Building
a better
way
TCF Financial Corporation | 2012 Annual Report
. . . . . . . . . . Financial Highlights
(Dollars in thousands, except per-share data)
2012
2011
% Change
At or For the Year Ended December 31,
Operating Results:
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
$ 780,019
247,443
532,576
$699,688
200,843
498,845
Non-interest income:
Fees and other revenue
Gains on securities, net
Total non-interest income
Non-interest expense:
Non-interest expense
Loss on termination of debt
Total non-interest expense
(Loss) income before income tax (benefit) expense
Income tax (benefit) expense
(Loss) income after income tax (benefit) expense
Income attributable to non-controlling interests
Net (loss) income attributable to TCF Financial Corporation
Preferred stock dividends
388,191
102,232
490,423
811,819
550,735
1,362,554
(339,555)
(132,858)
(206,697)
6,187
(212,884)
5,606
437,171
7,263
444,434
764,451
–
764,451
178,828
64,441
114,387
4,993
109,394
–
Net (loss) income available to common stockholders
$ (218,490)
$109,394
Per Common Share Information:
Basic earnings
Diluted earnings
Dividends declared
Stock price:
High
Low
Close
Book value
Price to book value
Financial Ratios:
Return on average assets
Return on average common equity
Net interest margin
Net charge-offs as a percentage of average loans and leases
Tier 1 common risk-based capital ratio
N.M. Not Meaningful.
$ (1.37)
$ .71
(1.37)
.20
12.58
9.59
12.15
9.79
.71
.20
17.37
8.61
10.32
11.65
1.24 X
.89 X
(1.14)%
(13.33)
4.65
1.54
9.21
.61%
6.32
3.99
1.45
11.74
11.5%
23.2
6.8
(11.2)
N.M.
10.3
6.2
N.M.
78.2
N.M.
N.M.
N.M.
23.9
N.M.
N.M.
N.M.
N.M.
N.M.
–
(27.6)
11.4
17.7
(16.0)
39.3
N.M.
N.M.
16.5
6.2
(21.6)
Over the past few years, the economic crisis and
regulatory changes have challenged the traditional
banking model. As a result, TCF is Building a Better Way.
Throughout 2012, TCF completed several significant
actions that have become the building blocks for
current and future success. From the expansion
of national lending platforms to a balance sheet
repositioning and the return of TCF’s free checking
product, TCF has taken the steps to generate results
in 2013 and beyond.
Table of Contents
02 Letter to Our Stockholders
12 Board of Directors
Annual Report on Form 10-K
Additional Information
01 Business
07 Risk Factors
19 Selected Financial Data
21 Management’s Discussion and Analysis
57 Consolidated Financial Statements
62 Notes to Consolidated Financial Statements
107 Other Financial Data
120 Corporate Information
123 Stockholder Information
125 Corporate Philosophy
{ 01 }
{ 2012 Annual Report }
. . . . . . . . . . Dear Stockholders:
William A. Cooper,
Chairman of the Board & Chief Executive Officer
It is no secret that the past few years have been very
challenging for TCF and the banking industry as a
whole. Banks have had to work through the deepest
recession since the Great Depression, which included
stressed home values and elevated unemployment,
as well as many regulatory and legislative changes.
We took an approach that we believe better positions
TCF for the future and made 2012 a “Building and
Investing” year.
TCF was proactive in taking several key steps to
enhance its business model and better prepare for the
future. TCF expanded its national lending platforms,
repositioned its balance sheet and brought back its
free checking product to consumers. We recognize that
the banking world has undergone a permanent change
in many regards and we are committed to taking the
necessary steps to ensure TCF’s long-term success.
The building and investing we did in 2012 was
just the first step in accomplishing our goals as
A Look at 2012
TCF has always relied on a diversified approach to
generating its revenue. Given the recent regulatory
and legislative changes, this diversified approach is
more important than ever as deposit accounts may
never be as profitable for banks as they have been
in the past. Instead of looking to increase revenue
simply by imposing new fees on our retail customers,
TCF chose to build a better way by taking a broader,
company-wide approach to increasing overall
revenue and making the company a more diverse
and powerful revenue-producing machine.
• Expansion of National Lending Platforms
National lending platforms have been a part of TCF’s
business model since it acquired Winthrop Resources
Corporation (Winthrop) in 1997. Since then, TCF
started an equipment finance company in 1999,
added TCF Inventory Finance in 2008 and expanded
into indirect auto finance in 2011. With limited asset
an organization. We now look for 2013 to be an
growth opportunities for regional banks within their
“Execution and Results” year. With the actions taken
footprints today, TCF made a concerted effort to
in 2012, I am optimistic that 2013 will be a year in
make the national lending platforms a more substan-
which we increase the value of our organization.
tial part of its loan and lease portfolio.
{ 02 } { TCF Financial Corporation and Subsidiaries }
In late 2011, TCF announced an agreement for TCF
Inventory Finance to provide inventory financing to
the dealers of Bombardier Recreational Products,
Inc. (BRP) in the U.S. and Canada adding approxi-
mately 1,200 dealers to its already growing
footprint. The acquisition of Gateway One
Lending & Finance, Inc. (Gateway One), an
indirect auto finance company, completed in late
November 2011, added an additional consumer
lending channel to our organization. In addition,
TCF announced in March 2012 the creation of TCF
Capital Funding, a new commercial banking
division specializing in asset-based and cash flow
lending to smaller middle market companies across
the U.S. As a result of these key additions, TCF’s
loan and lease portfolio grew 9 percent in 2012.
The emphasis on national lending platforms has
had a significant impact on lending as a whole at
TCF. Instead of having to rely on growing commer-
cial and consumer loans regionally in a very
competitive pricing environment, we now have the
ability to be more selective given our asset growth
and diversification opportunities through national
lending platforms.
• Balance Sheet Repositioning
In March 2012, TCF repositioned its balance sheet
by prepaying $3.6 billion of long-term debt and
selling $1.9 billion of mortgage-backed securities.
While this action resulted in a one-time, net
after-tax charge of $295.8 million, the elimination
of higher cost, longer term debt has had the
beneficial impacts we expected. We now have
a more flexible funding structure which better
supports TCF’s strategic focus on growth in shorter
duration assets. The balance sheet repositioning
also had a positive impact on TCF’s net interest
margin which was 4.65 percent in 2012, up 66
Diluted Earnings
Per Common Share
8
8
.
$
0
6
.
$
8
0
.
1
$
1
7
.
$
1
)
7
3
.
1
(
$
Dollars
08
09
10
11
12
Diluted EPS
Dividends Paid
1 Includes a net, after-tax charge of $295.8 million or $1.87 per
share, related to repositioning TCF’s balance sheet in the first
quarter of 2012.
Net Interest Margin
Percent
%
5
6
.
4
%
1
9
.
3
%
7
8
.
3
%
5
1
.
4
%
9
9
.
3
08
09
10
11
12
We have also reduced our mark-to-market risk on
securities and net interest income at risk, which
should better position us when interest rates
eventually rise.
basis points from 2011. The increase has primarily
• Deposit Acquisition
been driven by the elimination of higher cost,
TCF acquired $778 million of deposits from
long-term debt and the growth in our higher
Prudential Bank & Trust, FSB in June 2012. The
yielding national lending businesses. We believe
deposit acquisition has provided a diversified and
that TCF is positioned to continue to have one of
stable portfolio of deposit funding from accounts
the highest net interest margins in the industry.
located throughout the U.S.
{ 03 }
{ 2012 Annual Report }
Total Loans & Leases
Billions of Dollars
+5%*
4
.
5
1
$
8
.
4
1
$
3
.
3
1
$
5
.
1
1
$
* Six-year compound
annual growth rate
06
08
10
12
National Lending
Loans & Leases
Billions of Dollars
+20%*
3
.
5
$
9
.
3
$
5
.
2
$
8
.
1
$
* Six-year compound
annual growth rate
06
08
10
12
• Capital Actions
TCF took several actions to improve its capital
position during the year including the issuances
of $110 million of 6.25 percent subordinated
notes, $172.5 million of 7.50 percent Series A
Non-Cumulative Perpetual Preferred Stock and
$100 million of 6.45 percent Series B Non-
Cumulative Perpetual Preferred Stock. The funds
• Return of Free Checking
TCF, like many large banks, eliminated its free
checking product following the implementation
of the Durbin Amendment in October 2011, which
limits debit card interchange revenue. After
listening to its customers and employees, TCF
decided to return to what made it so successful for
so many years — free checking. Since the return of
free checking, TCF has seen a steady increase in
new account production and a decrease in account
attrition. TCF customers and employees are happy
to have one of the most competitive checking
accounts in the country — TCF Free Checking.SM
For the first time in 22 years, TCF incurred a net loss in
2012 of $218.5 million, or $1.37 per diluted share. This
loss was the result of the $295.8 million net after-tax
charge related to the balance sheet repositioning.
While TCF prides itself on being a profitable bank and
providing a strong return to shareholders, completing
the balance sheet repositioning in 2012 was the right
thing to do for the company and our stockholders.
TCF remains solidly capitalized with ample liquidity
to conduct business. The capital raising activities
completed during the year have enhanced our ability
to grow the balance sheet. At December 31, 2012,
TCF had $1.6 billion of Tier 1 capital, or 11.09 percent
of total risk-weighted assets.
TCF paid dividends totaling $.20 per share in 2012
and has now paid a dividend in 98 consecutive
quarters. When capital accumulation from earnings
exceeds capital required for asset growth and risk
parameters permit, TCF expects to raise the
dividend. Returning capital to stockholders remains
an important part of how we deliver value.
raised through these capital offerings are being
At December 31, 2012, TCF’s stock price closed
used to support current and future asset growth
at $12.15 per share, up from $10.32 per share on
opportunities, including the growth in our national
December 31, 2011. We believe that credit quality
lending businesses. The capital issuances enabled
remained the main issue impacting the stock price
TCF to redeem its $115 million of 10.75 percent trust
throughout the year. As we continue to execute on
preferred securities, which would have been phased
our strategies and home values improve, we expect
out from qualifying as Tier 1 capital over time.
the stock price will improve over time.
{ 04 } { TCF Financial Corporation and Subsidiaries }
Lending
TCF’s Lending division consists of retail lending,
commercial banking and the national lending
A Better Way of Lending
“The emphasis on national lending has
businesses (TCF Equipment Finance, Winthrop, TCF
led to increased diversity throughout
the lending portfolio — a portfolio
that is now 43 percent consumer real
estate, 35 percent national lending
and 22 percent commercial.”
Inventory Finance and Gateway One). Total loan and
lease balances of $15.4 billion at December 31, 2012
increased $1.3 billion, or 9 percent from a year ago,
primarily due to strong growth in TCF Inventory
Finance and Gateway One, as well as increased
originations across most lending platforms. The
emphasis on national lending has led to increased
diversity throughout the lending portfolio — a portfolio
that is now 43 percent consumer real estate, 35
percent national lending and 22 percent commercial.
Loan and lease balances in TCF’s national lending
businesses increased 41 percent to $5.3 billion at
December 31, 2012. With experienced management
teams and strong asset diversification by industry,
transaction size, geography and collateral type, the
national lending businesses not only originate the
highest yielding assets at TCF, but also deliver the
best credit quality.
The most significant asset growth during the year
came from TCF Inventory Finance. Largely due to
the floorplan financing agreement with BRP, portfolio
TCF began originating high quality indirect auto
balances totaled $1.6 billion at year-end, up 150.9
loans following the acquisition of Gateway One in
percent. TCF Inventory Finance is well-diversified
November 2011. Gateway One finished 2012 with
with loans spread across powersports, lawn and
loan balances of $552.8 million and an average yield
garden, consumer electronics and appliances,
of 6.06 percent. Gateway One also has managed
recreation vehicle, and marine product industries.
assets, which includes portfolio loans, loans held
This portfolio has a high average yield (6.20 percent
for sale and loans sold and serviced for others,
in 2012), while maintaining credit quality that is
of $1.3 billion. After joining TCF with 3,200 dealer
among the best of TCF’s lending businesses.
relationships in 30 states, Gateway One now has
TCF Inventory Finance now has agreements with
nearly 6,200 dealer relationships in 43 states.
many industry-leading manufacturers including
Throughout 2012, TCF has successfully integrated
BRP, The Toro Company and Arctic Cat, Inc. These
Gateway One into TCF. In addition to the strong
relationships, along with its seasoned and
on-balance sheet growth at Gateway One, we have
experienced management team, have given TCF
also executed on our strategy of selling a portion of
Inventory Finance strong credibility and made
the originations each quarter to generate additional
it a significant player in the inventory finance
revenue. In 2012, TCF realized gains of $22.1 million
marketplace. We believe TCF Inventory Finance
as a result of the sales of these auto loans, which we
will continue to be a key contributor to the TCF
continue to service. We expect Gateway One will
story as we pursue additional programs in 2013.
continue to provide disciplined growth in 2013.
{ 05 }
{ 2012 Annual Report } TCF’s leasing and equipment finance businesses,
which include TCF Equipment Finance and Winthrop,
A Better Way of Funding
ended the year with balances of $3.2 billion, an
“The role of Funding is to provide diverse
increase of 1.8 percent from last year. The increase was
funding sources based on the needs of the
largely due to core portfolio originations exceeding
Lending division. This collaboration and
the run-off from acquired portfolios dating back to
focus has increased the overall efficiency
2009. This business is the 29th largest equipment
and effectiveness of our funding initiatives.”
finance/leasing company in the U.S. and 14th largest
bank-affiliated leasing company in the U.S.
Consumer real estate loans decreased 3.2 percent
during the year to $6.7 billion. The sluggish economy
and low home values continued to dilute the market
of borrowers meeting TCF’s underwriting criteria.
With our balance sheet diversification, TCF is able to
be more selective with its consumer real estate
portfolio. We are focused on identifying areas within
this portfolio where the risk-adjusted returns are
better than those of the first lien consumer real
estate loans. TCF has identified an opportunity to
do this in high quality junior lien originations on a
national level. In order to manage our concentration
in this portfolio, we began selling pools of these
assets in the fourth quarter of 2012.
Commercial loan balances decreased 1.3 percent
in 2012, to $3.4 billion. Commercial loan demand has
begun to rebound in many of our markets; however,
pricing and terms are very competitive. Again, with
growth opportunities in national lending, we have
been able to be selective in commercial deals while
maintaining strong relationships with our current
customers. In March 2012, we added TCF Capital
Funding, a new commercial banking division
specializing in asset-based and cash flow lending,
which has become a nice complement to our current
commercial business. TCF brought aboard an
experienced team to run the business and provide
a new channel of commercial lending.
Funding
At the beginning of 2012, TCF created a functionally
on the needs of the Lending division. This collabora-
tion and focus has increased the overall efficiency
and effectiveness of our funding initiatives.
As a result of the balance sheet repositioning,
we have improved our funding flexibility. Deposit
balances totaled $14.1 billion at year-end, up
15.2 percent from last year. This increase includes
the Prudential Bank & Trust deposit acquisition,
the return of free checking and various certificate
of deposit and savings programs initiated during
the year. Through TCF’s extensive branch network
of nearly 430 branches, TCF has been able to
raise deposits.
In addition to deposit funding sources, TCF had
organized management structure with a focus on the
$2.6 billion in unused, secured borrowing capacity
interdependency of Lending and Funding. The role of
at the Federal Home Loan Bank of Des Moines and
Funding is to provide diverse funding sources based
$525 million in unused, secured borrowing capacity
{ 06 } { TCF Financial Corporation and Subsidiaries }
at the Federal Reserve. TCF has also issued preferred
stock and subordinated debt in 2012 to help fund future
Total Revenue
Millions of Dollars
0
7
2
,
1
$
7
3
2
,
1
$
4
4
1
,
1
$
9
5
1
,
1
$
2
9
0
,
1
$
asset growth and is actively identifying alternative
funding sources that may be beneficial in the future,
such as developing securitization capabilities.
To execute on our asset growth strategy moving
forward, TCF needs to have diversified funding
sources and flexibility in place to take advantage of
marketplace opportunities. With the actions taken in
2012 and the management structure in place, we are
well-positioned to meet our goals in 2013.
Revenue
In 2012, TCF worked to further diversify its revenue
sources. TCF, as a result of its large deposit account
base, has long been regarded as having a strong
fee-based revenue stream. With the implementation
of Regulation E in 2010 and the Durbin Amendment
in 2011, TCF has moved toward becoming more of a
spread-based business through its balance sheet
repositioning and emphasis on national lending.
TCF’s total revenue was $1.3 billion in 2012, up
11 percent from 2011. Net interest income increased
11.5 percent while non-interest income increased
10.3 percent. The reduction in long-term debt and
the growth in the higher yielding national lending
businesses have allowed TCF to create additional
net interest income.
Non-Interest Income
Net Interest Income
08
09
10
11
12
Fees & Service
Charges
Millions of Dollars
7
8
2
$
3
7
2
$
1
7
2
$
9
1
2
$
8
7
1
$
08
09
10
11
12
While leasing and equipment finance revenue of
Banking fees and service charges decreased
$92.7 million, up 4 percent in 2012, continues to be a
18.9 percent in 2012 due to the impact of regulatory
key revenue source for TCF, we introduced additional
changes and a reduced checking account base
core revenue sources during the year with the gains
resulting from the impact of product changes made
from the sales of auto loans and consumer real
in 2011. Now that free checking is back at TCF, we
estate loans. We expect these loan sales to remain
have recently seen increases in gross account
core sources of revenue in 2013.
production, decreases in attrition and reduced
premium expense to open accounts. It will take some
time to restore our checking account base and make
up the lost maintenance fee revenue, but with the
return of free checking, we are optimistic we can
meet this goal in 2013.
Card revenue in 2012 totaled $52.6 million, a 45.3
percent decline from 2011 due to the full year impact
of the Durbin Amendment, which went into effect in
October 2011. Increased net interest income resulting
from the balance sheet repositioning as well as new
core revenue sources, including the gains from the
sales of loans, have and are expected to continue to
play a significant role in replacing this lost revenue.
{ 07 }
{ 2012 Annual Report }
A Better Way of
Revenue Generation
“TCF, as a result of its large deposit account
base, has long been regarded as having a
strong fee-based revenue stream. With the
implementation of Regulation E in 2010 and the
Durbin Amendment in 2011, TCF has moved
toward becoming more of a spread-based
Provision for loan and lease losses in 2012 increased
$46.6 million, or 23.2 percent, from 2011 primarily
due to regulatory Chapter 7 bankruptcy guidance
and the aggressive management of commercial
credit issues. Net charge-offs of 1.54 percent were
also impacted by the regulatory guidance and
increased 9 basis points. Excluding the regulatory
guidance, net charge-offs decreased 12 percent
from 2011.
business through its balance sheet reposition-
Non-performing assets, which includes non-accrual
ing and emphasis on national lending.”
loans and leases and other real estate owned,
increased 10 percent in 2012 including the impact
of the regulatory Chapter 7 bankruptcy guidance
which resulted in additional loans being classified
as non-accrual. Excluding this impact, non-
performing assets showed a moderate decline of
$74.4 million during the year. Other real estate
owned totaled $97 million at year-end, a decrease
of $37.9 million from 2011. At December 31, 2012,
TCF owned 639 consumer real estate properties and
21 commercial properties, compared with 723 and
35 properties, respectively, at December 31, 2011.
The leading indicator of consumer real estate credit
quality, over 60-day delinquencies, showed steady
improvement throughout the year. At year-end,
1.38 percent of consumer real estate loans were over
60-days delinquent, down 25 basis points from 2011.
Performing classified assets, the leading indicator for
commercial, also saw significant improvement in
2012, decreasing $106 million to $224 million at
December 31, 2012. Meanwhile, the national lending
businesses continue to perform with very strong credit
metrics including low delinquencies and charge-offs.
While there is still work to be done, we are
encouraged by the trends we have seen during
2012. Home values, which are a significant factor in
consumer credit quality because they impact both
the willingness of the customer to make payments
and the charge we recognize should they default,
started to recover in many markets and we were
able to work through many of the problems in the
commercial portfolio in 2012.
Credit Quality
Credit quality was again the most significant head-
wind for TCF in 2012. Recovery from the financial
crisis has taken longer than expected, but progress is
being made. Despite a persistent, sluggish economy,
we saw improvements in several leading indicators
throughout the year, including consumer delinquen-
cies and commercial classified assets. In 2012, we
were able to work through many of our challenges
and believe we have positioned ourselves for a
better 2013.
Credit quality in 2012 was impacted by the imple-
mentation of clarifying regulatory guidance requiring
consumer loans discharged in a Chapter 7 bankruptcy
to be reported as non-accrual loans and written
down to the estimated collateral value, less cost to
sell, regardless of delinquency status. The guidance
has resulted in an additional $49.3 million of consumer
net charge-offs and $117.7 million of consumer loans
being classified as non-accrual. While this regulatory
accounting guidance had a significant impact on
TCF’s credit metrics, it had no impact on the underly-
ing credit risk profile of the portfolio. In fact, 87.5
percent of the non-accrual assets associated with
the regulatory accounting guidance were less than
60 days past due as of December 31, 2012.
{ 08 } { TCF Financial Corporation and Subsidiaries }
Expenses
TCF’s non-interest expense totaled $1.4 billion in
2012, including a $550.7 million loss on termination
of debt related to the balance sheet repositioning.
Excluding this charge, non-interest expense
increased $47.4 million, or 6.2 percent from 2011.
Compensation and benefits expense increased
12.9 percent during the year due to the ramp-up of
our revenue-producing national lending businesses,
particularly TCF Inventory Finance and Gateway One.
On a combined basis, advertising, marketing and
deposit account premium expense declined
23.3 percent in 2012 due to the change in marketing
strategy as a result of the return to free checking,
which dramatically decreased the need to offer
premiums to open accounts.
In early 2013, TCF entered into an agreement with
the Office of the Comptroller of the Currency (OCC)
related to previously disclosed deficiencies in its
Bank Secrecy Act/Anti-Money Laundering (BSA/AML)
Net Charge-Offs
Percent
%
4
5
.
1
%
7
4
.
1
%
5
4
.
1
%
4
3
.
1
%
8
7
.
Net Charge-Offs
Impact of Bankruptcy-Related
Regulatory Guidance
08
09
10
11
12
Non-Performing Assets1
Millions of Dollars
6
8
4
$
6
7
4
$
3
3
4
$
2
0
4
$
4
3
2
$
compliance program. As a result, TCF agreed to
Non-Performing Assets
payment of a civil money penalty and reported a
charge to earnings of $10 million, or 6 cents per
common share, in the fourth quarter of 2012 for this
penalty. We believe that this settlement, along with
comprehensive changes TCF has made to strengthen
our BSA/AML compliance program, is a significant
step towards a satisfactory resolution of the July
2010 BSA-related consent order with the OCC.
TCF takes pride in providing monetary and volunteer
support to the communities in which we operate.
During 2012, TCF and its employees contributed over
$2.7 million to charitable organizations in human
services, education, community development and
the arts. TCF employees from across the company
gave their time by volunteering and serving in
leadership roles at local non-profit organizations. TCF
and its employees are committed to doing our part to
make a difference in the communities we serve.
Impact of Bankruptcy-Related
Regulatory Guidance
08
09
10
11
12
1 Includes non-accrual loans and leases and other
real estate owned
Keys to Success in 2013
After building and investing throughout 2012, it will
be important to execute on our strategies and deliver
results in 2013. I believe we have the right pieces in
place to make this happen. Below are some keys to
success in 2013:
• Improve credit quality. The most important area
of improvement for TCF in 2013 is in credit quality.
We believe rebounding home values in many
markets and a slowly improving economy will
improve the outlook in consumer real estate.
Initiatives to aggressively address commercial
credit issues in 2012 will continue into 2013. The
overall loan and lease portfolio is expected to
{ 09 }
{ 2012 Annual Report }
Total Deposits
Billions of Dollars
Total Deposits
Average Interest Rate
on Deposits
Tangible Realized
Common Equity
Millions of Dollars
Tangible Realized
Common Equity
Tangible Realized
Common Equity Ratio
1
.
4
1
$
6
.
1
1
$
6
.
1
1
$
2
.
2
1
$
%
7
0
.
1
%
3
5
.
%
8
3
.
%
1
3
.
2
.
0
1
$
%
8
5
.
1
08
09
10
11
12
9
7
5
,
1
$
%
2
4
.
8
3
5
3
,
1
$
%
2
5
.
7
4
3
3
,
1
$
0
2
0
,
1
$
%
8
2
.
7
%
5
7
.
5
9
6
9
$
%
4
8
.
5
08
09
10
11
12
benefit as the national lending portfolio, with its
already strong credit metrics, becomes a larger part
of TCF’s asset mix. We need to be laser-focused on
continuing to improve credit quality in 2013.
• Build customer base through core products.
In 2012, TCF began the process of rejuvenating
its checking account base with the reintroduction
of free checking. In 2013, we need to utilize this
product to build the customer base and also
introduce new products that fit the needs of
our customers.
• Increase revenue while controlling expenses.
2012 saw the on-boarding of the BRP program in
TCF Inventory Finance and the expansion of the
Gateway One team which resulted in increased
compensation expenses. In 2013, we expect to be
positioned to leverage the investments in these
new businesses and grow the revenues while
increasing revenue diversification.
• Maintain strong capital management. TCF must
continue to monitor our capital position to ensure we
are ready for unanticipated situations and to take
advantage of marketplace opportunities as they
arise. TCF is a solidly capitalized institution and takes
great pride in appropriately utilizing our stockholders’
capital for the long-term success of the company.
• Continue to maintain strong and diverse sources
of funding and liquidity. TCF holds appropriate
levels of on-balance sheet liquidity consisting of
cash held at the Federal Reserve and unencumbered
marketable securities. TCF’s funding sources are
diverse and include a large core depositor base. In
addition, TCF maintains access to secured funding
sources and must continue to explore new sources
of liquidity to enable loan and lease growth, such
• Make investments in enterprise risk management.
as auto finance, as necessary.
In today’s banking world, having strong enterprise
• Emphasize good corporate governance. Our
risk management is more important than ever. We
are actively making investments in our enterprise
customers and stockholders entrust us with their
money and confidential information, and therefore
risk management programs to ensure TCF manages
our management practices demand high standards.
its risk prudently and is in compliance with all
A reputation for honesty and integrity continues to
banking regulations.
rank at the top of our priorities.
• Continue strong, high quality, diversified loan and
lease growth. TCF’s strategy of growing loans
through its national lending businesses has proven to
Risks to Our Business Strategy
• The economic environment remains a risk for all
be a very successful strategy in 2012. In 2013, we need
banks. While the economy appears to be slowly
to continue to execute on this strategy while adhering
improving, we are not out of the woods yet. Until
to our conservative underwriting philosophy.
unemployment drops and home values return
{ 10 } { TCF Financial Corporation and Subsidiaries }
to higher levels, banks will be challenged to
The potential rule-making of enforcement actions
improve their performance.
from the Consumer Financial Protection Bureau
• Managing interest-rate risk given the continued
depressed interest rates with an eye toward the
possibility of rapidly increasing rates in the future
continues to be a risk management focus.
• The competitive landscape in the banking industry
remains unsettled. TCF chose to expand its auto
finance and inventory finance businesses, as well as
to bring back its free checking product in 2012 while
other banks are looking at other strategic options.
The profitability of banks can be impacted by both
the strategic decisions made by other banks as well
as the public perception of the industry as a whole.
• TCF takes great pride in listening to and under-
standing its customer base. That said, there is
always some level of uncertainty regarding
consumer behavior when product or service
changes are made. We will continue monitoring
consumer behavior as we evaluate existing
products and introduce new products so that they
fit the needs of our customers.
• SUPERVALU®, TCF’s supermarket partner and
operator of grocery store chains Cub® Foods in
Minnesota and Jewel-Osco® in Chicago, recently
announced a definitive agreement to sell five of its
grocery chains, including Jewel-Osco, to an invest-
ment group led by Cerberus Capital Management.
Cub Foods was not part of the transaction. With this
acquisition, TCF will seek to work closely with the
buyer to determine how the Jewel-Osco chain will
partner with TCF going forward. TCF maintains a
strong relationship with both Cub Foods and
Jewel-Osco and we continue to believe that the
partnership provides significant value for both parties.
• Growth of our national lending businesses is
challenging in a competitive environment. While we
have the track record and experience to successfully
could have a significant impact on the entire
industry, including TCF. The unpredictability
of future actions leads to uncertainty within the
banking industry.
In Closing
TCF made great progress in 2012 positioning
the company for success moving into 2013. We
recognized the challenges facing the company and
have taken proactive steps to address them. It is now
up to us to execute on our initiatives and increase
stockholder value. I am confident that we have the
right team and the strategy in place to achieve this
goal. While this has certainly been a challenging few
years for TCF, I feel good about where we are going.
We continue to have an alignment with our stock-
holders as our senior management and board of
directors own over 6.7 million shares, or 4.1 percent
of TCF stock. 81.3 percent of our eligible employees
participate in the TCF Employees Stock Purchase
Plan, which at year-end held over 8.5 million shares.
I would like to take a moment to thank our board of
directors for their hard work and counsel. I am very
proud of this group. I appreciate the exceptional
leadership and guidance they have provided over
the years and I look forward to working with them
as we enter 2013.
I would also like to give a special thank you to all
of our employees. This has been a very busy year
focused on building and investing at every level
of the bank. It is because of their hard work and
dedication that I am optimistic about the future.
I am proud of our team and the achievements in
2012 and expect the same level of effort in 2013
as we execute on our strategies.
Thank you for your continued support and
operate these businesses, it will be important to
investment in TCF.
stay focused on our customers’ needs and compete
on price, structure, terms and service every day.
• Congressional and regulatory actions continue
William A. Cooper
to create uncertainty in the banking industry.
Chairman and Chief Executive Officer
{ 11 }
{ 2012 Annual Report } . . . . . . . . . . Board of Directors
William A. Cooper
Raymond L. Barton
Peter Bell
Chairman of the Board
and Chief Executive Officer,
TCF Financial Corporation
Chairman since 1987
Chairman,
Great Clips, Inc.
Director since 2011
Former Chair,
Metropolitan Council
William F. Bieber
Chairman,
ATEK Companies, Inc.
Director since 2009
Director since 1997
Theodore J. Bigos
Thomas A. Cusick
Craig R. Dahl
Owner,
Bigos Management, Inc.
Retired Vice Chairman,
TCF Financial Corporation
Director since 2008
Director since 1988
Vice Chairman and
Executive Vice President,
Lending,
TCF Financial Corporation
Director since 2012
Karen L. Grandstrand
Partner,
Fredrikson & Byron P.A.
Director since 2010
Thomas F. Jasper
George G. Johnson
Vance K. Opperman
James M. Ramstad
Vice Chairman and
Executive Vice President,
Funding, Operations
& Finance,
TCF Financial Corporation
Director since 2012
CPA/Managing Director,
George Johnson & Company
and George Johnson
Consultants
Director since 1998
President and
Chief Executive Officer,
Key Investment, Inc.
Director since 2009
Former United States
Congressman
Director since 2011
Gerald A. Schwalbach
Chairman,
Spensa Development
Group, LLC
Director since 1999
Barry N. Winslow
Richard A. Zona
Vice Chairman,
Corporate Development,
TCF Financial Corporation
Director since 2008
Retired Vice Chairman,
U.S. Bancorp
Director since 2011
{ 12 } { TCF Financial Corporation and Subsidiaries }
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2012
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________to ___________
Commission File No. 001-10253
TCF Financial Corporation
(Exact name of registrant as specified in its charter)
DElAWARE
(State or other jurisdiction of incorporation or organization)
41-1591444
(I.R.S. Employer Identification No.)
200 lake Street East, Mail Code EX0-03-A,
Wayzata, Minnesota 55391-1693
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: 952-745-2760
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
Common Stock (par value $.01 per share)
Depositary Shares, each representing a 1/1000th interest in a share of 7.50%
Series A Non-Cumulative Perpetual Preferred Stock
6.45% Series B Non-Cumulative Perpetual Preferred Stock
Warrants (expiring November 14, 2018)
(Name of each exchange on which registered)
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
No
No
No
No x
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Accelerated filer
Large accelerated filer
Smaller reporting company
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter as reported by the New York Stock Exchange, was $1,679,746,532.
As of February 15, 2013, there were 163,699,081 shares outstanding of the registrant’s common stock, par value $.01 per
share, its only outstanding class of common stock.
(Do not check if a smaller reporting company)
No x
x
Specific portions of the Registrant’s definitive Proxy Statement for the 2013 Annual Meeting of Stockholders to be held on
April 24, 2013 are incorporated by reference into Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
Description
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Other Financial Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part IV
Item 15.
Signatures
Index to Exhibits
Exhibits and Financial Statement Schedules
Page
1
7
15
15
15
15
16
19
21
52
56
56
57
62
107
108
108
109
110
111
111
111
112
112
112
113
114
115
Part I
Item 1. Business
General
TCF Financial Corporation (“TCF” or the “Company”),
a Delaware Corporation incorporated on April 28, 1987,
is a national bank holding company based in Wayzata,
Minnesota. Its principal subsidiary is TCF National Bank
(“TCF Bank”), which is headquartered in Sioux Falls, South
Dakota. TCF Bank operates bank branches in Minnesota,
Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona
and South Dakota (TCF’s primary banking markets). TCF
delivers retail banking products in over 30 states and
commercial banking products in markets served by TCF
Bank. TCF also conducts commercial leasing and equipment
finance business in all 50 states and, to a limited extent,
in foreign countries, commercial inventory finance in
the U.S. and Canada and, to a limited extent, in other
foreign countries and indirect auto finance business in
over 40 states. TCF generated total revenue, defined as net
interest income plus non-interest income, of $1.2 billion,
$1.1 billion and $1.2 billion in the U.S. during 2012, 2011
and 2010, respectively. International revenue during the
same respective years was $21.3 million, $10.4 million
and $4.3 million.
At December 31, 2012, TCF had total assets of $18.2 billion
and was the 39th largest publicly traded bank holding
company in the United States based on total assets
as of September 30, 2012. Unless otherwise indicated,
references herein to “TCF” include its direct and indirect
subsidiaries. References herein to the “Holding Company”
or “TCF Financial” refer to TCF Financial Corporation on an
unconsolidated basis.
TCF provides convenient financial services through
multiple channels in its primary banking markets. TCF has
developed products and services designed to meet specific
needs of the largest consumer segments in the market.
The Company focuses on attracting and retaining customers
through service and convenience, including branches
that are open seven days a week and on most holidays,
extensive full-service supermarket branches, automated
teller machine (“ATM”) networks and internet, mobile and
telephone banking. TCF’s philosophy is to generate interest
income, fees and other revenue growth through business
lines that emphasize higher yielding assets and low or
no interest-cost deposits. TCF’s growth strategies have
included the development of new products and services,
acquisitions and new branch expansion. New products and
services are designed to build on existing businesses and
expand into complementary products and services through
strategic initiatives.
TCF’s reportable segments are comprised of Lending,
Funding and Support Services. Lending includes retail
lending, commercial banking and the national lending
businesses. TCF’s national lending businesses include
leasing and equipment finance, inventory finance and
auto finance. Funding includes branch banking and
treasury services. Treasury services includes the Company’s
investment and borrowing portfolios and management of
capital, debt and market risks, including interest rate and
liquidity risks. Support Services includes holding company
and corporate functions that provide data processing, bank
operations and other professional services to the operating
segments. See “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
(“Management’s Discussion and Analysis”) – Results of
Operations – Reportable Segment Results” and Note 24 of
Notes to Consolidated Financial Statements for information
regarding revenue, income and assets for each of TCF’s
reportable segments.
Lending
TCF’s lending strategy is to originate diversified portfolios
of high credit quality, primarily secured, loans and leases.
Retail lending TCF makes consumer loans for personal,
family or household purposes, such as home purchases,
debt consolidation, financing of home improvements,
autos, vacations and education. TCF’s retail lending
origination activity primarily consists of consumer real
estate secured lending. It also includes originating loans
secured by personal property and, to a limited extent,
unsecured personal loans. Consumer loans are made on
a fixed-term basis or revolving line of credit. TCF does not
have any consumer real estate subprime lending programs
nor did it ever originate or purchase from brokers, 2/28
adjustable-rate mortgages (“ARM”) or option ARM loans.
During 2012, TCF expanded its junior lien activity through
the development of a national lending platform focused
on junior lien loans to high credit quality customers.
{ 1 }
{ 2012 Form 10K } Commercial Real Estate and Business lending
Commercial real estate loans are loans originated by TCF
that are secured by commercial real estate including retail
centers, multi-family housing, office buildings and, to a
lesser extent, commercial real estate construction loans,
mainly to borrowers based in its primary banking markets.
Commercial business loans are loans originated by TCF
that are generally secured by various types of business
assets including inventory, receivables, equipment or
financial instruments. In limited cases, loans may be
originated on an unsecured basis. Commercial business
loans are used for a variety of purposes including working
capital and financing the purchase of equipment. In 2012,
TCF developed a capital funding business specializing in
secured, asset-backed and cash flow lending to smaller
middle-market companies in the United States.
TCF concentrates on originating commercial business
loans to middle-market companies with borrowing
requirements of less than $25 million. Approximately
85% of TCF’s commercial business loans outstanding
at December 31, 2012, were to borrowers based in its
primary banking markets.
leasing and Equipment Finance TCF provides a
broad range of comprehensive lease and equipment
finance products addressing the diverse financing needs
of small to large companies. TCF’s leasing and equipment
finance businesses, TCF Equipment Finance, Inc.
(“TCF Equipment Finance”) and Winthrop Resources
Corporation (“Winthrop”), finance equipment in all
50 states and, to a limited extent, in foreign countries.
TCF Equipment Finance delivers equipment finance
solutions primarily to small and mid-size companies in
various industries with significant diversity in the types
of underlying equipment. Winthrop focuses on providing
customized lease financing to meet the special needs of
mid-size and large companies and health care facilities
that procure high-tech business essential equipment
such as computers, servers, telecommunication and
other technology equipment.
Inventory Finance TCF Inventory Finance, Inc.
(“Inventory Finance”) originates commercial variable-
rate loans which are secured by the underlying floorplan
equipment and supported by repurchase agreements
from original equipment manufacturers. The operation
focuses on establishing relationships with distributors,
dealer buying groups and manufacturers, giving TCF
access to thousands of independent retailers in the areas
{ 2 } { TCF Financial Corporation and Subsidiaries }
of powersports, lawn and garden, recreational vehicle,
marine, electronics and appliance, and specialty vehicles.
TCF Inventory Finance operates in the United States and
Canada and, to a limited extent, in other foreign countries.
TCF Inventory Finance’s portfolio outstandings are impacted
by seasonal shipment and sales activities as dealers receive
inventory shipments in anticipation of the upcoming selling
season while carrying current season product. In 2009,
TCF Inventory Finance formed a joint venture with The Toro
Company (“Toro”) called Red Iron Acceptance, LLC
(“Red Iron”). Red Iron provides U.S. distributors and dealers
and select Canadian distributors of the Toro® and Exmark®
brands with reliable, cost-effective sources of financing.
TCF and Toro maintain a 55% and 45% ownership interest,
respectively, in Red Iron.
Auto Finance On November 30, 2011, TCF entered the
indirect auto lending market through the acquisition of
Gateway One Lending & Finance, LLC (“Gateway One”).
Headquartered in Anaheim, California, Gateway One
originates and services loans on new and used autos to
customers through relationships established with nearly
6,200 franchised and independent dealers in over 40 states.
Gateway One’s business strategy is to maintain strong
relationships with key personnel at the dealerships. These
relationships are a significant driver in generating volume
and executing a high-touch underwriting approach to
minimize credit losses.
Funding
Branch Banking Deposits from consumers and small
businesses are a primary source of TCF’s funds for use in
lending and for other general business purposes. Deposit
inflows and outflows are significantly influenced by
economic and competitive conditions, interest rates,
market conditions and other factors. Consumer, small
business and commercial deposits are attracted from
within TCF’s primary banking markets through the offering
of a broad selection of deposit products, including free
checking accounts, money market accounts, regular
savings accounts, certificates of deposit and retirement
savings plans. TCF’s marketing strategy emphasizes
attracting deposits, primarily in checking accounts,
savings accounts and certificates of deposits. Such deposit
accounts are a source of low-cost funds and provide fee
income, including banking fees and service charges.
At December 31, 2012, TCF had 428 branches, consisting
of 192 traditional branches, 228 supermarket branches and
8 campus branches. TCF operates 194 branches in Illinois,
108 in Minnesota, 53 in Michigan, 36 in Colorado, 25 in
Wisconsin, 7 in Arizona, 4 in Indiana and 1 in South Dakota.
Of its 228 supermarket branches, TCF had 157 branches in
SUPERVALU’s Jewel-Osco® stores at December 31, 2012. See
Item 1A. Risk Factors for additional information regarding
the risks related to TCF’s supermarket branch relationships.
Campus banking represents an important part of
TCF’s branch banking business. TCF has alliances with the
University of Minnesota, the University of Michigan, the
University of Illinois and two other universities. These
alliances include exclusive marketing, naming rights and
other agreements. Branches have been opened on many of
the college campuses of these universities. TCF provides
multi-purpose campus cards for many of these universities.
These cards serve as a school identification card, ATM card,
library card, security card, health care card, phone card
and stored value card for vending machines or similar uses.
As of April 2012, TCF was ranked the 5th largest in number
of campus card banking relationships in the United States.
At December 31, 2012, there were $284.5 million in campus
deposits. TCF has a 25-year naming rights agreement with
the University of Minnesota to sponsor its on-campus
football stadium, “TCF Bank Stadium®,” which opened in 2009.
Non-interest income is a significant source of
revenue for TCF and an important factor in TCF’s results of
operations. Maintaining fee and service charge revenue
has been challenging as a result of economic conditions,
changing customer behavior and the impact of regulations.
Providing a wide range of branch banking services is an
integral component of TCF’s business philosophy and a major
strategy for generating additional non-interest income.
TCF offers retail checking account customers low-cost,
convenient access to funds at local merchants and ATMs
through its debit card programs. TCF’s debit card programs
are supported by interchange fees charged to retailers. Key
drivers of banking fees and service charges are the number
of deposit accounts and related transaction activity.
TCF’s card revenues have been impacted by the Durbin
Amendment to the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the “Dodd-Frank
Act”), which regulates debit-card interchange fees. The
final rule, which became effective on October 1, 2011,
sets a base interchange fee limit of 21 cents, plus a per
transaction component of 5 basis points, and a one cent
charge if issuers comply with certain fraud protection
provisions. The impact of the rule resulted in a decrease
in TCF’s card revenue of $43.2 million, or 45%, for the year
ended December 31, 2012 compared with the year ended
December 31, 2011. See “Item 7. Management’s Discussion
and Analysis — Consolidated Income Statement Analysis —
Non-Interest Income” for additional information.
Treasury Services Treasury Services’ primary responsibility
is management of liquidity, capital, interest rate risk, and
portfolio investments and borrowings. Treasury Services
has authority to invest in various types of liquid assets
including, but not limited to, United States Department of
the Treasury (“U.S. Treasury”) obligations and securities
of various federal agencies and U.S. Government sponsored
enterprises, deposits of insured banks, bankers’ acceptances
and federal funds. Treasury Services also has the authority
to enter into wholesale borrowing transactions which may
be used to compensate for reductions in deposit inflows
or net deposit outflows, or to support lending, leasing and
other expansion activities. These borrowings may include
Federal Home Loan Bank (“FHLB”) advances, repurchase
agreements, federal funds, and other permitted borrowings
from credit worthy counterparties.
Information concerning TCF’s FHLB advances, repurchase
agreements, federal funds and other borrowings is set forth in
“Item 7. Management’s Discussion and Analysis — Consolidated
Financial Condition Analysis — Borrowings” and in Notes 11 and
12 of Notes to Consolidated Financial Statements.
Support Services
TCF’s support services business segment consists of the
holding company and corporate functions that provide data
processing, bank operations and other professional services
to the operating segments.
Other Information
Activities of Subsidiaries of TCF TCF’s business
operations include those conducted by direct and indirect
subsidiaries of TCF Financial, all of which are consolidated
for purposes of preparing TCF’s consolidated financial
statements. TCF Bank’s subsidiaries principally engage in
leasing and equipment finance, inventory finance and
auto finance activities. See “Item 1. Business — Lending”
for more information.
Competition TCF competes with a number of depository
institutions and financial service providers and experiences
significant competition in attracting and retaining deposits
and in lending funds. Direct competition for deposits comes
primarily from banks, savings institutions, credit unions
{ 3 }
{ 2012 Form 10K } and investment banks. Additional significant competition
for deposits comes from institutions selling money market
mutual funds and corporate and government securities. TCF
competes for the origination of loans with banks, mortgage
bankers, mortgage brokers, consumer, and commercial
finance companies, credit unions, insurance companies and
savings institutions. TCF also competes nationwide with
other companies and banks in the financing of equipment,
inventory and automobiles, and leasing of equipment.
Expanded use of the Internet has increased competition
affecting TCF and its loan, lease and deposit products.
Employees As of December 31, 2012, TCF had 7,328
employees, including 2,175 part-time employees. TCF
provides its employees with comprehensive benefits, some
of which are provided on a contributory basis, including
medical and dental plans, a 401(k) savings plan with a
company matching contribution, life insurance and short-
and long-term disability coverage.
Regulation
The banking industry is subject to extensive regulatory
oversight. TCF Financial, as a publicly held bank holding
company, and TCF Bank, which has deposits insured by
the Federal Deposit Insurance Corporation (“FDIC”), are
subject to a number of laws and regulations. Many of
these laws and regulations have undergone significant
change in recent years. These laws and regulations impose
restrictions on activities, minimum capital requirements,
lending and deposit restrictions and numerous other
requirements. TCF Financial’s primary regulator is the
Federal Reserve and TCF Bank’s primary regulator is the
Office of the Comptroller of the Currency (“OCC”).
Regulatory Capital Requirements TCF Financial and
TCF Bank are subject to regulatory capital requirements of
the Federal Reserve and the OCC, respectively, as described
below. These regulatory agencies are required by law to
take prompt action when institutions are viewed to be
unsafe or unsound or do not meet certain minimum capital
standards. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (“FDICIA”) defines five levels
of capital condition, the highest of which is “well-
capitalized.” It requires that undercapitalized institutions
be subjected to various restrictions such as limitations
on dividends or other capital distributions, limitations
on growth or restrictions on activities. Undercapitalized
banks must develop a capital restoration plan and the
parent bank holding company is required to guarantee
{ 4 } { TCF Financial Corporation and Subsidiaries }
compliance with the plan. TCF and TCF Bank are “well-
capitalized” under the FDICIA capital standards.
Additionally, the Federal Reserve and the OCC have
adopted rules that could permit them to quantify and
account for interest-rate risk exposure and market risk
from trading activity and to potentially reflect these risks
in higher capital requirements. New legislation, additional
rulemaking, or changes in regulatory policies may affect
future regulatory capital requirements applicable to TCF
Financial and TCF Bank.
Restrictions on Distributions TCF Financial’s ability
to pay dividends is subject to limitations imposed by the
Federal Reserve. In general, Federal Reserve regulatory
guidelines require the board of directors of a bank holding
company to consider a number of factors when considering
the payment of dividends, including the quality and level
of current and future earnings.
Dividends or other capital distributions from TCF Bank
to TCF Financial are an important source of funds to
enable TCF Financial to pay dividends on its preferred and
common stock, to pay TCF Financial’s obligations, or to
meet other cash needs. The ability of TCF Financial and
TCF Bank to pay dividends depends on regulatory policies
and regulatory capital requirements and may be subject
to regulatory approval.
