipment expense.

Income Tax Expense

Income tax expense for the first quarter of 2020 was $13.1 million, a decrease of $8.3 million, or 38.8%, from the fourth quarter of 2019. The fourth quarter of 2019 included a $3.6 million federal historic tax credit benefit and a $3.8 million tax basis adjustment benefit.

Credit Quality

Provision for credit losses Provision for credit losses was $96.9 million for the first quarter of 2020, an increase of $82.5 million, from the fourth quarter of 2019. The increase from the fourth quarter of 2019 was primarily due to the recognition of an economic downturn related to COVID-19 (increased provision for credit losses on loans and leases by $74.1 million, $70.5 million related to the provision for credit losses on loans and leases and $3.6 million related to the provision for unfunded commitments) and the adoption of a new accounting standard, often referred to as Current Expected Credit Losses (“CECL”). This framework requires that management estimate credit losses over the full remaining expected life and consider expected future changes in macroeconomic conditions. As a result of the adoption of CECL, the provision for credit losses now includes the provision for unfunded commitment that was previously included within other noninterest expense. The first quarter of 2020 provision for unfunded commitments was $4.0 million. Provision for credit losses for the fourth quarter of 2019 was reduced by $4.7 million of recoveries of previous charge-offs related to the sale of consumer nonaccrual and TDR loans.

Net charge-off rate The annualized net charge-offs as a percentage of average loans and leases was 0.06% for the first quarter of 2020, down 1 basis point from the fourth quarter of 2019. Net charge-offs for the fourth quarter of 2019 were reduced by $4.7 million of recoveries of previous charge-offs related to the sale of consumer nonaccrual and TDR loans.

Allowance for Credit Losses Allowance for credit losses was $406.4 million, or 1.13% of total loans and leases, at March 31, 2020, up from $113.1 million, or 0.33%, at December 31, 2019. The increase from December 31, 2019 was primarily due to the adoption of CECL and the impact of COVID-19 (increased the allowance for credit losses by $70.5 million) and the adoption of CECL as of January 1, 2020. Upon adoption of CECL, $206.0 million was recorded as an increase in the allowance for credit losses. Prior to the adoption of CECL, the allowance for credit losses was calculated under an incurred loss model which delayed recognition of loss until it was probable the loss had been incurred in comparison to the accounting under CECL which considers current credit losses expected to be incurred in the loan and lease portfolios over the life of each financial asset.

Nonaccrual loans and leases Nonaccrual loans and leases were $250.5 million at March 31, 2020 and represented 0.70% of total loans and leases, compared to $169.7 million, or 0.49% of total loans and leases, at December 31, 2019. The $80.8 million increase in nonaccrual loans and leases from December 31, 2019 was substantially driven by the adoption of CECL ($73.4 million of loans previously accounted for as purchased credit impaired were reclassified to nonaccrual loans as of January 1, 2020 due to the adoption of CECL).

Balance Sheet

Loans and leases Loans and leases were $35.9 billion at March 31, 2020, an increase of $1.4 billion, or 4.1%, compared to $34.5 billion at December 31, 2019. The increase from December 31, 2019 was primarily due to growth in the commercial and industrial, commercial real estate and residential mortgage portfolios.

Investment securities The investment securities portfolio was $7.2 billion at March 31, 2020, an increase of $301.4 million, or 4.4%, compared to $6.9 billion at December 31, 2019. The increase from December 31, 2019 was primarily due to purchases of residential agency mortgage-backed securities.

Deposits Deposits were $35.8 billion at March 31, 2020, an increase of $1.3 billion, or 3.9%, compared to $34.5 billion at December 31, 2019. The increase from December 31, 2019 was primarily due to increases in money market deposits of $535.2 million, checking deposit account balances of $322.9 million and savings account balances of $197.8 million, reflecting seasonal increases in addition to lower consumer spending.

Capital The common equity Tier 1 capital ratio was 10.44% at March 31, 2020, compared to 10.99% at December 31, 2019. Our capital ratios as of March 31, 2020 reflect our election of the five-year CECL transition for regulatory capital purposes.

In response to the COVID-19 pandemic, TCF temporarily suspended buybacks under its share repurchase program, but retains the ability to reinstate as circumstances warrant. TCF is well positioned with strong capital and liquidity and is committed to supporting our customers, team members and communities.

TCF’s board of directors also declared a regular quarterly cash dividend of $0.35 per common share payable on June 1, 2020 to shareholders of record at the close of business on May 15, 2020. In addition, the board of directors declared a quarterly cash dividend of $0.35625 per depositary share payable on June 1, 2020 to shareholders of record of the depositary shares, representing a 1/1,000th interest in a share of the 5.70% Series C Non-Cumulative Perpetual Preferred Stock, at the close of business on May 15, 2020.

Conference Call Details TCF will host a conference call to discuss first quarter 2020 results on Tuesday, April 28, 2020 at 10:00 a.m. Eastern Time. The conference call will be available via a live webcast on the Investor Relations section of TCF’s website, ir.tcfbank.com, and archived for replay. The conference call can also be accessed by dialing (844) 512-2926 and entering access code 6598992. To listen to the replay via phone, please dial (877) 344-7529 and enter access code 10141568. The replay begins approximately one hour after the call is completed on Tuesday, April 28, 2020 and will be available through Tuesday, May 5, 2020.

TCF Financial Corporation (NASDAQ: TCF) is a Detroit, Michigan-based financial holding company with $49 billion in total assets at March 31, 2020 and a top 10 deposit market share in the Midwest. TCF’s primary banking subsidiary, TCF National Bank, is a premier Midwest bank offering consumer and commercial banking, trust and wealth management, and specialty leasing and lending products and services to consumers, small businesses and commercial clients. TCF has approximately 500 branches primarily located in Michigan, Illinois and Minnesota with additional locations in Arizona, Colorado, Ohio, South Dakota and Wisconsin. TCF also conducts business across all 50 states and Canada through its specialty lending and leasing businesses. To learn more about TCF, visit ir.tcfbank.com.

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 Corporation’s businesses and their respective markets, such as projections of future performance, targets, guidance, statements of the Corporation’s plans and objectives, forecasts of market trends and other matters are forward-looking statements based on the Corporation’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.

Contacts

Tom Wennerberg (248) 498-2872 news@tcfbank.com (Media)

Timothy Sedabres (952) 745-2766 investor@tcfbank.com (Investors)

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