In general, TCF Bank may not declare or pay a dividend
to TCF Financial in excess of 100% of its net retained
profits for the current year combined with its net retained
profits for the preceding two calendar years without prior
approval of the OCC. TCF Bank’s ability to make future
capital distributions will depend on its earnings and ability
to meet minimum regulatory capital requirements in effect
during current and future periods. These capital adequacy
standards may be higher in the future than existing
minimum regulatory capital requirements, including
the potential effects of any U.S. regulatory rule-making
relating to the implementation of the capital and liquidity
standards under Basel III, the international regulatory
framework for banks. The OCC also has the authority to
prohibit the payment of dividends by a national bank when
it determines such payments would constitute an unsafe
and unsound banking practice.
In addition, income tax considerations may limit the
ability of TCF Bank to make dividend payments in excess
of its current and accumulated tax earnings and profits.
Annual dividend distributions in excess of earnings and
profits could result in a tax liability based on the amount
of excess earnings distributed and current tax rates.
Regulation of TCF and Affiliates and Insider
Transactions TCF Financial is subject to Federal Reserve
regulations, examinations and reporting requirements
relating to bank holding companies. Subsidiaries of bank
holding companies like TCF Bank are subject to certain
restrictions in their dealings with holding company affiliates.
A holding company must serve as a source of strength
for its subsidiary banks, and the Federal Reserve may
require a holding company to contribute additional capital
to an under-capitalized subsidiary bank. In addition, the
OCC may assess TCF Financial if it believes the capital of TCF
Bank has become impaired. If TCF Financial were to fail to
pay such an assessment within three months, the Board of
Directors must cause the sale of TCF Bank’s stock to cover
a deficiency in the capital. In the event of a bank holding
company’s bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank would be assumed
by the bankruptcy trustee and may be entitled to priority
over other creditors.
Under the Bank Holding Company Act of 1956 (“BHCA”),
Federal Reserve approval is required before acquiring more
than 5% control, or substantially all of the assets, of another
bank, or bank holding company, or merging or consolidating
with such a bank or bank holding company. The BHCA also
generally prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company
which is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, providing services
for its subsidiaries, or conducting activities permitted by the
Federal Reserve as being closely related to the business of
banking. Further restrictions or limitations on acquisitions or
establishing financial subsidiaries may also be imposed by
TCF’s regulators or examiners.
Restrictions on Acquisitions and Changes in Control
Under federal law, interstate merger transactions may
be approved by federal bank regulators without regard to
whether such transactions are prohibited by the law of any
state, unless the home state of one of the banks opted out
of the Riegle-Neal Interstate Banking and Branching Act
of 1994 by adopting a law after the date of enactment of
such act, and prior to June 1, 1997, which applies equally
to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. Interstate
acquisitions of branches by banks are permitted if the
law of the state in which the branches are located permits
such acquisitions for a state bank chartered in such state.
Interstate mergers and branch acquisitions may also
be subject to certain nationwide and statewide insured
deposit maximum concentration levels or other limitations.
In addition, federal and state laws and regulations
contain a number of provisions which impose restrictions
on changes in control of financial institutions such as TCF
Bank, and which require regulatory approval prior to any
such changes in control.
Insurance of Accounts As a result of the FDIC issuing
a Final Rule implementing Section 343 of the Dodd-Frank
Act in 2010, all non-interest bearing transaction accounts
at all FDIC-insured institutions were fully insured through
December 31, 2012, regardless of the balance of the
account. The unlimited insurance coverage was available
to all depositors, including consumers, businesses, and
government entities. This unlimited insurance coverage was
separate from, and in addition to, the insurance coverage
provided to a depositor’s other deposit accounts held at
an FDIC-insured institution. Beginning January 1, 2013,
non-interest bearing transaction accounts are not insured
separately from a depositor’s other deposit accounts
held at an FDIC-insured institution. Instead, non-interest
bearing transaction accounts will be added to any of a
depositor’s other deposit accounts and the aggregate
balance insured up to at least the standard maximum
deposit insurance amount of $250 thousand per depositor,
at each separately chartered FDIC-insured institution.
On April 1, 2011, the FDIC adopted a final rule requiring
changes in the FDIC insurance rate calculations for banks
over $10 billion in total assets. Prior to the passage of the
Dodd-Frank Act, FDIC insurance premiums were assessed
as a percentage of insured deposits. Under Section 331 of
the Dodd-Frank Act, the assessment base is now defined as
average total assets minus average tangible equity. Thus,
the new base contains liabilities that were not previously
included in the calculation. In addition to risk-based
deposit insurance premiums, additional assessments may
be imposed by the Financing Corporation, a separate
U.S. government agency affiliated with the FDIC, on
certain insured deposits to pay for the interest cost of
Financing Corporation bonds. The Financing Corporation
annual assessment rate for 2012 was 66 cents for each
$100 of deposits. Financing Corporation assessments
of $1.1 million, $1.2 million and $1.2 million were paid by
TCF Bank in 2012, 2011 and 2010, respectively.
{ 5 }
{ 2012 Form 10K } The Dodd-Frank Act gave the FDIC much greater
discretion to manage the Deposit Insurance Fund (“DIF”).
Among other things, The Dodd-Frank Act: (1) raised the
minimum designated reserve ratio (“DRR”) from 1.15% to
1.35% and removed the upper limit on the DRR; (2) requires
the DIF to reach 1.35% by September 30, 2020; (3) requires
that in setting assessments the FDIC offset the effect of
the DRR reaching 1.35% by September 30, 2020, rather than
1.15% by the end of 2016, on insured depository institutions
with total consolidated assets of less than $10 billion;
(4) eliminated the requirement that the FDIC pay dividends
from the fund when the DRR is between 1.35% and 1.5%;
and (5) continued the FDIC’s authority to declare dividends
when the DRR at the end of a calendar year is at least 1.5%.
On December 15, 2010, the FDIC set the DRR at 2.0% and it
has not changed since that time.
The Dodd-Frank Act requires that, for at least five years,
the FDIC must make available to the public the reserve
ratio using both estimated insured deposits and the new
assessment base. As of September 30, 2012, the DIF ratio
calculated by the FDIC using estimated insured deposits
was .35%. The DIF reserve ratio would have been .21% using
the new assessment base. In 2012, the annual insurance
premiums on bank deposits insured by the DIF with at least
$10 billion in total assets ranged from 2.5 cents to 45 cents
per $100 of deposits.
Examinations and Regulatory Sanctions TCF is subject
to periodic examination by the Federal Reserve, the OCC,
the Consumer Financial Protection Bureau (the “CFPB”)
and the FDIC. Bank regulatory authorities may impose a
number of restrictions or new requirements on institutions,
including, but not limited to, growth limitations, dividend
restrictions, increased regulatory capital requirements,
increased loan, lease and real estate loss reserve
requirements, increased supervisory assessments, activity
limitations or other restrictions that could have an adverse
effect on such institutions, their holding companies
or holders of their debt and equity securities. Certain
enforcement actions may not be publicly disclosed by TCF
or its regulatory authorities. Various enforcement remedies,
including civil money penalties, may be assessed against an
institution or an institution’s directors, officers, employees,
agents or independent contractors. Under the Bank Secrecy
Act of 1970 (the “BSA” or “Bank Secrecy Act”), the OCC
is obligated to take enforcement action where it finds a
statutory or regulatory violation that would constitute a
program violation.
In its 2009 examinations of TCF’s compliance with the
BSA, the OCC identified instances of non-compliance that
constitute a program violation. On July 20, 2010, TCF Bank
agreed to the issuance of a Consent Order (the “Order”) by
the OCC, TCF Bank’s primary banking regulator, addressing
certain matters related to the BSA. The Order required TCF
Bank to address deficiencies in TCF Bank’s BSA program
identified by the OCC, including review and revision of TCF
Bank’s BSA risk assessment, BSA Compliance Program, and
Suspicious Activity Report filing procedures and processes.
The OCC did not identify any systemic undetected criminal
activity or money laundering. TCF Bank was also required to
address the performance of appropriate due diligence when
an account is opened, and to review transactions since
November 2008 for compliance. On January 25, 2013,
TCF entered into a settlement agreement with the OCC
related to this review. Pursuant to this agreement, TCF
agreed to pay a $10 million civil money penalty. TCF Bank
is implementing or has implemented corrective action
for each deficiency and expects to satisfy all of the
requirements of the Order in a timely fashion.
Subsidiaries of TCF Bank may also be subject to state and/or
self-regulatory organization licensing, regulation and exam-
ination requirements in connection with certain activities.
National Bank Investment limitations
Permissible investments by national banks are limited
by the National Bank Act of 1864 and by rules of the OCC.
Non-traditional bank activities permitted by the Gramm-
Leach-Bliley Act of 1999 will subject a bank to additional
regulatory limitations or requirements, including a
required regulatory capital deduction and application of
transactions with affiliates limitations in connection with
such activities.
Dodd-Frank Wall Street Reform and Consumer
Protection Act Congress enacted the Dodd-Frank Act in
July 2010. The Dodd-Frank Act created the CFPB and gave it
broad rulemaking authority to administer and carry out the
purposes and objectives of the federal consumer financial
laws, with respect to all financial institutions that offer
financial products and services to consumers. The CFPB
is authorized to make rules identifying and prohibiting
acts or practices that are unfair, deceptive or abusive in
connection with any consumer financial product or service.
The CFPB has examination and enforcement authority over
all banks and savings institutions with more than $10 billion
in assets, including TCF Bank.
{ 6 } { TCF Financial Corporation and Subsidiaries }
Additionally, the Dodd-Frank Act:
• Directed the Federal Reserve to issue rules limiting
debit-card interchange fees for larger banks;
• Removed, after a three-year phase-in period which
began January 1, 2013, trust preferred securities
as a permitted component of a bank holding
company’s Tier 1 capital;
• Eliminated federal preemption for subsidiaries of
national banks and federal savings associations;
• Provided for new disclosure and other requirements
relating to executive compensation and corporate
governance, including requiring an advisory vote on
executive compensation (“Say on Pay”);
• Provided for mortgage reform addressing a customer’s
ability to repay, restricted variable-rate lending by
requiring the ability to repay to be determined for
variable-rate loans by using the maximum rate that
will apply during the first five years of a variable rate
loan, and made more loans subject to requirements
for higher cost loans, new disclosures and certain
other restrictions;
• Permanently increased the maximum amount of
deposit insurance for banks, savings institutions and
credit unions to $250,000 per depositor, retroactive to
January 1, 2008; and allowed depository institutions to
pay interest on business checking accounts, and
• Required publicly-traded bank holding companies
with assets of $10 billion or more to establish a risk
committee of the Board of Directors responsible for
enterprise-wide risk management practices.
Taxation
Federal Taxation The statute of limitations applicable
to TCF’s consolidated federal income tax returns is closed
through 2008.
State Taxation TCF and/or its subsidiaries currently file
tax returns in all states which impose corporate income and
franchise taxes and local tax returns in certain cities and
other taxing jurisdictions. The methods of filing, and the
methods for calculating taxable and apportionable income,
vary depending upon the laws of the taxing jurisdiction.
See “Item 1A. Risk Factors”.
See “Item 7. Management’s Discussion and Analysis —
Consolidated Income Statement Analysis — Income Taxes” and
Notes 1 and 13 of Notes to Consolidated Financial Statements
for additional information regarding TCF’s income taxes.
Available Information
TCF’s website, http://ir.tcfbank.com, includes free
access to Company news releases, investor presentations,
conference calls to discuss published financial results,
TCF’s Annual Report and periodic filings required by the
United States Securities and Exchange Commission (“SEC”),
including annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments
to those reports, as soon as reasonably practicable after
electronic filing of such material with, or furnishing it
to, the SEC. TCF’s Compensation/Nominating/Corporate
Governance Committee and Audit Committee charters,
Corporate Governance Guidelines, Codes of Ethics and
changes to Codes of Ethics and information on all of TCF’s
securities are also available on this website. Stockholders
may request these documents in print free of charge
by contacting the Corporate Secretary at TCF Financial
Corporation, 200 Lake Street East, Mail Code EX0-03-A,
Wayzata, MN 55391-1693.
Item 1A. Risk Factors
Various risks and uncertainties may affect TCF’s business.
Any of the risks described below or elsewhere in this
Annual Report on Form 10-K or TCF’s other SEC filings may
have a material impact on TCF’s financial condition or
results of operations.
TCF’s earnings are significantly affected by
general economic and political conditions.
TCF’s operations and profitability are impacted by general
business and economic conditions in the local markets
in which TCF operates, the U.S. generally and abroad.
Economic conditions have a significant impact on the
demand for TCF’s products and services, as well as the
ability of its customers to repay loans, the value of the
collateral securing loans, the stability of its deposit funding
sources and sales revenue at the end of contractual lease
terms. A significant decline in general economic conditions
caused by inflation, recession, unemployment, changes
in securities markets, changes in housing market prices
or other factors could impact economic conditions and,
in turn, could have a material adverse effect on TCF’s
financial condition and results of operations.
Additionally, adverse economic conditions may result
in a decline in demand for some types of equipment that
{ 7 }
{ 2012 Form 10K } TCF leases or finances, which could result in a decline in the
amount of new equipment being placed in service, as well
as declines in equipment values for equipment already in
service. Adverse economic conditions may also hinder TCF
from expanding the inventory or auto finance businesses
by limiting its ability to attract and retain manufacturers
and dealers as expected. Any such difficulties in TCF’s
equipment, inventory and auto finance businesses could
have a material adverse effect on its financial condition
and results of operations.
TCF is subject to interest rate risk.
TCF’s earnings and cash flows largely depend upon its net
interest income. Interest rates are highly sensitive to many
factors that are beyond TCF’s control, including general
economic conditions and policies of various governmental
and regulatory agencies, including the Federal Reserve.
Changes in monetary policy, including changes in interest
rates, could influence not only the interest TCF receives on
loans and other investments and the amount of interest
TCF pays on deposits and other borrowings, but such
changes could also affect: (i) TCF’s ability to originate
loans and obtain deposits; (ii) the fair value of TCF’s
financial assets and liabilities; and (iii) the average
duration of TCF’s interest-earning assets. If the interest
rates paid on deposits and other borrowings increase at a
faster rate than the interest rates received on loans and
other investments, then TCF’s net interest income and
earnings could be adversely affected. Earnings could also
be adversely affected if the interest rates received on loans
and other investments fall more quickly than the interest
rates paid on deposits and other borrowings. Although
management believes it has implemented effective asset
and liability management strategies, any substantial,
unexpected and prolonged change in market interest
rates could have a material adverse effect on its financial
condition and results of operations.
An inability to obtain needed liquidity
could have a material adverse effect on TCF’s
financial condition and results of operations.
TCF’s liquidity could be limited by an inability to access
the capital markets or unforeseen outflows of cash, which
could arise due to circumstances outside of its control,
such as a general market disruption or an operational
problem that affects TCF or third parties. TCF’s credit
rating is important to its liquidity. A further reduction
or anticipated reduction in TCF’s credit ratings could
adversely affect the ability of TCF Bank and its subsidiaries
to lend and its liquidity and competitive position, increase
its borrowing costs, limit its access to the capital markets
or trigger unfavorable contractual obligations. An inability
to meet its funding needs on a timely basis could have a
material adverse effect on TCF’s financial condition and
results of operations.
TCF Financial relies on dividends from
TCF Bank for most of its liquidity.
TCF Financial is a separate and distinct legal entity from its
banking and other subsidiaries. A substantial portion of TCF
Financial’s liquidity comes from dividends from TCF Bank.
These dividends, which are limited by various federal and
state regulations, are the principal source of funds to
pay dividends on its preferred and common stock and to
meet its other cash needs. In the event TCF Bank is unable
to pay dividends to it, TCF Financial may not be able to
pay dividends or other obligations, which would have a
material adverse effect on TCF’s financial condition and
results of operations.
Loss of customer deposits could increase
TCF’s funding costs.
TCF relies on bank deposits to be a low cost and stable
source of funding. TCF competes with banks and other
financial institutions for deposits. If TCF’s competitors raise
the rates they pay on deposits, TCF’s funding costs may
increase through either a loss of deposits or an increase in
rates paid by TCF to avoid losing deposits. Increased funding
costs could reduce TCF’s net interest margin and net interest
income, which could have a material adverse effect on TCF’s
financial condition and results of operations.
The soundness of other financial institutions
could adversely affect TCF.
TCF’s ability to engage in routine funding transactions
could be adversely affected by the actions and commercial
soundness of other financial institutions. TCF routinely
executes transactions with counterparties in the financial
industry, including brokers and dealers, commercial banks
and other institutional clients. As a result, defaults by,
or even rumors regarding, any financial institutions, or
the financial services industry generally, could lead to
losses or defaults by TCF or a counterparty. Many of these
{ 8 } { TCF Financial Corporation and Subsidiaries }
transactions expose TCF to credit risk in the event of default
of the counterparty or client. In addition, TCF’s credit
risk may be exacerbated when the collateral held by TCF
cannot be realized or is liquidated at prices not sufficient
to recover the full amount of the financial exposure. Any
such losses could have a material adverse effect on TCF’s
financial condition and results of operations.
TCF relies on its systems and counterparties,
and any failures could have a material adverse
effect on its financial condition and results
of operations.
TCF settles funds on behalf of financial institutions, other
businesses and consumers and receives funds from payment
networks, consumers and other paying agents. TCF’s
businesses depend on their ability to process, record and
monitor a large number of complex transactions. If any of
TCF’s financial, accounting or other data processing systems
fail or if personal information of TCF’s customers or clients
were mishandled or misused (whether by employees or
counterparties), TCF could suffer regulatory consequences,
reputational damage and financial losses, any of which
could have a material adverse effect on its financial
condition and results of operations.
Additionally, TCF may be subject to disruptions of its
operating systems arising from events that are wholly or
partially beyond its control, which may include, for example,
computer viruses, electrical or telecommunications
outages, natural disasters, terrorist acts or other damage
to property or physical assets. Such disruptions may give rise
to loss of services to customers and loss or liability to TCF.
Any system failure could have a material adverse effect on
TCF’s financial condition and results of operations.
TCF faces cyber-security and other external risks,
including “denial of service,” “hacking” and
“identity theft,” that could adversely affect TCF’s
reputation and could have a material adverse
effect on TCF’s financial condition and results
of operations.
TCF’s computer systems and network infrastructure present
security risks, and could be susceptible to cyber-attacks,
such as denial of service attacks, hacking, terrorist
activities or identity theft. For example, in October 2012,
a hacker group launched a denial of service attack against
a number of large financial services institutions. Hacking
and identity theft risks, in particular, could cause serious
reputational harm. Cyber threats are rapidly evolving
and TCF may not be able to anticipate or prevent all such
attacks. While TCF has not experienced a material cyber-
security breach, TCF experiences periodic threats to its
data and systems, including malware and computer virus
attacks, attempted unauthorized access of accounts, and
attempts to disrupt our systems. TCF may incur increasing
costs in an effort to minimize these risks, could be held
liable for, and could suffer reputational damage as a result
of, any security breach or loss.
The success of TCF’s supermarket branches
depends on the continued long-term success
and viability of TCF’s supermarket partners
and TCF’s ability to maintain licenses or lease
agreements for its supermarket locations.
A significant financial decline or change in ownership
involving one of TCF’s supermarket partners, including
SUPERVALU,Inc., which accounts for over 95% of TCF’s
supermarket branches, could result in the loss of
supermarket branches or could increase costs to operate
the supermarket branches. At December 31, 2012, TCF had
228 supermarket branches. Supermarket banking continues
to play an important role in TCF’s growth, as these branches
have been consistent generators of account growth and
deposits. TCF is subject to the risk, among others, that its
license or lease for a location or locations will terminate
upon the sale or closure of that location or locations by the
supermarket partner, especially in light of SUPERVALU’s
announcement on January 10, 2013 that it had entered
into an agreement to sell several of its supermarket chains,
including Jewel-Osco®; in which TCF has 157 branches. Also,
continued difficult economic conditions, or financial or
labor difficulties in the supermarket industry, may reduce
activity in TCF’s supermarket branches. As a result, continued
economic difficulties for SUPERVALU or any of TCF’s other
supermarket partners, or uncertainties relating to the sale of
the Jewel-Osco chain, could have a material adverse effect
on TCF’s financial condition and results of operations.
New lines of business or new products and
services may subject TCF to additional risk.
From time to time, TCF may implement new lines of business
or offer new products and services within existing lines
of business. There are substantial risks and uncertainties
associated with these efforts, particularly in instances
where the markets are not fully developed. In developing
{ 9 }
{ 2012 Form 10K } and marketing new lines of business and new products or
services, TCF may invest significant time and resources.
Initial timetables for the introduction and development
of new lines of business and new products or services may
not be achieved and price and profitability targets may
not prove feasible. External factors, such as compliance
with regulations, competitive alternatives and shifting
market preferences may also impact the successful
implementation of a new line of business or a new product
or service. Furthermore, any new line of business or new
product or service could have a significant impact on the
effectiveness of TCF’s system of internal controls. Failure
to successfully manage these risks in the development and
implementation of new lines of business and new products
or services could have a material adverse effect on TCF’s
financial condition and results of operations.
Increased competition in the already highly
competitive financial services industry could
have a material adverse effect on TCF’s financial
condition and results of operations.
The financial services industry is highly competitive
and could become even more competitive as a result of
legislative, regulatory and technological changes, as well
as continued industry consolidation, which may increase in
connection with current economic and market conditions.
TCF competes with other commercial banks, savings
and loan associations, mutual savings banks, finance
companies, mortgage banking companies, credit unions
and investment companies. In addition, technology has
lowered barriers to entry and made it possible for non-
banks to offer products and services traditionally only
provided by banks. Some of TCF’s competitors have fewer
regulatory constraints or lower cost structures. Also, the
potential need to adapt to industry changes in information
technology systems, on which TCF and the financial services
industry generally highly depend, could present operational
issues and require considerable capital spending. As a
result, any increased competition in the already highly
competitive financial services industry could have a
material adverse effect on TCF’s financial condition and
results of operations.
The allowance for loan and lease losses
maintained by TCF may not be sufficient.
All borrowers have the potential to default, and TCF’s
remedies may not fully satisfy the obligations owed to
TCF. TCF maintains an allowance for loan and lease losses,
which is a reserve established through a provision for loan
and lease losses charged to expense, which represents
management’s best estimate of probable credit losses that
have been incurred within the existing portfolio of loans and
leases. The level of the allowance for loan and lease losses
reflects management’s continuing evaluation of industry
concentrations, specific credit risks, loan loss experience,
current loan portfolio quality, present economic, political
and regulatory conditions and unidentified losses in
the current loan portfolio. The determination of the
appropriate level of the allowance for loan and lease
losses involves a high degree of subjectivity and requires
management to make significant estimates of current
credit risks using qualitative and quantitative factors,
each of which is subject to significant change. Changes in
economic conditions affecting borrowers, new information
regarding existing loans, identification of additional
problem loans and other factors may require an increase in
the allowance for loan and lease losses. In addition, bank
regulatory agencies periodically review TCF’s allowance for
loan and lease losses and may require an increase in the
provision for loan and lease losses or the recognition of
additional loan charge-offs, based on judgments different
than those of management. An increase in the allowance
for loan and lease losses would result in a decrease in net
income, and possibly risk-based capital, and could have
a material adverse effect on TCF’s financial condition and
results of operations.
TCF is subject to extensive government
regulation and supervision.
TCF Financial, its subsidiary TCF Bank and certain indirect
subsidiaries are subject to extensive federal and state
regulation and supervision. Banking regulations are
primarily intended to protect depositors’ funds, federal
deposit insurance funds and the banking system as a
whole, not stockholders. These regulations affect TCF’s
lending practices, capital structure, investment practices,
dividend policy and growth, among other things. Congress
and federal regulatory agencies continually review banking
laws, regulations and policies for possible changes.
Changes to statutes, regulations or regulatory policies,
including changes in interpretation or implementation of
such statutes, regulations or policies, could affect TCF in
substantial and unpredictable ways. Such changes could
subject TCF to additional costs, limit the types of financial
{ 10 } { TCF Financial Corporation and Subsidiaries }
services and products it may offer or increase the ability
of non-banks to offer competing financial services and
products, among other things. Additionally, while TCF has
policies and procedures designed to prevent violations of
the extensive federal and state regulations it is subject
to, there can be no assurance that such violations will not
occur, and failure to comply with these statutes, regulations
or policies could result in sanctions against TCF by regulatory
agencies, civil money penalties and reputational damage,
any of which could have a material adverse effect on its
financial condition and results of operations.
Further, the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the “Patriot Act”), the Bank
Secrecy Act and similar laws require financial institutions
to develop programs to prevent them from being used for
money laundering and terrorist activities. If such activities
are detected, financial institutions are obligated to file
suspicious activity reports with the U.S. Treasury’s Office of
Financial Crimes Enforcement Network. These rules require
financial institutions to establish procedures for identifying
and verifying the identity of customers seeking to open new
accounts. Failure to comply with these regulations could
result in sanctions and possibly fines. In the past, several
financial institutions have received sanctions and some
have incurred large fines for non-compliance. On January
25, 2013, TCF entered into a settlement agreement with the
OCC related to TCF’s past compliance with the Bank Secrecy
Act of 1970 (“BSA” or the “Bank Secrecy Act”), pursuant to
which TCF agreed to pay a $10 million civil money penalty.
Violations of these regulations could have a material
adverse effect on TCF’s financial condition and results
of operations.
TCF’s earnings are significantly affected by
the fiscal and monetary policies of the federal
government and its agencies.
The policies of the Federal Reserve impact TCF significantly.
The Federal Reserve regulates the supply of money and
credit in the U.S. Its policies directly and indirectly
influence the rate of interest earned on loans and paid on
borrowings and interest-bearing deposits, and also affect
the value of financial instruments that TCF holds. Those
policies determine to a significant extent the cost of funds
for lending and investing. Changes in those policies are
beyond TCF’s control and are difficult to predict. Federal
Reserve policies can also affect TCF’s borrowers, potentially
increasing the risk that they may fail to repay their loans.
For example, a tightening of the money supply by the
Federal Reserve could reduce the demand for a borrower’s
products and services. This could adversely affect the
borrower’s earnings and ability to repay its loan. As a
result, changes to the fiscal and monetary policies by
the Federal Reserve could have a material adverse effect
on TCF’s financial condition and results of operations.
Proposed and future legislative and regulatory
initiatives may substantially increase compliance
burdens, which could have a material adverse
effect on TCF’s financial condition and results
of operations.
Future legislative and regulatory initiatives cannot be
fully or accurately predicted. Such proposals may impose
more stringent standards than currently applicable
or anticipated with respect to capital and liquidity
requirements for depository institutions. For example,
Congress enacted the Dodd-Frank Act in July 2010.
Uncertainty remains as to many aspects of its ultimate
impact, which could have a material adverse effect on the
financial services industry as a whole and, specifically, on
TCF’s financial condition and results of operations.
In addition, the Dodd-Frank Act created the Consumer
Financial Protection Bureau (the “CFPB”), which has
examination and enforcement authority over TCF Bank and
its subsidiaries, and gave it broad rulemaking authority to
administer and carry out the purposes and objectives of the
federal consumer financial laws with respect to all financial
institutions that offer financial products and services to
consumers. The CFPB is authorized to make rules identifying
and prohibiting acts or practices that are unfair, deceptive
or abusive in connection with any transaction with a
consumer for a consumer financial product or service, or
the offering of a consumer financial product or service. The
term “abusive” is new and untested, and TCF cannot predict
how it will be enforced.
Based on the provisions of the Dodd-Frank Act and
anticipated implementing regulations, it is highly likely
that banks and bank holding companies will be subject
to significantly increased regulation and compliance
obligations that expose TCF to noncompliance risk and
consequences, which could have a material adverse effect
on TCF’s financial condition and results of operations.
{ 11 }
{ 2012 Form 10K }
TCF’s framework for managing risks may not be
effective in mitigating risk and any resulting loss.
TCF’s risk management framework seeks to mitigate risk
and any resulting loss. TCF has established processes
intended to identify, measure, monitor, report and analyze
the types of risk to which TCF is subject, including liquidity,
credit, market, interest rate, operational, legal and
compliance and reputational risk. However, as with any
risk management framework, there are inherent limitations
to TCF’s risk management strategies. There may exist, or
develop in the future, risks that TCF has not appropriately
anticipated or identified. Any future breakdowns in TCF’s
risk management framework could have a material adverse
effect on its financial condition and results of operations.
Failure to keep pace with technological change
could adversely affect TCF’s business.
The financial services industry is continually undergoing
rapid technological change with frequent introductions
of new technology-driven products and services. TCF’s
future success depends, in part, upon its ability to address
the needs of its customers by using technology to provide
products and services that will satisfy customer demands,
as well as to create additional efficiencies in its operations.
Many of TCF’s competitors have substantially greater
resources to invest in technological improvements. TCF
may not be able to effectively implement new technology-
driven products and services or be successful in marketing
these products and services to its customers. Failure to
successfully keep pace with technological change
affecting the financial services industry could have
a material adverse effect on TCF’s financial condition
and results of operations.
Financial institutions depend on the accuracy
and completeness of information about customers
and counterparties.
In deciding whether to extend credit or enter into other
transactions, TCF may rely on information furnished by
or on behalf of customers and counterparties, including
financial statements, credit reports and other financial
information. TCF may also rely on representations of those
customers, counterparties or other third parties, such as
independent auditors, as to the accuracy and completeness
of that information. Reliance on inaccurate or misleading
financial statements, credit reports or other financial
information could cause TCF to enter into unfavorable
transactions, which could have a material adverse effect
on TCF’s financial condition and results of operations.
Failure to attract and retain key personnel could
have a material adverse effect on TCF’s financial
condition and results of operations.
TCF’s success depends to a large extent upon its ability to
attract and retain key personnel. The loss of key personnel
could have a material adverse impact on TCF’s business
because of their skills, market knowledge, industry
experience and the difficulty of promptly finding a qualified
replacement. Additionally, portions of TCF’s business
are relationship driven, and many of its key personnel
have extensive customer relationships. Loss of such key
personnel to a competitor could result in the loss of some
of TCF’s customers. As a result, a failure to attract and
retain key personnel could have a material adverse effect
on TCF’s financial condition and results of operations.
TCF relies on other companies to provide key
components of its business infrastructure.
Third party vendors provide key components of TCF’s
business infrastructure, such as internet connections,
network access and transaction and other processing
services. While TCF has selected these third party vendors
carefully, it does not control their actions. Any problems
caused by these third parties, including as a result of
inadequate or interrupted service, could adversely
affect TCF’s ability to deliver products and services to
its customers and otherwise to conduct its business.
Replacing these third party vendors could also entail
significant delay and expense.
TCF’s internal controls may be ineffective.
Management regularly reviews and updates TCF’s internal
controls, disclosure controls and procedures and corporate
governance policies and procedures. Any system of
controls, however well designed and operated, is based
in part on certain assumptions and can provide only
reasonable, not absolute, assurances that the objectives
of the system are met. Any failure or circumvention of
TCF’s controls and procedures, or failure to comply with
regulations related to controls and procedures could have
a material adverse effect on its financial condition and
results of operations.
{ 12 } { TCF Financial Corporation and Subsidiaries }
Negative publicity could damage
TCF’s reputation.
Reputation risk, or the risk to earnings and capital from
negative public opinion, is inherent in TCF’s business.
Negative public opinion could adversely affect TCF’s ability
to keep and attract employees and customers and expose
it to adverse legal and regulatory consequences. Negative
public opinion could result from TCF’s actual or alleged
conduct in any number of activities, including lending
practices, corporate governance, regulatory compliance,
mergers and acquisitions, disclosure, sharing or inadequate
protection of customer information or from actions taken
by government regulators and community organizations in
response to such conduct. Because TCF conducts most of its
businesses under the “TCF” brand, negative public opinion
about one business could affect its other businesses.
Acquisitions may disrupt TCF’s business
and dilute stockholder value.
TCF regularly evaluates merger and acquisition
opportunities and conducts due diligence activities
related to possible transactions with banks or other
financial institutions. As a result, negotiations may take
place and future mergers or acquisitions involving cash,
debt or equity securities may occur at any time. TCF
seeks merger or acquisition partners that are culturally
similar, have experienced management and possess
either significant market presence or have potential for
improved profitability through financial management,
economies of scale or expanded services. Acquiring other
banks, businesses or branches involves potential adverse
impact to TCF’s results of operations and various other risks
commonly associated with acquisitions, such as: difficulty
in estimating the value of the target company; payment
of a premium over book and market values that may dilute
TCF’s tangible book value and earnings per share in the
short- and long-term; potential exposure to unknown or
contingent liabilities of the target company; exposure
to potential asset quality issues of the target company;
volatility in reported income as goodwill impairment losses
could occur irregularly and in varying amounts; difficulty
and expense of integrating the operations and personnel
of the target company; inability to realize the expected
revenue increases, cost savings, increases in geographic
or product presence or other projected benefits; potential
disruption to TCF’s business; potential diversion of TCF
management’s time and attention; potential loss of key
employees and customers of TCF or the target company;
and potential changes in banking or tax laws or regulations
that may affect the target company.
Consumers may decide not to use banks to
complete their financial transactions.
Technology and other changes are allowing consumers
to complete financial transactions through alternative
methods that historically have involved banks. For
example, consumers can now maintain funds that would
have previously been held as bank deposits in brokerage
accounts, mutual funds or general-purpose reloadable
prepaid cards. Consumers can also complete transactions
such as paying bills and transferring funds directly without
the assistance of banks. The process of eliminating banks
as intermediaries could result in the loss of fee income,
as well as the loss of customer deposits and the related
income generated from those deposits. The loss of these
revenue streams and the loss of lower-cost deposits as a
source of funds could have a material adverse effect on
TCF’s financial condition and results of operations.
Changes in accounting policies or in
accounting standards could materially affect
how TCF reports its financial condition and
results of operations.
TCF’s accounting policies are fundamental to the under-
standing of its financial condition and results of operations.
Some of these policies require the use of estimates and
assumptions that may affect the value of TCF’s assets or
liabilities and results of operations. Some of TCF’s account-
ing policies are critical because they require management
to make difficult, subjective and complex judgments about
matters that are inherently uncertain and because materially
different amounts would be reported if different estimates
or assumptions were used. If such estimates or assumptions
underlying the financial statements are incorrect, TCF could
experience material losses. From time to time the Financial
Accounting Standards Board (“FASB”) and the SEC change
the financial accounting and reporting standards or the
interpretation of those standards that govern the prepara-
tion of TCF’s financial statements. These changes are beyond
TCF’s control, can be difficult to predict and could materially
impact how TCF reports its financial condition and results of
operations. Additionally, TCF could be required to apply a
new or revised standard retrospectively, resulting in it restat-
ing prior period financial statements in material amounts.
{ 13 }
{ 2012 Form 10K }
TCF is subject to examinations and challenges
by tax authorities.
TCF is subject to federal and state income tax regulations,
which often require interpretation due to their complexity.
Changes in income tax regulations or in how the regulations
are interpreted could have a material adverse effect on
TCF’s results of operations. In the normal course of business,
TCF is routinely subject to examinations and challenges
from federal and state taxing authorities regarding the
amount of taxes due in connection with investments TCF
has made and the businesses in which it has engaged.
Recently, federal and state taxing authorities have become
increasingly aggressive in challenging tax positions taken
by financial institutions. These tax positions may relate to
tax compliance, sales and use, franchise, gross receipts,
payroll, property and income tax issues, including tax base,
apportionment and tax credit planning. The challenges
made by taxing authorities may result in adjustments to the
timing or amount of taxable income or deductions, or the
allocation of income among tax jurisdictions. If any such
challenges are made and are not resolved in TCF’s favor,
they could have a material adverse effect on TCF’s financial
condition and results of operations.
Additionally, if TCF’s Real Estate Investment Trust
(“REIT”) affiliate fails to qualify as a REIT, or if states
enact legislation taxing REITs or related entities, TCF’s tax
expense would increase. TCF’s REIT and related companies
must meet specific provisions of the Internal Revenue
Code of 1986, as amended, and state tax laws. Use of
REITs is and has been the subject of federal and state
audits, litigation with state taxing authorities and tax
policy debates by various state legislatures.
Significant legal actions could subject TCF
to substantial uninsured liabilities.
TCF is subject to various claims related to its operations.
These claims and legal actions, including supervisory
actions by its regulators, could involve large monetary
claims or penalties, as well as significant defense costs.
To protect itself from the cost of these claims, TCF
maintains insurance coverage in amounts and with
deductibles that it believes are appropriate for its
operations. However, TCF’s insurance coverage only
covers certain types of liability, and such insurance may
not continue to be available to TCF at a reasonable cost,
or at all. As a result, TCF may be exposed to substantial
uninsured liabilities, which could have a material
adverse effect on TCF’s financial condition and results
of operations.
In addition, customers may make claims and take
legal action pertaining to the performance by TCF of its
fiduciary responsibilities. Whether customer claims and
legal action related to the performance of TCF’s fiduciary
responsibilities are founded or unfounded, such claims and
legal actions may result in significant financial liability and
could adversely affect the market perception of TCF and its
products and services, as well as impact customer demand
for those products and services. Any financial liability or
reputational damage could have a material adverse effect
on TCF’s financial condition and results of operations.
TCF is subject to environmental liability risk
associated with lending activities.
A significant portion of TCF’s loan portfolio is secured
by real property. In the ordinary course of business, TCF
may foreclose on and take title to properties securing
certain loans. In doing so, there is a risk that hazardous
or toxic substances could be found on these properties.
If hazardous or toxic substances are found, TCF may be
liable for remediation costs, as well as for personal injury
and property damage. Environmental laws may require
TCF to incur substantial expenses and may materially
reduce the affected property’s value or limit TCF’s ability
to use or sell the affected property. In addition, future
laws or more stringent interpretations or enforcement
policies with respect to existing laws may increase TCF’s
exposure to environmental liability. The remediation costs
and any other financial liabilities associated with an
environmental hazard could have a material adverse effect
on TCF’s financial condition and results of operations.
{ 14 } { TCF Financial Corporation and Subsidiaries }
Item 1B. Unresolved Staff
Comments
None.
Item 2. Properties
Offices At December 31, 2012, TCF owned the buildings
and land for 144 of its bank branch offices, owned
the buildings but leased the land for 23 of its bank
branch offices and leased or licensed the remaining
261 bank branch offices, all of which are functional and
appropriately maintained and are utilized by both the
Lending and Funding reportable segments. Bank branch
properties owned by TCF had an aggregate net book value
of approximately $274.6 million at December 31, 2012.
At December 31, 2012, the aggregate net book value of
leasehold improvements associated with leased bank
branch office facilities was $17.7 million. In addition to the
branch offices, TCF owned and leased other facilities with
an aggregate net book value of $62.2 million at December
31, 2012. For more information on premises and equipment,
see Note 8 of Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings
From time to time, TCF is a party to legal proceedings
arising out of its lending, leasing and deposit operations.
TCF is, and expects to become, engaged in a number of
foreclosure proceedings and other collection actions as
part of its lending and leasing collections activities. TCF
may also be subject to enforcement action by federal
regulators, including the SEC, the Federal Reserve, the
OCC and the CFPB. From time to time, borrowers and other
customers, employees and former employees, have also
brought actions against TCF, in some cases claiming
substantial damages. Financial services companies are
subject to the risk of class action litigation, and TCF is
subject to such actions being brought against it from
time to time. Litigation is often unpredictable and the
actual results of litigation cannot be determined with
certainty, and therefore the ultimate resolution of a
matter and the possible range of loss associated with
certain potential outcomes cannot be established. Based
on our current understanding of these pending legal
proceedings, management does not believe that judgments
or settlements arising from pending or threatened legal
matters, individually or in the aggregate, would have a
material adverse effect on the consolidated financial
position, operating results or cash flows of TCF. TCF is also
subject to regulatory examinations and TCF’s regulatory
authorities may impose sanctions on TCF for a failure to
maintain regulatory compliance. TCF Bank is currently
subject to a Consent Order, dated July 20, 2010, with the
OCC relating to identified instances of non-compliance
with the Bank Secrecy Act of 1970 (“Bank Secrecy Act”)
that constituted a program violation. On January 25, 2013,
TCF entered into a settlement agreement with the OCC
related to TCF’s past compliance with the Bank Secrecy
Act, pursuant to which TCF agreed to pay a $10 million
civil money penalty. TCF Bank is implementing or has
implemented corrective action for each deficiency and
expects to satisfy all of the requirements of the Consent
Order in a timely fashion.
Item 4. Mine Safety Disclosures
Not applicable.
{ 15 }
{ 2012 Form 10K } Part II
Item 5. Market for Registrant’s
Common Equity, Related
Stockholder Matters and Issuer
Purchases of Equity Securities
TCF’s common stock trades on the New York Stock Exchange
under the symbol “TCB”. The following table sets forth
the high and low prices and dividends declared for TCF’s
common stock. The stock prices represent the high and low
sale prices for TCF common stock on the New York Stock
Exchange Composite Tape, as reported by Bloomberg.
As of January 31, 2013, there were 6,619 holders of
record of TCF’s common stock.
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
Dividends
Declared
$12.49
12.43
12.53
12.58
$11.68
14.37
16.04
17.37
$10.45
9.59
10.43
10.04
$ 8.61
8.66
13.37
14.60
$.05
.05
.05
.05
$.05
.05
.05
.05
The Board of Directors of TCF Financial and TCF Bank have
each adopted a Capital Plan and Dividend Policy. The policies
define how enterprise risk related to capital will be managed,
how the adequacy of capital will be measured and the
process by which capital strategy, capital management and
preferred and common stock dividend recommendations will
be presented to TCF’s Board of Directors. TCF’s management
is charged with ensuring that capital strategy actions,
including the declaration of preferred and common stock
dividends, are prudent, efficient and provide value to TCF’s
stockholders, while ensuring that past and prospective
earnings retention is consistent with TCF’s capital needs,
asset quality, risk profile and overall financial condition. The
Board of Directors intends to continue its practice of paying
quarterly cash dividends on TCF’s common stock as justified
by the financial condition of TCF. The declaration and amount
of future dividends will depend on circumstances existing
at the time, including TCF’s earnings, level of internally
generated common capital excluding earnings, financial
condition and capital requirements, the cash available
to pay such dividends (derived mainly from dividends
and distributions from TCF Bank), as well as regulatory
and contractual limitations and such other factors as the
Board of Directors may deem relevant. Also, dividends
for the current dividend period on all outstanding shares
of preferred stock must be declared and paid or declared
and a sum sufficient for the payment thereof must be set
aside before any dividend may be declared or paid on TCF’s
common stock. In general, TCF Bank may not declare or pay a
dividend to TCF Financial in excess of 100% of its net retained
profits for that year combined with its net retained profits
for the preceding two calendar years without prior approval
of the OCC. Restrictions on the ability of TCF Bank to pay cash
dividends or possible diminished earnings of TCF may limit
the ability of TCF Financial to pay dividends in the future
to holders of its preferred and common stock. In addition,
the ability of TCF Financial and TCF Bank to pay dividends
depends on regulatory policies and capital requirements and
may be subject to regulatory approval. See “Item 1. Business
— Regulation — Regulatory Capital Requirements”, “Item 1.
Business — Regulation — Restrictions on Distributions” and
Note 15 of Notes to Consolidated Financial Statements.
{ 16 } { TCF Financial Corporation and Subsidiaries }
Total Return Performance
The following graph compares the cumulative total stockholder return on TCF common stock over the last five fiscal years with
the cumulative total return of the Standard and Poor’s 500 Stock Index, the SNL All Bank and Thrift Index, and a TCF-selected
group of peer institutions over the same period (assuming the investment of $100 in each index on December 31, 2007 and
reinvestment of all dividends).
The TCF Peer Group consists of the publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion
as of September 30, 2012, which is a change in the timing of the determination of the peer group from the Prior TCF Peer Group
used in 2011, which measured assets as of December 31. The TCF Peer Group and Prior TCF Peer Group are shown below for
comparison purposes.
TCF Stock Performance Chart
Total Return Performance
TCF Financial Corporation
SNL Bank and Thrift Index(1)
S&P 500 Index
TCF Peer Group(2)
Prior TCF Peer Group(3)
$140
120
100
80
60
40
e
u
l
a
V
x
e
d
n
I
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
Index
TCF Financial Corporation
SNL Bank and Thrift(1)
S&P 500 Index
TCF Peer Group(2)
Prior TCF Peer Group(3)
12/31/07
100.00
100.00
100.00
100.00
100.00
12/31/08
80.97
57.51
63.00
91.46
91.34
Year Ending
12/31/09
83.12
56.74
79.67
84.07
83.98
12/31/10
91.56
63.34
91.68
93.37
93.33
12/31/11
64.76
49.25
93.61
78.97
78.80
12/31/12
77.67
66.14
108.59
89.72
90.16
(1) Includes all major exchange (NYSE, NYSE MKT, NASDAQ) banks and thrifts in SNL’s coverage universe (457 companies as of December 31, 2012).
(2) The TCF Peer Group consists of the publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of September 30, 2012. The TCF Peer Group
includes: Associated Banc-Corp; Astoria Financial Corporation; BancorpSouth, Inc.; Bank of Hawaii Corporation; BankUnited, Inc.; BOK Financial Corporation; Cathay
General Bancorp; Central Bancompany, Inc.; City National Corporation; Commerce Bancshares, Inc.; Cullen/Frost Bankers, Inc.; East West Bancorp, Inc.; EverBank Financial
Corp; F.N.B. Corporation; First BanCorp.; First Citizens BancShares, Inc.; First Horizon National Corporation; First National of Nebraska, Inc.; First Niagara Financial Group,
Inc.; First Republic Bank; FirstMerit Corporation; Flagstar Bancorp, Inc.; Fulton Financial Corporation; Hancock Holding Company; Hudson City Bancorp, Inc.; IBERIABANK
Corporation; International Bancshares Corporation; Investors Bancorp, Inc. (MHC); New York Community Bancorp, Inc.; People’s United Financial, Inc.; Popular, Inc.;
PrivateBancorp, Inc.; Prosperity Bancshares, Inc.; Signature Bank; Susquehanna Bancshares, Inc.; SVB Financial Group; Synovus Financial Corp.; TFS Financial Corporation
(MHC); UMB Financial Corporation; Umpqua Holdings Corporation; Valley National Bancorp; Washington Federal, Inc.; Webster Financial Corporation; and Wintrust
Financial Corporation.
(3) The Prior TCF Peer Group would have consisted of the publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of December 31, 2012.
As compared to the current TCF Peer Group, the Prior TCF Peer Group would have excluded Central Bancompany, Inc., First Citizens BancShares, Inc., First National of
Nebraska, Inc., and International Bancshares Corporation, due to year-end financial data being unavailable for these institutions and would have included Texas Capital
Bancshares, Inc., due to the company’s total assets exceeds $10 billion during the fourth quarter of 2012.
{ 17 }
{ 2012 Form 10K }
Repurchases of TCF Stock
The following table summarizes common stock share repurchase activity for the quarter ended December 31, 2012.
Period
October 1 to October 31, 2012
Share repurchase program(1)
Employee transactions(2)
November 1 to November 30, 2012
Share repurchase program(1)
Employee transactions(2)
December 1 to December 31, 2012
Share repurchase program(1)
Employee transactions(2)
Total
Share repurchase program(1)
Employee transactions(2)
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plan
Maximum Number of
Shares that May Yet be
Purchased Under the Plan
–
4,938
–
–
–
–
–
4,938
$ –
$11.95
$ –
$ –
$ –
$ –
$ –
$11.95
–
N.A.
–
N.A.
–
N.A.
–
N.A.
5,384,130
N.A.
5,384,130
N.A.
5,384,130
N.A.
5,384,130
N.A.
N.A. Not Applicable.
(1) The current share repurchase authorization was approved by the Board of Directors on April 14, 2007 and was announced in a press release dated April 16, 2007. The
authorization was for a repurchase of up to an additional 5% of TCF’s common stock outstanding at the time of the authorization, or 6.5 million shares. TCF has not
repurchased shares since October 2007. Future repurchases will be based upon capital levels, growth expectations and market opportunities and may be subject to
regulatory approval. The ability to repurchase shares in the future may be adversely affected by new legislation or regulations, or by changes in regulatory policies. This
authorization does not have an expiration date.
(2) Represents restricted shares withheld pursuant to the terms of awards under the TCF Financial Incentive Stock Program to offset tax withholding obligations that occur
upon vesting and release of restricted stock. The TCF Financial Incentive Stock Program provides that the value of shares withheld shall be the average of the high and low
prices of common stock of TCF Financial Corporation on the date the relevant transaction occurs.
{ 18 } { TCF Financial Corporation and Subsidiaries }
Item 6. Selected Financial Data
The selected five-year financial summary presented below should be read in conjunction with the Consolidated Financial
Statements and related notes. Historical data is not necessarily indicative of TCF’s future results of operations or financial
condition. See “Item 1A. Risk Factors.”
Five-Year Financial Summary
Consolidated Income:
(Dollars in thousands, except per-share data)
Total revenue
Net interest income
Provision for credit losses
Fees and other revenue
Gains on securities, net
Visa share redemption
Non-interest expense
Loss on termination of debt
Total non-interest expense
(Loss) income before income tax
(benefit) expense
Income tax (benefit) expense
Income (loss) attributable
to non-controlling interest
Net (loss) income attributable
to TCF Financial Corp.
Preferred stock dividends
Net (loss) income available
to common stockholders
Per common share:
Basic earnings
Diluted earnings
Dividends declared
N.M. Not Meaningful.
Year Ended December 31,
2012
$1,270,442
$ 780,019
247,443
388,191
102,232
–
811,819
550,735
1,362,554
2011
$1,144,122
$ 699,688
200,843
437,171
7,263
–
764,451
–
764,451
2010
2009
$1,237,187 $1,158,861
$ 699,202 $ 633,006
258,536
496,468
29,387
–
756,655
–
756,655
236,437
508,862
29,123
–
756,335
–
756,335
Compound Annual
Growth Rate
1-Year
2012/2011
5-Year
2012/2007
11.0%
11.5
23.2
(11.2)
N.M.
N.M.
6.2
N.M.
78.2
3.1%
7.2
34.1
(4.6)
50.4
N.M.
4.4
N.M.
15.8
2008
$1,092,108
$ 593,673
192,045
474,061
16,066
8,308
718,853
–
718,853
(339,555)
(132,858)
178,828
64,441
244,415
90,171
143,670
49,811
181,210
68,096
N.M.
N.M.
(197.7)
N.M.
6,187
4,993
3,297
(410)
–
23.9
N.M.
(212,884)
5,606
109,394
–
150,947
–
94,269
18,403
113,114
2,540
N.M.
N.M.
(195.2)
N.M.
$ (218,490)
$ 109,394
$ 150,947 $ 75,866
$ 110,574
N.M.
(195.7)
$ (1.37)
$ (1.37)
$ .20
$ .71
$ .71
$ .20
$ 1.08 $ .60
$ 1.08 $ .60
$ .20 $ .40
$ .88
$ .88
$ 1.00
N.M.
N.M.
–
(191.6)
(191.6)
(27.1)
{ 19 }
{ 2012 Form 10K }
4.3 %
(18.4)
2.7
9.9
.3
8.0
(17.2)
11.1
2.4
2008
.69%
10.03
3.91
7.04
2008
1.29%
1.75
1.29
.78
Compound Annual
Growth Rate
1-Year
2012/2011
5-Year
2012/2007
Consolidated Financial Condition:
(Dollars in thousands, except per-share data)
Loans and leases
Securities available for sale
Total assets
Checking, savings and
money market deposits
Certificates of deposit
Total deposits
Borrowings
Equity
Book value per common share
Financial Ratios:
At December 31,
2012
$15,425,724
712,091
18,225,917
2011
$14,150,255
2,324,038
18,979,388
2010
$14,788,304
1,931,174
18,465,025
2009
2008
$14,590,744 $13,345,889
1,966,104
16,740,357
1,910,476
17,885,175
11,759,289
2,291,497
14,050,786
1,933,815
1,863,373
9.79
11,136,389
1,065,615
12,202,004
4,388,080
1,868,133
11.65
10,556,788
1,028,327
11,585,115
4,985,611
1,471,663
10.30
10,380,814
1,187,505
11,568,319
4,755,499
1,175,362
9.10
7,647,069
2,596,283
10,243,352
4,660,774
1,493,776
8.99
9.0 %
(69.4)
(4.0)
5.6
115.0
15.2
(55.9)
(.3)
(16.0)
2012
(1.14)%
(13.33)
4.65
9.66
At or For the Year Ended December 31,
2009
2010
.54%
.85%
.61%
2011
6.32
3.99
9.24
10.67
4.15
7.83
6.57
3.87
7.20
2012
2.46%
3.07
1.73
1.54
At or For the Year Ended December 31,
2009
2010
2.03%
2.33%
2011
2.11%
3.03
1.81
1.45
3.26
1.80
1.47
2.74
1.68
1.34
Return on average assets
Return on average common equity
Net interest margin(1)
Average total equity to average assets
(1) Net interest income divided by average interest-earning assets
Credit Quality Ratios:
Non-accrual loans and leases to total loans and leases
Non-accrual loans and leases and other real estate owned to
total loans and leases and other real estate owned
Allowance for loan and lease losses to total loans and leases
Net charge-offs as a percentage of average loans and leases
{ 20 } { TCF Financial Corporation and Subsidiaries }
Item 7. Management’s Discussion
and Analysis of Financial Condition
and Results of Operations
Table of Contents
Overview
Results of Operations
Performance Summary
Reportable Segment Results
Consolidated Income Statement Analysis
Net Interest Income
Provision for Credit Losses
Non-Interest Income
Non-Interest Expense
Income Taxes
Consolidated Financial Condition Analysis
Securities Available for Sale
Loans and Leases
Credit Quality
Other Real Estate Owned and Repossessed
and Returned Assets
Liquidity Management
Deposits
Borrowings
Contractual Obligations and Commitments
Capital Resources
Critical Accounting Policies
Recent Accounting Pronouncements
Legislative, Legal and Regulatory Developments
Forward-Looking Information
Page
21
22
22
22
23
23
27
28
29
30
30
30
31
35
44
45
45
45
46
47
49
49
49
50
Management’s discussion and analysis of the consolidated
financial condition and results of operations of TCF
Financial Corporation should be read in conjunction with the
Consolidated Financial Statements in Item 8 and Selected
Financial Data in Item 6.
Overview
TCF Financial Corporation, a Delaware corporation
(“TCF” or the “Company), is a national bank holding
company based in Wayzata, Minnesota. Unless otherwise
indicated, references herein to “TCF” include its direct and
indirect subsidiaries. Its principal subsidiary, TCF National
Bank (“TCF Bank”), is headquartered in South Dakota.
At December 31, 2012, TCF had 428 branches in Illinois,
Minnesota, Michigan, Colorado, Wisconsin, Arizona, Indiana
and South Dakota (TCF’s primary banking markets).
TCF provides convenient financial services through
multiple channels in its primary banking markets. TCF has
developed products and services designed to meet the
needs of the largest consumer segments in the market. The
Company focuses on attracting and retaining customers
through service and convenience, including branches
that are open seven days a week and on most holidays,
extensive full-service supermarket branches, automated
teller machine (“ATM”) networks and internet, mobile
and telephone banking. TCF’s philosophy is to generate
interest income, fees and other revenue growth through
business lines that emphasize higher yielding assets and
low or no interest-cost deposits. The Company’s growth
strategies include organic growth in existing businesses,
the development of new products and services, new branch
expansion and acquisitions. New products and services are
designed to build on existing businesses and expand into
complementary products and services through strategic
initiatives. In 2012, TCF continued to focus on asset growth
in its national lending businesses as it focused on making
these businesses a more substantial part of its loan
and lease portfolio. Additionally, TCF reintroduced free
checking, bringing an increase in new account production
and a decrease in account attrition.
Net interest income, the difference between interest
income earned on loans and leases, securities available
for sale, investments and other interest-earning assets
and interest paid on deposits and borrowings, represented
61.4% and 61.2% of TCF’s total revenue in 2012 and 2011,
respectively. Net interest income can change significantly
from period to period based on general levels of interest
rates, customer prepayment patterns, the mix of interest-
earning assets and the mix of interest-bearing and non-
interest bearing deposits and borrowings. TCF manages
the risk of changes in interest rates on its net interest
income through an Asset/Liability Management Committee
and through related interest-rate risk monitoring and
management policies. See “Item 1A. Risk Factors” and
“Item 7A. Quantitative and Qualitative Disclosures about
Market Risk” for further discussion.
Non-interest income is a significant source of revenue
for TCF and an important factor in TCF’s results of
operations. Increasing fee and service charge revenue has
been challenging as a result of the slowing of the economy,
changing customer behavior and the impact of the
implementation of new regulations. Providing a wide range
of retail banking services is an integral component of TCF’s
business philosophy and a major strategy for generating
{ 21 }
{ 2012 Form 10K }
non-interest income. Key drivers of bank fees and service
charges are the number of deposit accounts and related
transaction activity.
In 2011, TCF introduced a new anchor checking account
that replaced its free checking product. This new anchor
checking account required a monthly maintenance fee
if specific requirements were not met by the customer.
After listening to customer feedback, in June 2012,
TCF introduced TCF Free CheckingSM to focus on quality
customer relationships. TCF Free Checking has no monthly
maintenance fee and no minimum balance requirement.
TCF continues to be the 15th largest issuer of Visa®
consumer debit cards in the United States, based on payment
volumes for the three months ended September 30, 2012,
as provided by Visa. TCF earns interchange revenue from
customer card transactions paid primarily by merchants, not
TCF’s customers. In October 2011, Section 1075 (commonly
known as the “Durbin Amendment”) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010
(the “Dodd-Frank Act”) went into effect, which reduced the
amount of interchange revenue recognized on transaction
activity. For 2012, the Durbin Amendment was in effect for
the full year.
Over the years, TCF has diversified its revenue sources
through the growth of its national lending businesses.
These businesses generate a growing portion of fee revenue
through leasing revenue, gain on sale of loans and other
fees for value-added services and products provided.
The following portions of Management’s Discussion and
Analysis of Financial Condition and Results of Operations
(“Management’s Discussion and Analysis”) focus in more
detail on the results of operations for 2012, 2011 and 2010
and on information about TCF’s balance sheet, loan and
lease portfolio, liquidity, funding resources, capital and
other matters.
Results of Operations
Performance Summary TCF reported diluted loss per
common share of $1.37 for 2012, compared with diluted
earnings per common share of 71 cents for 2011 and $1.08
for 2010. TCF reported a net loss of $218.5 million for the
year ended December 31, 2012, compared with net income
of $109.4 million and $150.9 million for the years ended
December 31, 2011 and 2010, respectively. TCF’s 2012 net
loss included a net, after-tax charge of $295.8 million, or
$1.87 per common share, related to the repositioning of
TCF’s balance sheet completed in the first quarter of 2012.
On March 13, 2012, TCF announced the repositioning
of its balance sheet by prepaying $3.6 billion of long-
term debt and selling $1.9 billion of mortgage-backed
securities, which resulted in a $119.9 million reduction to
the cost of borrowings, partially offset by a $47.1 million
reduction of interest income on lower levels of mortgage-
backed securities for 2012. TCF’s long-term, fixed-rate debt
was originated at market rates that prevailed prior to the
2008 economic crisis and were significantly above current
market rates. In addition, in late January 2012, the Federal
Reserve forecasted interest rates to remain at historically
low levels through at least 2014. As a result, this action
better positioned TCF for the current interest rate outlook
while reducing interest rate risk.
The return on average assets was a negative 1.14% in
2012, compared with positive returns on average assets
of .61% in 2011 and .85% in 2010. The return on common
equity was a negative 13.33% in 2012, compared with a
positive return of 6.32% in 2011 and 10.67% in 2010. The
effective income tax rate for 2012 was 39.1%, compared
with 36% in 2011 and 36.9% in 2010.
Reportable Segment Results LENDING –TCF’s lending
strategy is to originate high credit quality, primarily
secured, loans and leases. The lending portfolio consists of
retail lending, commercial banking and the national lending
businesses. The national lending businesses are comprised
of leasing and equipment finance, inventory finance and
auto finance. Lending’s consistent disciplined portfolio
growth generates earning assets and, along with its fee
generating capabilities, produces a significant portion
of the Company’s revenue. Lending generated net income
attributable to common stockholders of $30.9 million for
2012, compared with net income of $31.5 million in 2011.
Lending net interest income for 2012 was $524.4 million,
up 11.5% from $470.2 million for 2011. This increase was
primarily due to an increase in the average balances in the
national lending businesses, partially offset by yield com-
pression due to the continued low interest rate environment.
Lending provision for credit losses totaled $245.4 million in
2012, up 23.8% from $198.1 million for 2011. The increase was
primarily due to the implementation of clarifying regulatory
guidance on consumer loans and increased provision in the
commercial portfolio as TCF aggressively addressed credit
issues. See Item 7. Management’s Discussion and Analysis
— “Consolidated Income Statement Analysis — Provision for
Credit Losses” section for further discussion.
{ 22 } { TCF Financial Corporation and Subsidiaries }
Lending non-interest income totaled $138.5 million in
2012, up 36.8% from $101.2 million for 2011, primarily due
to gains on sales of auto finance and consumer real estate
loans. See Item 7. Management’s Discussion and Analysis —
“Consolidated Income Statement Analysis – Non-Interest
Income” for further discussion.
Lending non-interest expense totaled $367.2 million
for 2012, up 15.3% from $318.4 million for 2011. The
increase was primarily due to the full year impact of the
acquisition and ramp-up of the recently acquired auto
finance business as well as increased staffing levels to
support the new Bombardier Recreational Products, Inc.
(“BRP”) program in inventory finance.
FUNDING–TCF’s funding is primarily derived from branch
banking, consumer and small business deposits, and
treasury investments. With a renewed focus on quality
customer relationships through the introduction of TCF Free
Checking, deposits provide a source of low-cost funds and
fee income. Borrowings may be used to offset reductions in
deposits or to support expanded lending activities. Funding
reported a net loss of $239.1 million for 2012, compared
with net income of $77.5 million in 2011. The net loss in
2012 was due to the balance sheet repositioning completed
in the first quarter of 2012.
Funding net interest income for 2012 was $258.3 million,
up 11.5% from $231.6 million in 2011 primarily related
to the reduced costs of borrowings resulting from the
balance sheet repositioning, partially offset by a reduction
of interest income as a result of lower levels of mortgage
backed securities.
Funding non-interest income totaled $338.9 million in
2012, down 6% from $360.6 million in 2011. The decrease
was primarily due to lower banking fees and revenues related
to changes in our deposit product fee structure and the full-
year effect of the new regulations limiting interchange fees
associated with our debit card transactions.
Funding non-interest expense totaled $969.5 million
in 2012, up from $463.8 million in 2011. The increase was
primarily due to the loss on termination of debt of $550.7
million in the first quarter of 2012 in connection with the
balance sheet repositioning.
SUPPORT SERVICES — TCF’s Support Services segment
consists of the holding company and corporate functions
that provide data processing, bank operations and other
professional services to the operating segments. Support
Services reported a net loss attributable to common
stockholders of $9.9 million and $4.6 million for 2012 and
2011, respectively.
Consolidated Income Statement Analysis
Net Interest Income Net interest income, the difference
between interest earned on loans and leases, investments
and other interest-earning assets (interest income), and
interest paid on deposits and borrowings (interest expense),
represented 61.4% of TCF’s total revenue in 2012, 61.2%
in 2011 and 56.5% in 2010. Net interest income divided by
average interest-earning assets is referred to as the net
interest margin, expressed as a percentage. Net interest
income and net interest margin are affected by changes in
prevailing short- and long-term interest rates, loan and
deposit pricing strategies and competitive conditions, the
volume and the mix of interest-earning assets and interest-
bearing liabilities, the level of non-performing assets, and
the impact of modified loans and leases.
{ 23 }
{ 2012 Form 10K } The following tables summarize TCF’s average balances, interest, dividends, and yields and rates on major categories of TCF’s
interest-earning assets and interest-bearing liabilities on a fully tax-equivalent basis.
(Dollars in thousands)
Assets:
Investments and other
U.S. Government sponsored entities:
Mortgage-backed securities, fixed rate
U.S. Treasury securities
Other securities
Total securities available for sale(1)
Loans and leases held for sale
Loans and leases:
Consumer real estate:
Fixed-rate
Variable-rate
Total consumer real estate
Commercial:
Fixed- and adjustable-rate
Variable-rate
Total commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases(2)
Total interest-earning assets
Other assets(3)
Total assets
liabilities and Equity:
Non-interest bearing deposits:
Retail
Small business
Commercial and custodial
Total non-interest bearing deposits
Interest-bearing deposits:
Checking
Savings
Money market
Subtotal
Certificates of deposit
Total interest-bearing deposits
Total deposits
Borrowings:
Short-term borrowings
Long-term borrowings
Total borrowings
Total interest-bearing liabilities
Total deposits and borrowings
Other liabilities
Total liabilities
Total TCF Financial Corp. stockholders’ equity
Non-controlling interest in subsidiaries
Total equity
Total liabilities and equity
Net interest income and margin
Year Ended
December 31, 2012
Average
Balance
Interest
Yields
and
Rates
Year Ended
December 31, 2011
Average
Balance
Interest
Yields
and
Rates
Change
Average
Balance
Interest
Yields and
Rates
(bps)
$ 574,422
$ 10,404
1.81%
$ 820,981
$ 7,836
.95%
$ (246,559) $ 2,568
86
3.33
–
3.70
3.33
7.98
5.93
5.04
5.60
5.57
3.86
5.18
5.42
6.20
6.06
8.05
5.53
5.27
.14
.33
.37
.28
.88
.38
.31
.30
2.58
2.32
.77
.66
1,055,868
–
180
1,056,048
46,201
35,143
–
7
35,150
3,689
4,254,039
2,503,473
6,757,512
252,233
126,158
378,391
149,793
30,653
180,446
170,991
88,934
17,949
1,332
838,043
887,286
3,105
19,834
2,859
25,798
15,189
40,987
40,987
937
62,680
63,617
104,604
104,604
2,691,004
794,214
3,485,218
3,155,946
1,434,643
296,083
16,549
15,145,951
16,822,622
1,233,042
$18,055,664
$ 1,311,561
738,949
317,432
2,367,942
2,256,237
6,037,939
770,104
9,064,280
1,727,859
10,792,139
13,160,081
312,417
2,426,655
2,739,072
13,531,211
15,899,153
412,170
16,311,323
1,729,537
14,804
1,744,341
$18,055,664
2,198,188
48,178
329
2,246,695
1,215
85,138
34
16
85,188
131
3.87
.07
4.86
3.79
10.78
(1,142,320)
(48,178)
(149)
(1,190,647)
44,986
(49,995)
(34)
(9)
(50,038)
3,558
6.08
5.13
5.76
5.76
4.33
5.47
6.00
7.19
3.31
8.81
5.83
5.34
.21
.51
.45
.43
.79
.47
.38
.35
4.29
4.24
1.69
1.44
4,627,047
2,386,234
7,013,281
281,427
122,532
403,959
164,368
30,742
195,110
184,575
61,583
13
1,702
846,942
940,097
4,451
28,942
2,951
36,344
8,764
45,108
45,108
171
192,984
193,155
238,263
238,263
2,854,327
710,758
3,565,085
3,074,207
856,271
363
19,324
14,528,531
17,597,422
1,194,550
$18,791,972
$ 1,414,659
698,903
291,986
2,405,548
2,114,098
5,671,889
658,693
8,444,680
1,103,231
9,547,911
11,953,459
49,442
4,500,564
4,550,006
14,097,917
16,503,465
551,206
17,054,671
1,729,660
7,641
1,737,301
$18,791,972
(373,008)
117,239
(255,769)
(29,194)
3,626
(25,568)
(14,575)
(89)
(14,664)
(13,584)
27,351
17,936
(370)
(8,899)
(52,811)
(1,346)
(9,108)
(92)
(10,546)
6,425
(4,121)
(4,121)
766
(130,304)
(129,538)
(133,659)
(133,659)
(163,323)
83,456
(79,867)
81,739
578,372
295,720
(2,775)
617,420
(774,800)
38,492
$ (736,308)
$ (103,098)
40,046
25,446
(37,606)
142,139
366,050
111,411
619,600
624,628
1,244,228
1,206,622
262,975
(2,073,909)
(1,810,934)
(566,706)
(604,312)
(139,036)
(743,348)
(123)
7,163
7,040
$ (736,308)
(54)
(7)
(116)
(46)
(280)
(15)
(9)
(16)
(19)
(47)
(29)
(58)
(99)
275
(76)
(30)
(7)
(7)
(18)
(8)
(15)
9
(9)
(7)
(5)
(171)
(192)
(92)
(78)
$782,682
4.65%
$701,834
3.99%
$ 80,848
66
(1) Average balances and yields of securities available for sale are based upon the historical amortized cost and exclude equity securities.
(2) Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.
(3) Includes operating leases.
{ 24 } { TCF Financial Corporation and Subsidiaries }
(Dollars in thousands)
Assets:
Investments and other
U.S. Government sponsored entities:
Mortgage-backed securities, fixed rate
U.S. Treasury securities
Other securities
Total securities available for sale(1)
Loans and leases held for sale
Loans and leases:
Consumer real estate:
Fixed-rate
Variable-rate
Total consumer real estate
Commercial:
Fixed- and adjustable-rate
Variable-rate
Total commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases(2)
Total interest-earning assets
Other assets(3)
Total assets
liabilities and Equity:
Non-interest bearing deposits:
Retail
Small business
Commercial and custodial
Total non-interest bearing deposits
Interest-bearing deposits:
Checking
Savings
Money market
Subtotal
Certificates of deposit
Total interest-bearing deposits
Total deposits
Borrowings:
Short-term borrowings
Long-term borrowings
Total borrowings
Total interest-bearing liabilities
Total deposits and borrowings
Other liabilities
Total liabilities
Total TCF Financial Corp. stockholders’ equity
Non-controlling interest in subsidiaries
Total equity
Total liabilities and equity
Net interest income and margin
Year Ended
December 31, 2011
Average
Balance
Interest
Yields
and
Rates
Year Ended
December 31, 2010
Average
Balance
Interest
Yields
and
Rates
Change
Average
Balance
Interest
Yields and
Rates
(bps)
$ 820,981
$ 7,836
.95%
$ 337,279
$ 5,509
1.63 %
$ 483,702
$ 2,327
(68)
2,198,188
48,178
329
2,246,695
1,215
85,138
34
16
85,188
131
3.87
.07
4.86
3.79
10.78
1,817,413
71,233
454
1,889,100
–
80,332
93
20
80,445
–
6.08
5.13
5.76
5.76
4.33
5.47
6.00
7.19
3.31
8.81
5.83
5.34
.21
.51
.45
.43
.79
.47
.38
.35
4.29
4.24
1.69
1.44
4,627,047
2,386,234
7,013,281
281,427
122,532
403,959
164,368
30,742
195,110
184,575
61,583
13
1,702
846,942
940,097
4,451
28,942
2,951
36,344
8,764
45,108
45,108
171
192,984
193,155
238,263
238,263
2,854,327
710,758
3,565,085
3,074,207
856,271
363
19,324
14,528,531
17,597,422
1,194,550
$18,791,972
$ 1,414,659
698,903
291,986
2,405,548
2,114,098
5,671,889
658,693
8,444,680
1,103,231
9,547,911
11,953,459
49,442
4,500,564
4,550,006
14,097,917
16,503,465
551,206
17,054,671
1,729,660
7,641
1,737,301
$18,791,972
5,082,487
2,148,171
7,230,658
313,573
116,436
430,009
176,018
30,604
206,622
196,570
49,881
–
2,303
885,385
971,339
6,466
40,023
4,532
51,021
10,208
61,229
61,229
474
208,972
209,446
270,675
270,675
2,956,699
730,325
3,687,024
3,056,006
677,214
–
26,576
14,677,478
16,903,857
1,286,683
$18,190,540
$ 1,429,436
641,412
284,750
2,355,598
2,071,990
5,410,681
656,691
8,139,362
1,054,179
9,193,541
11,549,139
124,891
4,580,786
4,705,677
13,899,218
16,254,816
511,589
16,766,405
1,415,161
8,974
1,424,135
$18,190,540
4.42
.13
4.41
4.26
6.17
5.42
5.95
5.95
4.19
5.60
6.43
7.37
–
8.67
6.03
5.75
.31
.74
.69
.63
.97
.67
.53
.38
4.56
4.45
1.95
1.66
380,775
(23,055)
(125)
357,595
1,215
4,806
(59)
(4)
4,743
131
(55)
(6)
45
(47)
1,078
(9)
(29)
(19)
(19)
14
(13)
(43)
(18)
331
14
(20)
(41)
(10)
(23)
(24)
(20)
(18)
(20)
(15)
(3)
(27)
(21)
(26)
(22)
(455,440)
238,063
(217,377)
(32,146)
6,096
(26,050)
(11,650)
138
(11,512)
(11,995)
11,702
13
(601)
(38,443)
(31,242)
(2,015)
(11,081)
(1,581)
(14,677)
(1,444)
(16,121)
(16,121)
(303)
(15,988)
(16,291)
(32,412)
(32,412)
(102,372)
(19,567)
(121,939)
18,201
179,057
363
(7,252)
(148,947)
693,565
(92,133)
$ 601,432
$ (14,777)
57,491
7,236
49,950
42,108
261,208
2,002
305,318
49,052
354,370
404,320
(75,449)
(80,222)
(155,671)
198,699
248,649
39,617
288,266
314,499
(1,333)
313,166
$ 601,432
$701,834
3.99%
$700,664
4.15%
$ 1,170
(16)
(1) Average balances and yields of securities available for sale are based upon the historical amortized cost and exclude equity securities.
(2) Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.
(3) Includes operating leases.
{ 25 }
{ 2012 Form 10K }
The following table presents the components of the changes in net interest income by volume and rate.
(In thousands)
Interest income:
Year Ended December 31, 2012
Versus Same Period in 2011
Increase (Decrease) Due to
Year Ended December 31, 2011
Versus Same Period in 2010
Increase (Decrease) Due to
Volume(1)
Rate(1)
Total
Volume(1)
Rate(1)
Total
Investments and Other
$ (2,883)
$ 5,451
$ 2,568
$ 5,355
$ (3,028)
$ 2,327
U.S. Government sponsored entities:
Mortgage-backed securities, fixed rate
Debentures
U.S. Treasury Securities
Other securities
Total securities available for sale
Loans and leases held for sale
Loans and leases:
Consumer home equity:
Fixed-rate
Variable-rate
Total consumer real estate
Commercial:
Fixed- and adjustable-rate
Variable-rate
Total commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases
Total interest income
Interest expense:
Checking
Savings
Money market
Certificates of deposit
Borrowings:
Short-term borrowings
Long-term borrowings
Total borrowings
Total interest expense
Net interest income
(39,388)
–
(34)
(6)
(40,689)
3,591
(22,841)
5,596
(15,072)
(9,439)
3,383
(4,475)
4,776
36,609
17,869
(233)
34,374
(42,714)
279
1,754
460
5,341
(10,607)
–
–
(3)
(9,349)
(33)
(6,353)
(1,970)
(10,496)
(5,136)
(3,472)
(10,189)
(18,360)
(9,258)
67
(137)
(43,273)
(10,097)
(1,625)
(10,862)
(552)
1,084
(49,995)
–
(34)
(9)
(50,038)
3,558
(29,194)
3,626
(25,568)
(14,575)
(89)
(14,664)
(13,584)
27,351
17,936
(370)
(8,899)
(52,811)
(1,346)
(9,108)
(92)
6,425
15,522
–
(24)
(6)
14,171
131
(27,755)
12,443
(12,729)
(5,992)
(832)
(6,740)
1,165
12,903
13
(639)
(8,915)
38,821
129
1,851
14
460
(10,716)
–
(35)
2
(9,428)
–
(4,391)
(6,347)
(13,321)
(5,658)
970
(4,772)
(13,160)
(1,201)
–
38
(29,528)
(70,063)
(2,144)
(12,932)
(1,595)
(1,904)
4,806
–
(59)
(4)
4,743
131
(32,146)
6,096
(26,050)
(11,650)
138
(11,512)
(11,995)
11,702
13
(601)
(38,443)
(31,242)
(2,015)
(11,081)
(1,581)
(1,444)
792
(69,951)
(60,665)
(9,230)
$(32,277)
(26)
(60,353)
(68,873)
(124,429)
$ 113,125
766
(130,304)
(129,538)
(133,659)
$ 80,848
(264)
(3,614)
(6,802)
4,081
$28,190
(39)
(12,374)
(9,489)
(36,493)
$(27,020)
(303)
(15,988)
(16,291)
(32,412)
$ 1,170
(1) Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate. Changes
due to volume and rate are calculated independently for each line item presented.
Net interest income, including the impact of tax
equivalent adjustments, was $782.7 million for 2012, an
increase of 11.5% from $701.8 million in 2011, which was
up .2% from $700.7 million in 2010. The increase in net
interest income in 2012 was primarily due to the balance
sheet repositioning completed in the first quarter of 2012.
Additionally, net interest income increased due to higher
average loan balances in the national lending business,
partially offset by reduced interest income due to both
lower yields and lower average balances of consumer real
estate and commercial loans. The increase in net interest
income in 2011 was primarily due to reductions in deposit
rates, reduced interest expense on long-term borrowings
and additional interest earned due to loan growth in
inventory finance, mostly offset by decreases in interest
earned on consumer loans and equipment finance loans
and leases.
{ 26 } { TCF Financial Corporation and Subsidiaries }
Net interest margin was 4.65%, 3.99% and 4.15% for
2012, 2011 and 2010, respectively. The increase in 2012 was
primarily due to lower average cost of borrowings due to the
effects of the balance sheet repositioning, partially offset
by a reduction in interest income on mortgage-backed
securities and rate compression as the national lending
portfolio repriced in the low rate environment. The decrease
in 2011 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, partially
offset by lower average cost of deposits and borrowings.
Provision for Credit losses The provision for credit
losses is calculated as part of the determination of the
allowance for loan and lease losses. The determination of
the allowance for loan and lease losses and the related
provision for credit losses is a critical accounting estimate
which involves a number of factors, such as historical trends in
net charge-offs, delinquencies in the loan and lease portfolio,
year of loan or lease origination, value of collateral, general
economic conditions and management’s assessment of credit
risk in the current loan and lease portfolio.
The following table summarizes the composition of TCF’s provision for credit losses for the years ended December 31, 2012,
2011 and 2010.
(Dollars in thousands)
Consumer real estate
Commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total
N.M. Not Meaningful.
2012
$178,496 72.1%
43,498 17.6
4.1
10,054
2.4
6,060
2.7
6,726
1.1
2,609
Year Ended December 31,
2011
2010
2012/2011
2011/2010
Change
$163,696
25,555
7,395
1,318
–
2,879
81.5%
12.7
3.7
.7
–
1.4
$137,746
67,374
24,883
2,220
–
4,214
58.3%
28.5
10.5
.9
–
1.8
9.0%
$14,800
17,943 70.2
2,659 36.0
4,742
N.M.
N.M.
6,726
(270) (9.4)
$46,600 23.2%
18.8%
$ 25,950
(41,819) (62.1)
(17,488) (70.3)
(902) (40.6)
N.M.
(1,335) (31.7)
$(35,594) (15.1)%
–
$247,443 100.0%
$200,843 100.0%
$236,437 100.0%
TCF provided $247.4 million for credit losses in 2012,
compared with $200.8 million in 2011 and $236.4 million
in 2010. The increase in provision expense during 2012
was primarily due to $36.9 million related to the impact
of clarifying bankruptcy-related regulatory guidance
adopted in 2012, and increased provision in the commercial
portfolio as TCF aggressively addressed non-performing
assets and classified loans during 2012. The decrease in
provision expense during 2011 was driven by decreases in
commercial and leasing and equipment finance net charge-
offs and reserves as customer performance improved,
partially offset by higher net charge-offs and troubled debt
restructuring (“TDR”) reserves for consumer real estate
loans. Additionally, the increase in provision for TDR loans
during 2011 was primarily due to growth in TDR loans, in
part due to a new accounting standard clarifying what
modifications meet the requirements to be reported as TDR
loans, and increased utilization of longer term modifications.
Net loan and lease charge-offs were $233.8 million, or
1.54% of average loans and leases, in 2012, compared with
$211 million, or 1.45% of average loans and leases, in 2011
and $215.1 million, or 1.47% of average loans and leases, in
2010. The 2012 increase was primarily driven by net charge-
offs of $49.3 million in the consumer real estate portfolio
related to the impact of clarifying bankruptcy-related
regulatory guidance previously discussed. The decrease
in 2011 from 2010 was primarily due to decreases in net
charge-offs in the commercial and leasing and equipment
finance portfolios as customer performance improved,
partially offset by an increase in net-charge offs and TDR
reserves in the consumer real estate portfolio.
Also see “Consolidated Financial Condition Analysis —
Allowance for Loan and Lease Losses” in this Management’s
Discussion and Analysis.
{ 27 }
{ 2012 Form 10K }
Non-Interest Income Non-interest income is a significant source of revenue for TCF, representing 38.6% of total revenues
in 2012, 38.8% in 2011 and 43.5% in 2010, and is an important factor in TCF’s results of operations. Total fees and other
revenue were $388.2 million for 2012, compared with $437.2 million in 2011 and $508.9 million in 2010. The following table
summarizes the components of non-interest income.
(Dollars in thousands)
Fees and service charges
Card revenue
ATM revenue
Subtotal
Leasing and equipment finance
Gains on sales of auto loans
Gains on sales of consumer
real estate loans
Other
Fees and other revenue
Gains on securities, net
Visa share redemption
Total non-interest income
Fees and other revenue as a
percentage of total revenue
N.M. Not Meaningful.
Year Ended December 31,
2012
$177,953
52,638
24,181
254,772
92,721
22,101
5,413
13,184
388,191
102,232
–
$490,423
2011
$219,363
96,147
27,927
343,437
89,167
1,133
–
3,434
437,171
7,263
–
$444,434
2010
$273,181
111,067
29,836
414,084
89,194
–
–
5,584
508,862
29,123
–
$537,985
2009
$286,908
104,770
30,438
422,116
69,113
–
–
5,239
496,468
29,387
–
$525,855
2008
$270,739
103,082
32,645
406,466
55,488
–
–
12,107
474,061
16,066
8,308
$498,435
30.6%
38.2%
41.1%
42.8%
43.4%
Growth Rate
1–Year
2012/2011
5–Year
2012/2007
(18.9)%
(45.3)
(13.4)
(25.8)
4.0
N.M.
N.M.
N.M.
(11.2)
N.M.
N.M.
10.3
(8.5)%
(11.8)
(7.5)
(9.2)
9.4
N.M.
N.M.
(6.6)
(4.6)
50.4
N.M.
(2.0)
Fees and Service Charges Banking and service fees
decreased $41.4 million, or 18.9%, to $178 million for
2012, compared with $219.4 million for 2011 and $273.2
million for 2010. The decrease in 2012 was primarily due to
the elimination of the monthly maintenance fee with the
introduction of TCF Free Checking in the second quarter
of 2012 and a lower number of accounts. The decrease in
2011 compared with 2010 was primarily due to changes
in customer behavior and increased levels of checking
account attrition.
Card Revenue During 2012, card revenue, primarily
interchange fees, totaled $52.6 million, down from
$96.1 million in 2011 and $111.1 million in 2010. The
decreases in 2012 and 2011 were primarily due to a
decrease in the average interchange rate per transaction
as a result of the Durbin Amendment, which took effect
during the fourth quarter of 2011 resulting in a decrease
in card revenue of $43.2 million and $14.7 million in 2012
and 2011, respectively.
TCF is the 15th largest issuer of Visa® consumer debit
cards and the 12th largest issuer of Visa small business debit
cards in the United States, based on payment volume for
the three months ended September 30, 2012, as provided
by Visa. TCF earns interchange revenue from customer card
transactions paid primarily by merchants, not from TCF’s
customers. Card revenue represented 20.7% and 28% of
banking fee revenue for the years ended December 31, 2012
and December 31, 2011, respectively. Visa has significant
litigation against it regarding interchange pricing and there
is a risk this revenue could be impacted by any settlement
or adverse rulings in such litigation. The continued success
of TCF’s debit card program depends significantly on the
success and viability of Visa and the continued use by
customers and acceptance by merchants of its cards.
Gains on Sales of Auto Loans TCF sold $536.7 million
and $37.4 million of auto loans and recognized $22.1
million and $1.1 million in associated gains during 2012
and 2011, respectively. The increase was primarily due to
the full year impact of the acquisition and ramp-up of the
recently acquired auto finance business.
Gains on Sales of Consumer Real Estate Loans
In 2012, TCF sold $161.8 million of consumer real estate
loans and received proceeds of $167.2 million and recognized
gains of $5.4 million.
{ 28 } { TCF Financial Corporation and Subsidiaries }
The following table presents the components of other non-interest income.
(Dollars in thousands)
Servicing fee income
Investments and insurance
Gains on sale of education loans
Other
Total other non-interest income
N.M. Not Meaningful.
Year Ended December 31,
2012
$ 6,235
920
–
6,029
$13,184
2011
$ 484
1,105
–
1,845
$3,434
2010
$ –
1,111
–
4,473
$5,584
2009
$ –
643
–
4,596
$5,239
2008
$ –
9,405
1,456
1,246
$12,107
Compound Annual Growth Rate
1-Year
2012/2011
N.M.
(16.7)%
N.M.
N.M.
N.M.
5-Year
2012/2007
N.M.
(38.3)%
(100.0)
(.7)
(6.6)
Other Non-Interest Income Total other non-interest income increased to $13.2 million in 2012 from $3.4 million in 2011
and $5.6 million in 2010. The increase in 2012 was primarily driven by servicing fee income related to the full year impact of the
acquisition and ramp-up of the recently acquired auto finance business and growth in auto finance’s portfolio of managed
loans. The decrease in total other non-interest income in 2011 was primarily due to reduced inventory finance inspection fees.
Gains on Securities, Net In 2012, TCF recognized $102.2 million in gains related to sales of securities. Net realized
gains on the sale of mortgage-backed securities totaled $90.2 million with $77 million resulting from the balance sheet
repositioning. During the second quarter of 2012, TCF sold its Visa Class B stock, resulting in a net $13.1 million gain.
Non-Interest Expense Non-interest expense increased $598.1 million, or 78.2%, in 2012, increased $8.1 million or 1.1%,
in 2011, and decreased $320 thousand in 2010. The following table presents the components of non-interest expense.
Year Ended December 31,
Compound Annual Growth Rate
(Dollars in thousands)
Compensation and employee benefits
Occupancy and equipment
FDIC insurance
Operating lease depreciation
Advertising and marketing
Deposit account premiums
Other
Subtotal
Foreclosed real estate and
repossessed assets, net
Other credit costs, net
FDIC special assessment
Visa indemnification expense
Loss on termination of debt
Total non-interest expense
N.M. Not Meaningful.
1-Year
2012/2011
5-Year
2012/2007
2012
$ 393,841
130,792
30,425
25,378
16,572
8,669
163,897
769,574
2011
$348,792
126,437
28,747
30,007
10,034
22,891
146,909
713,817
2010
$346,072
126,551
23,584
37,106
13,062
17,304
147,884
711,563
2009
$345,868
126,292
19,109
22,368
17,134
30,682
143,697
705,150
2008
$365,653
127,953
2,990
17,458
19,150
16,888
150,061
700,153
12.9%
3.4
5.8
(15.4)
65.2
(62.1)
11.6
7.8
41,358
49,238
40,385
31,886
19,170
(16.0)
887
–
–
550,735
$1,362,554
2,816
–
(1,420)
–
$764,451
6,018
–
(1,631)
–
$756,335
12,137
8,362
(880)
–
$756,655
3,296
–
(3,766)
–
$718,853
(68.5)
N.M.
(100.0)
N.M.
78.2%
3.1%
1.6
92.7
7.6
(.3)
12.3
3.3
3.8
48.8
(13.2)
N.M.
(100.0)
N.M.
15.8%
Compensation and Employee Benefits Compensation
and employee benefits expense totaled $393.8 million,
$348.8 million and $346.1 million during 2012, 2011 and
2010, respectively. The increase in 2012 was primarily due
to the expansion of the auto finance business acquired
in November 2011, increased staffing levels to support
growth in the inventory finance business and increased
expense related to pension re-measurement. The increase
in 2011 was primarily due to an increase in commissions and
incentives due to growth in leasing and equipment finance
and inventory finance, which continued to expand its core
business with new programs during 2011 and the ramp-up
of expenses related to the exclusive financing program
for BRP that began funding in early 2012. These increases
{ 29 }
{ 2012 Form 10K }
were partially offset by a decrease in employee medical
costs, an increase in net gains recognized on the pension
re-measurement during the fourth quarter of 2011 and
decreases in branch banking compensation expenses as a
result of branch closures during 2011.
FDIC Insurance FDIC premiums expense totaled $30.4
million in 2012, an increase from $28.7 million in 2011 and
$23.6 million in 2010. The increases in 2012 and 2011 were
primarily the result of changes in the FDIC insurance rate
calculations for banks with over $10 billion in total assets,
which were implemented in April 2011.
Advertising, Marketing and Deposit Account Premiums
Advertising and marketing expenses increased to $16.6 million
in 2012, compared with $10 million in 2011 and $13.1 million
in 2010. The increase in 2012 was primarily the result of
increased spending on media advertising associated with
the reintroduction of free checking. The decrease in 2011
was primarily due to the discontinuation of the debit card
rewards program in the third quarter of 2011 in response
to new federal regulation regarding debit card interchange
fees. Deposit account premiums expense decreased to
$8.7 million in 2012, compared with $22.9 million in
2011 and $17.3 million in 2010. The decrease in 2012 was
primarily attributable to an enhanced strategy to gain
higher quality accounts through the reintroduction of free
checking products rather than through offering premiums.
The increase in deposit account premium expense in 2011
was primarily due to changes in the account premium
programs beginning in April 2011, which increased the
premiums paid for each qualified account opening.
Foreclosed Real Estate and Repossessed Assets, Net
Foreclosed real estate and repossessed assets expense,
net totaled $41.4 million in 2012 compared to $49.2 million
in 2011 and $40.4 million in 2010. The decrease in 2012
was primarily due to reduced writedowns on consumer real
estate properties as a result of a decrease in the number
of properties owned and the associated expenses. The
increase in 2011 was primarily due to increased valuation
writedowns on commercial real estate properties.
Other Non-Interest Expense Other non-interest expense
totaled $163.9 million in 2012, compared to $146.9 million
and $147.9 million in 2011 and 2010, respectively. The 2012
increase was primarily due to a $10 million accrual for the
civil money penalty assessed pursuant to previously disclosed
deficiencies in TCF’s Bank Secrecy Act compliance program.
Loss on Termination of Debt In connection with
the balance sheet repositioning completed in March 2012,
TCF restructured $3.6 billion of long-term borrowings
that had a 4.3% weighted average rate, at a pre-tax loss
of $550.7 million. As part of the debt restructuring, TCF
replaced $2.1 billion of 4.4% weighted average fixed rate,
Federal Home Loan Bank advances with a mix of floating
and fixed-rate, long- and short-term borrowings with a
current weighted average rate of .5%, and terminated
$1.5 billion of 4.2% weighted average fixed-rate
borrowings under repurchase agreements. Related to these
transactions, TCF sold $1.9 billion of mortgage-backed
securities, and recognized a pre-tax gain of $77 million.
Income Taxes Income tax benefit represented 39.13%
of loss before income tax benefit in 2012, compared with
income tax expense of 36.04% and 36.89% of income
before income tax expense in 2011 and 2010, respectively.
The higher effective income tax rate for 2012, compared
with 2011 was primarily due to the 2012 pretax loss
compared with pretax income in 2011 and 2010.
Consolidated Financial Condition Analysis
Securities Available for Sale Securities available
for sale were $712.1 million, or 3.9% of total assets, at
December 31, 2012 as compared to $2.3 billion, or 12.2%
of total assets, at December 31, 2011. TCF’s securities
available for sale portfolio primarily consists of
fixed-rate mortgage-backed securities issued by the
Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation. Net unrealized pre-tax
gains on securities available for sale totaled $18.8 million
at December 31, 2012, compared with net unrealized pre-
tax gains of $88.8 million at December 31, 2011. During
March 2012, as part of TCF’s balance sheet repositioning,
the Company sold $1.9 billion of U.S. government-
sponsored mortgage backed securities at a gain of $77
million. TCF may, from time to time, sell treasury and
agency securities and utilize the proceeds to reduce
borrowings, fund growth in loans and leases or for other
corporate purposes.
TCF’s securities portfolio does not contain commercial
paper, asset-backed commercial paper or asset-backed
securities secured by credit cards or auto loans. TCF also
has not participated in structured investment vehicles.
{ 30 } { TCF Financial Corporation and Subsidiaries }
loans and leases The following tables set forth information about loans and leases held in TCF’s portfolio.
(Dollars in thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance(1)
Inventory finance
Auto finance
Other
Total loans and leases
Year Ended December 31,
2012
2011
2010
2009
2008
Compound Annual
Growth Rate
1-Year
2012/2011
5-Year
2012/2007
$ 4,239,524
2,434,977
6,674,501
$ 4,742,423
2,152,868
6,895,291
$ 4,893,887
2,262,194
7,156,081
$ 4,961,347
2,319,222
7,280,569
$ 4,881,662
2,420,116
7,301,778
(10.6)%
13.1
(3.2)
(2.1)%
.8
(1.1)
3,080,942
324,293
3,405,235
3,198,017
1,567,214
552,833
27,924
$15,425,724
3,198,698
250,794
3,449,492
3,142,259
624,700
3,628
34,885
$14,150,255
3,328,216
317,987
3,646,203
3,154,478
792,354
–
39,188
$14,788,304
3,269,003
449,516
3,718,519
3,071,429
468,805
–
51,422
$14,590,744
2,984,156
506,887
3,491,043
2,486,082
4,425
–
62,561
$13,345,889
(3.7)
29.3
(1.3)
1.8
150.9
N.M.
(20.0)
9.0
3.8
(10.3)
1.8
8.7
N.M.
N.M.
(34.0)
4.3
N.M. Not Meaningful.
(1) Operating leases of $82.9 million and $69.6 million at December 31, 2012 and December 31, 2011, respectively, are included in other assets in the Consolidated Statements
of Financial Condition.
(In thousands)
At December 31, 2012
Geographic Distribution:
Minnesota
Illinois
Michigan
Wisconsin
California
Colorado
Canada
Texas
Florida
New York
Ohio
Pennsylvania
Arizona
Indiana
Other
Total
Consumer
Real Estate
$2,500,128
1,995,802
747,224
404,349
211,091
579,762
–
39
2,431
2,062
2,947
4,633
43,646
21,851
158,536
$6,674,501
Commercial
$ 839,878
757,588
596,750
669,665
19,118
107,262
–
15,833
42,957
–
44,149
–
38,840
72,295
200,900
$3,405,235
leasing and
Equipment
Finance(1)
$ 94,872
105,425
133,368
60,993
432,265
45,012
2,152
266,825
146,762
164,559
130,849
136,259
73,839
61,310
1,343,527
$3,198,017
Inventory
Finance
$ 39,823
36,570
57,747
53,690
48,680
18,627
491,715
85,339
64,807
55,812
37,140
48,419
13,701
23,621
491,523
$1,567,214
Auto
Finance
$ 11,965
36,116
11,519
1,167
110,033
13,141
–
36,057
30,179
15,123
7,690
17,845
18,422
5,780
237,796
$552,833
(1) Excludes operating leases included in other assets.
Other
$12,630
8,240
2,980
1,635
30
1,700
–
5
29
37
–
10
370
95
163
$27,924
Total
$ 3,499,296
2,939,741
1,549,588
1,191,499
821,217
765,504
493,867
404,098
287,165
237,593
222,775
207,166
188,818
184,952
2,432,445
$15,425,724
{ 31 }
{ 2012 Form 10K }
Loans and leases outstanding at December 31, 2012, are shown by contractual maturity in the following table.
(In thousands)
Amounts due:
Within 1 year
1 to 2 years
2 to 3 years
3 to 5 years
5 to 10 years
10 to 15 years
Over 15 years
Total after 1 year
Total
Amounts due after 1 year on:
Fixed-rate loans and leases
Variable- and
adjustable-rate loans(3)
Total after 1 year
Consumer
Real Estate
$ 249,047
198,358
185,946
415,659
1,124,317
1,188,477
3,312,697
6,425,454
$6,674,501
Commercial
$ 663,445
552,831
485,210
1,102,974
578,819
19,728
2,228
2,741,790
$3,405,235
At December 31, 2012(1)
leasing and
Equipment
Finance(2)
Inventory
Finance
Auto
Finance
Other
Total
$1,177,012
812,079
568,949
548,046
91,931
–
–
2,021,005
$3,198,017
$1,567,214
–
–
–
–
–
–
–
$1,567,214
$ 95,869
100,956
104,760
198,600
52,648
–
–
456,964
$552,833
$ 3,054
2,139
1,697
2,517
4,666
3,723
10,128
24,870
$27,924
$ 3,755,641
1,666,363
1,346,562
2,267,796
1,852,381
1,211,928
3,325,053
11,670,083
$15,425,724
$3,744,405
$2,044,211
$2,012,814
$ –
$456,964
$24,219
$ 8,282,613
2,681,049
$6,425,454
697,579
$2,741,790
8,191
$2,021,005
–
$ –
–
$456,964
651
$24,870
3,387,470
$11,670,083
(1) Gross of deferred fees and costs. This table does not include the effect of prepayments, which is an important consideration in management’s interest-rate risk analysis.
Company experience indicates that loans and leases remain outstanding for significantly shorter periods than their contractual terms.
(2) Excludes operating leases included in other assets.
(3) Excludes fixed-term amounts under lines of credit which are included in closed-end loans.
Consumer Real Estate TCF’s consumer real estate
loan portfolio represented 43.3% of its total loan and
lease portfolio at December 31, 2012. The consumer real
estate portfolio as a percentage of the total loan and
lease portfolio decreased 5.4% from 48.7% in 2011. TCF’s
consumer real estate portfolio is secured by mortgages filed
on residential real estate. At December 31, 2012, 63.5% of
loan balances were secured by first mortgages and 36.5% were
secured by second mortgages with an average loan size secured
by a first mortgage of $113 thousand and the average balance
of loans secured by a junior lien position of $41 thousand.
At December 31, 2012, 40.7% of the consumer real estate
portfolio carried a variable interest rate tied to the prime rate,
compared with 35% at December 31, 2011.
At December 31, 2012, 68.1% of TCF’s consumer real
estate loan balance consisted of closed-end loans,
compared with 74.2% at December 31, 2011. TCF’s closed-
end consumer real estate loans require payments of
principal and interest over a fixed term. The average home
value, which is based on original appraisal value, was $291
thousand as of December 31, 2012. Approximately 94%
of TCF’s consumer real estate loans are in TCF’s primary
banking markets as of December 31, 2012, compared with
substantially all as of December 31, 2011. TCF’s consumer
real estate lines of credit require regular payments of
interest and do not currently require regular payments of
principal. The average Fair Isaac Corporation (“FICO®”)
credit score at loan origination for the retail lending
portfolio was 729 as of December 31, 2012, and 727 as of
December 31, 2011. As part of TCF’s credit risk monitoring,
TCF obtains updated FICO score information quarterly. The
average updated FICO score for the retail lending portfolio
was 727 at both December 31, 2012 and 2011.
TCF’s consumer real estate underwriting standards are
intended to produce adequately secured loans to customers
with good credit scores at the origination date. Beginning
in 2008, TCF generally has not made new loans in excess of
90% loan-to-value (“LTV”) at origination. TCF does not have
any consumer real estate subprime lending programs and did
not originate or purchase from brokers 2/28 adjustable-rate
mortgages (“ARM”) or Option ARM loans. TCF also has not
originated consumer real estate loans with multiple payment
options or loans with “teaser” interest rates. Although
TCF does not have any programs that target subprime
borrowers, loans at lower LTV ratios have been originated
to borrowers with FICO scores below 620 in the normal course
of lending to customers. At December 31, 2012, 36.9% of
the consumer real estate loan balance had been originated
since January 1, 2009 with net charge-offs of .2%. TCF’s
consumer real estate portfolio is subject to the risk of falling
home values and to the general economic environment,
particularly unemployment.
{ 32 } { TCF Financial Corporation and Subsidiaries }
At December 31, 2012, total consumer real estate lines
of credit outstanding were $2.4 billion, up from $2.1 billion
at December 31, 2011. Outstanding balances on consumer
real estate lines of credit were 65.6% of total lines of credit
in 2012 compared to 61.3% in 2011.
Commercial lending Commercial real estate loans
decreased $117.8 million from December 31, 2011 to
$3.1 billion at December 31, 2012. Variable and adjustable-
rate loans represented 40% of commercial real estate loans
outstanding at December 31, 2012, compared with 42.4% at
December 31, 2011. Commercial business loans increased
$73.5 million to $324.3 million at December 31, 2012. The
overall decrease in commercial lending was due to payoffs
in the low rate environment exceeding new originations.
With an emphasis on secured lending, approximately 99%
of TCF’s commercial real estate and commercial business
loans were secured either by properties or other business
assets at both December 31, 2012 and 2011. Approximately
91% of TCF’s commercial real estate loans outstanding
were secured by properties located in its primary banking
markets as of December 31, 2012, compared with 93% as
of December 31, 2011.
The following table summarizes TCF’s commercial real estate loan portfolio by property and loan type.
(Dollars in thousands)
Multi-family housing
Retail services(1)
Office buildings
Warehouse/industrial buildings
Hotels and motels
Health care facilities
Residential home builders
Other
Total
Number
of loans
819
385
204
204
35
46
18
88
1,799
2012
Construction
and
Development
$ 65,735
3,670
14,630
21,033
–
3,735
9,212
28,078
$146,093
Permanent
$ 958,892
724,408
438,460
317,673
183,138
163,289
21,419
127,570
$2,934,849
At December 31,
Total
$1,024,627
728,078
453,090
338,706
183,138
167,024
30,631
155,648
$3,080,942
Number
of Loans
797
441
232
238
39
24
41
97
1,909
2011
Construction
and
Development
$ 54,379
5,529
23,886
12,946
6
19,221
17,890
25,353
$159,210
Permanent
$ 861,504
793,515
508,330
395,188
205,697
126,136
31,540
117,578
$3,039,488
Total
$ 915,883
799,044
532,216
408,134
205,703
145,357
49,430
142,931
$3,198,698
(1) Primarily retail shopping centers and stores, convenience stores, gas stations, restaurants and automobile dealerships.
{ 33 }
{ 2012 Form 10K }
leasing and Equipment Finance The following table summarizes TCF’s leasing and equipment finance portfolio by
equipment type, excluding operating leases.
(Dollars in thousands)
Equipment Type
Specialty vehicles
Manufacturing
Medical
Construction
Golf cart and turf
Technology and data processing
Furniture and fixtures
Trucks and trailers
Exercise equipment
Other
Total
At December 31,
2012
2011
Balance
$ 765,705
439,752
418,958
334,940
303,551
260,829
163,934
97,497
83,065
329,786
$3,198,017
Percent
of Total
23.9%
13.8
13.1
10.5
9.5
8.2
5.1
3.0
2.6
10.3
100.0%
Balance
$ 693,435
476,963
424,591
336,563
296,871
286,596
169,004
68,983
95,981
293,272
$3,142,259
Percent
of Total
22.1%
15.2
13.5
10.7
9.4
9.1
5.4
2.2
3.1
9.3
100.0%
The leasing and equipment finance portfolio was
$3.2 billion at December 31, 2012, compared with $3.1 billion
as of December 31, 2011, and consisted of $1.9 billion of
leases and $1.3 billion of loans. Loan and lease originations
for leasing and equipment finance totaled $1.7 billion
for 2012, an increase of 12.9% from $1.5 billion in 2011.
The backlog of approved transactions was $443.1 million
at December 31, 2012, compared with $455.3 million
at December 31, 2011. The average size of transactions
originated during 2012 was $106 thousand, compared with
$94 thousand during 2011. TCF’s leasing and equipment
finance activity is subject to risk of cyclical downturns
and other adverse economic developments. In an adverse
economic environment, there may be a decline in the
demand for some types of equipment, resulting in a decline
in the amount of new equipment being placed into service
as well as a decline in equipment values for equipment
previously placed in service. Declines in the value of leased
equipment increase the potential for impairment losses
and credit losses due to diminished collateral value, and
may result in lower sales-type revenue at the end of the
contractual lease term. See Note 1 of Notes to Consolidated
Financial Statements — Summary of Significant Accounting
Policies — Policies Related to Critical Accounting Policies
for information on lease accounting.
At December 31, 2012 and 2011, $63.9 million and
$121.7 million, respectively, of TCF’s lease portfolio was
discounted on a non-recourse basis with third-party
financial institutions. The leasing and equipment finance
portfolio tables above present lease residuals including
lease residuals related to non-recourse debt. Lease
residuals represent the estimated fair value of the leased
equipment at the expiration of the initial term of the
transaction and are reviewed on an ongoing basis. Any
downward revisions in estimated fair value are recorded
to expense in the periods in which they become known. At
December 31, 2012, lease residuals totaled $118 million,
or 9.74% of original equipment value, including $14.8 million
related to non-recourse sales, compared with $129.1 million,
or 11.2% of original equipment value, at December 31, 2011.
{ 34 } { TCF Financial Corporation and Subsidiaries }
TCF Inventory Finance The following table summarizes TCF’s inventory finance portfolio by marketing segment.
(Dollars in thousands)
Marketing Segment
Powersports
Lawn and garden
Electronics and appliances
Other
Total
Inventory finance continued to expand its core programs
during 2012, primarily in the powersports industry, with an
increase in the total portfolio to $1.6 billion, or 10.2% of
total loans and leases, at December 31, 2012, compared with
$624.7 million, or 4.4% at December 31, 2011. The increase
was primarily due to the funding of BRP dealers beginning
February 1, 2012. Inventory finance originations increased to
$5.2 billion in 2012 compared to $2.5 billion in 2011.
Auto Finance TCF’s auto finance loan portfolio
represented 3.6% of TCF’s total loan and lease portfolio at
December 31, 2012. The auto finance portfolio increased
significantly in 2012 to $552.8 million from $3.6 million
at December 31, 2011, due to continued growth from the
acquisition of Gateway One in the fourth quarter of 2011.
Auto finance loans are expected to continue growing as
it expands its number and geographic coverage of active
dealers in its network by expanding its sales force. As of
December 31, 2012, the auto finance network included 6,176
active dealers in 43 states, compared with 3,451 active
dealers in 30 states as of December 31, 2011. Auto finance
also increased its portfolio of managed loans, which includes
portfolio loans, loans held for sale, and loans sold and
serviced for others to $1.3 billion as of December 31, 2012.
Credit Quality The following tables summarize TCF’s
loan and lease portfolio based on what TCF believes are
the most important credit quality data that should be used
to understand the overall condition of the portfolio. The
following items should be considered throughout the credit
quality section.
• Within the performing loans and leases, TCF classifies
customers within regulatory classification guidelines.
Loans and leases that are “classified” are loans or
leases that management has concerns regarding the
ability of the borrowers to meet existing loan or lease
terms and conditions, but may never become non-
performing or result in a loss.
At December 31,
2012
2011
Balance
$ 943,704
339,224
50,394
233,892
$1,567,214
Percent
of Total
60.2%
21.7
3.2
14.9
100.0%
Balance
$153,217
324,607
52,603
94,273
$624,700
Percent
of Total
24.5%
52.0
8.4
15.1
100.0%
• Performing loans that are 60+ days delinquent have a
higher potential to become non-performing and generally
are a leading indicator for future charge-off trends.
• Accruing troubled debt restructurings are loans to
borrowers that have been modified such that TCF has
granted a concession in terms to improve the likelihood
of collection of all principal and modified interest owed.
• Non-accrual loans and leases have been charged down
to the estimated fair value of the collateral less selling
costs, or reserved for expected loss upon workout.
Included in Note 7 of Notes to Consolidated Financial
Statements, Allowance for Loan and Lease Losses and Credit
Quality Information, are disclosures of loans considered
to be “impaired” for accounting purposes. Consumer real
estate TDR loans are evaluated separately in TCF’s allowance
methodology. Commercial TDR loans are individually evaluated
for impairment. Impairment is based upon the present value
of the expected future cash flows or the fair value of the
collateral less selling expense for collateral-dependent loans.
Impaired loans comprise a portion of non-accrual loans and
accruing TDR loans and therefore are not additive to the
information in the table below. Impaired loan accounting
policies prescribe specific methodologies for determining
a portion of the allowance for loan and lease losses. Loan
modifications are not reported as TDR loans in the calendar
years after modification if the loans were modified with an
interest rate equal to or greater than the yields of new loan
originations with comparable risk at the time of restructuring,
and if the loan is performing based on the restructured terms;
however, these loans are still considered impaired and follow
TCF’s impaired loan reserve policies. In addition, TCF has
modified certain loans and leases to troubled borrowers
which are not considered TDR loans because a concession
was not granted. These other modified loans and leases
totaled $6.1 million and $39.4 million at December 31, 2012
and 2011, respectively, and are further discussed below
under “Loan Modifications.”
{ 35 }
{ 2012 Form 10K }
The following table summarizes key credit statistics of TCF’s loans and leases by portfolio.
At December 31, 2012
(Dollars in thousands)
Consumer real estate
Commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases
Performing loans and leases(1)
Non-
classified
$ 6,297,180
3,050,979
3,166,126
1,554,916
551,282
26,320
$14,646,803
Classified(2)
$ 53,260
223,880
14,789
10,692
818
2
$303,441
Total
$ 6,350,440
3,274,859
3,180,915
1,565,608
552,100
26,322
$14,950,244
60+ Days
Delinquent
and Accruing
$ 89,161
2,630
3,450
119
632
31
$ 96,023
Non-accrual
loans and
leases
$234,900
127,746
13,652
1,487
101
1,571
$379,457
Total loans
and leases
$ 6,674,501
3,405,235
3,198,017
1,567,214
552,833
27,924
$15,425,724
Percent of total loans and leases
94.9%
2.0%
96.9%
.6%
2.5 %
100.0%
At December 31, 2011
(Dollars in thousands)
Consumer real estate
Commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases
Performing Loans and Leases(1)
Non-
classified
$ 6,495,265
2,990,515
3,093,194
616,677
2,181
34,796
$ 13,232,628
Classified(2)
$ 141,020
330,310
22,227
7,040
1,050
33
$ 501,680
Total
$ 6,636,285
3,320,825
3,115,421
623,717
3,231
34,829
$ 13,734,308
60+ Days
Delinquent
and Accruing
$109,635
1,148
6,255
160
397
41
$117,636
Non-accrual
Loans and
Leases
$149,371
127,519
20,583
823
–
15
$298,311
Total Loans
and Leases
$ 6,895,291
3,449,492
3,142,259
624,700
3,628
34,885
$ 14,150,255
Percent of total loans and leases
93.6%
3.5%
97.1%
.8%
2.1%
100.0%
(1) Includes all loans and leases that are not 60+ days delinquent or on non-accrual status.
(2) Excludes classified loans and leases that are 60+ days delinquent. Classified loans and leases are those for which management has concerns regarding the borrower’s ability
to meet the existing terms and conditions, but may never become non-performing or result in a loss.
The combined balance of performing classified loans and leases, over 60-day delinquent and accruing loans and leases, and
non-accrual loans and leases, was $778.9 million at December 31, 2012, a decrease of $138.7 million from December 31, 2011.
This was primarily due to decreases in commercial and consumer real estate classified loans and consumer real estate loans
over 60-days delinquent and accruing, partially offset by increases in consumer real estate non-accrual loans due to the
implementation of the bankruptcy-related regulatory guidance in the third quarter of 2012.
{ 36 } { TCF Financial Corporation and Subsidiaries }
Performing Loans and Leases The following table provides a summary of performing loans and leases by portfolio and
regulatory classification.
(In thousands)
Consumer real estate
Commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases
(In thousands)
Consumer real estate
Commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases
At December 31, 2012
Non-classified
Classified(1)
Pass
$ 6,232,153
2,890,420
3,150,510
1,495,156
551,282
26,290
$14,345,811
Special
Mention
$ 65,027
160,559
15,616
59,760
–
30
$300,992
Substandard Doubtful
$ –
–
70
–
–
–
$ 70
$ 53,260
223,880
14,719
10,692
818
2
$303,371
Total
$ 6,350,440
3,274,859
3,180,915
1,565,608
552,100
26,322
$14,950,244
At December 31, 2011
Non-classified
Classified(1)
Pass
$ 6,206,984
2,802,703
3,066,580
589,695
2,181
34,796
$ 12,702,939
Special
Mention
$ 288,281
187,812
26,614
26,982
–
–
$ 529,689
Substandard Doubtful
$ –
–
137
–
–
–
$137
$ 141,020
330,310
22,090
7,040
1,050
33
$ 501,543
Total
$ 6,636,285
3,320,825
3,115,421
623,717
3,231
34,829
$13,734,308
(1) Excludes classified loans and leases that are 60+ days delinquent and accruing.
Past Due Loans and Leases The following tables set forth information regarding TCF’s delinquent loan and lease
portfolio, excluding non-accrual loans and leases. Delinquent balances are determined based on the contractual terms of
the loan or lease. See Note 7 of Notes to Consolidated Financial Statements, Allowance for Loan and Lease Losses and Credit
Quality Information, for additional information.
(Dollars in thousands)
Principal balances:
60-89 days
90 days or more
Total
Percentage of loans and leases:
60-89 days
90 days or more
Total
2012
2011
2010
2009
2008
At December 31,
$38,227
57,796
$96,023
$ 45,531
72,105
$117,636
$ 55,618
59,425
$115,043
$ 54,073
52,056
$106,129
$41,851
37,619
$79,470
.26%
.38
.64%
.33%
.52
.85%
.39%
.41
.80%
.38%
.36
.74%
.32%
.28
.60%
{ 37 }
{ 2012 Form 10K }
The following table summarizes TCF’s over 60-day delinquent loan and lease portfolio by type, excluding non-accrual
loans and leases.
(Dollars in thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Subtotal(1)
Delinquencies in acquired portfolios(2)
Total
At December 31,
2012
2011
Principal
Balances
Percentage
of Portfolio
Principal
Balances
Percentage
of Portfolio
$76,020
13,141
89,161
2,259
371
2,630
2,568
119
532
31
95,041
982
$96,023
1.88%
.55
1.38
.08
.12
.08
.08
.01
.10
.12
.64
.58
.64%
$ 87,358
22,277
109,635
1,099
49
1,148
3,512
160
–
41
114,496
3,140
$117,636
1.89%
1.04
1.63
.04
.02
.03
.13
.03
–
.12
.85
.84
.85%
(1) Excludes delinquencies and non-accrual loans in acquired portfolios, as delinquency and non-accrual migration in these portfolios are not expected to result in losses
exceeding the credit reserves netted against the loan balances.
(2) Remaining balances of acquired loans and leases were $170.7 million and $371.9 million at December 31, 2012 and December 31, 2011, respectively.
Loan Modifications The following table summarizes TCF’s accruing TDR loans.
(Dollars in thousands)
Accruing TDR loans:
Consumer real estate
Commercial
Leasing and equipment finance
Other
Total accruing TDR loans
At December 31,
2012
2011
2010
2009
2008
$478,262
144,508
1,050
38
$623,858
$433,078
98,448
776
–
$532,302
$337,401
48,838
–
–
$386,239
$252,510
–
–
–
$252,510
$27,423
–
–
–
$27,423
Over 60 day delinquency as a percentage of total accruing TDR loans
4.34%
5.69%
4.64%
2.48%
9.72%
{ 38 } { TCF Financial Corporation and Subsidiaries }
TCF modifies loans through reductions in interest
rates, extending payment dates, or term extensions
with reduction of contractual payments (but generally
not a reduction of principal). Loan modifications are
not reported as TDR loans in the calendar years after
modification if the loans were modified to an interest rate
equal to or greater than the yields of new loan originations
with comparable risk at the time of restructuring and the
loan is performing based on the restructured terms.
If TCF has not granted a concession as a result of the
modification, compared with the original terms, the loan is
not considered a TDR loan. Modifications that are not clas-
sified as TDR loans primarily involve interest rate changes
to current market rates for similarly situated borrowers who
have access to alternative funds. Loan modifications to
borrowers who are not experiencing financial difficulties are
not included in the following reporting of loan modifications.
Under consumer real estate programs, TCF typically
reduces a customer’s contractual payments for a period
of time appropriate for the borrower’s financial condition.
Due to clarifying bankruptcy-related regulatory guidance
adopted in the third quarter of 2012, loans discharged in
Chapter 7 bankruptcy where the borrower did not reaffirm
the debt are permanently reported as TDR loans as a result
of the removal of the borrower’s personal liability on the
loan. Although loans classified as TDR loans are considered
impaired, TCF received more than 53% of the contractual
interest due on accruing consumer real estate TDR loans
during 2012 by modifying the loan to a qualified customer
instead of foreclosing on the property. At December 31, 2012,
5.7% of accruing consumer real estate TDR loans were more
than 60-days delinquent, compared with 7% at December
31, 2011. Approximately 3.6% of the $313.5 million accruing
consumer real estate TDR loans modified during the two-year
period preceding December 31, 2012, defaulted during 2012.
Commercial loans that are 90 or more days past due
and not well secured at the time of modification remain
on non-accrual status. Regardless of whether contractual
principal and interest payments are well-secured at the
time of modification, equipment finance loans that are 90
or more days past due remain on non-accrual status. All
loans modified when on non-accrual status continue to
be reported as non-accrual loans until there is sustained
repayment performance for six consecutive months. At
December 31, 2012, 61% of total commercial TDR loans
were accruing and TCF recognized 97% of the contractual
interest due on accruing commercial TDR loans during 2012.
At December 31, 2012, all accruing commercial TDR loans
were current and performing. Approximately 15.9% of the
$258.3 million accruing commercial TDR loans modified
during the two-year period preceding December 31, 2012
defaulted during 2012.
A commercial loan may be modified through a term
extension with a reduction of contractual payments or a
change in interest rate. Commercial loan modifications
which are not classified as TDR loans primarily involve loans
on which interest rates were modified to current market
rates for similarly situated borrowers who have access
to alternative funds or on which TCF received additional
collateral or loan conditions. Reserves for losses on
accruing commercial loan TDR loans were $1.5 million,
or 1% of the outstanding balance, at December 31, 2012,
and $1.4 million, or 1.4% of the outstanding balance, at
December 31, 2011.
TCF utilizes a multiple note structure as a workout
alternative for certain commercial loans. The multiple
note structure restructures a troubled loan into two notes.
When utilizing a multiple note structure as a workout
alternative for certain commercial loans, the first note
is always classified as a TDR loan. Under TCF policy, the
first note is established at an amount and with market
terms that provide reasonable assurance of payment and
performance. This note may be removed from TDR loan
classification in the calendar years after modification,
if the loan was modified at an interest rate equal to the
yield of a new loan origination with comparable risk at
the time of restructuring and the loan is performing based
on the terms of the restructuring agreement. This note is
reported on accrual status if the loan has been formally
restructured so as to be reasonably assured of payment
and performance according to its modified terms. This
evaluation includes consideration of the customer’s
payment performance for a reasonable period of at least
six consecutive months, which may include time prior to the
restructuring, before the loan is returned to accrual status.
A second note is charged-off. This second note is legally
structured and, for accounting purposes, still outstanding
with the borrower, and should the borrower’s financial
position improve, may become recoverable. At December
31, 2012, nine loans with a contractual balance of $42.9
million and a remaining book balance of $25.6 million had
been restructured under this workout alternative.
For additional information regarding TCF’s loan
modifications refer to Note 7 of the Notes to Consolidated
Financial Statements, Allowance for Loan and Lease Losses
and Credit Quality Information.
{ 39 }
{ 2012 Form 10K } Non-accrual Loans and Leases The following table summarizes TCF’s non-accrual loans and leases and other real
estate owned.
(In thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total non-accrual loans and leases
Other real estate owned
Total non-accrual loans and leases and other real estate owned
Non-accrual loans and leases to total loans and leases
Non-accrual loans and leases and other real estate to total loans
and leases and other real estate owned
Allowance for loan and lease losses to non-accrual loan and leases
At December 31,
2012
2011
2010
2009
2008
$199,631
35,269
234,900
118,300
9,446
127,746
13,652
1,487
101
1,571
$379,457
96,978
$476,435
$129,114
20,257
149,371
104,744
22,775
127,519
20,583
823
–
15
$298,311
134,898
$433,209
$140,871
26,626
167,497
104,305
37,943
142,248
34,407
1,055
–
50
$345,257
141,065
$486,322
$118,313
20,846
139,159
77,627
28,569
106,196
50,008
771
–
141
$296,275
105,768
$402,043
$ 71,078
11,793
82,871
54,615
14,088
68,703
20,879
–
–
65
$172,518
61,665
$234,183
2.46%
2.11%
2.33%
2.03%
1.29%
3.07
70.40
3.03
85.71
3.26
76.99
2.74
82.51
1.75
99.96
The following table summarizes TCF’s non-accrual TDR loans included in the table above.
(In thousands)
Consumer real estate
Commercial
Leasing and equipment finance
Auto finance
Total non-accrual TDR loans
2012
173,587
92,311
2,794
101
268,793
2011
46,728
83,154
979
–
130,861
At December 31,
2010
30,511
17,487
1,284
–
49,282
2009
15,416
9,586
–
–
25,002
2008
9,216
13,685
–
–
22,901
Non-accrual loans and leases increased $81.1 million, or
27.2%, from December 31, 2011. At December 31, 2012 and
2011, non-accrual loans and leases included $268.8 million
and $130.9 million, respectively, of loans that were modified
and categorized as TDR loans. This increase was primarily due
to $117.7 million of additional consumer non-accrual loans
as of December 31, 2012, resulting from the implementation
of clarifying bankruptcy-related regulatory guidance in
the third quarter of 2012. Excluding the impact of this
implementation, total non-accrual loans and leases would
have been $261.8 million at December 31, 2012. Management
believes that the presentation of this information, regarding
the impact of implementation of clarifying bankruptcy-
related regulatory guidance provides useful disclosure for
comparability to other banking institutions.
Consumer real estate and auto loans are generally
charged-off to their estimated realizable values upon
entering non-accrual status. Any necessary additional
reserves are established for commercial loans, leasing
and equipment finance loans and leases and inventory
finance loans when reported as non-accrual. Most of
TCF’s non-accrual loans and past due loans are secured
by real estate. Given the nature of these assets and
the related mortgage foreclosure, property sale and,
if applicable, mortgage insurance claims processes, it
can take 18 months or longer for a loan to migrate from
initial delinquency to final disposition. This resolution
process generally takes much longer for loans secured by real
estate than for unsecured loans or loans secured by other
property primarily due to state real estate foreclosure laws.
{ 40 } { TCF Financial Corporation and Subsidiaries }
Changes in the amount of non-accrual loans and leases for the years ended December 31, 2012 and 2011 are summarized in
the following tables.
(In thousands)
Balance, beginning of year
Additions
Charge-offs
Transfers to other assets
Return to accrual status
Payments received
Other, net
Balance, end of year
(In thousands)
Balance, beginning of year
Additions
Charge-offs
Transfers to other assets
Return to accrual status
Payments received
Other, net
Balance, end of year
Consumer
Real Estate
$149,371
340,359
(62,591)
(82,632)
(96,137)
(12,827)
(643)
$234,900
Commercial
$127,519
120,155
(40,502)
(15,044)
(27,692)
(35,480)
(1,210)
$127,746
Consumer
Real Estate
$ 167,497
230,944
(71,848)
(83,138)
(79,602)
(13,273)
(1,209)
$ 149,371
Commercial
$142,248
106,259
(42,098)
(23,142)
–
(60,859)
5,111
$ 127,519
Total non-accrual loans and leases that returned to
accrual status increased $42.2 million, while payments
received decreased $34.4 million and non-accrual loans
and leases transferred to other assets decreased $11.7
million. These changes were primarily driven by a more
aggressive workout approach in the commercial portfolio
and reduced foreclosures.
Allowance for Loan and Lease Losses The
determination of the allowance for loan and lease losses
is a critical accounting estimate. TCF’s methodologies for
determining and allocating the allowance for loan and
lease losses focus on ongoing reviews of larger individual
loans and leases, historical net charge-offs, delinquencies
in the loan and lease portfolio, the level of impaired and
non-accrual assets, values of underlying collateral, the
overall risk characteristics of the portfolios, changes in
character or size of the portfolios, geographic location,
year of origination, prevailing economic conditions and
other relevant factors. The various factors used in the
methodologies are reviewed on a periodic basis.
The Company considers the allowance for loan and lease
losses of $267.1 million appropriate to cover losses incurred
At or For the Year Ended December 31, 2012
leasing and
Equipment
Finance
$ 20,583
27,138
(19,667)
(2,915)
(1,308)
(10,170)
(9)
$ 13,652
Inventory
Finance
$ 823
8,784
(736)
(817)
(3,867)
(2,885)
185
$ 1,487
Auto
Finance
$ –
110
–
–
–
(13)
4
$101
At or For the Year Ended December 31, 2011
Leasing and
Equipment
Finance
$ 34,407
29,261
(13,217)
(6,724)
(2,943)
(20,113)
(88)
$ 20,583
Inventory
Finance
$ 1,055
6,875
(61)
(755)
(4,278)
(2,100)
87
$ 823
Auto
Finance
$ –
–
–
–
–
–
–
$ –
Other
$ 15
14
(1,188)
(605)
–
(572)
3,907
$ 1,571
Other
$ 50
160
(195)
–
–
–
–
$ 15
Total
$ 298,311
496,560
(124,684)
(102,013)
(129,004)
(61,947)
2,234
$ 379,457
Total
$ 345,257
373,499
(127,419)
(113,759)
(86,823)
(96,345)
3,901
$ 298,311
in the loan and lease portfolios as of December 31, 2012.
However, no assurance can be given that TCF will not, in any
particular period, sustain loan and lease losses that are
sizable in relation to the amount reserved, or that subsequent
evaluations of the loan and lease portfolio, in light of factors
then prevailing, including economic conditions, TCF’s ongoing
credit review process or regulatory requirements, will not
require significant changes in the balance of the allowance
for loan and lease losses. Among other factors, a continued
economic slowdown, increasing levels of unemployment and/
or a decline in commercial or residential real estate values
in TCF’s markets may have an adverse impact on the current
adequacy of the allowance for loan and lease losses by
increasing credit risk and the risk of potential loss.
The total allowance for loan and lease losses is generally
available to absorb losses from any segment of the portfolio.
The allocation of TCF’s allowance for loan and lease losses
disclosed in the following table is subject to change based on
changes in the criteria used to evaluate the allowance and is
not necessarily indicative of the trend of future losses in any
particular portfolio.
{ 41 }
{ 2012 Form 10K }
In conjunction with Note 7 of Notes to Consolidated Financial Statements, Allowance for Loan and Lease Losses and Credit
Quality Information, the following table includes detailed information regarding TCF’s allowance for loan and lease losses and
other credit loss reserves.
At December 31,
2012
2011
2010
2009
2008
2012
Allowance as a Percentage of Total
Loans and Leases Outstanding
At December 31,
2010
2009
2011
$119,957
62,056
182,013
47,821
3,754
51,575
21,037
7,569
4,136
798
$115,740
67,695
183,435
40,446
6,508
46,954
21,173
2,996
–
1,114
$105,634
67,216
172,850
50,788
11,690
62,478
26,301
2,537
–
1,653
$ 89,542
75,424
164,966
37,274
6,230
43,504
32,063
1,462
–
2,476
$ 47,279
51,157
98,436
39,386
11,865
51,251
20,058
33
–
2,664
2.83%
2.55
2.73
1.55
1.16
1.51
.66
.48
.75
2.86
2.44%
3.14
2.66
1.26
2.59
1.36
.67
.48
–
3.19
2.16%
2.97
2.42
1.53
3.68
1.71
.83
.32
–
4.22
1.80%
3.25
2.27
1.14
1.39
1.17
1.04
.31
–
4.82
2008
.97%
2.11
1.35
1.32
2.34
1.47
.81
.75
–
4.26
$267,128
$255,672
$265,819
$244,471
$172,442
1.73
1.81
1.80
1.68
1.29
2,456
$269,584
1,829
$257,501
2,353
$268,172
3,850
$248,321
1,510
$173,952
N.A.
1.75%
N.A.
1.82%
N.A.
1.81% 1.70%
N.A.
N.A.
1.30%
(Dollars in thousands)
Consumer real estate:
First mortgage lien
Junior lien
Consumer real estate
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total allowance for loan
and lease losses
Other credit loss reserves:
Reserves for unfunded commitments
Total credit loss reserves
N.A. Not Applicable.
At December 31, 2012, the allowance as a percent of
total loans and leases decreased to 1.73% compared with
1.81% at December 31, 2011. The increase in the balance
of the allowance for loan and lease losses is primarily
driven by a $1.3 billion increase in total loans and leases
outstanding as a result of continued growth in TCF’s
national lending businesses. The increase in the allowance
for commercial loans during 2012 was primarily due to
increased charge-offs and provisions for loan and lease
losses driven by more aggressive workout tactics. The level
of commercial lending allowances is generally volatile due
to reserves for specific loans based on individual facts and
collateral values as loans migrate to classified commercial
loans or to non-accrual loans. Charge-offs are taken
against such specific reserves.
{ 42 } { TCF Financial Corporation and Subsidiaries }
The following tables set forth a reconciliation of changes in the allowance for loan and lease losses.
(Dollars in thousands)
Balance, at beginning of year
Charge-offs:
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance
Inventory finance
Auto Finance
Other
Total charge-offs
Recoveries:
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance
Inventory finance
Auto Finance
Other
Total recoveries
Net charge-offs
Provision charged to operations
Other
Balance, at end of year
Net charge-offs as a percentage of average loans and leases
2012
$ 255,672
2011
$ 265,819
Year Ended December 31,
2010
$ 244,471
2009
$ 172,442
2008
$ 80,942
(101,595)
(83,190)
(184,785)
(34,642)
(6,194)
(40,836)
(15,248)
(1,838)
(1,164)
(10,239)
(254,110)
1,067
4,582
5,649
1,762
197
1,959
5,058
333
30
7,314
20,343
(233,767)
247,443
(2,220)
$ 267,128
1.54%
(94,724)
(62,130)
(156,854)
(32,890)
(9,843)
(42,733)
(16,984)
(1,044)
–
(12,680)
(230,295)
510
3,233
3,743
1,502
152
1,654
4,461
193
–
9,262
19,313
(210,982)
200,843
(8)
$ 255,672
1.45%
(78,605)
(56,125)
(134,730)
(45,682)
(4,045)
(49,727)
(34,745)
(1,484)
–
(16,377)
(237,063)
2,237
2,633
4,870
724
603
1,327
4,100
339
–
11,338
21,974
(215,089)
236,437
–
$ 265,819
(55,420)
(53,137)
(108,557)
(35,956)
(9,810)
(45,766)
(29,372)
(205)
–
(18,498)
(202,398)
808
1,129
1,937
440
697
1,137
2,053
23
–
10,741
15,891
(186,507)
258,536
–
$ 244,471
(30,262)
(32,937)
(63,199)
(11,884)
(5,731)
(17,615)
(13,156)
–
–
(20,830)
(114,800)
210
625
835
30
130
160
1,735
–
–
11,525
14,255
(100,545)
192,045
–
$ 172,442
1.47%
1.34%
.78%
Consumer real estate net charge-offs during 2012
increased $26 million from 2011. The increase was primarily
due to additional net charge offs of $49.3 million related
to the impact of bankruptcy-related regulatory guidance
adopted in 2012, partially offset by improved portfolio
performance as a result of increasing residential real
estate values. During 2012, commercial net charge-
offs decreased $2.2 million from 2011, primarily due to
decreased net charge-offs related to commercial and
industrial loans in Illinois, partially offset by an increase
in net charge-offs in retail services in Michigan. Leasing
and equipment finance net charge-offs in 2012 decreased
$2.3 million from 2011, primarily due to decreases in the
middle market and small ticket segments, partially offset
by an increase in Winthrop charge-offs due to one large
lease exposure.
{ 43 }
{ 2012 Form 10K }
Other Real Estate Owned and Repossessed and Returned Assets Other real estate owned and repossessed and
returned assets are summarized in the following table.
(In thousands)
Other real estate owned:(1)
Residential real estate
Commercial real estate
Total other real estate owned
Repossessed and returned assets
Total other real estate owned and
repossessed and returned assets
2012
2011
2010
2009
2008
Year Ended December 31,
$ 69,599
27,379
96,978
3,510
$ 87,792
47,106
134,898
4,758
$ 90,115
50,950
141,065
8,325
$ 66,956
38,812
105,768
17,166
$38,632
23,033
61,665
10,927
$100,488
$139,656
$149,390
$122,934
$72,592
(1) Includes properties owned and foreclosed properties subject to redemption.
Other real estate owned is recorded at the lower of cost or fair value less estimated costs to sell the property. At December
31, 2012, TCF owned 418 consumer real estate properties, a decrease of 47 from December 31, 2011, due to sales of 1,041
properties exceeding additions of 994 properties. The average length of time to sell consumer real estate properties during
2012 was 6.1 months from the date the properties were listed for sale. The consumer real estate portfolio is secured by a total
of 82,041 properties of which 639, or .78%, were owned or foreclosed properties subject to redemption and included within
other real estate owned as of December 31, 2012. This compares with 723, or .86%, owned or in the process of foreclosure and
included within other real estate owned as of December 31, 2011.
The changes in the amount of other real estate owned for the years ended December 31, 2012 and 2011 are summarized in the
following tables.
(In thousands)
Balance, beginning of year
Transferred in, net of charge-offs
Sales
Write-downs
Other, net
Balance, end of year
(In thousands)
Balance, beginning of year
Transferred in, net of charge-offs
Sales
Write-downs
Other, net
Balance, end of year
At or For the Year Ended December 31, 2012
Consumer
$ 87,792
90,044
(100,493)
(10,752)
3,008
$ 69,599
Commercial
$ 47,106
13,860
(25,563)
(8,859)
835
$ 27,379
Total
$ 134,898
103,904
(126,056)
(19,611)
3,843
$ 96,978
At or For the Year Ended December 31, 2011
Consumer
$ 90,115
99,639
(97,021)
(13,033)
8,092
$ 87,792
Commercial
$ 50,950
22,293
(15,070)
(12,030)
963
$ 47,106
Total
$ 141,065
121,932
(112,091)
(25,063)
9,055
$ 134,898
Transfers into other real estate owned increased by $18 million in 2012, compared with 2011. Sales of other real estate owned
decreased by $14 million in 2012, compared with 2011. Write-downs of consumer other real estate owned decreased by $2.3
million as a result of stabilization in home values in most of TCF’s markets and a decrease in the number of properties owned.
{ 44 } { TCF Financial Corporation and Subsidiaries }
liquidity Management TCF manages its liquidity
position to ensure that the funding needs of depositors and
borrowers are met promptly and in a cost-effective manner.
Asset liquidity arises from the ability to convert assets to
cash as well as from the maturity of assets. Liability liquidity
results from the ability of TCF to maintain a diverse set of
funding sources to promptly meet funding requirements.
TCF’s Asset/Liability Committee (“ALCO”) and Finance
Committee of the Board of Directors have adopted a Liquidity
Management Policy to direct management of the Company’s
liquidity risk, see “Item 7A. Quantitative and Qualitative
Disclosures about Market Risk” for more information. At both
December 31, 2012 and 2011, interest-bearing deposits held
at the Federal Reserve and unencumbered securities were
$1.4 billion. At December 31, 2012, TCF had $712 million of
interest-bearing deposits at the Federal Reserve.
Deposits are the primary source of TCF’s funds for
use in lending and for other general business purposes.
In addition to deposits, TCF derives funds from loan and
lease repayments and borrowings. Deposit inflows and
outflows are significantly influenced by general interest
rates, money market conditions, competition for funds,
customer service and other factors. TCF’s deposit inflows
and outflows have been and will continue to be affected
by these factors. Borrowings may be used to compensate
for reductions in normal sources of funds, such as deposit
inflows at less than projected levels, net deposit outflows
or to fund balance sheet growth. Historically, TCF has
borrowed primarily from the Federal Home Loan Bank
(“FHLB”) of Des Moines, institutional sources under
repurchase agreements and other sources.
TCF’s ALCO and Finance Committee of the Board of
Directors have adopted a Holding Company Investment
and Liquidity Management Policy, which establishes the
minimum amount of cash or liquid investments TCF Financial
will hold, see “Item 7A. Quantitative and Qualitative
Disclosures about Market Risk” for more information. TCF
Financial had cash and liquid investments of $84 million and
$133 million at December 31, 2012 and 2011, respectively.
Deposits Deposits totaled $14.1 billion at December 31,
2012, an increase of $1.8 billion, or 15.2% from December
31, 2011. On June 1, 2012, TCF Bank assumed approximately
$778 million of deposits from Prudential Bank & Trust,
FSB (“PB&T”). The deposits consist primarily of Individual
Retirement Account (“IRA”) accounts with certificates of
deposit or checking accounts and IRA related brokerage
sweep accounts gathered by PB&T. As of December 31, 2012,
the balance of assumed deposits from PB&T totaled
$731 million. Additionally, TCF reintroduced free checking
during 2012, which resulted in net gains in checking
accounts in the second half of 2012.
Checking, savings and money market deposits are an
important source of low-cost funds and fee income for TCF.
These deposits totaled $11.8 billion at December 31, 2012,
up $622.9 million from December 31, 2011, and comprised
83.7% of total deposits at December 31, 2012, compared
with 91.3% of total deposits at December 31, 2011. The
average balance of these deposits for 2012 was $11.4
billion, an increase of $582 million over the $10.9 billion
average balance for 2011.
Certificates of deposit totaled $2.3 billion at
December 31, 2012, up $1.2 billion from December 31,
2011, due to special programs offered in select markets
during 2012. Non-interest bearing deposits represented
17.7% of total deposits at December 31, 2012, compared
with 20% at December 31, 2011. TCF’s weighted-average
rate for deposits, including non-interest bearing deposits,
was .33% at December 31, 2012, compared with .29% at
December 31, 2011. At December 31, 2012, TCF had $294.3
million of brokered deposits acquired from PB&T in June
2012. TCF had no brokered deposits at December 31, 2011.
Borrowings Borrowings totaled $1.9 billion at December 31,
2012, down $2.5 billion from December 31, 2011. The
weighted-average rate on borrowings was 1.42% at
December 31, 2012, compared with 4.26% at December 31, 2011.
Historically, TCF has borrowed primarily from the FHLB of
Des Moines, from institutional sources under repurchase
agreements and from other sources. At December 31,
2012, TCF had $2.6 billion in unused, secured borrowing
capacity at the FHLB of Des Moines. See Notes 11 and 12
of Notes to Consolidated Financial Statements for detailed
information on TCF’s borrowings.
During June 2012, TCF Bank issued $110 million of
subordinated notes, at a price to investors of 99.086% of
par, which will be due on June 8, 2022. The subordinated
notes bear interest at a fixed rate per annum of 6.25%
until maturity. The notes qualify as Tier 2, or supplementary
capital for regulatory purposes, subject to certain
limitations. TCF Bank used the proceeds to pay down short
term borrowings.
In 2008, TCF Capital I, a statutory trust formed under
the laws of the state of Delaware and wholly-owned
finance subsidiary of TCF, issued 10.75% preferred junior
subordinated notes (the “Trust Preferred Securities”).
{ 45 }
{ 2012 Form 10K } During June 2012, TCF announced that it had submitted
a redemption notice to the property trustee for full
redemption of the $115 million of Trust Preferred Securities.
The determination to redeem the Trust Preferred Securities
followed publication of a proposed rule, which would phase
out the Tier 1 capital treatment of the Trust Preferred
Securities. The Trust Preferred Securities were redeemed
on July 30, 2012 at the redemption price of $25 per Trust
Preferred Security, totaling $115 million plus accumulated
unpaid distributions of $2.6 million. The redemption was
funded with a portion of the net proceeds from TCF’s
offering of depositary shares, each representing
a 1/1,000th interest in a share of TCF’s 7.50% Series A
Non-Cumulative Perpetual Preferred Stock, par value $.01
per share (the “Series A Preferred Stock”), which closed
on June 25, 2012.
Contractual Obligations and Commitments As disclosed in Notes 11 and 12 of Notes to Consolidated Financial
Statements, TCF has certain obligations and commitments to make future payments under contracts. At December 31, 2012,
the aggregate contractual obligations (excluding demand deposits) and commitments were as follows.
(In thousands)
Contractual Obligations
Total borrowings
Time deposits
Annual rental commitments under non-cancelable
operating leases
Contractual interest payments(1)
Campus marketing agreements
Construction contracts and land purchase
commitments for future branch sites
Total
(In thousands)
Commitments
Commitments to extend credit:
Consumer real estate and other
Commercial
Leasing and equipment finance
Total commitments to extend credit
Standby letters of credit and guarantees on industrial
revenue bonds
Total
Payments Due by Period
Total
$1,933,815
2,291,497
192,377
151,422
43,731
less than
1 Year
$ 715,945
1,593,029
26,027
50,393
2,994
1-3 Years
$ 723,566
587,274
52,220
45,120
6,786
3-5 Years
$385,268
49,906
43,378
22,494
5,944
More than
5 Years
$ 109,036
61,288
70,752
33,415
28,007
3,101
$4,615,943
3,101
$2,391,489
–
$1,414,966
–
$506,990
–
$ 302,498
Amount of Commitment — Expiration by Period
Total
less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
$1,265,092
419,185
172,148
1,856,425
$ 47,884
142,317
172,148
362,349
$ 83,138
98,218
–
181,356
$112,612
113,252
–
225,864
$1,021,458
65,398
–
1,086,856
18,287
$1,874,712
17,427
$ 379,776
775
$ 182,131
85
$225,949
–
$1,086,856
(1) Includes accrued interest and future contractual interest obligations on borrowings and time deposits.
{ 46 } { TCF Financial Corporation and Subsidiaries }
Commitments to extend credit are agreements to
lend to a customer provided there is no violation of any
condition in the contract. These commitments generally
have fixed expiration dates or other termination clauses
and may require payment of a fee. Since certain of the
commitments are expected to expire without being
drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Collateral
predominantly consists of residential and commercial
real estate. The credit facilities established for inventory
finance customers are discretionary credit arrangements
which do not obligate the Company to lend.
Unrecognized tax benefits, projected benefit obligations
and demand deposits with indeterminate maturities have been
excluded from the contractual obligations presented above.
Campus marketing agreements consist of fixed or
minimum obligations for exclusive marketing and naming
rights with seven campuses. TCF is obligated to make
various annual payments for these rights in the form of
royalties and scholarships through 2029. TCF also has
various renewal options, which may extend the terms of
these agreements. Campus marketing agreements are an
important element of TCF’s campus banking strategy.
See Note 18 of Notes to Consolidated Financial
Statements for information on commitments to extend
credit and standby letters of credit and guarantees on
industrial revenue bonds.
Capital Resources
Preferred Stock On June 25, 2012, TCF completed the
public offering of 6,900,000 depositary shares, each
representing a 1/1,000th interest in a share of the Series
A Preferred Stock, par value $.01 per share, at a public
offering price of $25 per depositary share. Net proceeds of
the offering to TCF, after deducting underwriting discounts,
commissions and estimated offering costs of $5.8 million,
were $166.7 million. Dividends are payable on the Series
A Preferred Stock if, as, and when declared by TCF’s Board
of Directors on a non-cumulative basis on March 1, June 1,
September 1, and December 1 of each year, at a per annum
rate of 7.5%.
On December 19, 2012, TCF completed the public offering
of 4,000,000 shares of 6.45% Series B Non-Cumulative
Perpetual Preferred Stock, par value $.01 per share,
with a liquidation preference of $25 per share (“Series B
Preferred Stock”). Net proceeds of the offering to TCF,
after deducting underwriting discounts, commissions and
estimated offering costs of $3.5 million, were $96.5 million.
Dividends are payable on the Series B Preferred Stock if, as,
and when declared by TCF’s Board of Directors on a non-
cumulative basis on March 1, June 1, September 1, and
December 1 of each year, at a per annum rate of 6.45%.
Equity Dividends to common stockholders on a per
share basis totaled 5 cents for each of the quarters ended
December 31, 2012 and December 31, 2011. TCF’s dividend
payout ratio was 34% for the quarter ended December 31,
2012. The Company’s primary funding sources for dividends
are earnings and dividends received from TCF Bank.
At December 31, 2012, TCF had 5.4 million shares remain-
ing in its stock repurchase program authorized by its Board of
Directors, but would need approval from the Federal Reserve
before repurchasing stock pursuant to this authorization.
Tangible realized common equity at December 31, 2012,
was $1.4 billion, or 7.52% of total tangible assets,
compared with $1.6 billion, or 8.42% of total tangible
assets, at December 31, 2011. Tangible realized common
equity is a non-GAAP financial measure and represents
common equity less goodwill, other intangible assets,
accumulated other comprehensive income and non-
controlling interest in subsidiaries. Tangible assets
represent total assets less goodwill and other intangible
assets. When evaluating capital adequacy and utilization,
management considers financial measures such as Tangible
Realized Common Equity to Tangible Assets and the Tier 1
Common Capital Ratio. 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.
{ 47 }
{ 2012 Form 10K } The following table is a reconciliation of the non-GAAP financial measures of tangible realized common equity and tangible
assets to the GAAP measures of total equity and total assets.
(Dollars in thousands)
Computation of tangible realized common equity
to tangible assets:
Total equity
Less: Non-controlling interest in subsidiaries
Total TCF Financial Corporation stockholders’ equity
Less:
Preferred stock
Goodwill
Other intangibles
Accumulated other comprehensive income
Add:
Accumulated other comprehensive loss
Tangible realized common equity
Total assets
Less:
Goodwill
Other intangibles
Tangible assets
2012
2011
2010
2009
2008
At December 31,
$ 1,876,643
13,270
1,863,373
$ 1,878,627
10,494
1,868,133
$ 1,480,163
8,500
1,471,663
$ 1,179,755
4,393
1,175,362
$ 1,493,776
–
1,493,776
263,240
225,640
8,674
12,443
–
225,640
7,134
56,826
–
152,599
1,232
–
–
152,599
1,405
1,660
348,437
152,599
–
23,685
–
$ 1,353,376
$18,225,917
–
$ 1,578,533
$18,979,388
15,692
$ 1,333,524
$18,465,025
–
$ 1,019,698
$17,885,175
–
$ 969,055
$16,740,357
225,640
8,674
$17,991,603
225,640
7,134
$18,746,614
152,599
1,232
$18,311,194
152,599
1,405
$17,731,171
152,599
–
$16,587,758
Tangible realized common equity to tangible assets
7.52%
8.42%
7.28%
5.75%
5.84%
At December 31, 2012 and 2011, regulatory capital for TCF and TCF Bank exceeded their regulatory capital requirements and
were considered “well-capitalized” under guidelines established by the Federal Reserve and the OCC. See Notes 14 and 15 of
Notes to Consolidated Financial Statements.
The following table is a reconciliation of Tier 1 risk-based capital to Tier 1 common capital.
At December 31,
2012
2011
$ 1,633,336
14,733,203
11.09%
$ 1,706,926
13,475,330
12.67%
$ 1,633,336
$ 1,706,926
263,240
13,270
–
$ 1,356,826
$14,733,203
–
10,494
115,000
$ 1,581,432
$13,475,330
9.21%
11.74%
(In thousands)
Tier 1 risk-based capital ratio:
Total Tier 1 capital
Total risk-weighted assets
Total Tier 1 risk-based capital ratio
Tier 1 common capital ratio:
Total Tier 1 capital
Less:
Preferred stock
Qualifying non-controlling interest in subsidiaries
Qualifying trust preferred securities
Total Tier 1 common capital
Total risk-weighted assets
Total Tier 1 common capital ratio
{ 48 } { TCF Financial Corporation and Subsidiaries }
In contrast to the Tier 1 risk-based capital ratio, the Tier 1
common capital ratio excludes the effect of qualifying trust
preferred securities, qualifying non-controlling interest
in subsidiaries and non-cumulative perpetual preferred
stock. Management reviews the total Tier 1 common
capital ratio when evaluating capital adequacy and
utilization. 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 provides investors,
regulators, and other users with information to be viewed
in relation to other banking institutions.
Total Tier 1 capital at December 31, 2012, was $1.6
billion, or 11.09% of risk-weighted assets, compared
with $1.7 billion, or 12.67% of risk-weighted assets at
December 31, 2011. Tier 1 common capital at
December 31, 2012, was $1.4 billion, or 9.21% of risk-
weighted assets, compared with $1.6 billion, or 11.74%
of risk-weighted assets at December 31, 2011. The
decrease in Tier 1 capital and Tier 1 common capital
from December 31, 2011, was due to the balance sheet
repositioning completed in the first quarter of 2012 and
the redemption of Trust Preferred Securities in the second
quarter of 2012, partially offset by the issuances of
preferred stock in the second and fourth quarters of 2012.
TCF maintains a Capital Plan and Dividend Policy which
applies to TCF Financial and incorporates TCF Bank’s Capital
Adequacy Plan and Dividend Policy (the “Policies”). The
Policies ensure that capital strategy actions, including the
addition of new capital, if needed, and/or the declaration
of preferred stock, common stock or bank dividends, are
prudent, efficient, and provide value to TCF’s stockholders,
while ensuring that past and prospective earnings retention
is consistent with TCF’s capital needs, asset quality,
and overall financial condition. TCF’s capital levels are
managed in such a manner that all regulatory capital
requirements for well-capitalized banks and bank holding
companies are exceeded.
Critical Accounting Policies
Critical accounting estimates occur in certain accounting
policies and procedures, and are particularly susceptible to
significant change. Policies that contain critical accounting
estimates include the determination of the allowance for
loan and lease losses, lease financings and income taxes.
See Note 1 of Notes to Consolidated Financial Statements
for further discussion of critical accounting policies.
Recent Accounting Pronouncements
On February 5, 2013, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2013-02, Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income (Topic
220), which requires the presentation of certain amounts
reclassified out of accumulated other comprehensive
income to net income, by component, either on the
face of the financial statements or in the notes. Other
reclassifications out of accumulated other comprehensive
income will require cross reference to existing disclosures.
The adoption of this ASU will be required for TCF’s Quarterly
Report on Form 10-Q for the quarter ending March 31, 2013,
and is not expected to have a material impact on TCF. This
ASU is the result of certain provisions deferred within ASU
No. 2011-12, Deferral of the Effective Date for Amendments
to the Presentation of Reclassifications of Items out of
Accumulated Other Comprehensive Income in Accounting
Standards Update No. 2011-05 (Topic 220), which was
adopted in TCF’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2012.
On January 31, 2013, the FASB issued ASU No. 2013-01,
Clarifying the Scope of Disclosures about Offsetting Assets
and Liabilities (Topic 210), which clarifies the scope
of ASU No. 2011-11 applies to derivatives, including
bifurcated embedded derivatives, repurchase agreements,
reverse repurchase agreements, and securities borrowing
and securities lending transactions. ASU No. 2011-11,
Disclosures about Offsetting Assets and Liabilities
(Topic 210), requires companies with financial and derivative
instruments subject to a master netting agreement to disclose
the gross amounts of the financial assets and liabilities,
the amounts offset on the balance sheet, the net amounts
presented, and the amounts subject to a master netting
arrangement not offset. The adoption of these ASUs will be
required with retrospective application for TCF’s Quarterly
Report on Form 10-Q for the quarter ending March 31, 2013,
and is not expected to have a material impact on TCF.
Legislative, Legal and Regulatory Developments
Federal and state legislation imposes numerous legal and
regulatory requirements on financial institutions. Future
legislative or regulatory change, or changes in enforcement
practices or court rulings, may have a dramatic and
potentially adverse impact on TCF.
{ 49 }
{ 2012 Form 10K } Bank Secrecy Act Civil Money Penalty On January 25,
2013, TCF entered into a settlement agreement with the
OCC related to the review of TCF’s past BSA compliance.
Pursuant to this agreement, TCF agreed to pay a $10 million
civil money penalty.
Federal Reserve Notice of Proposed Rulemaking
On August 30, 2012, the Board of Governors of the Federal
Reserve System published in the federal register three
related notices of proposed rulemaking (the “Proposed
Rules”) relating to the implementation of revised capital
rules to reflect the requirements of the Dodd-Frank Act
as well as the Basel III international capital standards.
Among other things, if adopted as proposed, the Proposed
Rules would establish a new capital standard consisting of
common equity Tier 1 capital; increase the capital ratios
required for certain existing capital categories and add a
requirement for a capital conservation buffer (failure to
meet these standards would result in limitations on capital
distributions as well as executive bonuses) and add more
conservative standards for including securities in regulatory
capital, which would phase-out trust preferred securities
as a component of Tier 1 capital commencing January
1, 2013. In addition, the Proposed Rules contemplated
the deduction of more assets from regulatory capital
and revisions to the methodologies for determining risk
weighted assets, including applying a more risk-sensitive
treatment to residential mortgage exposures and to past
due or non-accrual loans. The Proposed Rules provide for
various phase-in periods over the next several years.
Forward-Looking Information
Any statements contained in this Annual Report on Form
10-K 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 this report
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 defaults, anticipated defaults or rating agency
downgrades of sovereign debt (including debt of the U.S.),
or continued high rates of or increases in unemployment in
TCF’s primary banking markets; adverse economic, business
and competitive developments such as shrinking interest
margins, reduced demand for financial services and loan
and lease products, deposit outflows, 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 and
securities available for sale portfolios, including declines
in commercial or residential real estate values or changes
in the allowance for loan and lease losses dictated by new
market conditions or regulatory requirements; 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.
{ 50 } { TCF Financial Corporation and Subsidiaries }
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; the imposition of requirements
with an adverse impact relating to TCF’s lending, loan
collection and other business activities as a result of
the Dodd-Frank Act, or other legislative or regulatory
developments such as mortgage foreclosure moratorium laws
or imposition of underwriting or other limitations that impact
the ability to use certain variable-rate products; impact of
legislative, regulatory or other changes affecting customer
account charges and fee income; 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 additional monetary penalties; increased
health care costs resulting from Federal health care reform
legislation; adverse regulatory examinations and resulting
enforcement actions or other adverse consequences such as
increased capital requirements or higher deposit insurance
assessments; heightened regulatory practices, requirements
or expectations, including, but not limited to, requirements
related to 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 economic impact on banks of the Dodd-Frank
Act and other regulatory reform legislation; the impact of
financial regulatory reform, including additional capital,
leverage, liquidity and risk management requirements or
changes in the composition of qualifying regulatory capital
(including those resulting from U.S. implementation of
Basel III requirements); 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 and 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 customer opt-in preferences with respect to
overdraft fees on point of sale and ATM transactions or
the success of TCF’s introduction of TCF Free CheckingSM
which may have an adverse impact on TCF’s fee revenue;
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.
Supermarket Branching Risk; Growth Risks
Adverse developments affecting TCF’s supermarket
banking relationships or any of the supermarket chains
in which TCF maintains supermarket branches, including
the announcement on January 10, 2013 by SUPERVALU
that it had entered into an agreement to sell several of its
supermarket chains, including Jewel-Osco® in which TCF has
157 branches; 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 programs or new opportunities; failure to
successfully attract and retain new customers; including
the failure to attract and retain manufacturers and dealers
to expand to the inventory finance business, 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;
effects of failure to keep pace with technological change.
litigation Risks Results of litigation, including class
action litigation concerning TCF’s lending or deposit
activities including account servicing processes or fees
or charges, or employment practices, and possible increases
in indemnification obligations for certain litigation against
Visa U.S.A. and potential reductions in card revenues
resulting from such litigation or other litigation against Visa.
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
state or federal 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.
{ 51 }
{ 2012 Form 10K } Item 7A. Quantitative and
Qualitative Disclosures about
Market Risk
The Company’s market risk profile consists of four main
categories: credit risk, interest rate risk, liquidity risk
and foreign currency risk.
Credit Risk
Credit risk is defined as the risk to earnings or capital if
an obligor fails to meet the terms of any contract with the
Company or otherwise fails to perform as agreed, such as
the failure of customers and counterparties to meet their
contractual obligations, as well as contingent exposures
from unfunded loan commitments and letters of credit.
Credit risk also includes the failure of counterparties to
settle a securities transaction on agreed-upon terms or
the failure of issuers in connection with mortgage-backed
securities held in the Company’s securities available for
sale portfolio.
TCF has a Concentration Credit Risk Management
Committee that meets regularly and is responsible for
monitoring the loan and lease portfolio composition and
risk tolerance within the various segments of the portfolio.
The Concentration Credit Risk Management Committee and
the Board of Directors have adopted a Concentration Policy
to manage the Company’s concentration risk. To manage
credit risk arising from lending and leasing activities,
management has adopted and maintains underwriting
policies and procedures, and periodically reviews the
appropriateness of these policies and procedures.
Customers and guarantors or recourse providers are
evaluated as part of initial underwriting processes and
through periodic reviews. For consumer loans, credit scoring
models are used to help determine eligibility for credit and
terms of credit. These models are periodically reviewed to
verify that they are predictive of borrower performance.
Limits are established on the exposure to a single customer
(including affiliates) and on concentrations for certain
categories of customers. Loan and lease credit approval
levels are established so that larger credit exposures
receive managerial review at the appropriate level through
the credit committees.
Management continuously monitors asset quality
in order to manage the Company’s credit risk and to
determine the appropriateness of valuation allowances,
including, in the case of commercial, inventory finance
loans and equipment finance loans and leases, a risk
rating methodology under which a rating of one through
nine is assigned to each loan or lease. The rating reflects
management’s assessment of the potential impact on
repayment of the customer’s financial and operational
condition. Asset quality is monitored separately based on
the type or category of loan or lease. The rating process
allows management to better define the Company’s
loan and lease portfolio risk profile. Management also
uses various risk models to estimate probable impact
on payment performance under various scenarios, both
expected and unexpected.
The Company manages securities transaction risk by
monitoring all unsettled transactions. All counterparties
and transaction limits are reviewed and approved annually
by both ALCO and the Bank Credit Committee of TCF Bank.
To further manage credit risk in the securities portfolio,
99.7% of the securities held in the securities available for
sale portfolio are issued and guaranteed by the Federal
National Mortgage Association (“Fannie Mae”), the Federal
Home Loan Mortgage Corporation (“Freddie Mac”) or the
Government National Mortgage Association (“Ginnie Mae”).
Interest Rate Risk
Interest rate risk is defined as the exposure of net interest
income and fair value of financial instruments (interest-
earning assets, deposits and borrowings) to adverse
movements in interest rates. TCF’s results of operations
depend to a large degree on its net interest income and its
ability to manage interest rate risk. As such, the Company
considers interest rate risk to be one of its most significant
market risks. ALCO meets regularly and is responsible for
reviewing the Company’s interest rate sensitivity position
and establishing policies to monitor and limit exposure to
interest rate risk. The principal objective of TCF’s asset/
liability management activities is to provide maximum
levels of net interest income while maintaining acceptable
levels of interest rate risk and liquidity risk and facilitating
the funding needs of the Company.
Interest rate risk arises mainly from the structure of the
balance sheet. Since TCF does not hold a trading portfolio,
the Company is not exposed to market risk from trading
activities. As such, the major sources of the Company’s
interest rate risk are timing differences in the maturity
and repricing characteristics of assets and liabilities,
changes in the shape of the yield curve, changes in
customer behavior and changes in relationships between
{ 52 } { TCF Financial Corporation and Subsidiaries }
rate indices (basis risk). Management measures these risks
and their impact in various ways, including through the
use of simulation and valuation analyses. The interest rate
scenarios may include gradual or rapid changes in interest
rates, spread narrowing and widening, yield curve twists
and changes in assumptions about customer behavior in
various interest rate scenarios.
TCF utilizes net interest income simulation models to
estimate the near-term effects (next one to two years)
of changing interest rates on its net interest income.
Net interest income simulation involves forecasting net
interest income under a variety of scenarios, including
through variation of interest rate levels, the shape of
the yield curve and the spreads between market interest
rates. Management exercises its best judgment in making
assumptions regarding both events that management can
influence, such as non-contractual deposit repricings, and
events outside of its control, such as customer behavior on
loan and deposit activity and the effect that competition
has on both loan and deposit pricing. These assumptions
are inherently uncertain and, as a result, net interest
income simulation results will likely differ from actual
results due to the timing, magnitude and frequency of
interest rate changes, changes in market conditions,
customer behavior and management strategies, among
other factors.
At December 31, 2012, net interest income is estimated to
increase by 3.1%, compared with the base case scenario over
the next 12 months if short- and long-term interest rates
were to sustain an immediate increase of 100 basis points.
Management also uses valuation analyses to measure
risk in the balance sheet that might not be taken into
account in the net interest income simulation analyses.
Net interest income simulation highlights exposure over
a relatively short time period (12 or 24 months), while
valuation analysis incorporates all cash flows over the
estimated remaining life of all balance sheet positions.
The valuation of the balance sheet, at a point in time,
is defined as the discounted present value of asset cash
flows minus the discounted value of liability cash flows.
Valuation analysis addresses only the current balance
sheet and does not incorporate the growth assumptions
that are used in the net interest income simulation model.
As with the net interest income simulation model, valuation
analysis is based on key assumptions about the timing and
variability of balance sheet cash flows and does not take
into account any potential responses by management to
anticipated changes in interest rates.
Management also utilizes an interest rate gap
measurement, which is calculated by taking the difference
between interest-earning assets and interest-bearing
liabilities repricing within a given period. While the interest
rate gap measurement has some limitations, including
a lack of assumptions regarding future asset or liability
production and a static interest rate assumption, it
represents the net asset or liability sensitivity at a point
in time. An interest rate gap measurement could be
significantly affected by external factors such as loan
prepayments, early withdrawals of deposits, changes in
the correlation of various interest-bearing instruments,
competition or a rise or decline in interest rates.
TCF’s one-year interest rate gap was a positive $903.9
million, or 5% of total assets, at December 31, 2012,
compared with a positive $2.1 billion, or 10.9% of total
assets, at December 31, 2011. The change in the gap from
the previous year-end is primarily due to the balance sheet
repositioning completed in the first quarter of 2012 and
growth of fixed-rate auto loans, partially offset by growth
in certificates of deposit with maturities greater than one
year. A positive interest rate gap position exists when the
amount of interest-earning assets maturing or repricing
exceeds the amount of interest-bearing liabilities
maturing or repricing, including assumed prepayments,
within a particular time period. A negative interest rate
gap position exists when the amount of interest-bearing
liabilities maturing or repricing exceeds the amount of
interest-earning assets maturing or repricing, including
assumed prepayments, within a particular time period.
TCF estimates that an immediate 25 basis point
decrease in current mortgage loan interest rates would
increase prepayments on the $4.6 billion of fixed-rate
mortgage-backed securities and consumer real estate
loans at December 31, 2012, by approximately $48 million,
or 10%, in the first year. An increase in prepayments
would decrease the estimated life of the portfolios
and may adversely impact net interest income or net
interest margin in the future. Although prepayments
on fixed-rate portfolios are currently at a relatively
low level, TCF estimates that an immediate 100 basis
point increase in current mortgage loan interest rates
would reduce prepayments on the fixed-rate mortgage-
backed securities, residential real estate loans and
consumer loans at December 31, 2012, by approximately
{ 53 }
{ 2012 Form 10K } $108 million, or 22.4%, in the first year. A slowing in
prepayments would increase the estimated life of the
portfolios and may also adversely impact net interest
income or net interest margin in the future. The level of
prepayments that would actually occur in any scenario will
be impacted by factors other than interest rates, such as
lenders’ willingness to lend funds, which can be impacted
by the value of assets underlying loans and leases.
The following table summarizes the interest-rate gap measurement.
(Dollars in thousands)
Contractual Obligations
Interest-earning assets:
Interest earning cash and investments
Securities available for sale(1)
Loans held for sale
Consumer and other loans(1) (2)
Commercial loans(1) (2)
Leasing and equipment finance(1)
Inventory finance
Auto Finance
Total
Interest-bearing liabilities:
Checking deposits(3)
Savings deposits(3)
Money market deposits(3)
Certificates of deposits
Brokered deposits
Short-term borrowings
Long-term borrowings
Total
Interest-earning assets (under) over
interest-bearing liabilities
Within
30 Days
30 Days to
6 Months
6 Months
to 1 Year
1-3 Years
3+ Years
Total
Maturity/Rate Sensitivity
$ 807,565
14,622
3,430
1,768,433
652,111
175,477
713,330
14,374
4,149,342
852,562
523,835
316,582
89,461
110,433
2,619
856,225
2,751,717
$ 79,032
50,453
6,859
370,896
306,151
624,025
500,817
69,909
2,008,142
27,481
1,106,580
13,102
649,074
92,711
–
138,434
2,027,382
$ 100
51,925
–
380,770
401,058
567,926
353,067
75,680
1,830,526
31,263
1,014,598
13,784
813,799
18,727
–
412,815
2,304,986
$ 500
157,692
–
1,160,701
1,094,069
1,337,387
–
227,785
3,978,134
1,161,955
1,702,978
251,501
513,359
72,414
–
29,540
3,731,747
$ 41,235
437,399
–
3,021,625
951,846
493,202
–
165,085
5,110,392
2,756,046
1,756,189
46,777
115,575
–
–
494,182
5,168,769
$ 928,432
712,091
10,289
6,702,425
3,405,235
3,198,017
1,567,214
552,833
17,076,536
4,829,307
6,104,180
641,746
2,181,268
294,285
2,619
1,931,196
15,984,601
1,397,625
$1,397,625
(19,240)
$1,378,385
(474,460)
$ 903,925
246,387
$1,150,312
(58,377)
$1,091,935
1,091,935
$ 1,091,935
Cumulative gap
Cumulative gap as a percentage
of total assets:
At December 31, 2012
At December 31, 2011
(1) Based upon contractual maturity, repricing date, if applicable, scheduled repayments of principal and projected prepayments of principal based upon experience and
5.0%
10.9%
6.3%
20.0%
6.0%
5.8%
7.6%
9.4%
7.7%
9.8%
6.0%
5.8%
third-party projections.
(2) At December 31, 2012, $999 million of variable-rate consumer real estate loans and $299 million of variable-rate commercial loans were modeled as fixed rate loans as
their current interest rate is below their contractual interest rate floor. An increase in short-term interest rates may not result in a change in the interest rate on these
variable-rate loans.
(3) Includes non-interest bearing deposits. At December 31, 2012, 19% of checking deposits, 43% of savings deposits, and 54% of money market deposits are included in
amounts repricing within one year. At December 31, 2011, 15% of checking deposits, 42% of savings deposits, and 53% of money market deposits are included in amounts
repricing within one year.
{ 54 } { TCF Financial Corporation and Subsidiaries }
Liquidity Risk
Liquidity risk is defined as the risk to earnings or capital
arising from the Company’s inability to meet its obligations
when they come due without incurring unacceptable losses.
ALCO and the Finance Committee of the Board of
Directors have adopted a Holding Company Investment
and Liquidity Management Policy, which establishes a
minimum target amount of cash or liquid investments TCF
Financial will hold. TCF Financial’s primary source of cash
flow is capital distributions from TCF Bank. TCF Bank may
require regulatory approval to make any such distributions
in the future and such distributions may be restricted by its
regulatory authorities. TCF Bank’s ability to make any such
distributions will also depend on its earnings and ability to
meet minimum regulatory capital requirements in effect
during future periods (see Note 15 of Notes to Consolidated
Financial Statements for further information).
ALCO and the Finance Committee of the Board of
Directors have adopted a Liquidity Management Policy to
direct management of the Company’s liquidity risk. The
objective of the Liquidity Management Policy is to ensure
that TCF meets its cash and collateral obligations promptly,
in a cost-effective manner and with the highest degree of
reliability. The maintenance of adequate levels of asset and
liability liquidity will provide TCF with the ability to meet
both expected and unexpected cash flows and collateral
needs. Key liquidity ratios, asset liquidity levels and the
amount available from funding sources are reported to
ALCO on a monthly basis. TCF’s Liquidity Management Policy
establishes asset liquidity target ranges that are deemed
appropriate for its risk profile.
TCF’s asset liquidity may be held in the form of
on-balance sheet cash invested with the Federal Reserve
or through the use of overnight Federal Funds sold to highly
rated counterparties or short-term U.S. Treasury Bills or
Notes. Other asset liquidity can be provided by unpledged,
highly-rated securities which could be sold or pledged
to various counterparties under established TCF lines. At
December 31, 2012, TCF had asset liquidity of $1.4 billion.
Deposits are TCF’s primary source of funding. TCF also
maintains secured sources of funding, which primarily
include $2.6 billion of borrowing capacity at the Federal
Home Loan Bank (“FHLB”) of Des Moines, as well as access
to the Federal Reserve Discount Window. Collateral pledged
by TCF to the FHLB and the Federal Reserve consists primarily
of consumer and commercial real estate loans. The FHLB
relies upon its own internal credit analysis of TCF’s financial
results when determining TCF’s secured borrowing capacity.
In addition to the above, TCF maintains other sources of
unsecured and uncommitted borrowing capacity, including
overnight federal funds purchased lines, access to brokered
deposits, and access to the capital markets. TCF has
developed and maintains a contingency funding plan should
certain liquidity needs arise.
Foreign Currency Risk
The Company is also exposed to foreign currency risk
as changes in foreign exchange rates may impact the
Company’s investment in TCF Commercial Finance Canada,
Inc. or results of other transactions in countries outside
of the United States. Beginning in 2011, TCF entered into
forward foreign exchange contracts in order to minimize the
risk of changes in foreign exchange rates on its investment
in and loans to TCF Commercial Finance Canada, Inc. and
on certain other foreign lease transactions. The values
of forward foreign exchange contracts vary over their
contractual lives as the related currency exchange rates
fluctuate. TCF may also experience realized and unrealized
gains or losses on forward foreign exchange contracts as a
result of changes in foreign exchange rates.
{ 55 }
{ 2012 Form 10K } Item 8. Financial Statements and Supplementary Data
R epo rt of I ndependent Registered Pub li c
Acc ounti ng Firm
The Board of Directors and Stockholders
TCF Financial Corporation:
We have audited the accompanying consolidated
statements of financial condition of TCF Financial
Corporation and subsidiaries (the Company) as of
December 31, 2012 and 2011, and the related consolidated
statements of income, comprehensive income, equity,
and cash flows for each of the years in the three-year
period ended December 31, 2012. These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of TCF Financial Corporation and
subsidiaries as of December 31, 2012 and 2011, and the
results of their operations and their cash flows for each
of the years in the three year period ended December
31, 2012, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United
States), TCF Financial Corporation’s internal control
over financial reporting as of December 31, 2012, based
on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO),
and our report dated February 22, 2013 expressed an
unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Minneapolis, Minnesota
February 22, 2013
{ 56 } { TCF Financial Corporation and Subsidiaries }
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
Assets
Cash and due from banks
Investments
Securities available for sale
Loans and leases held for sale
Loans and leases:
Consumer real estate
Commercial
Leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases
Allowance for loan and lease losses
Net loans and leases
Premises and equipment, net
Goodwill
Other assets
Total assets
liabilities and Equity
Deposits:
Checking
Savings
Money market
Certificates of deposit
Total deposits
Short-term borrowings
Long-term borrowings
Total borrowings
Accrued expenses and other liabilities
Total liabilities
Equity:
Preferred stock, par value $.01 per share, 30,000,000 shares authorized;
and 4,006,900 shares issued
Common stock, par value $.01 per share, 280,000,000 shares authorized;
163,428,763 and 160,366,380 shares issued, respectively
Additional paid-in capital
Retained earnings, subject to certain restrictions
Accumulated other comprehensive income
Treasury stock at cost, 42,566 shares, and other
Total TCF Financial Corporation stockholders' equity
Non-controlling interest in subsidiaries
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
At December 31,
2012
2011
$ 1,100,347
120,867
712,091
10,289
6,674,501
3,405,235
3,198,017
1,567,214
552,833
27,924
15,425,724
(267,128)
15,158,596
440,466
225,640
457,621
$18,225,917
$ 4,834,632
6,104,104
820,553
2,291,497
14,050,786
2,619
1,931,196
1,933,815
364,673
16,349,274
263,240
1,634
750,040
877,445
12,443
(41,429)
1,863,373
13,270
1,876,643
$18,225,917
$ 1,389,704
157,780
2,324,038
14,321
6,895,291
3,449,492
3,142,259
624,700
3,628
34,885
14,150,255
(255,672)
13,894,583
436,281
225,640
537,041
$18,979,388
$ 4,629,749
5,855,263
651,377
1,065,615
12,202,004
6,416
4,381,664
4,388,080
510,677
17,100,761
–
1,604
715,247
1,127,823
56,826
(33,367)
1,868,133
10,494
1,878,627
$18,979,388
{ 57 }
{ 2012 Form 10K }
Consolidated Statements of Income
(In thousands, except per-share data)
Interest income:
Loans and leases
Securities available for sale
Investments and other
Total interest income
Interest expense:
Deposits
Borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income:
Fees and service charges
Card revenue
ATM revenue
Subtotal
Leasing and equipment finance
Gains on sales of auto loans
Gain on sales of consumer loans
Other
Fees and other revenue
Gains on securities, net
Total non-interest income
Non-interest expense:
Compensation and employee benefits
Occupancy and equipment
FDIC insurance
Operating lease depreciation
Advertising and marketing
Deposit account premiums
Other
Subtotal
Loss on termination of debt
Foreclosed real estate and repossessed assets, net
Other credit costs, net
Total non-interest expense
(Loss) income before income tax (benefit) expense
Income tax (benefit) expense
(Loss) income after income tax (benefit) expense
Income attributable to non-controlling interest
Net (loss) income attributable to TCF Financial Corporation
Preferred stock dividends
Net (loss) income available to common stockholders
Net (loss) income per common share:
Basic
Diluted
See accompanying notes to consolidated financial statements.
{ 58 } { TCF Financial Corporation and Subsidiaries }
Year Ended December 31,
2011
2012
$ 835,380
35,150
14,093
884,623
40,987
63,617
104,604
780,019
247,443
532,576
177,953
52,638
24,181
254,772
92,721
22,101
5,413
13,184
388,191
102,232
490,423
393,841
130,792
30,425
25,378
16,572
8,669
163,897
769,574
550,735
41,358
887
1,362,554
(339,555)
(132,858)
(206,697)
6,187
(212,884)
5,606
$ (218,490)
$ (1.37)
$ (1.37)
$844,796
85,188
7,967
937,951
45,108
193,155
238,263
699,688
200,843
498,845
219,363
96,147
27,927
343,437
89,167
1,133
–
3,434
437,171
7,263
444,434
348,792
126,437
28,747
30,007
10,034
22,891
145,489
712,397
–
49,238
2,816
764,451
178,828
64,441
114,387
4,993
109,394
–
$109,394
$ .71
$ .71
2010
$883,923
80,445
5,509
969,877
61,229
209,446
270,675
699,202
236,437
462,765
273,181
111,067
29,836
414,084
89,194
–
–
5,584
508,862
29,123
537,985
346,072
126,551
23,584
37,106
13,062
17,304
146,253
709,932
–
40,385
6,018
756,335
244,415
90,171
154,244
3,297
150,947
–
$150,947
$ 1.08
$ 1.08
Consolidated Statements of Comprehensive Income
(In thousands)
Net (loss) income attributable to TCF Financial Corporation
Other comprehensive (loss) income:
Reclassification adjustment for securities gains included in net income
Unrealized holding gains arising during the period on securities
available for sale
Foreign currency hedge
Foreign currency translation adjustment
Recognized postretirement prior service cost and transition obligation
Income tax benefit (expense)
Total other comprehensive (loss) income
Comprehensive (loss) income
See accompanying notes to consolidated financial statements.
2012
$(212,884)
(89,879)
19,794
(630)
531
123
25,678
(44,383)
$(257,267)
Year Ended December 31,
2011
$109,394
(8,045)
122,638
261
(433)
308
(42,211)
72,518
$181,912
2010
$ 150,947
(31,484)
3,342
(196)
575
4
10,407
(17,352)
$ 133,595
{ 59 }
{ 2012 Form 10K }
Consolidated Statements of Equity
(Dollars in thousands)
Balance, December 31, 2009
Net income attributable to
TCF Financial Corporation
Other comprehensive (loss)
Public offering of common stock
Net investment by non-controlling interest
Dividends on common stock
Grants of restricted stock, 347,916 shares
Common shares purchased by TCF
employee benefit plans
Treasury shares sold to TCF employee
benefit plans, 757,612 shares
Cancellation of shares of restricted stock
Cancellation of common shares for
tax withholding
Amortization of stock compensation
Stock compensation tax benefits
Change in shares held in trust for
deferred compensation plans, at cost
Balance, December 31, 2010
Net income attributable to
TCF Financial Corporation
Other comprehensive income
Public offering of common stock
Net distribution to non-controlling interest
Dividends on common stock
Grants of restricted stock, 1,256,094 shares
Common shares purchased by TCF employee
benefit plans
Cancellation of shares of restricted stock
Cancellation of common shares for
tax withholding
Amortization of stock compensation
Stock compensation tax benefits
Change in shares held in trust for deferred
compensation plans, at cost
Balance, December 31, 2011
Net loss attributable to
TCF Financial Corporation
Other comprehensive loss
Public offering of preferred stock
Net distribution to non-controlling interest
Dividends on preferred stock
Dividends on common stock
Grants of restricted stock, 1,822,025 shares
Common shares purchased by TCF
employee benefit plans
Cancellation of shares of restricted stock
Cancellation of common shares for tax
withholding
Amortization of stock compensation
Stock compensation tax expense
Change in shares held in trust for deferred
compensation plans, at cost
Balance, December 31, 2012
Number of Shares Issued
Preferred
–
Common
Stock
130,339,500 $ – $1,303
Preferred
Stock
Common
TCF Financial Corporation
Additional
Paid-in
Capital
Retained
Earnings
$297,429 $ 925,797
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock and
Total
Other
$ 1,660 $(50,827) $1,175,362
Non-
Total
controlling
Interests
Equity
$ 4,393 $1,179,755
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,322,250
–
–
20,000
442,579
–
(23,723)
(135,594)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
124
–
–
–
4
–
–
(1)
–
–
–
–
164,443
–
–
(8,491)
150,947
–
–
–
(27,617)
–
–
(17,352)
–
–
–
–
–
–
–
–
–
8,491
150,947
(17,352)
164,567
–
(27,617)
–
3,297
–
–
810
–
–
6,358
(7,893)
(247)
(1,946)
9,534
298
–
–
29
–
–
–
–
–
–
–
–
–
–
6,362
19,620
–
–
–
–
11,727
(218)
(1,947)
9,534
298
–
–
–
–
–
–
154,244
(17,352)
164,567
810
(27,617)
–
6,362
11,727
(218)
(1,947)
9,534
298
–
–
142,965,012 $ –
–
$1,430
399
–
$459,884 $1,049,156
–
–
(399)
$(15,692) $(23,115) $1,471,663
–
$ 8,500
–
$1,480,163
–
–
15,081,968
–
–
1,247,500
1,402,505
(120,886)
(209,719)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
151
–
–
12
14
(1)
(2)
–
–
–
–
219,515
–
–
(234)
17,957
(620)
(3,114)
11,105
280
109,394
–
–
–
(30,772)
–
–
45
–
–
–
–
72,518
–
–
–
–
–
–
–
–
–
–
–
–
–
–
222
–
–
–
–
–
109,394
72,518
219,666
–
(30,772)
–
17,971
(576)
(3,116)
11,105
280
4,993
–
–
(2,999)
–
–
–
–
–
–
–
114,387
72,518
219,666
(2,999)
(30,772)
–
17,971
(576)
(3,116)
11,105
280
–
–
160,366,380 $ –
–
$1,604
10,474
–
$715,247 $1,127,823
–
$ 56,826
(10,474)
–
$(33,367) $1,868,133
–
$10,494
–
$1,878,627
–
–
4,006,900
–
–
–
–
–
–
–
–
–
–
1,822,025
1,742,990
(322,908)
(179,724)
–
–
–
–
263,240
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18
17
(3)
(2)
–
–
–
–
–
–
–
–
(18)
(212,884)
–
–
–
(5,606)
(31,904)
–
–
(44,383)
–
–
–
–
–
19,445
(1,198)
(1,947)
11,108
(659)
–
16
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(212,884)
(44,383)
263,240
–
(5,606)
(31,904)
–
19,462
(1,185)
(1,949)
11,108
(659)
6,187
–
–
(3,411)
–
–
–
(206,697)
(44,383)
263,240
(3,411)
(5,606)
(31,904)
–
–
–
–
–
–
19,462
(1,185)
(1,949)
11,108
(659)
–
163,428,763
–
$263,240
–
$1,634
8,062
$750,040
–
$ 877,445
–
$ 12,443
(8,062)
–
$(41,429) $1,863,373
–
$13,270
–
$1,876,643
–
–
–
–
–
–
4,006,900
See accompanying notes to consolidated financial statements.
{ 60 } { TCF Financial Corporation and Subsidiaries }
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net (loss) income available to common stockholders
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Provision for credit losses
Depreciation and amortization
Proceeds from sales of loans and leases held for sale
Originations of loans held for sale, net of repayments
Net (decrease) increase in other assets and accrued expenses and other liabilities
Gains on sales of assets, net
Loss on termination of debt
Net income attributable to non-controlling interest
Other, net
Total adjustments
Net cash provided by operating activities
Cash flows from investing activities:
Loan originations and purchases,
net of principal collected on loans and leases
Purchases of equipment for lease financing
Purchase of leasing and equipment finance portfolios
Purchase of inventory finance portfolios
Acquisition of Gateway One Lending & Finance, LLC, net of cash acquired
Proceeds from sales of loans
Proceeds from sales of lease receivables
Proceeds from sales of securities available for sale
Proceeds from sales of other securities
Purchases of securities available for sale
Proceeds from maturities of and principal collected on securities available for sale
Purchases of Federal Home Loan Bank stock
Redemption of Federal Home Loan Bank stock
Proceeds from sales of real estate owned
Purchases of premises and equipment
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net increase in deposits
Net decrease in short-term borrowings
Proceeds from long-term borrowings
Payments on long-term borrowings
Net proceeds from public offerings of preferred stock
Net proceeds from public offering of common stock
Redemption of trust preferred securities
Net (distributions to) investment by non-controlling interest
Dividends paid on preferred stock
Dividends paid on common stock
Stock compensation tax (expense) benefit
Common shares sold to TCF employee benefit plans
Treasury shares sold to TCF employee benefit plans
Other, net
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
Supplemental disclosures of cash flow information:
Cash paid (received) for:
Interest on deposits and borrowings
Income taxes, net
Transfer of loans to other assets
See accompanying notes to consolidated financial statements.
2012
Year Ended December 31,
2011
2010
$ (218,490)
$ 109,394
$ 150,947
247,443
109,192
161,221
(171,420)
(66,665)
(141,048)
550,735
6,187
20,445
716,090
497,600
(1,353,981)
(938,228)
–
(37,527)
–
561,693
76,596
2,074,494
14,550
(645,880)
202,431
(157,517)
197,571
132,044
(44,082)
40,418
122,582
1,848,782
(3,797)
1,283,466
(4,164,102)
263,240
–
(115,010)
(3,411)
(5,606)
(31,904)
(659)
19,462
–
–
(909,539)
(289,357)
1,389,704
$ 1,100,347
200,843
73,183
37,395
(32,987)
92,176
(16,465)
–
4,993
28,011
387,149
496,543
812,988
(894,593)
(68,848)
(5,905)
(94,323)
168,834
125,072
181,696
–
(1,039,379)
586,816
(6,663)
29,093
107,428
(34,865)
34,334
(98,315)
616,889
(120,374)
1,898
(376,087)
–
219,666
–
(2,999)
–
(30,772)
280
17,971
–
1,103
327,575
725,803
663,901
$ 1,389,704
236,437
77,135
–
–
62,397
(32,483)
–
3,297
17,994
364,777
515,724
429,228
(802,587)
(186,779)
(168,612)
–
1,456
10,670
1,330,955
–
(1,788,142)
436,574
(34,925)
26,042
103,236
(36,088)
32,420
(646,552)
16,796
(117,814)
574,876
(135,704)
–
164,567
–
810
–
(27,617)
298
6,362
11,727
1,301
495,602
364,774
299,127
$ 663,901
$ 108,524
$ (13,376)
$ 137,311
$ 231,353
$ (12,012)
$ 175,361
$ 258,750
$ 72,777
$ 214,079
{ 61 }
{ 2012 Form 10K }
Notes to Consolidated Financial Statements
Note 1. Summary of Significant
Accounting Policies
Basis of Presentation The consolidated financial
statements include the accounts of TCF Financial
Corporation and its wholly owned subsidiaries (“TCF”).
TCF Financial Corporation, a Delaware corporation, is
a national bank holding company engaged primarily in
retail banking and wholesale banking through its primary
subsidiary, TCF National Bank (“TCF Bank”). TCF Bank
owns leasing and equipment finance, inventory finance,
auto finance and REIT subsidiaries. These subsidiaries
are consolidated with TCF Bank and are included in the
consolidated financial statements of TCF Financial
Corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior
years’ financial statements to conform to the current
year presentation.
The preparation of financial statements in conformity
with United States Generally Accepted Accounting
Principles (“GAAP”) requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amount of revenues and
expenses during the reporting period. These estimates are
based on information available to management at the time
the estimates are made. Actual results could differ from
those estimates.
Critical Accounting Policies
Critical Accounting Estimates Critical accounting
estimates occur in certain accounting policies and
procedures and are particularly susceptible to significant
change. Policies that contain critical accounting estimates
include the determination of the allowance for loan and
lease losses, lease financings and income taxes.
Allowance for Loan and Lease Losses The
allowance for loan and lease losses is maintained at a level
appropriate to provide for probable loan and lease losses
incurred in the portfolio as of the balance sheet date,
including known or anticipated problem loans and leases,
as well as for loans and leases which are not currently
known to require specific allowances. TCF individually
evaluates impairment on all impaired commercial and
inventory finance loans, certain large impaired equipment
finance loans and leases, large consumer real estate
troubled debt restructured (“TDR”) loans, auto finance
TDR loans, and all non-accrual Winthrop leases. See
Note 7, Allowance for Loan and Lease Losses and Credit
Quality Information for a definition of impaired loans.
Loan impairment on commercial, equipment finance and
inventory finance loans is generally based upon the present
value of the expected future cash flows discounted at
the loan’s initial effective interest rate, unless the loans
are collateral dependent, in which case loan impairment
is based upon the fair value of collateral less estimated
selling costs. Loans classified as TDR loans are considered
impaired loans, with the allowance for loan losses
determined using the present value of expected future
cash flows or the fair value of the collateral less estimated
selling costs for collateral dependent loans. See Note 7,
Allowance for Loan and Lease Losses and Credit Quality
Information for further information on the determination
of the allowance for losses on accruing consumer real
estate TDR loans.
The impairment for all other loans and leases is evaluated
collectively by various characteristics. The collective
evaluation of incurred losses in these portfolios is based
upon overall risk characteristics, changes in the character or
size of portfolios, geographic location, risk rating migration,
and prevailing economic conditions. Additionally, the level
of historical net charge-off amounts, delinquencies in the
loan and lease portfolios, values of underlying loan and
lease collateral and other relevant factors are reviewed to
determine the amount of the allowance.
Loans and leases are charged off to the extent they
are deemed to be uncollectible. Charge-offs related to
confirmed losses are utilized in the historical data used
in the allowance for loan and lease losses calculations.
Consumer real estate and auto finance loans are generally
charged-off to the estimated fair value of underlying
collateral, less estimated selling costs, when they are
placed on non-accrual status. Additional review of the
fair value, less estimated costs to sell, compared with the
recorded value occurs upon foreclosure, and additional
charge-offs are recorded if necessary. Valuation
adjustments on residential properties, made within
{ 62 } { TCF Financial Corporation and Subsidiaries }
90 days or four months after obtaining title or possession
of the property, are recorded as charge-offs against the
allowance for loan and lease losses. Subsequent valuation
adjustments are recorded as foreclosed real estate expense.
Deposit account overdrafts, which are included within other
loans, are charged-off at or before they are 60 days past
due. Commercial loans, leasing and equipment finance
loans, and inventory finance loans, which are considered
collateral dependent, are charged-off to estimated fair
value, less estimated selling costs, when it becomes
probable, based on current information and events, that
all principal and interest amounts will not be collectible
in accordance with contractual terms. Loans which are
not collateral dependent are charged-off when deemed
uncollectible based on specific facts and circumstances.
The amount of the allowance for loan and lease losses
significantly depends upon management’s estimates of
variables affecting valuation, appraisals of collateral,
evaluations of performance and status, and the amounts
and timing of future cash flows expected to be received.
Such estimates, appraisals, evaluations and cash flows
may be subject to frequent adjustments due to changing
economic prospects of borrowers, lessees or properties.
These estimates are reviewed periodically and adjustments,
if necessary, are recorded in the provision for credit losses
in the periods in which they become known.
Lease Financing TCF provides various types of
commercial lease financing that are classified for
accounting purposes as direct financing, sales-type or
operating leases. Leases that transfer substantially all
of the benefits and risks of ownership to the lessee are
classified as direct financing or sales-type leases and are
included in loans and leases. Direct financing and sales-
type leases are carried at the combined present value of
future minimum lease payments and lease residual values.
The determination of lease classification requires various
judgments and estimates by management including the fair
value of the equipment at lease inception, useful life of the
equipment under lease, estimate of the lease residual value
and collectability of minimum lease payments.
Sales-type leases generate dealer profit which is
recognized at lease inception by recording lease revenue
net of lease cost. Lease revenue consists of the present
value of the future minimum lease payments. Lease
cost consists of the leased equipment’s book value,
less the present value of its residual. Interest income
on direct financing and sales-type leases is recognized
using methods which approximate a level yield over the
fixed, non-cancelable term of the lease. TCF receives pro
rata rent payments for the interim period until the lease
contract commences and the fixed non-cancelable lease
term begins. TCF recognizes these interim payments in the
month they are earned and records the income in interest
income on direct finance leases. Management has policies
and procedures in place for the determination of lease
classification and review of the related judgments and
estimates for all lease financings.
Some lease financings include a residual value compo-
nent, which represents the estimated fair value of the
leased equipment at the expiration of the initial term of
the transaction. The estimation of residual values involves
judgment regarding product and technology changes,
customer behavior, shifts in supply and demand, and other
economic assumptions. TCF reviews residual assumptions on
the portfolio at least annually and downward adjustments,
if necessary, are charged to non-interest expense in the
periods in which they become known.
TCF occasionally sells minimum lease payments, as
a credit risk reduction tool, to third-party financial
institutions at fixed rates on a non-recourse basis with its
underlying equipment as collateral. For those transactions
which achieve sale treatment, the related lease cash flow
stream and the non-recourse financing are derecognized.
For those transactions which do not achieve sale treatment,
the underlying lease remains on TCF’s Consolidated
Statements of Financial Condition and non-recourse debt
is recorded in the amount of the proceeds received. TCF
retains servicing of these leases and bills, collects and
remits funds to the third-party financial institution. Upon
default by the lessee, the third-party financial institutions
may take control of the underlying collateral which TCF
would otherwise retain as residual value.
Leases which do not transfer substantially all benefits
and risks of ownership to the lessee are classified as
operating leases. Such leased equipment and related
initial direct costs are included in other assets on the
Consolidated Statements of Financial Condition and
depreciated, on a straight-line basis over the term of the
lease, to its estimated salvage value. Depreciation expense
is recorded as operating lease expense and included in
non-interest expense. Operating lease rental income is
recognized when it is due and is reflected as a component
of non-interest income. An allowance for lease losses is not
provided on operating leases.
{ 63 }
{ 2012 Form 10K } Income Taxes Income taxes are accounted for using the
asset and liability method. Under this method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets
and liabilities and their respective tax basis carrying
amounts. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences
are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period in which the enactment
date occurs. Also, if current period income tax rates
change, the impact on the annual effective income tax rate
is applied year-to-date in the period of enactment.
The determination of current and deferred income taxes
is a critical accounting estimate which is based on complex
analyses of many factors, including interpretation of
income tax laws, the evaluation of uncertain tax positions,
differences between the tax and financial reporting
bases of assets and liabilities (temporary differences),
estimates of amounts due or owed, the timing of reversals
of temporary differences and current financial accounting
standards. Additionally, there can be no assurance that
estimates and interpretations used in determining income
tax liabilities will not be challenged by taxing authorities.
Actual results could differ significantly from the estimates
and tax law interpretations used in determining the current
and deferred income tax liabilities.
In the preparation of income tax returns, tax positions
are taken based on interpretation of income tax laws for
which the outcome is uncertain. Management periodically
reviews and evaluates the status of uncertain tax positions
and makes estimates of amounts ultimately due or owed.
The benefits of tax positions are recorded in income tax
expense in the Consolidated Statements of Comprehensive
Income, net of the estimates of ultimate amounts due or
owed, including any applicable interest and penalties.
Changes in the estimated amounts due or owed may result
from closing of the statute of limitations on tax returns,
new legislation, clarification of existing legislation through
government pronouncements, judicial action and through
the examination process. TCF’s policy is to report interest
and penalties, if any, related to unrecognized tax benefits
in income tax expense in the Consolidated Statements of
Comprehensive Income.
Other Significant Accounting Policies
Investments Investments are carried at cost and
adjusted for amortization of premiums or accretion of
discounts, using a level yield method. TCF periodically
evaluates investments for “other than temporary”
impairment with losses, if any, recorded in non-interest
income within gains on securities, net.
Securities Available for Sale Securities available for
sale are carried at fair value with the unrealized gains or
losses, net of related deferred income taxes, reported
within accumulated other comprehensive income (loss),
a separate component of equity. The cost of securities
sold is determined on a specific identification basis and
gains or losses on sales of securities available for sale
are recognized on trade dates. TCF evaluates securities
available for sale for “other than temporary” impairment
on a quarterly basis. Declines in the value of securities
available for sale that are considered other than temporary
are recorded net of gains on securities in non-interest
income. Discounts and premiums on securities available
for sale are amortized using a level yield method over the
expected life of the security.
loans and leases Held for Sale Loans and leases
designated as held for sale are carried at the lower of cost
or fair value. Any cost amount exceeding an individual loan
or lease’s fair value is recorded as a valuation allowance
and recognized within the Consolidated Statements of
Income as a reduction of gains on loans and leases held
for sale.
loans and leases Loans and leases are reported at
historical cost including net direct fees and costs
associated with originating and acquiring loans and leases.
The net direct fees and costs for sales-type leases are
offset against revenues recorded at the commencement
of sales-type leases. Discounts and premiums on acquired
loans, net direct fees and costs, unearned discounts and
finance charges, and unearned lease income are amortized
to interest income using methods which approximate a level
yield over the estimated remaining lives of the loans and
leases. Net direct fees and costs on all lines of credit are
amortized on a straight line basis over the contractual life
of the line of credit and adjusted for payoffs. Net deferred
fees and costs on consumer real estate lines of credit are
amortized to service fee income.
{ 64 } { TCF Financial Corporation and Subsidiaries }
Loans and leases, including loans considered impaired,
are reviewed regularly by management. Consumer real estate
loans are placed on non-accrual status when the collection
of interest and principal is 150 days or more past due or
when six payments are owed. Consumer loans other than real
estate and auto loans are charged-off or written down to
collateral value less costs to sell at 120 days or more past
due or when five payments are owed. Consumer real estate
loans, consumer loans other than real estate, and auto
loans are generally placed on non-accrual status within
60 days of notification of bankruptcy, unless the customer
has a sustained period of payment performance of six months
or longer, including time prior to bankruptcy. Furthermore,
consumer real estate loans and consumer loans other than
real estate and auto loans, are permanently placed on non-
accrual status upon discharge under a Chapter 7 bankruptcy
proceeding when the borrower does not reaffirm the debt,
regardless of delinquency status.
Commercial real estate and commercial business
loans, leasing and equipment finance loans and leases and
inventory finance loans are generally placed on non-
accrual status when the collection of interest or principal
is 90 days or more past due, unless the loan or lease is
adequately collateralized and in the process of collection.
Generally, when a loan or lease is placed on non-
accrual status, uncollected interest accrued in prior years
is charged off against the allowance for loan and lease
losses and interest accrued in the current year is reversed
against interest income. For non-accrual leases that
have been funded on a non-recourse basis by third-party
financial institutions, the related liability is also placed on
non-accrual status. Interest payments received on loans
and leases in non-accrual status are generally applied to
principal unless the remaining principal balance has been
determined to be fully collectible, in which case interest
income is recognized on a cash basis. Loans on non-accrual
status are reported as non-accrual loans until there is
sustained repayment performance for six consecutive
months, with the exception of loans not reaffirmed upon
discharge under Chapter 7 bankruptcy, which remain on non-
accrual status permanently based upon regulatory guidance.
Income on these loans is recognized on a cash basis when
there is sustained repayment for six consecutive months
(which may include payments prior to bankruptcy), and the
loan is not more than 60 days delinquent.
Purchased Credit-Impaired (PCI) Loans acquired
with evidence of credit deterioration since their origination,
where it is probable TCF will not collect all contractually
required principal and interest payments, are recorded as
PCI loans. PCI loans are recorded at fair value at the date
of acquisition. Such loans are considered to be accruing
based on the existence of an accretable yield and not
based on consideration given to contractual interest
payments. The excess of expected cash flows to be
collected over the initial fair value of an acquired portfolio
is referred to as the accretable yield and is accreted into
interest income over the estimated life of the acquired
portfolios using the effective yield method. The difference
between the contractually required payments and the cash
flows expected to be collected at acquisition, considering
the impact of prepayments, is referred to as the non-
accretable difference.
Premises and Equipment Premises and equipment,
including leasehold improvements, are carried at cost and
are depreciated or amortized on a straight-line basis over
estimated useful lives of owned assets and for leasehold
improvements over the estimated useful life of the related
asset or the lease term, whichever is shorter. Maintenance
and repairs are charged to expense as incurred. Rent
expense for leased land with facilities is recognized in
occupancy and equipment expense. Rent expense for
leases with free rent periods or scheduled rent increases
is recognized on a straight-line basis over the lease term.
Other Real Estate Owned and Repossessed and
Returned Assets Assets acquired through foreclosure,
repossession or returned to TCF are initially recorded at
the lower of the loan or lease carrying amount or fair
value of the collateral less estimated selling costs at
the time of transfer to real estate owned or repossessed
and returned assets. The fair value of other real estate
owned is determined through independent third-party
appraisals, automated valuation methods or real estate
broker’s price opinions less estimated selling costs. The
fair value of repossessed and returned assets is based on
available pricing guides, auction results or price opinions
less estimated selling costs. Within 90 days or four months
of a loan or lease transferring to other real estate owned
or repossessed and returned assets, any carrying amount
in excess of the fair value less estimated selling costs is
charged off to the allowance for loan and lease losses.
Subsequently, if the fair value of an asset, less the
{ 65 }
{ 2012 Form 10K } estimated costs to sell, declines to less than the carrying
amount of the asset, the deficiency is recognized in the
period in which it becomes known and is included in other
non-interest expense. Operating expenses of properties and
recoveries on sales of other real estate owned are recorded
in foreclosed real estate and repossessed assets, net.
Operating revenue from foreclosed property is included
in other non-interest income. Other real estate owned
at December 31, 2012 and 2011 was $97 million and
$134.9 million, respectively. Repossessed and returned
assets at December 31, 2012 and 2011 were $3.5 million
and $4.8 million, respectively.
Investments in Affordable Housing limited
Partnerships Investments in affordable housing consist
of investments in limited partnerships that operate
qualified affordable housing projects or that invest in
other limited partnerships formed to operate affordable
housing projects. TCF generally utilizes the effective yield
method to account for these investments with the tax
credits and amortization of the investment reflected in
the Consolidated Statements of Income as a reduction of
income tax expense. However, depending on circumstances,
the equity or cost methods may be utilized. The amount
of the investment along with any unfunded equity
contributions which are unconditional and legally binding
are recorded in other assets. A liability for the unfunded
equity contributions is recorded in other liabilities. At
December 31, 2012, TCF’s investments in affordable
housing limited partnerships were $15.8 million,
compared with $22.7 million at December 31, 2011.
Five of these investments in affordable housing
limited partnerships are considered variable interest
entities. These partnerships are not consolidated with
TCF. As of December 31, 2012 and 2011, the carrying
amount of these five investments was $15.2 million and
$22.1 million, respectively. The maximum exposure to loss
on these five investments was $15.2 million at December
31, 2012, however the general partner of these partnerships
provides various guarantees to TCF including guaranteed
minimum returns. These guarantees are backed by an
investment grade credit-rated company, which further
reduces the risk of loss. In addition to the guarantees,
the investments are supported by the performance of the
underlying real estate properties which also mitigates the
risk of loss.
Interest-Only Strips TCF periodically sells loans to
third-party financial institutions at fixed or variable rates.
For those transactions which achieve sale treatment, the
underlying loan is not recognized on TCF’s Consolidated
Statements of Financial Condition. The Company sells these
loans at par value and retains an interest in the future cash
flows of borrower loan payments, known as an interest-
only strip. The interest-only strip is recorded at fair value
at the time of sale. The fair value of the interest-only strip
represents the present value of future cash flows generated
by the loans, to be retained by TCF. After initial recording of
the interest-only strip, the accretable yield is measured as
the difference between the fair value and the present value
of cash flows expected to be collected. The accretable
yield is amortized into interest income over the life of the
interest-only strip using the effective yield method. The
expected cash flows are evaluated quarterly to determine if
they have changed from previous projections. If the present
value of the original cash flows expected to be collected is
less than the present value of the current estimate of cash
flows to be collected, the change is adjusted prospectively
over the remaining life of the interest-only strip. If the present
value of the original cash flows expected to be collected is
greater than the present value of the current estimate an
other than temporary impairment is generally recorded.
Intangible Assets All assets and liabilities acquired in
purchase acquisitions, including goodwill and other intan-
gibles, are recorded at fair value. Goodwill is recorded when
the purchase price of an acquisition is greater than the
fair value of net assets, including identifiable intangible
assets. Goodwill is not amortized, but assessed for impair-
ment on an annual basis at the reporting unit level, which
is one level below reportable operating segments. Interim
impairment analysis may be required if events occur or cir-
cumstances change that would more likely than not reduce
a reporting unit’s fair value below its carrying amount.
Other intangible assets are amortized on a straight-line or
effective yield basis over their estimated useful lives, and
are subject to impairment if events or circumstances indi-
cate a possible inability to realize their carrying amounts.
When testing for goodwill impairment, TCF may initially
perform a qualitative assessment. Based on the results
of this qualitative assessment, if TCF concludes it is more
likely than not that a reporting unit’s fair value is less than
its carrying amount, a quantitative analysis is performed.
TCF’s quantitative valuation methodologies primarily
include discounted cash flow analysis in determining fair
value of reporting units. If the fair value is less than the
carrying amount, additional analysis is required to measure
{ 66 } { TCF Financial Corporation and Subsidiaries }
the amount of impairment. Impairment losses, if any,
are recorded as a charge to non-interest expense and an
adjustment to the carrying value of goodwill.
Other intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate
their carrying amount may not be recoverable. Impairment
is indicated if the sum of the undiscounted estimated
future net cash flows is less than the carrying value of the
intangible asset. Impairment losses, if any, permanently
reduce the carrying value of the other intangible assets.
Stock-Based Compensation The fair value of
restricted stock and stock options is determined on the
date of grant and amortized to compensation expense,
with a corresponding increase in additional paid-in capital,
over the longer of the service period or performance period,
but in no event beyond an employee’s retirement date
or date of employment termination. For performance-
based restricted stock, TCF estimates the degree to
which performance conditions will be met to determine
the number of shares that will vest and the related
compensation expense. Compensation expense is adjusted
in the period such estimates change. Non-forfeitable
dividends, if any, paid on shares of restricted stock are
recorded to retained earnings for shares that are expected
to vest and to compensation expense for shares that are
not expected to vest.
Income tax benefits related to stock compensation,
in excess of grant date fair value less any proceeds on
exercise, are recognized as additional paid-in capital
upon vesting or exercise and delivery of the stock. Any
income tax benefits that are less than grant date fair
value less any proceeds on exercise are recognized as
a reduction of additional paid in capital to the extent
of previously recognized income tax benefits and then
as income tax expense for any remaining amount. See
Note 16, Stock Compensation, for additional information
concerning stock-based compensation.
Deposit Account Overdrafts Deposit account overdrafts
are reported in other loans and leases. Net losses on
uncollectible overdrafts are reported as net charge-offs
in the allowance for loan and lease losses within 60 days
from the date of overdraft. Uncollectible deposit fees are
reversed against fees and service charges and a related
reserve for uncollectible deposit fees is maintained in other
liabilities. Other deposit account losses are reported in
other non-interest expense.
Note 2. Business Combination
On November 30, 2011, TCF Bank entered the auto finance
business with the acquisition of 100% of the outstanding
common shares of Gateway One Lending & Finance, LLC
(“Gateway One”), a privately held lending company that
indirectly originates loans on new and used autos to
consumers through established dealer relationships.
As a result of the acquisition, Gateway One became a
wholly-owned subsidiary of TCF Bank and, accordingly,
its results of operations have been included within TCF’s
consolidated financial statements since November 30, 2011.
TCF’s Consolidated Statements of Income for the year ended
December 31, 2011 included net interest income, non-
interest income and net income of Gateway One totaling
$282 thousand, $1.9 million and $89 thousand,
respectively. During the fourth quarter of 2011, TCF
recognized $2 million of acquisition costs. These costs
are reported in other non-interest expense within the
Consolidated Statement of Income for the year ended
December 31, 2011.
The following unaudited pro forma financial information
presents the combined results of operations of TCF and
Gateway One as if the acquisition had been effective
January 1, 2010. These results include the impact of
amortizing certain purchase accounting adjustments such
as intangible assets, compensation expenses and the
impact of the acquisition on income tax expense. There
were no material nonrecurring pro forma adjustments
directly attributable to the acquisition included within the
following pro forma financial information. The pro forma
financial information does not necessarily reflect the
results of operations that would have occurred had TCF and
Gateway One constituted a single entity during such periods.
(In thousands, except per-share data)
Interest income
Net interest income
Non-interest income
Net income available to common
stockholders
Basic net income per common share
Diluted net income per common share
Years Ended December 31,
2011
Unaudited
$943,776
704,693
458,998
107,597
$ .70
$ .69
2010
Unaudited
$978,623
706,556
547,940
150,613
$ 1.08
$ 1.08
{ 67 }
{ 2012 Form 10K }
The following table summarizes the consideration paid
for Gateway One and the amounts of the assets acquired
and liabilities assumed as of the acquisition date.
(In thousands)
Cash consideration
Recognized amounts of identifiable assets
acquired and liabilities assumed:
Cash and cash equivalents
Restricted cash
Loans held for sale
Loans held for investment
Intangible assets
Interest-only strip
Deferred tax asset
Deferred stock compensation
Other assets
Accounts payable
Loan sale liability
Debt assumed
Servicing funds to be remitted
Other liabilities
Total identifiable net assets
Goodwill
Total net assets acquired
At November 30, 2011
$115,218
$ 2,210
18,685
13,711
3,879
6,170
21,210
11,286
2,600
1,588
(1,043)
(6,072)
(9,988)
(17,901)
(4,158)
$ 42,177
73,041
$115,218
At the time of acquisition, all of Gateway One’s loans
held for investment totaling $3.9 million, had evidence of
deteriorated credit quality. At December 31, 2012, $1.3 million
of such loans remained. See Note 6, Loans and Leases
for additional information. The goodwill of $73 million
arising from the acquisition consisted largely of expected
incremental balance sheet and fee growth and cross selling
opportunities. The goodwill was assigned to TCF’s Lending
segment. None of the goodwill recognized is deductible for
income tax purposes.
Pursuant to the terms of the acquisition, three key
members of Gateway One’s management team were
required to utilize a portion of the consideration paid to
them by TCF to separately purchase TCF common stock in
the aggregate amount of $2.6 million. These shares of TCF
common stock are being retained by a trustee for three
years pursuant to the terms of the custodial agreements
entered into between the trustee, TCF and each individual.
Ownership of these shares will be forfeited to TCF if during
the three-year period any of the individuals terminates
his employment with TCF without good reason, or TCF
terminates their employment for cause, and has been
accounted for separately from the acquisition. Due to the
fact that this portion of the purchase consideration was
tied to continuing employment, and at risk, the value of
these shares has been recorded within other assets and is
being recognized as compensation expense ratably over the
three-year period. In addition, TCF provided Gateway One
$10 million in interim funding prior to the acquisition to
facilitate its closing. This loan was executed at prevailing
market pricing and terms.
Note 3. Cash and Due from Banks
At December 31, 2012 and 2011, TCF Bank was required
by Federal Reserve regulations to maintain reserves of
$79.7 million and $42.1 million, respectively, in cash on
hand or at the Federal Reserve.
TCF maintains cash balances that are restricted as
to their use in accordance with certain contractual
agreements related to the sale and servicing of auto loans
and consumer real estate loans. Cash proceeds from loans
serviced for third parties are held in restricted accounts
until remitted. TCF also retains restricted cash balances
for potential loss recourse on certain sold auto loans.
Restricted cash totaling $28.8 million and $17.5 million
was included within cash and due from banks at
December 31, 2012 and 2011, respectively.
Note 4. Investments
(In thousands)
Federal Home Loan Bank stock, at cost
Federal Reserve Bank stock, at cost
Other
Total investments
At December 31,
2012
$ 79,032
36,178
5,657
$120,867
2011
$119,086
31,711
6,983
$157,780
The investments in Federal Home Loan Bank stock are
required investments related to TCF’s membership in and
current borrowings from the Federal Home Loan Bank
(“FHLB”) of Des Moines. All Federal Home Loan Bank’s
(“FHLBanks”) obtain their funding primarily through
issuance of consolidated obligations of the Federal
Home Loan Bank system. The U.S. Government does not
guarantee these obligations, and each of the 12 FHLBanks
are generally jointly and severally liable for repayment of
each other’s debt. Therefore, TCF’s investments in FHLB of
Des Moines could be adversely impacted by the financial
operations of the FHLBanks and actions of their regulator,
the Federal Housing Finance Agency.
{ 68 } { TCF Financial Corporation and Subsidiaries }
TCF Bank is required to hold Federal Reserve Bank stock
equal to 6% of TCF Bank’s capital surplus, which is additional
paid in capital stock, less any deficit retained earnings, gains
(losses) on available for sale securities, and foreign currency
translation adjustments as of the current period end. Other
investments primarily consist of non-trading mortgage-
backed securities and other bonds which qualify for
investment credit under the Community Reinvestment Act.
During 2012, TCF recorded an impairment charge of
$865 thousand on other investments, which had a carrying
value of $5.7 million at December 31, 2012, as full recovery
is not expected. During 2011, TCF recorded an impairment
charge of $16 thousand on other investments, which had a
carrying value of $7 million at December 31, 2011.
During the second quarter of 2012, TCF sold its Visa
Class B stock, resulting in a net $13.1 million pretax gain
recorded in non-interest income within the Consolidated
Statement of Income. In conjunction with the sale, TCF
and the purchaser entered into a derivative transaction
whereby TCF will make, or receive, cash payments whenever
the conversion ratio of Visa Class B stock into Visa Class A
stock is adjusted.
The carrying values and yields on investments at
December 31, 2012, by contractual maturity, are shown below.
(Dollars in thousands)
Due in one year or less
Due in 1-5 years
Due in 5-10 years
Due after 10 years
No stated maturity
Total
Carrying
Value
$ 100
1,600
1,000
2,957
115,210
$120,867
Yield
1.00%
3.31
3.00
5.55
3.73
3.76%
Note 5. Securities Available for Sale
Securities available for sale consist of the following.
2012
At December 31,
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
losses
Fair
Value
Amortized
Cost
2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$691,570
127
1,642
$693,339
$21,693
–
268
$21,961
$3,209
–
–
$3,209
$710,054
127
1,910
$712,091
$2,233,307
152
1,742
$2,235,201
$89,029
–
–
$89,029
$ –
–
192
$192
$2,322,336
152
1,550
$2,324,038
(Dollars in thousands)
Mortgage-backed securities
U.S. Government sponsored
enterprises and federal
agencies
Other
Other securities
Total
Weighted-average yield
2.70%
3.79%
Gross realized gains of $90.2 million, $8 million and $31.5 million were recognized on sales of securities available for sale
during 2012, 2011 and 2010, respectively. Mortgage-backed securities of $19.8 million were pledged as collateral to secure
certain deposits and borrowings at December 31, 2012. Mortgage-backed securities of $1.8 billion were pledged as collateral
to secure certain deposits and borrowings at December 31, 2011. During 2012 and 2011, TCF recorded an impairment charge of
$225 thousand and $768 thousand, respectively, on other securities as full recovery is not expected.
{ 69 }
{ 2012 Form 10K }
The amortized cost and fair value of securities available
for sale by contractual maturity, at December 31, 2012,
are shown below. The remaining contractual principal
maturities do not consider prepayments. Remaining
expected maturities will differ from contractual maturities
because borrowers may have the right to prepay.
Unrealized losses on securities available for sale are due
to lower values for equity securities or changes in interest
rates and not due to credit quality issues. TCF has the
ability and intent to hold these investments until a recovery
of fair value occurs. At December 31, 2011, TCF held
$1.5 million of other securities with an unrealized loss totaling
$192 thousand. This unrealized loss was not considered
other than temporary as of December 31, 2011, and was in
an unrealized loss position for less than twelve months.
(Dollars in thousands)
Due in 1-5 years
Due in 5-10 years
Due after 10 years
No stated maturity
Total
At December 31, 2012
Amortized Cost
$ 102
114
691,481
1,642
$693,339
Fair Value
$ 107
115
709,959
1,910
$712,091
Note 6. Loans and Leases
(Dollars in thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate:
Permanent
Construction and development
Total commercial real estate
Commercial business
Total commercial
Leasing and equipment finance:(1)
Equipment finance loans
Lease financings:
Direct financing leases
Sales-type leases
Lease residuals
Unearned income and deferred lease costs
Total lease financings
Total leasing and equipment finance
Inventory finance
Auto finance
Other
Total loans and leases
At December 31,
2012
2011
Percent
Change
$ 4,239,524
2,434,977
6,674,501
$ 4,742,423
2,152,868
6,895,291
(10.6)%
13.1
(3.2)
2,934,849
146,093
3,080,942
324,293
3,405,235
3,039,488
159,210
3,198,698
250,794
3,449,492
1,306,423
1,110,803
1,905,532
24,371
103,207
(141,516)
1,891,594
3,198,017
1,567,214
552,833
27,924
$15,425,724
2,039,096
29,219
129,100
(165,959)
2,031,456
3,142,259
624,700
3,628
34,885
$14,150,255
(3.4)
(8.2)
(3.7)
29.3
(1.3)
17.6
(6.6)
(16.6)
(20.1)
14.7
(6.9)
1.8
150.9
N.M.
(20.0)
9.0%
N.M. Not Meaningful.
(1) Operating leases of $82.9 million and $69.6 million at December 31, 2012 and December 31, 2011, respectively, are included in other assets in the Consolidated Statements
of Financial Condition.
{ 70 } { TCF Financial Corporation and Subsidiaries }
At December 31, 2012, the consumer real estate junior
lien portfolio was comprised of $2.1 billion of home equity
lines of credit (HELOCs) and $303.9 million of amortizing
junior lien mortgage loans. $1.4 billion of the HELOCs are
interest-only revolving draw programs with no defined
amortization period and draw periods of 5 to 40 years.
As of December 31, 2012, $697.8 million had a 10-year
interest-only draw period and a 20-year amortization
repayment period and all are within the 10-year initial draw
period, and as such, none of the HELOCs have converted to
amortizing loans.
From time to time, TCF sells loans and minimum lease
payments to third-party financial institutions at fixed rates.
For those transactions which achieve sale treatment, the
related loans and lease cash flow stream is derecognized.
During the years ended December 31, 2012 and 2011, TCF
sold $102.4 million and $119.1 million, respectively, of
loans and minimum lease payment receivables, received
cash of $104.9 million and $125.1 million, respectively,
and recognized net gains of $2.5 million and $5.9 million,
respectively. At December 31, 2012 and 2011, TCF’s lease
residuals reported within the table above include
$14.8 million and $9.1 million, respectively, related to all
historical sales of minimum lease payment receivables.
During the year ended December 31, 2012, TCF sold
$536.7 million of consumer auto loans with servicing
retained and received cash of $524.9 million, resulting in
gains of $22.1 million. Related to these sales, TCF retained
interest-only strips of $39.5 million. At December 31, 2012,
interest-only strips and contractual recourse liabilities
totaled $46.7 million and $3.6 million, respectively. At
December 31, 2011, interest-only strips and contractual
recourse liabilities totaled $22.4 million and $6 million,
respectively. No servicing assets or liabilities related
to consumer auto loans were recorded within TCF’s
Consolidated Statements of Financial Condition, as the
contractual servicing fees are adequate to compensate
TCF for its servicing responsibilities. TCF’s auto loan
managed portfolio, which includes portfolio loans, loans
held for sale, and loans sold and serviced for others,
totaled $1.3 billion and $399.7 million at December 31, 2012
and December 31, 2011, respectively.
During the year ended December 31, 2012, TCF sold
$161.8 million of consumer real estate loans with limited
representations and indemnification, and a limited
credit guarantee and recognized gains of $5.4 million and
received cash of $167.2 million. Related to a fourth-quarter
sale, TCF retained an interest-only strip of $1.1 million.
Future minimum lease payments receivable for direct
financing, sales-type leases and operating leases as of
December 31, 2012, are as follows.
(In thousands)
2013
2014
2015
2016
2017
Thereafter
Total
Total
$ 753,684
510,616
333,024
194,203
83,735
26,462
$1,901,724
Acquired loans and leases At December 31, 2012, TCF
held $170.7 million in acquired portfolios compared to
$371.9 million at December 31, 2011. Within TCF’s acquired
loan and lease portfolios, there were certain loans which
had experienced deterioration in credit quality at the
time of acquisition. These loans had outstanding principal
balances of $4.1 million and $10.8 million at December
31, 2012 and December 31, 2011, respectively. The non-
accretable discount on loans acquired with deteriorated
credit quality was $1.4 million at December 31, 2012 and
$946 thousand at December 31, 2011. The accretable
discount to be recognized in income for these loans was
$333 thousand at December 31, 2012 and $754 thousand at
December 31, 2011. Accretion of $421 thousand and $157
thousand was recorded for the years ended December 31,
2012 and 2011, respectively.
{ 71 }
{ 2012 Form 10K }
Note 7. Allowance for Loan and Lease Losses and Credit Quality Information
The following tables provide the allowance for loan and lease losses and other information regarding the allowance for
loan and leases losses and balances by type of allowance methodology. TCF’s key credit quality indicator is the receivable’s
performance status, defined as accruing or non-accruing.
At December 31, 2012
Consumer
Real Estate
Commercial
leasing and
Equipment
Finance
Inventory
Finance
Auto
Finance
Other
Total
(In thousands)
Allowance for loan and lease losses:
Balance, at beginning of year
Charge-offs
Recoveries
Net charge-offs
Provision for credit losses
Other
Balance, at end of year
Allowance for loan and lease losses:
Collectively evaluated for impairment $ 181,139
874
$ 182,013
Individually evaluated for impairment
Total
Loans and leases outstanding:
Collectively evaluated for impairment $6,669,424
5,077
Individually evaluated for impairment
Loans acquired with deteriorated
$ 183,435
(184,785)
5,649
(179,136)
178,496
(782)
$ 182,013
$ 46,954
(40,836)
1,959
(38,877)
43,498
–
$ 51,575
$ 21,173
(15,248)
5,058
(10,190)
10,054
–
$ 21,037
$ 2,996
(1,838)
333
(1,505)
6,060
18
$ 7,569
$ –
(1,164)
30
(1,134)
6,726
(1,456)
$ 4,136
$ 1,114
(10,239)
7,314
(2,925)
2,609
–
$ 798
$ 255,672
(254,110)
20,343
(233,767)
247,443
(2,220)
$ 267,128
$ 37,210 $ 20,337
700
$ 21,037
14,365
$ 51,575
$ 7,339
230
$ 7,569
$ 4,136
–
$ 4,136
$ 798
–
$ 798
$ 250,959
16,169
$ 267,128
$3,133,011
272,224
$3,187,393
7,754
$1,565,727
1,487
$551,456
101
$27,924
–
$15,134,935
286,643
credit quality
Total
–
$6,674,501
–
$3,405,235
2,870
$3,198,017
–
$1,567,214
1,276
$552,833
–
$27,924
4,146
$15,425,724
At December 31, 2011
Consumer
Real Estate Commercial
Leasing and
Equipment
Finance
Inventory
Finance
Auto
Finance
Other
Total
(In thousands)
Allowance for loan and lease losses:
Balance, at beginning of year
Charge-offs
Recoveries
Net charge-offs
$ 172,850 $ 62,478
(42,733)
1,654
(41,079)
25,555
–
$ 46,954
(156,854)
3,743
(153,111)
163,696
–
$ 183,435
Provision for credit losses
Other
Balance, at end of year
Allowance for loan and lease losses:
Collectively evaluated for impairment $ 182,315 $ 24,842
22,112
$ 46,954
Individually evaluated for impairment
1,120
$ 183,435
Total
$ 26,301
(16,984)
4,461
(12,523)
7,395
–
$ 21,173
$ 2,537
(1,044)
193
(851)
1,318
(8)
$ 2,996
$ –
–
–
–
–
–
$ –
$ 1,653
(12,680)
9,262
(3,418)
2,879
–
$ 1,114
$ 265,819
(230,295)
19,313
(210,982)
200,843
(8)
$ 255,672
$ 17,339
3,834
$ 21,173
$ 2,583
413
$ 2,996
$ –
–
$ –
$ 1,114
–
$ 1,114
$ 228,193
27,479
$ 255,672
Loans and leases outstanding:
Collectively evaluated for impairment $ 6,887,627
7,664
Individually evaluated for impairment
Loans acquired with deteriorated
$ 2,811,046
638,446
$ 3,112,864
22,200
$ 616,496
8,204
$ –
–
$34,885
–
$ 13,462,918
676,514
credit quality
Total
–
$ 6,895,291
–
$ 3,449,492
7,195
$ 3,142,259
–
$ 624,700
3,628
$ 3,628
–
$34,885
10,823
$ 14,150,255
{ 72 } { TCF Financial Corporation and Subsidiaries }
Performing and Non-accrual loans and leases The following tables set forth information regarding TCF’s performing and
non-accrual loans and leases. Performing loans and leases are considered to have a lower risk of loss and are on accruing status and
less than 60 days delinquent. Non-accrual loans and leases along with loans and leases that are 60 days or more delinquent are those
which management believes have a higher risk of loss than performing loans and leases. Delinquent balances are determined based on
the contractual terms of the loan or lease. TCF’s key credit quality indicator is the receivable’s status as accruing or non-accruing.
(In thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance:
Middle market
Small ticket
Winthrop
Other
Total leasing and equipment finance
Inventory finance
Auto finance
Other
Subtotal
Portfolios acquired with deteriorated
credit quality
Total
(In thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance:
Middle market
Small ticket
Winthrop
Other
Total leasing and equipment finance
Inventory finance
Auto finance
Other
Subtotal
Portfolios acquired with
deteriorated credit quality
Total
At December 31, 2012
60-89 Days
Delinquent
and Accruing
90 Days or More
Delinquent
and Accruing
Total
Accruing
Non-
Accrual
Total
$28,132
6,170
34,302
$47,888
6,971
54,859
$ 4,039,893
2,399,708
6,439,601
$199,631
35,269
234,900
$ 4,239,524
2,434,977
6,674,501
604
17
621
796
1,844
22
64
2,726
109
228
20
38,006
1,655
354
2,009
16
518
–
–
534
10
304
11
57,727
2,962,642
314,847
3,277,489
1,726,064
798,243
372,955
261,742
3,159,004
1,565,727
551,455
26,353
15,019,629
118,300
9,446
127,746
9,446
3,989
116
101
13,652
1,487
101
1,571
379,457
3,080,942
324,293
3,405,235
1,735,510
802,232
373,071
261,843
3,172,656
1,567,214
551,556
27,924
15,399,086
Performing
$ 3,963,873
2,386,567
6,350,440
2,960,383
314,476
3,274,859
1,725,252
795,881
372,933
261,678
3,155,744
1,565,608
550,923
26,322
14,923,896
26,348
$14,950,244
221
$38,227
69
$57,796
26,638
$15,046,267
–
$379,457
26,638
$15,425,724
At December 31, 2011
60-89 Days
Delinquent
and Accruing
90 Days or More
Delinquent
and Accruing
Total
Accruing
Non-
Accrual
Total
$ 32,571
7,813
40,384
$ 54,787
14,464
69,251
$ 4,613,309
2,132,611
6,745,920
$ 129,114
20,257
149,371
$ 4,742,423
2,152,868
6,895,291
98
49
147
1,260
2,368
235
198
4,061
153
–
20
44,765
1,001
–
1,001
84
613
–
–
697
7
–
21
70,977
3,093,954
228,019
3,321,973
1,628,713
795,547
447,569
185,761
3,057,590
623,877
–
34,870
13,784,230
104,744
22,775
127,519
13,185
5,535
1,253
610
20,583
823
–
15
298,311
3,198,698
250,794
3,449,492
1,641,898
801,082
448,822
186,371
3,078,173
624,700
–
34,885
14,082,541
Performing
$ 4,525,951
2,110,334
6,636,285
3,092,855
227,970
3,320,825
1,627,369
792,566
447,334
185,563
3,052,832
623,717
–
34,829
13,668,488
65,820
$ 13,734,308
766
$ 45,531
1,128
$ 72,105
67,714
$ 13,851,944
–
$ 298,311
67,714
$ 14,150,255
{ 73 }
{ 2012 Form 10K }
The following table provides interest income recognized on loans and leases in non-accrual status and contractual interest
that would have been recorded had the loans and leases performed in accordance with their original contractual terms.
(In thousands)
Contractual interest due on non-accrual loans and leases
Interest income recognized on loans and leases in non-accrual status
Foregone interest income
For the Year Ended December 31,
2011
$37,645
7,371
$30,274
2010
$40,016
6,773
$33,243
2012
$39,232
9,401
$29,831
The following table provides information regarding consumer real estate loans to customers currently involved in Chapter 7
and Chapter 13 bankruptcy proceedings which have not yet been discharged or completed by the courts:
(In thousands)
Consumer real estate loans to customers in bankruptcy:
0-59 days delinquent and accruing
60+ days delinquent and accruing
Non-accrual
Total consumer real estate loans to customers in bankruptcy
For the years ended December 31, 2012 and 2011,
interest income would have been reduced by approximately
$910 thousand and $919 thousand, respectively, had the
accrual of interest income on the above consumer loans
been discontinued upon notification of bankruptcy.
loan Modifications for Borrowers with Financial
Difficulties Included within the loans and leases in
previous tables are certain loans that have been modified
in order to maximize collection of loan balances. If, for
economic or legal reasons related to the customer’s
financial difficulties, TCF grants a concession, the modified
loan is classified as a troubled debt restructuring (“TDR”).
TCF held consumer real estate TDR loans of $651.8
million and $479.8 million at December 31, 2012 and 2011,
respectively, of which $478.3 million and $433.1 million
were accruing at December 31, 2012 and 2011, respectively.
TCF also held $236.8 million and $181.6 million of commercial
loan TDR loans at December 31, 2012 and 2011, respectively,
of which $144.5 million and $98.4 million were accruing at
At December 31,
2012
2011
$69,170
644
18,982
$88,796
$74,347
1,112
17,531
$92,990
December 31, 2012 and 2011, respectively. The amount of
additional funds committed to consumer real estate and
commercial borrowers in TDR status was $8.6 million and
$8.5 million at December 31, 2012 and 2011, respectively.
In addition, TCF held leasing and equipment finance TDR
loans of $3.8 million and $1.8 million at December 31, 2012
and 2011, respectively, of which $1.1 million and $776
thousand were accruing at December 31, 2012 and 2011,
respectively. At December 31, 2012 and 2011, no additional
funds were committed to leasing and equipment finance
borrowers in TDR status.
When a loan is modified as a TDR, principal balances
are generally not forgiven. Loan modifications are not
reported as TDR loans in calendar years after modification
if the loans were modified at an interest rate equal to
the yields of new loan originations with comparable risk
and the loans are performing based on the terms of the
restructuring agreements. All loans classified as TDR loans
are considered to be impaired.
{ 74 } { TCF Financial Corporation and Subsidiaries }
The financial effects of TDR loans are presented in the following tables and represent the difference between interest
income recognized on accruing TDR loans and the contractual interest that would have been recorded under the original
contractual terms.
(In thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance:
Middle market
Total leasing and equipment finance
Total
(In thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance:
Middle market
Total leasing and equipment finance
Total
(In thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial real estate
Total
For the Year Ended December 31, 2012
Original
Contractual Interest
Due on TDR loans
Interest Income
Recognized
on TDR loans
$29,317
2,483
31,800
5,669
426
6,095
57
57
$37,952
$15,420
1,587
17,007
5,557
378
5,935
66
66
$23,008
For the Year Ended December 31, 2011
Original
Contractual Interest
Due on TDR Loans
Interest Income
Recognized
on TDR Loans
$23,815
1,712
25,527
3,249
306
3,555
78
78
$29,160
$12,225
955
13,180
3,066
306
3,372
79
79
$16,631
For the Year Ended December 31, 2010
Original
Contractual Interest
Due on TDR Loans
Interest Income
Recognized
on TDR Loans
$19,649
1,450
21,099
200
$21,299
$10,416
719
11,135
182
$11,317
Foregone
Interest
Income
$13,897
896
14,793
112
48
160
(9)
(9)
$14,944
Foregone
Interest
Income
$11,590
757
12,347
183
–
183
(1)
(1)
$12,529
Foregone
Interest
Income
$ 9,233
731
9,964
18
$ 9,982
{ 75 }
{ 2012 Form 10K }
The table below summarizes TDR loans that defaulted during the years ended December 31, 2012 and 2011, which were
modified within one year of the beginning of the respective reporting period. TCF considers a loan to have defaulted when it
becomes 90 or more days delinquent under the modified terms, has been transferred to non-accrual status subsequent to the
modification or has been transferred to other real estate owned.
(Dollars in thousands)
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial real estate
Total defaulted modified loans
Total loans modified in the applicable period
Defaulted modified loans as a percent of total loans
modified in the applicable period
For the Year Ended December 31,
2012
2011
Number of loans
loan Balance(1)
Number of Loans
Loan Balance(1)
62
25
87
21
108
2,383
$ 10,007
1,221
11,228
41,027
$ 52,255
$575,014
147
42
189
5
194
2,017
$ 26,693
4,934
31,627
32,161
$ 63,788
$482,197
4.5%
9.1%
9.6%
13.2%
(1) The loan balances presented are not materially different than the pre-modification loan balances as TCF’s loan modifications generally do not forgive principal amounts.
Consumer real estate TDR loans are evaluated
separately in TCF’s allowance methodology. Impairment
is generally based upon the present value of the expected
future cash flows or the fair value of the collateral less
selling expenses for fully collateral-dependent loans. The
allowance on accruing consumer real estate TDR loans
was $82.3 million, or 17.2% of the outstanding balance
at December 31, 2012, and $58.3 million, or 13.5% of the
outstanding balance at December 31, 2011. For consumer
real estate TDR loans, in 2012 TCF utilized average
re-default rates ranging from 10% to 25%, depending on
modification type, in determining impairment, which is
consistent with actual experience. Consumer real estate
loans remain on accruing status upon modification if they
are less than 150 days past due, or six payments owing,
and payment in full under the modified loan terms is
expected. Otherwise, the loans are placed on non-accrual
status and reported as non-accrual until there is sustained
repayment performance for six consecutive payments,
except for loans discharged in Chapter 7 bankruptcy and
not reaffirmed, which permanently remain on non-accrual
status for the remainder of the term of the loan. All
eligible loans are re-aged to current delinquency status
upon modification.
Commercial TDR loans are individually evaluated for
impairment, based upon the present value of the expected
future cash flows or the fair value of the collateral less
selling expenses for fully collateral-dependent loans.
The allowance on accruing commercial loan TDR loans
was $1.5 million, or 1.0% of the outstanding balance,
at December 31, 2012, and $1.4 million, or 1.4% of the
outstanding balance, at December 31, 2011.
Impaired loans TCF considers impaired loans to include
non-accrual commercial loans, non-accrual equipment
finance loans and non-accrual inventory finance loans,
as well as all TDR loans. Impaired loans are included in
the previous tables within the amounts disclosed as non-
accrual and the accruing loans. Accruing TDR loans that
are less than 60 days delinquent have been disclosed as
performing within the previous tables of performing and
non-accrual loans and leases. In the following tables, the
loan balance of impaired loans represents the amount
recorded within loans and leases on the Consolidated
Statements of Financial Condition whereas the unpaid
contractual balance represents the balances legally owed
by the borrowers, excluding write-downs.
{ 76 } { TCF Financial Corporation and Subsidiaries }
The following tables summarize impaired loans.
(In thousands)
Impaired loans with an allowance recorded:
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance:
Middle market
Small ticket
Other
Total leasing and equipment finance
Inventory finance
Other
Total impaired loans with an allowance recorded
Impaired loans without an allowance recorded:
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Auto finance
Total impaired loans without an allowance recorded
Total impaired loans
(In thousands)
Impaired loans with an allowance recorded:
Consumer real estate:
First mortgage lien
Junior lien
Total consumer real estate
Commercial:
Commercial real estate
Commercial business
Total commercial
Leasing and equipment finance:
Middle market
Small ticket
Other
Total leasing and equipment finance
Inventory finance
Total impaired loans with an allowance recorded
Impaired loans without an allowance recorded:
Consumer real estate:
First mortgage lien
Junior lien
Total impaired loans without an allowance recorded
Total impaired loans
Unpaid
Contractual
Balance
At December 31, 2012
Related
Allowance
Recorded
Year-to-Date
Average loan
Balance
loan
Balance
$ 448,887
44,218
493,105
$441,336
42,836
484,172
$ 76,425
9,120
85,545
$418,425
38,120
456,545
223,681
25,430
249,111
8,456
343
356
9,155
1,155
19
715,985
95,305
13,978
109,283
51
109,334
$825,319
250,578
21,676
272,254
7,415
153
101
7,669
1,487
38
765,620
12,963
1,408
14,371
737
65
36
838
230
–
100,984
141,511
26,166
167,677
101
167,778
$933,398
–
–
–
–
–
$100,984
287,061
27,662
314,723
7,414
153
101
7,668
1,487
38
817,021
184,790
59,451
244,241
187
244,428
$1,061,449
Unpaid
Contractual
Balance
At December 31, 2011
Related
Allowance
Recorded
Year-to-Date
Average Loan
Balance
Loan
Balance
$ 396,754
33,796
430,550
$395,513
33,404
428,917
$ 55,642
5,397
61,039
$355,183
27,561
382,744
224,682
36,043
260,725
9,501
532
610
10,643
823
702,741
196,784
29,183
225,967
9,501
532
610
10,643
823
666,350
13,819
4,019
17,838
1,130
114
127
1,371
44
80,292
174,964
33,563
208,527
11,341
528
356
12,225
939
604,435
67,954
3,810
71,764
$ 774,505
49,099
1,790
50,889
$717,239
–
–
–
$ 80,292
39,394
1,723
41,117
$645,552
Year-to-Date
Interest Income
Recognized
$15,016
1,519
16,535
5,792
393
6,185
19
–
6
25
125
1
22,871
4,466
1,721
6,187
–
6,187
$29,058
Year-to-Date
Interest Income
Recognized
$12,040
930
12,970
3,078
307
3,385
123
9
–
132
71
16,558
1,194
79
1,273
$17,831
{ 77 }
{ 2012 Form 10K }
Note 8. Premises and Equipment
Premises and equipment are summarized as follows.
(In thousands)
Land
Office buildings
Leasehold improvements
Furniture and equipment
Subtotal
Less accumulated depreciation
and amortization
Total
At December 31,
2012
$152,265
274,673
62,475
290,050
779,463
2011
$145,583
272,036
63,612
319,679
800,910
338,997
$440,466
364,629
$436,281
TCF leases certain premises and equipment under
operating leases. Net lease expense including utilities and
other operating expenses was $35.5 million, $34.4 million
and $34.7 million in 2012, 2011 and 2010, respectively.
At December 31, 2012, the total future minimum rental
payments for operating leases of premises and equipment
are as follows.
(In thousands)
2013
2014
2015
2016
2017
Thereafter
Total
$ 26,028
27,014
25,207
22,222
21,156
70,752
$192,379
{ 78 } { TCF Financial Corporation and Subsidiaries }
Note 9. Goodwill and Other Intangible Assets
Goodwill and other intangible assets are summarized as follows.
2012
2011
At December 31,
Weighted-
Average
Amortization
Period
(In Years)
Gross
Amount
Accumulated
Amortization
Net
Amount
Weighted-
Average
Amortization
Period
(In Years)
(Dollars in thousands)
Amortizable intangible assets:
Deposit base intangibles
Customer base intangibles
Non-compete agreement
Tradename
Total
Unamortizable intangible assets:
Goodwill related to funding segment
Goodwill related to lending segment
Total
10
11
5
2
8
$ 3,049
2,730
4,590
300
$ 10,669
$141,245
84,395
$225,640
$ 241 $ 2,808
2,173
3,556
137
$1,995 $ 8,674
557
1,034
163
–
11
5
2
7
$141,245
84,395
$225,640
Gross
Amount
Accumulated
Amortization
Net
Amount
$ –
2,730
4,590
300
$ 7,620
$141,245
84,395
$225,640
$ –
360
113
13
$ 486
$ –
2,370
4,477
287
$ 7,134
$141,245
84,395
$225,640
As a result of the acquisition of Gateway One in 2011, TCF recorded goodwill and other intangibles of $73 million and
$6.2 million, respectively. On June 1, 2012, TCF Bank assumed $778 million of deposits from Prudential Bank & Trust, FSB
(“PB&T”). Deposit base intangibles of $3 million were recorded in connection with this assumption of deposits. Amortization
expense for intangible assets is estimated to be $2 million for 2013, $1.8 million for 2014, $1.6 million for 2015, $1.4 million
for 2016 and $497 thousand for 2017. There was no impairment of goodwill or other intangible assets for the years ended
December 31, 2012, 2011, or 2010.
{ 79 }
{ 2012 Form 10K }
Note 10. Deposits
Deposits are summarized as follows.
(Dollars in thousands)
Checking:
Non-interest bearing
Interest bearing
Total checking
Savings
Money market
Total checking, savings and money market
Certificates of deposit
Total deposits
At December 31,
2012
2011
Rate at
Year-end
Amount % of Total
Rate at
Year-end
Amount
% of Total
– %
.10
.05
.28
.34
.19
1.05
.33%
$ 2,487,792
2,346,840
4,834,632
6,104,104
820,553
11,759,289
2,291,497
$14,050,786
17.7%
16.8
34.5
43.4
5.8
83.7
16.3
100.0%
– %
$ 2,442,522
.16
2,187,227
.07
4,629,749
.37
5,855,263
.36
651,377
.25
11,136,389
1,065,615
.75
.29% $12,202,004
20.0%
18.0
38.0
48.0
5.3
91.3
8.7
100.0%
Certificates of deposit had the following remaining maturities at December 31, 2012.
Maturity
0-3 months
4-6 months
7-12 months
13-24 months
Over 24 months
Total
$ 100,000+
$ 243,749
95,767
374,367
233,330
81,890
$1,029,103
Other
$ 258,305
161,220
459,621
305,037
78,211
$1,262,394
Total
$ 502,054
256,987
833,988
538,367
160,101
$2,291,497
On June 1, 2012, TCF Bank assumed approximately $778 million of deposits from PB&T. The deposits consist primarily of
Individual Retirement Accounts (“IRA”) with certificates of deposit or checking accounts and IRA related brokerage sweep
accounts gathered by PB&T.
{ 80 } { TCF Financial Corporation and Subsidiaries }
Note 11. Short-term Borrowings
The following table sets forth selected information for short-term borrowings (borrowings with an original maturity of less than
one year) for the years ended December 31, 2012 and 2011.
(Dollars in thousands)
At December 31,
Securities sold under repurchase agreements
Total
Year ended December 31, average daily balance
Federal Home Loan Bank advances
Federal funds purchased
Securities sold under repurchase agreements
U.S. Treasury, tax and loan borrowings
Line of Credit – TCF Commercial Finance Canada, Inc.
Total
Maximum month-end balance
Federal Home Loan Bank advances
Federal funds purchased
Securities sold under repurchase agreements
U.S. Treasury, tax and loan borrowings
Line of Credit – TCF Commercial Finance Canada, Inc.
N.A. Not Applicable.
2012
Amount
Rate
2011
Amount
Rate
$ 2,619
$ 2,619
$ 289,164
16,137
6,374
–
743
$ 312,418
$1,150,000
75,000
7,747
–
6,083
.10%
.10%
.30%
.22
.10
–
5.04
.33%
N.A.
N.A.
N.A.
N.A.
N.A.
$ 6,416
$ 6,416
$23,483
15,784
7,677
2,105
393
$49,442
$ –
20,000
12,024
2,675
5,794
.10%
.10%
.24%
.20
.10
–
19.08
.35%
N.A.
N.A.
N.A.
N.A.
N.A.
At December 31, 2012, all of the securities sold under short-term repurchase agreements were related to TCF National
Bank’s Repurchase Investment Sweep Agreement product and were collateralized by mortgage-backed securities having a
fair value of $17.8 million.
{ 81 }
{ 2012 Form 10K }
Note 12. Long-term Borrowings
Long-term borrowings consist of the following.
(Dollars in thousands)
Federal Home Loan Bank advances and securities
sold under repurchase agreements
Subtotal
Subordinated bank notes
Subtotal
Junior subordinated notes (trust preferred)
Discounted lease rentals
Subtotal
Other long-term
Subtotal
Total long-term borrowings
At December 31,
2012
2011
Stated
Maturity
Amount
Weighted-
Average Rate
Amount
Weighted-
Average Rate
2013
2014
2015
2016
2017
2018
2014
2015
2016
2022
2068
2012
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
$ 680,000
448,000
125,000
297,000
–
–
1,550,000
71,020
50,000
74,810
109,036
304,866
–
–
30,985
16,325
8,240
5,451
2,885
63,886
2,340
2,474
2,508
2,542
2,580
12,444
$1,931,196
.73%
.42
.44
1.12
–
–
.69
1.96
1.89
5.59
6.37
4.42
–
–
4.97
4.82
4.79
4.80
4.62
4.88
1.36
1.36
1.36
1.36
1.36
1.36
1.42%
$ 400,000
–
900,000
1,100,000
1,250,000
300,000
3,950,000
71,020
50,000
74,661
–
195,681
114,236
57,622
36,009
16,641
5,662
4,026
1,787
121,747
–
–
–
–
–
–
$4,381,664
.97%
–
4.18
4.49
4.60
3.51
4.02
2.21
2.14
5.63
–
3.49
12.83
5.32
5.28
5.12
5.04
4.98
4.98
5.25
–
–
–
–
–
–
4.26%
At December 31, 2012, TCF has pledged loans secured
by residential real estate and commercial real estate
loans with an aggregate carrying value of $6.4 billion
as collateral for FHLB advances. There were no callable
advances or repurchase agreements included in FHLB
borrowings at year end.
During June 2012, TCF Bank issued $110 million of sub-
ordinated notes, at a price to investors of 99.086% of par,
which will be due on June 8, 2022. The subordinated notes
bear interest at a fixed rate of 6.25% per annum until maturity.
The notes qualify as Tier 2, or supplementary capital for
regulatory purposes, subject to certain limitations. TCF Bank
used the proceeds to pay down short term borrowings.
The $71 million of subordinated notes due 2014 reprice
quarterly at the three-month LIBOR rate plus 1.63%. These
subordinated notes may be redeemed by TCF Bank at par
once a quarter at TCF’s discretion. The $50 million of
subordinated notes due 2015 reprice quarterly at the
three-month LIBOR rate plus 1.56%. These subordinated
notes may be redeemed by TCF Bank at par once a quarter
at TCF’s discretion. The $74.8 million of subordinated
notes due 2016 have a fixed-rate coupon of 5.5% until
maturity on February 1, 2016. All of these subordinated
notes qualify as Tier 2 or supplementary capital for
regulatory purposes, subject to certain limitations.
In 2008, TCF Capital I, a statutory trust formed under
the laws of the state of Delaware and wholly-owned finance
subsidiary of TCF, issued 10.75% trust preferred junior
subordinated notes (the “Trust Preferred Securities”).
TCF determined that the Federal Reserve’s approval for
publication of the notice of proposed rulemaking on
June 7, 2012, which would phase out the Tier 1 capital
treatment of the Trust Preferred Securities, constituted
a “capital treatment event” (as defined in the indenture
{ 82 } { TCF Financial Corporation and Subsidiaries }
governing the Trust Preferred Securities), which allowed
TCF to redeem the Trust Preferred Securities. The Trust
Preferred Securities were redeemed on July 30, 2012, at
the redemption price of $25 per Trust Preferred Security
plus accumulated and unpaid distributions, totaling
$115 million. The redemption was funded with a portion of the
net proceeds from TCF’s offering of Series A Non-Cumulative
Perpetual Preferred Stock, which closed in June 2012.
During March 2012, as part of TCF’s balance sheet
repositioning, the Company borrowed $2.1 billion of
fixed and floating rate FHLB advances, both long-and
short-term, with a weighted-average interest rate of .5%,
and also sold $1.9 billion of U.S. government-sponsored
mortgage-backed securities at a gain of $77 million.
Proceeds were used to terminate $2.1 billion of FHLB
advances with a weighted-average fixed rate of 4.4%, and
$1.5 billion of repurchase agreements with a weighted-
average fixed rate of 4.2%. At December 31, 2012, the
aggregate carrying value of pledged loans available as
collateral for FHLB advances was $6.4 billion. Such loans are
secured by residential real estate, commercial real estate
loans, and FHLB stock.
Note 13. Income Taxes
The following table summarizes applicable income taxes in the Consolidated Statements of Income.
(In thousands)
Year ended December 31, 2012:
Federal
State
Total
Year ended December 31, 2011:
Federal
State
Total
Year ended December 31, 2010:
Federal
State
Total
Current
Deferred
Total
$ 6,646
7,994
$14,640
$ (2,737)
16,740
$ 14,003
$ 49,462
11,695
$ 61,157
$(129,082)
(18,416)
$(147,498)
$(122,436)
(10,422)
$(132,858)
$ 56,144
(5,706)
$ 50,438
$ 53,407
11,034
$ 64,441
$ 27,100
1,914
$ 29,014
$ 76,562
13,609
$ 90,171
TCF’s effective income tax rate differs from the statutory federal income tax rate of 35% as a result of the following.
Federal income tax rate
Increase (decrease) resulting from:
State income tax, net of federal income tax
Deferred tax adjustments
Civil money penalty
Non-controlling interest tax effect
Tax exempt income
Investments in affordable housing
Other, net
Effective income tax rate
Year Ended December 31,
2012
35.00%
1.99
1.40
(1.03)
.64
.55
.29
.29
39.13%
2011
35.00%
4.01
(.04)
–
(1.01)
(.82)
(.69)
(.41)
36.04%
2010
35.00%
3.62
–
–
(.48)
(.41)
(.76)
(.08)
36.89%
{ 83 }
{ 2012 Form 10K }
A reconciliation of the changes in unrecognized tax benefits is as follows.
(In thousands)
Balance, beginning of year
Increases for tax positions related to the current year
Increases for tax positions related to prior years
Decreases for tax positions related to prior years
Settlements with taxing authorities
Decreases related to lapses of applicable statutes of limitation
Balance, end of year
2012
$2,377
449
1,781
–
(70)
(307)
$4,230
2011
$2,464
273
605
(261)
(84)
(620)
$2,377
2010
$2,857
562
–
(251)
–
(704)
$2,464
The total amount of unrecognized tax benefits that, if recognized, would affect the tax provision and the effective tax rate
was $1.1 million and $1 million at December 31, 2012 and 2011, respectively. TCF recognizes interest and penalties related to
unrecognized tax benefits, where applicable, in income tax expense. TCF recorded an increase in interest and penalties of $77
thousand and $22 thousand, net of tax effects, during 2012 and 2011, respectively, and a reduction in interest and penalties
of $154 thousand, net of tax effects, in 2010. Interest and penalties of approximately $317 thousand and $240 thousand were
accrued at December 31, 2012 and 2011, respectively.
TCF’s federal income tax returns are open and subject to examination for 2009 and later tax return years. TCF’s various
state income tax returns are generally open for 2008 and later tax return years based on individual state statutes of
limitation. Changes in the amount of unrecognized tax benefits within the next twelve months from normal expirations of
statutes of limitation are not expected to be material.
The significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows.
(In thousands)
Deferred tax assets:
Net operating losses and credit carryforwards
Valuation allowance
Allowance for loan and lease losses
Stock compensation and deferred compensation plans
Accrued expense
Other
Total deferred tax assets
Deferred tax liabilities:
Lease financing
Premises and equipment
Loan fees and discounts
Prepaid expenses
Securities available for sale
Goodwill and other intangibles
Investments in FHLB stock
Other
Total deferred tax liabilities
Net deferred tax liabilities
At December 31,
2012
2011
$146,741
(7,362)
92,461
25,769
4,628
8,778
271,015
293,470
21,819
21,056
9,565
7,075
5,307
2,628
3,796
364,716
$ 93,701
$ 16,316
(5,094)
92,031
23,464
3,469
6,462
136,648
304,996
20,505
21,938
9,092
32,568
5,532
2,509
6,385
403,525
$266,877
The net operating losses and credit carryforwards at December 31, 2012, consist of federal net operating losses of $117.8
million and federal credit carryforwards of $5.7 million that expire in years 2027 through 2032, state net operating losses of
$14.6 million that expire in years 2013 through 2032, and charitable contribution carryforwards of $1.3 million that expire in
years 2016 through 2017.
{ 84 } { TCF Financial Corporation and Subsidiaries }
Note 14. Equity
Restricted Retained Earnings Retained earnings at
TCF Bank, at December 31, 2012 includes approximately
$134.4 million for which no provision for federal income
taxes has been made. This amount represents earnings
legally appropriated to thrift bad debt reserves and
deducted for federal income tax purposes in prior years
and is generally not available for payment of cash
dividends or other distributions to stockholders. Future
payments or distributions of these appropriated earnings
could invoke a tax liability for TCF based on the amount of
the distributions and the tax rates in effect at that time.
Treasury Stock and Other Treasury stock and other
consists of the following.
(In thousands)
Treasury stock, at cost
Shares held in trust for deferred
compensation plans, at cost
Total
At December 31,
2012
$ (1,102)
2011
$ (1,102)
(40,327)
$(41,429)
(32,265)
$(33,367)
Repurchases No repurchases of common stock were
made in 2012, 2011 or 2010. At December 31, 2012, TCF
had 5.4 million shares remaining in its stock repurchase
programs authorized by TCF’s Board of Directors. Prior
consultation with the Federal Reserve is required by
regulation before TCF could repurchase any shares of its
common stock.
Public Offering of Common Stock In March of 2011,
TCF completed public offerings of common stock which
raised net proceeds of $219.7 million through the issuance
of 15,081,968 common shares.
Public Offering of Depositary Shares Representing 7.50%
Series A Non-Cumulative Perpetual Preferred Stock
On June 25, 2012, TCF completed the public offering of
depositary shares, each representing a 1/1,000th interest
in a share of Series A Non-Cumulative Perpetual Preferred
Stock, par value $.01 per share (the “Series A Preferred
Stock”). In connection with the offering, TCF issued
6,900,000 depositary shares at a public offering price of
$25 per depositary share. Dividends are payable on the
Series A Preferred Stock if, as and when declared by TCF’s
Board of Directors on a non-cumulative basis on March 1,
June 1, September 1, and December 1 of each year at a per
annum rate of 7.5%. Net proceeds of the offering to TCF,
after deducting underwriting discounts and commissions
and estimated offering expenses of $5.8 million, were
$166.7 million. TCF paid $5.6 million in cash dividends to
holders of Series A Preferred Stock during 2012.
Public Offering of 6.45% Series B Non-Cumulative
Perpetual Preferred Stock On December 19, 2012,
TCF completed the public offering of 4,000,000 shares of
6.45% Series B Non-Cumulative Perpetual Preferred Stock,
par value $.01 per share (the “Series B Preferred Stock”).
Net proceeds of the offering to TCF, after deducting
underwriting discounts, commissions and estimated
offering costs of $3.5 million, were $96.5 million. Dividends
are payable on the Series B Preferred Stock if, as and when
declared by TCF’s Board of Directors on a non-cumulative
basis on March 1, June 1, September 1, and December 1 of
each year, commencing on March 1, 2013, at a per annum
rate of 6.45%. No cash dividends were paid to holders of
Series B Preferred Stock in 2012.
Shares Held in Trust for Deferred Compensation Plans
Executive, Senior Officer, Winthrop and Directors
Deferred Compensation Plans TCF has maintained
the deferred compensation plans listed above, which
previously allowed eligible executives, senior officers,
directors and certain other employees, and non-employee
directors to defer a portion of certain payments, and, in
some cases, grants of restricted stock. In October of 2008,
TCF terminated the employee plans for those participants
who elected to do so, and only the Director plan remains
active, which allows non-employee directors to defer up
to 100% of their director fees and restricted stock awards.
The amounts deferred under these plans were invested in
TCF common stock, other publicly traded stocks, bonds or
mutual funds. At December 31, 2012, the fair value of the
assets in these plans totaled $12.1 million and included
$7.4 million invested in TCF common stock, compared with
$12.0 million and $7.5 million, at December 31, 2011.
TCF Employees Deferred Stock Compensation Plan
In 2011, TCF implemented the TCF Employees Deferred Stock
Compensation Plan. This plan is comprised of restricted
stock awards issued to certain executives. The assets of
this plan are solely held in TCF common stock with a fair
value totaling $22.6 million and $8.4 million for the years
ended December 31, 2012 and 2011, respectively.
{ 85 }
{ 2012 Form 10K }
TCF Employees Stock Purchase Plan —
Supplemental Plan TCF also maintains the TCF
Employees Stock Purchase Plan — Supplemental Plan,
a non-qualified plan, to which certain employees can
contribute up to 50% of their salary and bonus. TCF
matching contributions to this plan totaled $556 thousand
and $474 thousand in 2012 and 2011, respectively. The
Company made no other contributions to this plan,
other than payment of administrative expenses. The
amounts deferred under the above plan were invested in
TCF common stock or mutual funds. At December 31, 2012,
the fair value of the assets in the plan totaled $19 million
and included $11.5 million invested in TCF common stock,
compared with a total fair value of $14.5 million,
including $8.9 million invested in TCF common stock
at December 31, 2011.
The cost of TCF common stock held by TCF’s deferred
compensation plans is reported separately in a manner
similar to treasury stock (that is, changes in fair value are
not recognized) with a corresponding deferred compensation
obligation reflected in additional paid-in capital.
Warrants At December 31, 2012, TCF had 3,199,988
warrants outstanding with an exercise price of $16.93
per share, which expire on November 14, 2018. Upon the
completion of the U.S. Treasury’s secondary public offering
of the warrants issued under the Capital Purchase Program
(“CPP”), in December 2009, the warrants became publicly
traded on the New York Stock Exchange under the symbol
“TCBWS”. As a result, TCF has no further obligations to the
Federal Government in connection with the CPP.
Joint Venture TCF has a joint venture with The Toro
Company (“Toro”) called Red Iron Acceptance, LLC (“Red
Iron”). Red Iron provides U.S. distributors and dealers and
select Canadian distributors of the Toro® and Exmark®
branded products with sources of financing. TCF and Toro
maintain a 55% and 45% ownership interest, respectively,
in Red Iron. As TCF has a controlling financial interest in
Red Iron, its financial results are consolidated in TCF’s
financial statements. Toro’s interest is reported as a non-
controlling interest within equity and qualifies as Tier 1
regulatory capital.
{ 86 } { TCF Financial Corporation and Subsidiaries }
Note 15. Regulatory Capital Requirements
TCF and TCF Bank are subject to various regulatory capital
requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possible additional
discretionary, actions by the federal banking agencies
that could have a material adverse effect on TCF. In
general, TCF Bank may not declare or pay a dividend to TCF
Financial in excess of 100% of its net retained profits for
the current year combined with its retained net profits for
the preceding two calendar years, which was $28.1 million
at December 31, 2012, without prior approval of the OCC.
TCF Bank’s ability to make capital distributions in the
future may require regulatory approval and may be
restricted by its regulatory authorities. TCF Bank’s ability
to make any such distributions will also depend on its
earnings and ability to meet minimum regulatory capital
requirements in effect during future periods. These capital
adequacy standards may be higher in the future than
existing minimum regulatory capital requirements.
The following table presents regulatory capital information for TCF and TCF Bank.
(Dollars in thousands)
As of December 31, 2012
Tier 1 leverage capital:(2)
TCF
TCF Bank
Tier 1 risk-based capital:
TCF
TCF Bank
Total risk-based capital:
TCF
TCF Bank
As of December 31, 2011
Tier 1 leverage capital:(2)
TCF
TCF Bank
Tier 1 risk-based capital:
TCF
TCF Bank
Total risk-based capital:
TCF
TCF Bank
Actual
Amount
Ratio
Minimum
Capital Requirement(1)
Amount
Ratio
Well-Capitalized
Capital Requirement(1)
Amount
Ratio
$1,633,336
1,521,026
9.21%
8.58
$ 709,606
709,382
4.00%
4.00
N.A.
$ 886,728
N.A.
5.00%
1,633,336
1,521,026
11.09
10.33
2,007,835
1,895,367
13.63
12.87
589,328
589,060
1,178,656
1,178,121
4.00
4.00
8.00
8.00
883,992
883,590
6.00
6.00
1,473,320
1,472,651
10.00
10.00
$1,706,926
1,553,381
9.15%
8.33
$ 745,887
745,940
4.00%
4.00
N.A.
$ 932,426
N.A.
5.00%
1,706,926
1,553,381
12.67
11.53
1,994,875
1,841,273
14.80
13.67
539,013
538,829
1,078,026
1,077,658
4.00
4.00
8.00
8.00
808,520
808,243
6.00
6.00
1,347,533
1,347,072
10.00
10.00
N.A. Not Applicable.
(1) The minimum and well-capitalized requirements are determined by the Federal Reserve for TCF and by the Office of the Comptroller of the Currency for TCF Bank pursuant to
the FDIC Improvement Act of 1991.
(2) The minimum Tier 1 leverage ratio for bank holding companies and banks is 3.0 or 4.0 percent, depending on factors specified in regulations issued by federal banking agencies.
{ 87 }
{ 2012 Form 10K }
Note 16. Stock Compensation
The TCF Financial Incentive Stock Program (the “Program”) was adopted to enable TCF to attract and retain key personnel.
At December 31, 2012, there were 4,186,613 shares reserved for issuance under the Program.
At December 31, 2012, there were 1,151,455 shares of performance-based restricted stock outstanding that will vest only
if certain return on equity goals, return on asset goals and service conditions, as defined in the Program, are achieved. Failure
to achieve the goals and service conditions will result in all or a portion of the shares being forfeited. Awards of service-based
restricted stock vest over periods from one year to seven years. Information about restricted stock is summarized as follows.
(Dollars in thousands, except per-share data)
Weighted average grant date fair value of restricted stock per share
Compensation expense for restricted stock
Unrecognized Stock compensation expense for restricted stock awards and options
Tax benefit recognized for stock compensation expense
Weighted average amortization (years)
At or For the Year Ended December 31,
2012
$ 9.27
$10,934
$19,530
$ 4,259
2.1
2011
$ 12.36
$10,273
$15,723
$ 3,984
1.0
2010
$ 13.36
$ 9,121
$12,377
$ 3,513
.9
TCF has also issued stock options under the Program that generally become exercisable over a period of one to ten years
from the date of the grant and expire after ten years. All outstanding options have a fixed exercise price equal to the market
price of TCF common stock on the date of grant.
The following table reflects TCF’s restricted stock and stock option transactions under the Program since December 31, 2009.
Restricted Stock
Stock Options
Outstanding at December 31, 2009
Granted
Forfeited/cancelled
Vested
Outstanding at December 31, 2010
Granted
Forfeited/cancelled
Vested
Outstanding at December 31, 2011
Granted
Forfeited/cancelled
Vested
Outstanding at December 31, 2012
Exercisable at December 31, 2012
N.A. Not Applicable.
Shares
1,870,845
307,433
(20,000)
(387,653)
1,770,625
1,247,500
(120,886)
(613,125)
2,284,114
1,769,700
(322,908)
(518,671)
3,212,235
N.A.
Price Range
$ 7.57 - 30.28
11.50 - 14.60
10.37 - 28.02
8.29 - 28.71
7.57 - 30.13
6.16 - 14.89
7.57 - 28.02
7.57 - 30.13
6.16 - 28.64
7.73 - 11.56
7.73 - 28.02
7.57 - 28.64
6.16 - 25.18
N.A.
Shares
2,208,619
–
–
–
2,208,619
–
(9,875)
–
2,198,744
–
(121,640)
–
2,077,104
2,077,104
Price Range
$12.85 - 15.75
–
–
–
12.85 - 15.75
–
15.75 - 15.75
–
12.85 - 15.75
–
15.75 - 15.75
–
12.85 - 15.75
12.85 - 15.75
Additional valuation and related assumption information
for TCF’s stock option plans related to options issued in
2008 is presented below. No stock options were issued in
2009-2012.
Expected volatility
Weighted-average volatility
Expected dividend yield
Expected term (in years)
Risk-free interest rate
Weighted-
Average
Remaining
Contractual
Life in Years
8.26
7.26
5.72
4.22
Weighted-
Average
Exercise
Price
$14.44
–
–
–
14.44
–
15.75
–
14.43
–
15.75
–
14.35
14.35
28.50%
28.50%
3.50%
6.25-6.75
2.58-2.91%
{ 88 } { TCF Financial Corporation and Subsidiaries }
Note 17. Employee Benefit Plans
Employees Stock Purchase Plan The TCF Employees
Stock Purchase Plan (the “ESPP”), a qualified 401(k)
and employee stock ownership plan, generally allows
participants to make contributions of up to 50% of their
covered compensation on a tax-deferred basis, subject
to the annual covered compensation limitation imposed
by the Internal Revenue Service (“IRS”). TCF matches the
contributions of all participants with TCF common stock
at the rate of 50 cents per dollar for employees with one
through four years of service, up to a maximum company
contribution of 3% of the employee’s covered compensation,
75 cents per dollar for employees with five through nine
years of service, up to a maximum company contribution of
4.5% of the employee’s covered compensation, and $1 per
dollar for employees with 10 or more years of service, up to
a maximum company contribution of 6% of the employee’s
covered compensation, subject to the annual covered
compensation limitation imposed by the IRS. Employee
contributions vest immediately while the Company’s
matching contributions are subject to a graduated vesting
schedule based on an employee’s years of service with full
vesting after five years. Employees have the opportunity
to diversify and invest their account balance, including
matching contributions, in various mutual funds or TCF
common stock. At December 31, 2012, the fair value of the
assets in the ESPP totaled $170.8 million and included $104.4
million invested in TCF common stock. Dividends on TCF
common shares held in the ESPP reduce retained earnings
and the shares are considered outstanding for computing
earnings per share. The Company’s matching contributions are
expensed when made. TCF’s contributions to the ESPP were
$8.0 million in 2012, $7.6 million in 2011 and $6.9 million in 2010.
Pension Plan The TCF Cash Balance Pension Plan (the
“Pension Plan”) is a qualified defined benefit plan covering
eligible employees who are at least 21 years old and have
completed a year of eligibility service with TCF. Employees
hired after June 30, 2004 are not eligible to participate in
the Pension Plan. Effective March 31, 2006, TCF amended
the Pension Plan to discontinue compensation credits
for all participants. Interest credits will continue to be
paid until participants’ accounts are distributed from the
Pension Plan. Each month TCF credits participants’ accounts
with interest on the account balance based on the five-
year Treasury rate plus 25 basis points determined at the
beginning of each year. All participant accounts are vested.
The measurement of the projected benefit obligation,
prepaid pension asset, pension liability and annual pension
expense involves complex actuarial valuation methods and
the use of actuarial and economic assumptions. Due to the
long-term nature of the Pension Plan obligation, actual
results may differ significantly from the actuarial-based
estimates. Differences between estimates and actual
experience are recorded in the year they arise. TCF closely
monitors all assumptions and updates them annually. The
Company does not consolidate the assets and liabilities
associated with the Pension Plan.
{ 89 }
{ 2012 Form 10K } Postretirement Plan TCF provides health care benefits
for eligible retired employees (the “Postretirement Plan”).
Effective January 1, 2000, TCF modified the Postretirement
Plan for employees not yet eligible for benefits under the
Postretirement Plan by eliminating the Company subsidy.
The Postretirement Plan provisions for full-time and
retired employees then eligible for these benefits were not
changed. Employees retiring after December 31, 2009 are
no longer eligible to participate in the Postretirement Plan.
The Postretirement Plan is not funded.
The information set forth in the following tables is based
on current actuarial reports using the measurement date of
December 31 for TCF’s Pension Plan and Postretirement Plan.
The following table sets forth the status of the Pension Plan and the Postretirement Plan at the dates indicated.
(In thousands)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost — benefits earned during the year
Interest cost on projected benefit obligation
Plan amendment
Actuarial loss (gain)
Benefits paid
Projected benefit obligation at end of year
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Actual (loss) return on plan assets
Benefits paid
TCF Contributions
Fair value of plan assets at end of year
Funded status of plans at end of year
Amounts recognized in the Consolidated Statements of Financial Condition:
Prepaid (accrued) benefit cost at end of year
Prior service cost included in accumulated other comprehensive income
Accumulated other comprehensive income, before tax
Total recognized asset (liability)
N.A. Not Applicable.
Pension Plan
Postretirement Plan
Year Ended December 31,
2011
2012
$48,916
–
2,223
–
(1,718)
(3,201)
46,220
56,355
3,975
(3,201)
–
57,129
$10,909
$10,909
–
–
$10,909
$ 7,732
–
293
(151)
(721)
(478)
6,675
–
–
(478)
478
–
$(6,675)
$(6,675)
(424)
(424)
$(7,099)
2011
$ 9,555
2
431
(304)
(1,426)
(526)
7,732
–
–
(526)
526
–
$(7,732)
$(7,732)
(301)
(301)
$(8,033)
2012
$46,220
–
1,763
–
289
(3,235)
45,037
57,129
(277)
(3,235)
–
53,617
$ 8,580
$ 8,580
–
–
$ 8,580
The accumulated benefit obligation for the Pension Plan was $45 million and $46.2 million at December 31, 2012 and
2011, respectively.
TCF’s Pension Plan investment policy states that assets may be invested in direct obligations of the U.S. government,
U.S. treasury bills, notes or bonds, with maturity dates not exceeding ten years. At December 31, 2012, assets held in trust
for the Pension Plan included investments in direct obligations of the U.S. government, U.S. treasury bills, notes or bonds.
The fair value of these assets is based upon quotes from independent asset pricing services for identical assets based on
active markets, which are considered Level 1 under Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 820, Fair Value Measurements and are measured on a recurring basis.
{ 90 } { TCF Financial Corporation and Subsidiaries }
The following table sets forth the changes recognized in accumulated other comprehensive (income) loss that are attributed
to the Postretirement Plan at the dates indicated.
Postretirement Plan
Year Ended December 31,
(In thousands)
Accumulated other comprehensive (income) loss at the beginning of the year
Prior service cost
Adjustment to transition obligation
Amortizations (recognized in net periodic benefit cost):
Prior service credit
Transition obligation
Total recognized in other comprehensive income
Accumulated other comprehensive (income) loss at end of year, before tax
2012
$(301)
(151)
–
28
–
(123)
$(424)
2011
$ 7
(301)
(3)
–
(4)
(308)
$(301)
2010
$11
–
–
–
(4)
(4)
$ 7
The Pension Plan does not have any accumulated other comprehensive (income) loss.
The measurement dates used for determining the Pension Plan and the Postretirement Plan projected and accumulated
benefit obligations and the dates used to value plan assets were December 31, 2012 and December 31, 2011. The discount
rate used to measure the benefit obligation of the Pension Plan was 3% for the year ended December 31, 2012 and 4% for
the year ended December 31, 2011. The discount rate used to measure the benefit obligation of the Postretirement Plan was
2.75% for the year ended December 31, 2012 and 4% for the year ended December 31, 2011.
Net periodic benefit plan cost (income) included in compensation and employee benefits expense consists of the following.
(In thousands)
Interest cost
Return on plan assets
Recognized actuarial loss (gain)
Service cost
Amortization of transition obligation
Amortization of prior service cost
Net periodic benefit plan cost (income)
Pension Plan
Year Ended December 31,
2011
$ 2,223
(3,975)
(1,718)
–
–
–
$(3,470)
2010
$ 2,554
(9,938)
1,726
–
–
–
$(5,658)
2012
$1,763
277
289
–
–
–
$2,329
Postretirement Plan
Year Ended December 31,
2011
$ 431
–
(1,426)
2
4
–
$ (989)
2010
$455
–
461
1
4
–
$921
2012
$ 293
–
(721)
–
–
(28)
$(456)
Pension Plan actual return on plan assets, net of administrative expenses was a loss of .5% for the year ended
December 31, 2012 and a gain of 7% for the year ended December 31, 2011. The expected actuarial return on plan assets
was a gain of $825 thousand and the actual loss on plan assets was $277 thousand and increased net periodic benefits
cost for the year ended December 31, 2012. The expected actuarial return on plan assets was a gain of $2.7 million and the
actual gain on plan assets was $4 million and decreased net periodic benefit costs for the year ended December 31, 2011.
The discount rate and expected long-term rate of return on plan assets used to determine the estimated net benefit plan
cost were as follows.
Pension Plan
Year Ended December 31,
Postretirement Plan
Year Ended December 31,
Assumptions used to
determine estimated net benefit plan cost
Discount rate
Expected long-term rate of return
on plan assets
N.A. Not Applicable.
2012
4.00%
2011
4.75%
2010
5.50%
2012
4.00%
2011
4.75%
1.50
5.00
8.50
N.A.
N.A.
2010
5.25%
N.A.
{ 91 }
{ 2012 Form 10K }
Prior service credits of TCF’s Postretirement Plan
totaling $46 thousand are included within accumulated
other comprehensive income at December 31, 2012 and
are expected to be recognized as components of net
periodic benefit cost during 2013.
The actuarial assumptions used in the Pension Plan
valuation are reviewed annually. The expected long-term
rate of return on plan assets is determined by reference
to historical market returns and future expectations. The
10-year average return of the index consistent with the
Pension Plan’s current investment strategy was 2.9%, net of
administrative expenses. A 1% difference in the expected
return on plan assets would result in a $517 thousand
change in net periodic pension expense.
at December 31, 2012 increased net periodic benefit cost
by $577 thousand. Various plan demographic changes
decreased the net periodic pension cost by $111 thousand.
For 2012, TCF was eligible to contribute up to $11.6
million to the Pension Plan until the 2012 federal income
tax return extension due date under various IRS funding
methods. During 2012, TCF made no cash contributions
to the Pension Plan. TCF does not expect to be required
to contribute to the Pension Plan in 2013. TCF expects to
contribute $678 thousand to the Postretirement Plan in
2013. TCF contributed $478 thousand to the Postretirement
Plan for the year ended December 31, 2012. TCF currently
has no plans to pre-fund the Postretirement Plan in 2013.
The following are expected future benefit payments used
The discount rate used to determine TCF’s pension and
to determine projected benefit obligations.
postretirement benefit obligations as of December 31,
2012 and December 31, 2011 was determined by matching
estimated benefit cash flows to a yield curve derived from
corporate bonds rated AA by either Moody’s or Standard and
Poor’s. Bonds containing call or put provisions were excluded.
The average estimated duration of TCF’s Pension Plan and
Postretirement Plan varied between seven and eight years.
Included within the net periodic benefit cost for the
Pension Plan are recognized actuarial gains and losses.
The decrease in the discount rate from 4% at December 31,
2011 to 3% at December 31, 2012 increased net periodic
benefit cost by $3 million during 2012. The reduction of the
interest crediting rate from 3.5% at December 31, 2011 to
a select and ultimate assumption starting at 1% in 2013
and phasing to 3.5% starting in 2017 and other interest
crediting assumption changes reduced net periodic benefit
cost for 2012 by $2.8 million. Various plan participant
census changes increased the 2012 net periodic benefit
cost by $121 thousand.
Included in the net periodic benefit cost for the
Postretirement Plan are recognized actuarial gains and
losses. The Postretirement Plan change in actuarially
estimated cost per participant as of December 31, 2012
reduced net periodic benefit cost by $842 thousand. Actual
claims paid during 2012 totaled $345 thousand less than
expected, reducing net periodic benefit cost. The decrease
in the discount rate from 4% at December 31, 2011 to 2.75%
(In thousands)
2013
2014
2015
2016
2017
2018–2022
Pension Plan
$ 3,895
3,875
3,117
2,750
2,727
13,433
Postretirement Plan
$ 678
655
629
601
571
2,380
The following table presents assumed health care cost
trend rates for the Postretirement Plan at December 31,
2012 and 2011.
(In thousands)
Health care cost trend rate assumed
for next year
Final health care cost trend rate
Year that final health care trend rate
is reached
2012
2011
6.5%
5%
6.75%
5%
2023
2023
Assumed health care cost trend rates have an effect
on the amounts reported for the Postretirement Plan.
A 1% change in assumed health care cost trend rates
would have the following effects.
(In thousands)
Effect on total service and interest
cost components
Effect on postretirement benefits
obligations
1-Percentage-Point
Increase
Decrease
$ 14
$ (13)
297
(268)
{ 92 } { TCF Financial Corporation and Subsidiaries }
Note 18. Financial Instruments
with Off-Balance Sheet Risk
TCF is a party to financial instruments with off-balance sheet
risk, primarily to meet the financing needs of its customers.
These financial instruments, which are issued or held for
purposes other than trading, involve elements of credit and
interest-rate risk in excess of the amount recognized in the
Consolidated Statements of Financial Condition.
TCF’s exposure to credit loss, in the event of non-
performance by the counterparty to the financial instrument,
for commitments to extend credit and standby letters of
credit is represented by the contractual amount of the
commitments. TCF uses the same credit policies in making
these commitments as it does for making direct loans.
TCF evaluates each customer’s creditworthiness on a case-
by-case basis. The amount of collateral obtained is based
on a credit evaluation of the customer.
Financial instruments with off-balance sheet risk are
summarized as follows.
(In thousands)
Commitments to extend credit:
Consumer real estate and other
Commercial
Leasing and equipment finance
Total commitments to extend credit
Standby letters of credit and guarantees
on industrial revenue bonds
Total
At December 31,
2012
2011
$1,265,092
419,185
172,148
1,856,425
$1,349,779
279,076
177,534
1,806,389
18,287
$1,874,712
26,964
$1,833,353
Commitments to Extend Credit Commitments to extend
credit are agreements to lend provided there is no violation
of any condition in the contract. These commitments gener-
ally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since certain of the
commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily
represent future cash requirements. Collateral to secure any
funding of these commitments predominantly consists of
residential and commercial real estate.
Standby letters of Credit and Guarantees on
Industrial Revenue Bonds Standby letters of
credit and guarantees on industrial revenue bonds are
conditional commitments issued by TCF guaranteeing
the performance of a customer to a third party. These
conditional commitments expire in various years through
2016. Collateral held consists primarily of commercial real
estate mortgages. Since the conditions under which TCF is
required to fund these commitments may not materialize,
the cash requirements are expected to be less than the
total outstanding commitments.
Note 19. Derivative Instruments
All derivative instruments are recognized within other
assets or other liabilities at fair value within the
Consolidated Statements of Financial Condition. These
contracts typically settle within 30 days with the exception
of contracts associated with cash flow hedges, which have
maturities as long as seven months, and a swap agreement,
with no determinable maturity date.
The value of derivative instruments will vary over
their contractual terms as the related underlying rates
fluctuate. The accounting for changes in the fair value
of a derivative instrument depends on whether or not the
contract has been designated and qualifies as a hedge.
To qualify as a hedge, a contract must be highly effective
at reducing the risk associated with the exposure being
hedged. In addition, for a contract to be designated as a
hedge, the risk management objective and strategy must
be documented at inception. Hedge documentation must
also identify the hedging instrument, the asset or liability
and type of risk to be hedged and how the effectiveness of
the contract is assessed prospectively and retrospectively.
To assess effectiveness, TCF uses statistical methods such
as regression analysis. The extent to which a contract
has been, and is expected to continue to be, effective at
offsetting changes in cash flows or the net investment must
be assessed and documented at least quarterly. If it is
determined that a contract is not highly effective at hedging
the designated exposure, hedge accounting is discontinued.
Upon origination of a derivative instrument, the
contract is designated either as a hedge of a forecasted
transaction or the variability of cash flows to be paid
related to a recognized asset or liability (“cash flow
hedge”), a hedge of the volatility of an investment in
foreign operations driven by changes in foreign currency
exchange rates (“net investment hedge”), or is not
designated as a hedge. To the extent that an instrument is
designated as an effective hedge, changes in fair value are
recorded within accumulated other comprehensive income
(loss), with any ineffectiveness recorded in non-interest
expense. Amounts recorded within other comprehensive
income (loss) are subsequently reclassified to non-interest
{ 93 }
{ 2012 Form 10K }
expense upon completion of the related transaction.
Changes in net investment hedges recorded within other
comprehensive income (loss) are subsequently reclassified
to non-interest expense during the period in which the
foreign investment is substantially liquidated or when
other elements of the currency translation adjustment are
reclassified to income. If a hedged forecasted transaction
is no longer probable, hedge accounting is ceased and any
gain or loss included in other comprehensive income (loss)
is reported in earnings immediately.
Cash Flow Hedges TCF uses forward foreign exchange
contracts to manage the foreign exchange risk associated
with certain assets, liabilities and forecasted transactions.
Forward foreign exchange contracts represent agreements
to exchange a foreign currency for U.S. dollars at an
agreed-upon price and settlement date.
Net Investment Hedges Foreign exchange contracts,
which include forward contracts and currency options, are
used to manage the foreign exchange risk associated with
the Company’s net investment in TCF Commercial Finance
Canada, Inc., a wholly-owned Canadian subsidiary of TCF
Bank, along with certain assets, liabilities and forecasted
transactions of that subsidiary. The gross amount of related
gains or losses included in the cumulative translation
adjustment within other comprehensive income (loss)
for the year ended December 31, 2012 was a loss of $630
thousand. For the year ended December 31, 2011, a gain of
$259 thousand was included in the cumulative translation
adjustment within other comprehensive income (loss).
Derivatives Not Designated as Hedges During the
second quarter of 2012, TCF sold its Visa® Class B stock,
resulting in a net $13.1 million pretax gain recorded in
non-interest income. In conjunction with the sale, TCF
and the purchaser entered into a derivative transaction
whereby TCF will make, or receive, cash payments whenever
the conversion ratio of the Visa Class B stock into Visa Class
A stock is adjusted. The fair value of this derivative has
been determined using estimated future cash flows using
probability weighted scenarios for multiple estimates of
Visa’s aggregate exposure to covered litigation matters,
which include consideration of amounts funded by Visa
into its escrow account for the covered litigation matters.
Changes in the valuation of this swap agreement are
reflected in non-interest income. Additionally, certain
forward foreign exchange contracts used to manage foreign
exchange risk are not designated as hedges. Changes in the
fair value of these foreign exchange contracts are reflected
in non-interest expense.
The following tables summarize the derivative instruments as of December 31, 2012 and December 31, 2011. See Note 20,
Fair Value Measurement for additional information.
(In thousands)
Forward foreign exchange contracts
Swap agreement
Netting adjustments(1)
Net receivable / payable
(In thousands)
Forward foreign exchange contracts
Netting adjustments(1)
Net receivable / payable
Notional
Amount
$497,399
14,358
Receivables
Designated
as Hedges
$93
–
–
$93
Not
Designated
as Hedges
$1,485
–
(841)
$ 644
Notional
Amount
$ 176,979
Receivables
Not
Designated
as Hedges
$ 396
(396)
$ –
Designated
as Hedges
$ –
–
$ –
At December 31, 2012
Total
$1,578
–
(841)
$ 737
Designated
as Hedges
–
–
–
$ –
At December 31, 2011
Total
$ 396
(396)
$ –
Designated
as Hedges
$ 3
(3)
$ –
Payables
Not
Designated
as Hedges
$ 193
1,227
(1,420)
$ –
Payables
Not
Designated
as Hedges
$ 662
(378)
$ 284
Total
$ 193
1,227
(1,420)
$ –
Total
$ 665
(381)
$ 284
(1) Derivative receivables and payables, and the related cash collateral received and paid, are netted when a legally enforceable master netting agreement exists between
TCF and a counterparty.
{ 94 } { TCF Financial Corporation and Subsidiaries }
The following table summarizes the pre-tax impact of derivative activity within the Consolidated Statements of Income
and the Consolidated Statements of Comprehensive Income, by accounting designation.
(In thousands)
Consolidated Statements of Income:
Non-interest expense:
Cash flow hedge
Not designated as hedges
Net realized (loss) gain
Consolidated Statements of Comprehensive Income:
Accumulated other comprehensive (loss) income:
Net investment hedge
Cash flow hedge
Net unrealized (loss) gain
TCF executes all of its foreign exchange contracts in
the over-the-counter market with large, international
financial institutions pursuant to International Swaps and
Derivatives Association, Inc. (“ISDA”) master agreements.
These agreements include credit risk-related features
that enhance the creditworthiness of these instruments
as compared with other obligations of the respective
counterparty with whom TCF has transacted by requiring
that additional collateral be posted under certain
circumstances. The amount of collateral required depends
on the contract and is determined daily based on market
and currency exchange rate conditions.
In connection with certain over-the counter forward
foreign exchange contracts, TCF could be required to
terminate transactions with certain counterparties in the
event that, among other things, TCF Bank’s long-term debt
is rated less than BBB- by Standard and Poor’s or Baa3
by Moody’s. At December 31, 2012, credit risk-related
contingent features existed on forward foreign exchange
contracts with a notional value of $156.2 million. In the
event TCF was rated less than BB- by Standard and Poor’s,
the contract could be terminated or TCF may be required to
provide approximately $3.1 million in additional collateral.
At December 31, 2012, TCF had received $1.3 million
and posted $250 thousand of cash collateral related to
its forward foreign exchange contracts and posted $1.4
million of cash collateral related to its swap agreement, of
which $209 thousand was not utilized to offset derivative
liability positions because the liability position was
over-collateralized.
For the Year Ended December 31,
2011
2012
$ (6)
(7,524)
$(7,530)
$ (630)
–
$ (630)
$ 265
3,062
$3,327
$ 259
2
$ 261
Note 20. Fair Value Measurement
TCF uses fair value measurements to record fair value
adjustments to certain assets and liabilities, and to
determine fair value disclosures. The Company’s fair values
are based on the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
Securities available for sale, derivatives (forward foreign
exchange contracts and swaps), and assets held in trust for
deferred compensation plans are recorded at fair value on
a recurring basis. Certain investments, commercial loans,
real estate owned, repossessed and returned assets are
recorded at fair value on a nonrecurring basis.
TCF groups its assets and liabilities measured at fair
value in three levels, based on the markets in which the
assets and liabilities are traded, and the degree and
reliability of estimates and assumptions used to determine
fair value as follows: Level 1, which include valuations
that are based on prices obtained from independent
pricing sources for instruments traded in active markets;
Level 2, which include valuations that are based on prices
obtained from independent pricing sources that are based
on observable transactions of similar instruments, but
not quoted markets; and Level 3, for which valuations are
generated from Company model-based techniques that use
significant unobservable inputs. Such unobservable inputs
reflect estimates of assumptions that market participants
would use in pricing the asset or liability.
{ 95 }
{ 2012 Form 10K }
The following tables present the balances of assets and liabilities measured at fair value on a recurring and non-recurring basis.
(In thousands)
Recurring Fair Value Measurements:
Securities available for sale:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies
Other
Other securities
Forward foreign exchange contracts
Assets held in trust for deferred compensation plans
Total assets
Forward foreign exchange contracts
Swap agreement
Liabilities held in trust for deferred compensation plans
Total liabilities
Non-recurring Fair Value Measurements:
Loans:(4)
Commercial
Real estate owned:(5)
Consumer
Commercial
Repossessed and returned assets(5)
Investments(6)
Total non-recurring fair value measurements
(In thousands)
Recurring Fair Value Measurements:
Securities available for sale:
Mortgage-backed securities:
U.S. Government sponsored enterprises and federal agencies
Other
Other securities
Forward foreign exchange contracts
Assets held in trust for deferred compensation plans(4)
Total assets
Forward foreign exchange contracts
Liabilities held in trust for deferred compensation plans
Total liabilities
Non-recurring Fair Value Measurements:
Loans:(4)
Commercial
Real estate owned:(5)
Consumer
Commercial
Repossessed and returned assets(5)
Investments(6)
Total non-recurring fair value measurements
Fair Value Measurements at December 31, 2012
level 1(1)
level 2(2)
level 3(3)
Total
$ –
–
1,910
–
12,078
$13,988
$ –
–
12,078
$12,078
$710,054
–
–
1,578
–
$711,632
$ 193
–
–
$ 193
$ –
127
–
–
–
$ 127
$ –
1,227
–
$ 1,227
$710,054
127
1,910
1,578
12,078
$725,747
$ 193
1,227
12,078
$ 13,498
$ –
$ –
$118,767
$118,767
–
–
–
–
$ –
–
–
2,218
–
$ 2,218
55,162
18,077
712
2,557
$195,275
55,162
18,077
2,930
2,557
$197,493
Fair Value Measurements at December 31, 2011
Level 1(1)
Level 2(2)
Level 3(3)
Total
$ –
–
252
–
9,833
$10,085
$ –
9,833
$ 9,833
$2,322,336
–
–
396
–
$2,322,732
$ 665
–
$ 665
$ –
152
1,298
–
–
$ 1,450
$ –
–
$ –
$2,322,336
152
1,550
396
9,833
$2,334,267
$ 665
9,833
$ 10,498
$ –
$ –
$ 29,003
$ 29,003
–
–
–
–
$ –
–
–
3,889
–
$ 3,889
77,126
45,137
270
4,244
$155,780
77,126
45,137
4,159
4,244
$ 159,669
(1) Based on readily available market prices.
(2) Based on observable market prices.
(3) Based on valuation models that use significant assumptions that are not observable in an active market.
(4) Represents the carrying value of loans for which impairment reserves are determined based on the appraisal value of the collateral.
(5) Amounts do not include assets held at cost at December 31, 2012 and 2011.
(6) Represents the carrying value of other investments which were recorded at fair value determined by using quoted prices, when available, and incorporating results
of internal pricing techniques and observable market information.
{ 96 } { TCF Financial Corporation and Subsidiaries }
Management assesses the appropriate classification
of financial assets and liabilities within the fair value
hierarchy by monitoring the level of availability of
observable market information. Changes in market and/
or economic conditions, as well as to Company valuation
models may require the transfer of financial instruments
from one fair value level to another. Such transfers, if
any, represent the fair values as of the beginning of the
quarter in which the transfer occurred. For the year ended
December 31, 2012, TCF transferred approximately $1.1
million of securities from Level 3 to Level 1 due to the
adoption of new FASB guidance in the first quarter of 2012.
The following table presents changes in Level 3 assets
and liabilities measured at fair value on a recurring basis.
(In thousands)
Balance, beginning of year
Transfers out of Level 3
Total net losses for the period:
Included in net (loss) income
Included in other comprehensive
(loss) income
Purchases
Principal paydowns/Settlements
Asset (liability) balance, end of year
Year Ended December 31, 2012
liabilities
Assets
$ –
$ 1,450
–
(1,098)
–
(150)
(100)
–
(125)
$ 127
–
(1,434)
357
$(1,227)
The decrease in Level 3 assets measured at fair value
on a recurring basis of $1.3 million during 2012, was the
result of transfers to Level 1 of $1.1 million related to the
adoption of new FASB guidance in the first quarter of 2012,
decreases in fair value of $100 thousand and reductions
due to principal paydowns of $125 thousand. The increase
in Level 3 liabilities measured at fair value on a recurring
basis of $1.2 million during 2012, was due to the fair value
measurement of a swap agreement entered into during the
second quarter of 2012.
The decrease in Level 3 assets measured at fair value
on a recurring basis of $1.2 million during 2011, was the
result of decreases in fair values of $672 thousand recorded
within non-interest expense, decreases in fair value of
$82 thousand recorded through other comprehensive
income (loss), sales of $100 thousand and reductions
due to principal paydowns of $70 thousand. Transfers to
securities measured at fair value using Readily Available
Market Prices from securities measured using Company
Determined Market Prices were $264 thousand.
The decrease in Level 3 assets measured at fair value on
a recurring basis of $2.6 million during 2010, was the result
of an other than temporary impairment charges totaling
$2.1 million recorded through gains on securities, net,
decreases in fair values of $417 thousand recorded through
other comprehensive income (loss) and reductions due to
principal paydowns of $90 thousand.
The following is a description of valuation methodologies
used for assets and liabilities recorded at fair value on a
recurring basis.
Securities Available for Sale Securities available
for sale consist primarily of U.S. Government sponsored
enterprise and federal agency securities. The fair value
of U.S. Government sponsored enterprise securities is
recorded using prices obtained from independent asset
pricing services that are based on observable transactions,
but not quoted markets, and are classified as Level 2
assets. Management reviews the prices obtained from
independent asset pricing services for unusual fluctuations
and comparisons to current market trading activity. Other
securities, for which there is little or no market activity,
are categorized as Level 3 assets and the fair value of these
assets is determined by using internal pricing methods.
Forward Foreign Exchange Contracts TCF’s forward
foreign exchange contracts are currency contracts
executed in over-the-counter markets and are valued
using a cash flow model that includes key inputs such as
foreign exchange rates and, in accordance with GAAP, an
assessment of the risk of counterparty non-performance.
The risk of counterparty non-performance is based on
external assessments of credit risk. The majority of
these contracts are based on observable transactions,
but not quoted markets, and are classified as Level 2
assets and liabilities. As permitted under GAAP, TCF has
elected to net derivative receivables and derivative
payables and the related cash collateral received and
paid, when a legally enforceable master netting agreement
exists. For purposes of the previous tables, the derivative
receivable and payable balances are presented gross of
this netting adjustment.
{ 97 }
{ 2012 Form 10K }
Swap Agreement TCF’s swap agreement relates to the
sale of TCF’s Visa Class B stock, and is classified as a Level
3 liability. The value of the swap agreement is based upon
TCF’s estimated exposure related to the Visa covered
litigation through a probability analysis of the funding and
estimated settlement amounts. As permitted under GAAP,
TCF has elected to net derivative receivables and derivative
payables and the related cash collateral received and
paid, when a legally enforceable master netting agreement
exists. For purposes of the previous tables, any derivative
receivable and payable balances are presented gross of this
netting adjustment.
Assets Held in Trust for Deferred Compensation
Assets held in trust for deferred compensation plans
include investments in publicly traded stocks, excluding
TCF common stock reported in treasury and other equity,
and U.S. Treasury notes. The fair value of these assets is
based upon prices obtained from independent asset pricing
services based on active markets.
The following is a description of valuation methodologies
used for assets measured on a non-recurring basis.
loans Impaired loans for which repayment of the loan is
expected to be provided solely by the value of the underlying
collateral are considered collateral dependent and are
valued based on the fair value of such collateral, less
estimated selling costs. Selling costs are generally 10% of the
fair value of the underlying collateral.
Other Real Estate Owned and Repossessed and
Returned Assets The fair value of real estate owned is
based on independent full appraisals, real estate broker’s
price opinions, or automated valuation methods, less
estimated selling costs. Selling costs are generally 10%
of the fair value of the underlying collateral. Certain
properties require assumptions that are not observable in
an active market in the determination of fair value. The
fair value of repossessed and returned assets is based on
available pricing guides, auction results or price opinions,
less estimated selling costs. Assets acquired through
foreclosure, repossession or returned to TCF are initially
recorded at the lower of the loan or lease carrying amount
or fair value less estimated selling costs at the time of
transfer to real estate owned or repossessed and returned
assets. Other real estate owned and repossessed and
returned assets were written down $25.2 million and
included in foreclosed real estate and repossessed assets,
net expense during the year ended December 31, 2012.
Note 21. Fair Values of Financial
Instruments
Management discloses the estimated fair value of
financial instruments, both assets and liabilities on and
off the balance sheet, for which it is practicable to
estimate fair value. These fair value estimates were made
at December 31, 2012 and December 31, 2011, based on
relevant market information and information about the
financial instruments. Fair value estimates are intended
to represent the price at which an asset could be sold
or a liability could be settled. However, given there is
no active market or observable market transactions
for many of TCF’s financial instruments, the Company’s
estimates of fair values are subjective in nature, involve
uncertainties and include matters of significant judgment.
Changes in assumptions could significantly affect the
estimated values.
The carrying amounts and estimated fair values of
the Company’s financial instruments are set forth in the
following table. This information represents only a portion
of TCF’s balance sheet, and not the estimated value of the
Company as a whole. Non-financial instruments such as
the intangible value of TCF’s branches and core deposits,
leasing operations, goodwill, premises and equipment and
the future revenues from TCF’s customers are not reflected
in this disclosure. Therefore, this information is of limited
use in assessing the value of TCF.
{ 98 } { TCF Financial Corporation and Subsidiaries }
(In thousands)
Financial instrument assets:
Cash and due from banks
Investments
Investments
Securities available for sale
Securities available for sale
Securities available for sale
Forward foreign exchange contracts(1)
Loans and leases held for sale
Interest-only strips(2)
Loans:
Consumer real estate
Commercial real estate
Commercial business
Equipment finance loans
Inventory finance loans
Auto finance
Other
Total financial instrument assets
Financial instrument liabilities:
Checking, savings and money market deposits
Certificates of deposit
Short-term borrowings
Long-term borrowings
Forward foreign exchange contracts(1)
Swap agreement(1)
Total financial instrument liabilities
Financial instruments with off-balance sheet risk:(3)
Commitments to extend credit(2)
Standby letters of credit(4)
Total financial instruments with
off-balance sheet risk
Level in
Fair Value
Measurement
Hierarchy
At December 31,
2012
2011
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 2
Level 3
Level 3
Level 3
Level 3
Level 3
Level 3
Level 3
Level 3
Level 3
Level 1
Level 2
Level 1
Level 2
Level 2
Level 3
$ 1,100,347
115,210
5,657
1,910
710,054
127
737
10,289
47,824
6,674,501
3,080,942
324,293
1,306,423
1,567,214
552,833
27,924
$15,526,285
$11,759,289
2,291,497
2,619
1,931,196
–
–
$15,984,601
$ 1,100,347
115,210
5,657
1,910
710,054
127
1,578
11,361
48,024
6,420,704
3,025,599
320,245
1,312,089
1,556,372
564,844
24,558
$15,218,679
$11,759,289
2,310,601
2,618
1,952,804
193
1,227
$16,026,732
$ 1,389,704
150,797
6,983
252
2,322,336
1,450
–
14,321
22,436
6,895,291
3,198,698
250,794
1,110,803
624,700
3,628
34,885
$16,027,078
$11,136,389
1,065,615
6,416
4,381,664
284
–
$16,590,368
$ 1,389,704
150,797
6,983
252
2,322,336
1,450
396
14,524
22,436
6,549,277
3,154,724
242,331
1,118,271
623,651
3,628
30,665
$15,631,425
$11,136,389
1,068,793
6,416
4,913,637
665
–
$17,125,900
Level 2
Level 2
$ 29,709
(60)
$ 29,709
(60)
$ 31,210
(71)
$ 31,210
(71)
$ 29,649
$ 29,649
$ 31,139
$ 31,139
(1) Contracts are carried at fair value, net of the related cash collateral received and paid when a legally enforceable master netting agreement exists.
(2) Carrying amounts are included in other assets.
(3) Positive amounts represent assets, negative amounts represent liabilities.
(4) Carrying amounts are included in accrued expenses and other liabilities.
The carrying amounts of cash and due from banks and
accrued interest payable and receivable approximate
their fair values due to the short period of time until their
expected realization. Securities available for sale, forward
foreign exchange contracts and assets held in trust for
deferred compensation plans are carried at fair value
(see Note 20 — Fair Value Measurement). Certain financial
instruments, including lease financings, discounted lease
rentals and all non-financial instruments are excluded from
fair value of financial instrument disclosure requirements.
The following methods and assumptions are used by
TCF in estimating fair value for its remaining financial
instruments, all of which are issued or held for purposes
other than trading.
{ 99 }
{ 2012 Form 10K }
Investments The carrying value of investments in FHLB
stock and Federal Reserve stock approximates fair value.
The fair value of other investments is estimated based
on discounted cash flows using current market rates and
consideration of credit exposure.
remaining lives, consideration of the current interest rate
environment compared with the weighted average rate of
each portfolio, a credit risk component based on the historical
and expected performance of each portfolio and a liquidity
adjustment related to the current market environment.
loans and leases Held for Sale Loans and leases held
for sale are carried at the lower of cost or fair value. The
cost of loans held for sale includes the unpaid principal
balance, net of deferred loans fees and costs. Estimated
fair values are based upon recent loan sale transactions
and any available price quotes on loans with similar
coupons, maturities and credit quality.
Deposits The fair value of checking, savings and money
market deposits is deemed equal to the amount payable
on demand. The fair value of certificates of deposit is
estimated based on discounted cash flows using currently
offered market rates. The intangible value of long-term
relationships with depositors is not taken into account in
the fair values disclosed.
Interest-Only Strips The fair value of the interest-only
strip represents the present value of future cash flows
retained by TCF. TCF uses available market data, along with
its own empirical data and discounted cash flow models,
to arrive at the estimated fair value of its interest-only
strips. The present value of the estimated expected future
cash flows to be received is determined by using discount,
loss and prepayment rates that the Company believes are
commensurate with the risks associated with the cash
flows. These assumptions are inherently subject to volatility
and uncertainty, and as a result, the estimated fair value
of the interest-only strip will potentially fluctuate from
period to period and such fluctuations could be significant.
loans The fair value of loans is estimated based on
discounted expected cash flows. These cash flows include
assumptions for prepayment estimates over the loans’
Borrowings The carrying amounts of short-term
borrowings approximate their fair values. The fair values
of TCF’s long-term borrowings are estimated based on
observable market prices and discounted cash flows using
interest rates for borrowings of similar remaining maturities
and characteristics.
Financial Instruments with Off-Balance Sheet Risk
The fair values of TCF’s commitments to extend credit and
standby letters of credit are estimated using fees currently
charged to enter into similar agreements as commitments
and standby letters of credit similar to TCF’s are not actively
traded. Substantially all commitments to extend credit and
standby letters of credit have floating interest rates and do
not expose TCF to interest rate risk; therefore fair value is
approximately equal to carrying value.
{ 100 } { TCF Financial Corporation and Subsidiaries }
Note 22. Earnings Per Common Share
TCF’s restricted stock awards that pay non-forfeitable common stock dividends meet the criteria of a participating security.
Accordingly, earnings per share is calculated using the two-class method, under which earnings are allocated to both
common shares and participating securities.
(Dollars in thousands, except per-share data)
Basic (loss) Earnings Per Common Share
Net (loss) income attributable to TCF Financial Corporation
Preferred stock dividends
Net (loss) income available to common stockholders
Earnings allocated to participating securities
(Loss) earnings allocated to common stock
Weighted-average shares outstanding
Restricted stock
Weighted-average common shares outstanding for basic
earnings per common share
Basic (loss) earnings per share
Diluted (loss) Earnings Per Common Share
(Loss) earnings allocated to common stock
Weighted-average common shares outstanding used in basic
earnings per common share calculation
Net dilutive effect of:
Non-participating restricted stock
Stock options
Weighted-average common shares outstanding for diluted
earnings per common share
Diluted (loss) earnings per share
2012
At December 31,
2011
2010
$ (212,884)
(5,606)
(218,490)
50
$ (218,540)
162,288,902
(3,020,094)
$ 109,394
–
109,394
292
$ 109,102
155,938,871
(1,716,565)
$ 150,947
–
150,947
752
$ 150,195
139,681,722
(1,065,206)
159,268,808
$ (1.37)
154,222,306
$ .71
138,616,516
$ 1.08
$ (218,540)
$ 109,102
$ 150,195
159,268,808
154,222,306
138,616,516
–
–
204,354
82,560
56,844
139,155
159,268,808
$ (1.37)
154,509,220
$ .71
138,812,515
$ 1.08
All shares of restricted stock are deducted from weighted-average shares outstanding for the computation of basic
earnings per common share. Shares of performance-based restricted stock are included in the calculation of diluted earnings
per common share, using the treasury stock method, at the beginning of the quarter in which the performance goals have
been achieved. All other shares of restricted stock, which vest over specified time periods, stock options, and warrants, are
included in the calculation of diluted earnings per common share, using the treasury stock method.
For the years ended December 31, 2012, 2011 and 2010, there were 5.1 million, 5 million and 4.1 million outstanding
shares, respectively, related to non-participating restricted stock, stock options, and warrants that were not included in
the computation of diluted earnings per share because they were anti-dilutive.
{ 101 }
{ 2012 Form 10K }
Year Ended December 31,
2012
$ 15,586
13,608
12,919
11,740
11,735
10,107
8,759
79,443
$163,897
2011
$ 18,593
15,466
11,910
9,880
12,420
10,241
8,435
58,544
$145,489
2010
$ 19,167
17,742
11,487
9,125
11,915
11,926
12,590
52,301
$146,253
Note 23. Other Expense
Other expense consists of the following.
(In thousands)
Card processing and issuance cost
Professional fees
Outside processing
Travel
Telecommunications
Postage and courier
Deposit account losses
Other
Total other expense
Note 24. Business Segments
Lending, Funding and Support Services have been
identified as reportable segments. Lending includes retail
lending, commercial banking, leasing and equipment
finance, inventory finance and auto finance. Funding
includes branch banking and treasury services. Support
Services includes holding company and corporate
functions that provide data processing, bank operations
and other professional services to the operating segments.
In 2012, TCF changed the management structure and
therefore its segments. Prior periods segment information
have been restated to reflect the current structure.
TCF evaluates performance and allocates resources
based on each segment’s net income (loss). The business
segments follow GAAP as described in Note 1, Summary of
Significant Accounting Policies. TCF generally accounts for
inter-segment sales and transfers at cost.
{ 102 } { TCF Financial Corporation and Subsidiaries }
The following table sets forth certain information of each of TCF’s reportable segments, including a reconciliation of TCF’s
consolidated totals.
(In thousands)
At or For the Year Ended December 31, 2012:
Revenues from external customers:
Interest income
Non-interest income
Total
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Income tax expense (benefit)
Income (loss) after income tax expense (benefit)
Income attributable to non-controlling interest
Preferred stock dividends
Net income (loss) available to common stockholders
Total assets
At or For the Year Ended December 31, 2011:
Revenues from external customers:
Interest income
Non-interest income (expense)
Total
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Income tax expense (benefit)
Income (loss) after income tax expense (benefit)
Income attributable to non-controlling interest
Net income (loss) available to common stockholders
Total assets
At or For the Year Ended December 31, 2010:
Revenues from external customers:
Interest income
Non-interest income (expense)
Total
Net interest income (expense)
Provision for credit losses
Non-interest income
Non-interest expense
Income tax expense (benefit)
Income (loss) after income tax expense (benefit)
Income attributable to non-controlling interest
Net income (loss) available to common stockholders
Total assets
Lending
Funding
Support
Services
Eliminations(1)
and Other
Consolidated
$ 842,718
138,514
$ 981,232
$ 524,358
245,355
138,514
367,172
13,272
37,073
6,187
–
$ 30,886
$15,694,693
$ 41,905
338,853
$ 380,758
$ 258,283
2,088
338,899
969,503
(135,322)
(239,087)
–
–
$ (239,087)
$7,245,853
$ –
13,056
$ 13,056
$ 41
–
160,565
172,764
(7,900)
(4,258)
–
5,606
$ –
–
$ –
$ (2,663)
–
(147,555)
(146,885)
(2,908)
(425)
–
–
$ (9,864) $ (425)
$(4,867,247)
$152,618
$ 884,623
490,423
$ 1,375,046
$ 780,019
247,443
490,423
1,362,554
(132,858)
(206,697)
6,187
5,606
$ (218,490)
$18,225,917
$ 845,481
101,234
$ 946,715
$ 470,245
198,126
101,233
318,436
18,414
36,502
4,993
$ 31,509
$ 14,404,609
$ 92,470
343,736
$ 436,206
$ 231,572
2,717
360,608
463,805
48,122
77,536
–
$ 77,536
$ 7,670,767
$ –
(536)
$ –
–
$ (536) $ –
$ (2,145)
$ 16
–
–
(156,483)
139,076
(164,165)
146,375
597
(2,692)
4,940
(4,591)
–
–
$ (4,591) $ 4,940
$ (3,222,755)
$ 126,767
$ 937,951
444,434
$ 1,382,385
$ 699,688
200,843
444,434
764,451
64,441
114,387
4,993
$ 109,394
$ 18,979,388
$ 884,278
101,464
$ 985,742
$ 452,397
232,719
101,464
290,192
9,977
20,973
3,297
$ 17,676
$ 14,991,741
$ 85,599
438,435
$ 524,034
$ 249,434
3,718
440,050
473,705
80,916
131,145
–
$ 131,145
$ 6,621,859
$ –
(1,914)
$ –
–
$ (1,914) $ –
$ (1,167) $ (1,462)
–
(141,898)
(148,687)
944
4,383
–
$ (2,257) $ 4,383
$ (3,365,444)
$ 216,869
–
138,369
141,125
(1,666)
(2,257)
–
$ 969,877
537,985
$ 1,507,862
$ 699,202
236,437
537,985
756,335
90,171
154,244
3,297
$ 150,947
$18,465,025
(1) Includes the unallocated portion of pension and other postretirement benefits (expenses) attributable to the annual determination of actuarial gains and losses.
{ 103 }
{ 2012 Form 10K }
Note 25. Parent Company Financial Information
TCF Financial Corporation’s (parent company only) condensed statements of financial condition as of December 31, 2012
and 2011, and the condensed statements of income and cash flows for the years ended December 31, 2012, 2011 and 2010
are as follows.
Condensed Statements of Financial Condition
Year Ended December 31,
2012
2011
$ 85,337
1,750,897
16,534
15,814
$1,868,582
$ –
5,209
5,209
1,863,373
$1,868,582
Year Ended December 31,
2012
$ 355
7,952
(7,597)
18,000
17,089
12,936
30,025
14,703
298
15,731
30,732
9,696
2,766
12,462
(225,346)
(212,884)
5,606
$(218,490)
2011
$ 432
16,227
(15,795)
29,500
14,736
(1,006)
13,730
14,367
318
4,020
18,705
8,730
7,118
15,848
93,546
109,394
–
$109,394
$ 133,120
1,829,588
16,897
15,313
$1,994,918
$ 114,236
12,549
126,785
1,868,133
$1,994,918
2010
$ 37
14,789
(14,752)
4,000
12,712
(1,549)
11,163
13,058
298
2,182
15,538
(15,127)
6,442
(8,685)
159,632
150,947
–
$150,947
(In thousands)
Assets:
Cash and cash equivalents
Investment in bank subsidiary
Accounts receivable from bank subsidiary
Other assets
Total assets
Liabilities and Equity:
Junior subordinated notes (trust preferred)
Other liabilities
Total liabilities
Equity
Total liabilities and equity
Condensed Statements of Income
(In thousands)
Interest income
Interest expense
Net interest expense
Dividends from TCF Bank
Other non-interest income (expense):
Affiliate service fees
Other
Total other non-interest income
Non-interest expense:
Compensation and employee benefits
Occupancy and equipment
Other
Total non-interest expense
Income (loss) before income tax benefit and equity in undistributed
earnings of subsidiaries
Income tax benefit
Income (loss) before equity in undistributed earnings of subsidiaries
(Deficit) equity in undistributed earnings of bank subsidiary
Net (loss) income, net
Preferred stock dividend
Net (loss) income available to common stockholders
{ 104 } { TCF Financial Corporation and Subsidiaries }
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net (loss) income available to common stockholders
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Deficit (equity) in undistributed earnings of bank subsidiary
Gain on sales of assets, net
Other, net
Total adjustments
Net cash provided by operating activities
Cash flows from investing activities:
Capital contributions to bank subsidiary
Proceeds from sales of other securities
Purchase of premises and equipment, net
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid on common stock
Dividends paid on preferred stock
Net proceeds from public offering of common stock
Net proceeds from public offerings of preferred stock
Redemption of trust preferred securities
Interest paid on trust preferred securities
Shares sold to TCF employee benefit plans
Stock compensation tax (expense) benefits
(Repayments of) proceeds from senior unsecured term note
Net cash provided by financing activities
Net (decrease) increase in cash and due from banks
Cash and cash equivalents at beginning of year
Cash and due from banks at end of year
Year Ended December 31,
2012
2011
2010
$(218,490)
$109,394
$ 150,947
225,346
(13,116)
15,167
227,397
8,907
(192,000)
14,550
(6)
–
(177,456)
(31,904)
(5,606)
–
263,240
(115,010)
(8,757)
19,462
(659)
–
120,766
(47,783)
133,120
$ 85,337
(93,546)
–
28,320
(65,226)
44,168
(33,000)
–
(133)
21
(33,112)
(30,772)
–
219,666
–
–
(12,364)
17,971
280
(90,489)
104,292
115,348
17,772
$133,120
(159,632)
–
16,743
(142,889)
8,058
(255,000)
–
(142)
–
(255,142)
(27,617)
–
164,748
–
–
(12,364)
18,089
298
89,640
232,794
(14,290)
32,062
$ 17,772
TCF Financial Corporation’s (parent company only)
operations are conducted through its banking subsidiary,
TCF Bank. As a result, TCF’s cash flow and ability to make
dividend payments to its common stockholders depend
on the earnings of TCF Bank. The ability of TCF Bank to
pay dividends or make other payments to TCF Financial is
limited by its obligation to maintain sufficient capital
and by other regulatory restrictions on dividends.
At December 31, 2012, TCF Bank could pay a total of
approximately $28.1 million in dividends to TCF without
prior regulatory approval. Additionally, retained earnings
at TCF’s bank subsidiary, at December 31, 2012 includes
approximately $134.4 million for which no provision
for federal income taxes has been made. This amount
represents earnings legally appropriated to thrift bad
debt reserves and deducted for federal income tax
purposes in prior years and is generally not available
for payment of cash dividends or other distributions to
stockholders. Future payments or distributions of these
appropriated earnings could invoke a tax liability for TCF
based on the amount of the distributions and the tax rates
in effect at that time.
{ 105 }
{ 2012 Form 10K }
Note 26. Litigation Contingencies
From time to time, TCF is also a party to legal proceedings
arising out of its lending, leasing and deposit operations.
TCF is and expects to become engaged in a number of
foreclosure proceedings and other collection actions as
part of its lending and leasing collections activities. TCF
may also be subject to enforcement action by federal
regulators, including the Securities and Exchange
Commission, the Federal Reserve, the OCC and the
Consumer Financial Protection Bureau. From time to
time, borrowers and other customers, or employees or
former employees, have also brought actions against
TCF, in some cases claiming substantial damages.
Financial services companies are subject to the risk of
class action litigation, and TCF is subject to such actions
brought against it from time to time. Litigation is often
unpredictable and the actual results of litigation cannot
be determined, and therefore the ultimate resolution
of a matter and the possible range of loss associated
with certain potential outcomes cannot be established.
Based on our current understanding of these pending
legal proceedings, management does not believe that
judgments or settlements arising from pending or threatened
legal matters, individually or in the aggregate, would have
a material adverse effect on the consolidated financial
position, operating results or cash flows of TCF. TCF is also
subject to regulatory examinations and TCF’s regulatory
authorities may impose sanctions on TCF for a failure to
maintain regulatory compliance. TCF is currently subject to a
Consent Order with the OCC relating to its Bank Secrecy Act of
1970 (“BSA”) compliance. On January 25, 2013, TCF entered
into a settlement agreement with the OCC related to the review
of TCF’s past BSA compliance. Pursuant to this agreement, TCF
agreed to pay a $10 million civil money penalty.
{ 106 } { TCF Financial Corporation and Subsidiaries }
Other Financial Data
The selected quarterly financial data presented below should be read in conjunction with the Consolidated Financial
Statements and related notes.
Select ed Quarterly Financial Data (Unaud ited)
(Dollars in thousands, except per-share data)
Selected Financial Condition Data:
Total loans and leases
Securities available for sale
Goodwill
Total assets
Deposits
Short-term borrowings
Long-term borrowings
Total equity
Selected Operations Data:
Net interest income
Provision for credit losses
Net interest income after
provision for credit losses
Non-interest income:
Fees and other revenue
(Loss) gains on securities, net
Total non-interest income
Non-interest expense
Income (loss) before income
tax expense (benefit)
Income tax expense (benefit)
Income (loss) after income tax expense
income tax expense (benefit)
Income attributable to
non-controlling interest
Preferred stock dividends
Net income (loss) available to
common stockholders
Per common share:
Basic earnings
Diluted earnings
Dividends declared
Financial Ratios:
Return on average assets(1)
Return on average common equity(1)
Net interest margin(1)
Net charge-offs as a percentage
of average loans and leases(1)
Average total equity to average assets
(1) Annualized.
Dec. 31,
2012
Sep. 30,
2012
Jun. 30,
2012
At
Mar. 31,
2012
Dec. 31,
2011
Sep. 30,
2011
Jun. 30,
2011
Mar. 31,
2011
$15,425,724 $15,218,217 $15,234,504 $15,207,936
728,894
225,640
17,833,457
12,759,040
1,157,189
1,962,053
1,549,325
712,091
225,640
18,225,917
14,050,786
2,619
1,931,196
1,876,643
757,233
225,640
17,870,597
13,704,306
7,487
2,075,923
1,755,908
559,671
225,640
17,878,393
13,721,419
115,529
1,936,988
1,764,669
$14,150,255 $14,339,715 $14,631,945 $14,796,541
2,172,017
152,599
18,712,136
12,043,684
12,898
4,533,176
1,724,471
2,324,038
225,640
18,979,388
12,202,004
6,416
4,381,664
1,878,627
2,600,806
152,599
19,092,027
12,320,502
7,204
4,397,750
1,872,044
2,463,367
152,599
18,834,416
11,939,476
9,514
4,415,362
1,769,619
Dec. 31,
2012
Sep. 30,
2012
Jun. 30,
2012
Mar. 31,
2012
Dec. 31,
2011
Sep. 30,
2011
Jun. 30,
2011
Mar. 31,
2011
Three Months Ended
$ 201,063 $ 200,559 $ 198,224 $ 180,173
48,542
54,106
96,275
48,520
$ 173,434 $ 176,064
52,315
59,249
$ 176,150 $ 174,040
45,274
44,005
152,543
104,284
144,118
131,631
114,185
123,749
132,145
128,766
100,665
(528)
100,137
214,049
38,631
10,540
99,025
13,033
112,058
196,808
19,534
6,304
99,767
13,116
112,883
202,989
88,734
76,611
165,345
748,708
54,012
20,542
(451,732)
(170,244)
92,448
5,842
98,290
187,533
24,942
7,424
116,108
1,648
117,756
188,848
52,657
19,159
114,369
(227)
114,142
195,091
51,196
19,086
114,246
–
114,246
192,979
50,033
18,772
28,091
13,230
33,470
(281,488)
17,518
33,498
32,110
31,261
1,306
3,234
1,536
2,372
1,939
–
1,406
–
1,075
–
1,243
–
1,686
–
989
–
$ 23,551 $ 9,322 $ 31,531 $ (282,894) $ 16,443 $ 32,255
$ 30,424 $ 30,272
$ .15 $ .06 $ .20 $ (1.78) $ .10 $ .20 $ .19
$ .15 $ .06 $ .20 $ (1.78) $ .10 $ .20 $ .19
$ .05
$ .05 $ .05 $ .05 $ .05
$ .05 $ .05
$ .21
$ .21
$ .05
.63%
5.93
4.79
1.18
9.92
.30%
2.36
4.85
2.74
9.96
.76%
8.13
4.86
1.18
8.96
(5.96)%
(63.38)
4.14
1.06
9.52
.37%
3.55
3.92
1.63
9.81
.71%
7.12
3.96
1.48
9.58
.68%
7.00
4.02
1.19
9.32
.68%
8.00
4.06
1.51
8.24
{ 107 }
{ 2012 Form 10K }
Item 9. Changes in and
Disagreements With Accountants
on Accounting and Financial
Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures The Company
carried out an evaluation, under the supervision and
with the participation of the Company’s management,
including the Company’s Chief Executive Officer (Principal
Executive Officer), the Company’s Chief Financial Officer
(Principal Financial Officer) and its Chief Accounting
Officer (Principal Accounting Officer), of the effectiveness
of the design and operation of the Company’s disclosure
controls and procedures pursuant to Exchange Act Rule
13a-15 and 15d-15 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Based upon that
evaluation, management concluded that the Company’s
disclosure controls and procedures were effective, as of
December 31, 2012.
Disclosure controls and procedures are designed to
ensure that information required to be disclosed by TCF
in reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms.
Disclosure controls are also designed with the objective
of ensuring that such information is accumulated and
communicated to the Company’s management, including
the Chief Executive Officer (Principal Executive Officer), the
Chief Financial Officer (Principal Financial Officer) and the
Chief Accounting Officer (Principal Accounting Officer), as
appropriate, to allow for timely decisions regarding required
disclosure. TCF’s disclosure controls also include internal
controls that are designed to provide reasonable assurance
that transactions are properly authorized, assets are
safeguarded against unauthorized or improper use and that
transactions are properly recorded and reported.
Changes in Internal Control Over Financial
Reporting The Company continued to implement new
software supporting the documentation of its external
financial reporting and transferred reporting capabilities of
certain management reporting systems during the quarter.
The impacted systems include new operational controls and
procedures and were tested as part of the development
and conversion process. There were no other changes to
TCF’s internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) during the quarter
ended December 31, 2012 that materially affected, or are
reasonably likely to materially affect, TCF’s internal control
over financial reporting.
{ 108 } { TCF Financial Corporation and Subsidiaries }
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and
maintaining adequate internal control over financial
reporting for TCF Financial Corporation (the Company).
Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles.
Internal control over financial reporting includes those
policies and procedures that pertain to the maintenance
of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the
assets of the Company; provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that
receipts and expenditures of the Company are only being
made in accordance with authorizations of management
and directors of the Company; and provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect
on the financial statements.
Management, with the participation of the Chief
Executive Officer (Principal Executive Officer) and Chief
Financial Officer (Principal Financial Officer), completed
an assessment of TCF’s internal control over financial
reporting as of December 31, 2012. This assessment
was based on criteria for evaluating internal control
over financial reporting established in Internal Control
— Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that
TCF’s internal control over financial reporting was effective
as of December 31, 2012.
KPMG LLP, the Company’s independent registered public
accounting firm that audited the consolidated financial
statements included in this annual report, has issued an
unqualified attestation report on the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2012.
Any control system, no matter how well conceived
and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system
are met. The design of a control system inherently has
limitations, and the benefits of controls must be
weighed against their costs. Additionally, controls can
be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management
override of the controls. Therefore, no assessment of a
cost-effective system of internal controls can provide
absolute assurance that all control issues and instances
of fraud, if any, will be detected.
William A. Cooper
Chairman and Chief Executive Officer
Michael S. Jones
Executive Vice President and Chief Financial Officer
Susan D. Bode
Senior Vice President and Chief Accounting Officer
February 22, 2013
{ 109 }
{ 2012 Form 10K } Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
TCF Financial Corporation:
We have audited TCF Financial Corporation’s (the Company)
internal control over financial reporting as of December 31,
2012, based on criteria established in Internal Control
— Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO). TCF Financial Corporation’s management is
responsible for maintaining effective internal control
over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial
reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that
a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included
performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting
is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
{ 110 } { TCF Financial Corporation and Subsidiaries }
statements in accordance with generally accepted
accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, TCF Financial Corporation maintained,
in all material respects, effective internal control over
financial reporting as of December 31, 2012, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the consolidated statements
of financial condition of TCF Financial Corporation and
subsidiaries as of December 31, 2012 and 2011, and the
related consolidated statements of income, comprehensive
income, equity, and cash flows for each of the years in the
three-year period ended December 31, 2012, and our report
dated February 22, 2013 expressed an unqualified opinion
on those consolidated financial statements.
Minneapolis, Minnesota
February 22, 2013
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive
Officers and Corporate Governance
Information regarding directors and executive officers of TCF
is set forth in the following sections of TCF’s definitive Proxy
Statement for the 2013 Annual Meeting of Stockholders
to be held on April 24, 2013 (the “2013 Proxy”), and is
incorporated herein by reference: Election of Directors;
Section 16(a) Beneficial Ownership Reporting Compliance
and Background of Executive Officers Who are Not Directors.
Information regarding procedures for nominations
of Directors is set forth in the following sections of TCF’s
2013 Proxy, and is incorporated herein by reference:
Corporate Governance — Director Nominations and
Additional Information.
Audit Committee and Financial Expert
Information regarding TCF’s Audit Committee, its members
and financial experts is set forth in the following sections
of TCF’s 2013 Proxy, and is incorporated herein by reference:
Election of Directors — Background of the Nominees,
Corporate Governance — Board Committees, Committee
Memberships, and Meetings in 2012 and Corporate
Governance – Audit Committee.
TCF’s Board of Directors is required to determine
whether it has at least one Audit Committee Financial
Expert and that the expert is independent. An Audit
Committee Financial Expert is a committee member who
has an understanding of generally accepted accounting
principles and financial statements and has the ability
to assess the general application of these principles in
connection with the accounting for estimates, accruals
and reserves. Additionally, this individual should have
experience preparing, auditing, analyzing or evaluating
financial statements that present the breadth and level
of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that
can reasonably be expected to be raised by TCF’s financial
statements, or experience actively supervising one or
more persons engaged in such activities. The member
should also have an understanding of internal control
over financial reporting as well as an understanding of
audit committee functions.
The Board has determined that Gerald A. Schwalbach,
the Audit Committee Chairman, Thomas A. Cusick,
George G. Johnson, Vance K. Opperman and Richard A. Zona
meet the requirements of audit committee financial experts.
The Board has also determined that Mr. Schwalbach,
Mr. Cusick, Ms. Grandstrand, Mr. Johnson, Mr. Opperman
and Mr. Zona are independent. Additional information
regarding Mr. Schwalbach, Mr. Cusick, Ms. Grandstrand,
Mr. Johnson, Mr. Opperman and Mr. Zona, and other
directors is set forth in the section Election of Directors
— Background of the Nominees in TCF’s 2013 Proxy and is
incorporated herein by reference.
Code of Ethics for Senior Financial Management
TCF has adopted a Code of Ethics applicable to the Principal
Executive Officer (“PEO”), Principal Financial Officer
(“PFO”) and Principal Accounting Officer (“PAO”) (the
“Senior Financial Management Code of Ethics”) as well as a
code of ethics generally applicable to all officers (including
the PEO, PFO and PAO), directors and employees of TCF
(the “Code of Ethics”). The Code of Ethics and Senior
Financial Management Code of Ethics are both available
for review at TCF’s website at www.tcfbank.com by clicking
on “About TCF” and then “Learn More” under the heading
“About TCF Corporate Governance.” Any changes to the
Code of Ethics or Senior Financial Management Code of
Ethics will be posted on this site, and any waivers granted
to or violations by the PEO, PFO and PAO of the Code of
Ethics or Senior Financial Management Code of Ethics will
also be posted on this site.
Item 11. Executive Compensation
Information regarding compensation of directors and
executive officers of TCF is set forth in the following
sections of TCF’s 2013 Proxy, and is incorporated herein
by reference: Director Compensation; Compensation
Discussion and Analysis; Compensation Committee
Report; Executive Compensation and Corporate
Governance – Compensation/Nominating/Corporate
Governance Committee – Compensation Committee
Interlocks and Insider Participation.
{ 111 }
{ 2012 Form 10K } Item 12. Security Ownership
of Certain Beneficial Owners
and Management and Related
Stockholder Matters
Information regarding ownership of TCF’s common stock
by TCF’s directors, executive officers, and certain other
stockholders and shares authorized under plans is set
forth in the following sections of TCF’s 2013 Proxy, and is
incorporated herein by reference: Ownership of TCF Stock
and Equity Compensation Plans Approved by Stockholders.
Item 13. Certain Relationships and
Related Transactions, and Director
Independence
Information regarding director independence and
certain relationships and transactions between TCF and
management is set forth in the section entitled Corporate
Governance — Director Independence and Related Person
Transactions of TCF’s 2013 Proxy, and is incorporated
herein by reference.
Item 14. Principal Accountant
Fees and Services
Information regarding principal accountant fees and
services and the Audit Committee’s pre-approval policies
and procedures relating to audit and non-audit services
provided by the Company’s independent registered
public accounting firm is set forth in the section entitled
Independent Registered Public Accountants in TCF’s 2013
Proxy, and is incorporated herein by reference.
{ 112 } { TCF Financial Corporation and Subsidiaries }
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Financial Statements
The following consolidated financial statements of TCF and its subsidiaries, are filed as part of this report:
Description
Selected Financial Data
Consolidated Statements of Financial Condition at December 31, 2012 and 2011
Consolidated Statements of Income
for each of the years in the three-year period ended December 31, 2012
Consolidated Statements of Comprehensive Income
for each of the years in the three-year period ended December 31, 2012
Consolidated Statements of Equity
for each of the years in the three-year period ended December 31, 2012
Consolidated Statements of Cash Flows
for each of the years in the three-year period ended December 31, 2012
Notes to Consolidated Financial Statements
Other Financial Data
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
2. Financial Statement Schedu les
All schedules to the Consolidated Financial Statements normally required by the applicable
accounting regulations are included in the Consolidated Financial Statements or the Notes thereto.
3. Ex hibits
Index to Exhibits
P ag e
19
57
58
59
60
61
62
107
109
56, 110
115
{ 113 }
{ 2012 Form 10K }
Signatures
Pursuant to the requirements of Section 13 or Section 15(d) 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
Registrant
By /s/ William A. Cooper
William A. Cooper
Chairman and Chief Executive Officer
Dated: February 22, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
/s/ William A. Cooper
William A. Cooper
/s/ Michael S. Jones
Michael S. Jones
/s/ Susan D. Bode
Susan D. Bode
/s/ Raymond L. Barton
Raymond L. Barton
/s/ Peter Bell
Peter Bell
/s/ William F. Bieber
William F. Bieber
/s/ Theodore J. Bigos
Theodore J. Bigos
/s/ Thomas A. Cusick
Thomas A. Cusick
/s/ Craig R. Dahl
Craig R. Dahl
/s/ Karen L. Grandstrand
Karen L. Grandstrand
/s/ Thomas F. Jasper
Thomas F. Jasper
/s/ George G. Johnson
George G. Johnson
/s/ Vance K. Opperman
Vance K. Opperman
/s/ James M. Ramstad
James M. Ramstad
/s/ Gerald A. Schwalbach
Gerald A. Schwalbach
/s/ Barry N. Winslow
Barry N. Winslow
/s/ Richard A. Zona
Richard A. Zona
Title
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director, Vice Chairman,
and Executive Vice President, Lending
Director
Director, Vice Chairman, and Executive Vice President,
Funding, Operations and Finance
Director
Director
Director
Director
Director and Vice Chairman,
Corporate Development
Director
Date
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
{ 114 } { TCF Financial Corporation and Subsidiaries }
Index to Exhibits
Exhibit
N o.
3(a)#
3(b)
4(a)
4(b)
4(c)
4(d)
4(e)
4(f)
4(g)
4(h)
10(a)*
Description
Amended and Restated Certificate of Incorporation of TCF Financial Corporation
Amended and Restated Bylaws of TCF Financial Corporation [incorporated by reference to Exhibit 3(b) to
TCF Financial Corporation’s Current Report on Form 8-K filed March, 2, 2012]
Warrant Agreement dated December 15, 2009 by and among TCF Financial Corporation, Computershare,
Inc. and Computershare Trust Company, N.A. [incorporated by reference to Exhibit 4.1 to TCF Financial
Corporation’s Form 8-A filed December 16, 2009]
Specimen Warrant to Purchase Shares of Common Stock of TCF Financial Corporation [incorporated by
reference to Exhibit 4.2 to TCF Financial Corporation’s Form 8-A filed December 16, 2009]
Specimen Common Stock Certificate of TCF Financial Corporation [incorporated by reference to Exhibit 4.3
to TCF Financial Corporation’s Registration Statement on Form S-3ASR filed on May 29, 2012]
Form of Certificate for Series A Non-Cumulative Perpetual Preferred Stock [incorporated by reference to
Exhibit 4.1 to TCF Financial Corporation’s Current Report on Form 8-K filed June 22, 2012]
Deposit Agreement dated June 25, 2012 by and among TCF Financial Corporation, Computershare Trust
Company, N.A. and Computershare Inc. and the holders from time to time of the Depositary Receipts
described therein [incorporated by reference to Exhibit 4.1 to TCF Financial Corporation’s Current Report
on Form 8-K filed June 25, 2012]
Form of Depositary Receipt (included as part of Exhibit 4(e)) [incorporated by reference to Exhibit 4.1
to TCF Financial Corporation’s Current Report on Form 8-K filed June 25, 2012]
Form of Certificate for 6.45% Series B Non-Cumulative Perpetual Preferred Stock [incorporated by
reference to Exhibit 4.1 to TCF Financial Corporation’s Current Report on Form 8-K filed December 18, 2012]
Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange
Commission upon request
Stock Option and Incentive Plan of TCF Financial Corporation, as amended [incorporated by reference to
Exhibit 10.1 to TCF Financial Corporation’s Registration Statement on Form S-4, No. 33-14203 filed May
12, 1987]; Second Amendment, Third Amendment and Fourth Amendment to the Plan [incorporated by
reference to Exhibit 10(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, No. 0-16431]; Fifth Amendment to the Plan [incorporated by reference to
Exhibit 10(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended
December 31, 1989]; amendment dated January 21, 1991 [incorporated by reference to Exhibit 10(a)
to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990];
and as further amended by amendment dated January 28, 1992 and amendment dated March 23, 1992
(effective April 15, 1992) [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation’s
Annual Report on Form 10-K for the fiscal year ended December 31, 1991]
10(b)*
10(b)-1*
TCF Financial Incentive Stock Program, as amended and restated April 25, 2012 [incorporated by reference
to Exhibit 10.1 to TCF Financial Corporation’s Current Report on Form 8-K filed April 30, 2012]
Form of Year 2006 Executive Stock Grant Award Agreement dated January 23, 2006 [incorporated by reference
to Exhibit 10(b)-4 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2006]
{ 115 }
{ 2012 Form 10K } 10(b)-2*
10(b)-3*
10(b)-4*
10(b)-5*
10(b)-6*
10(b)-7*
10(b)-8*
10(b)-9*
10(b)-10*
10(b)-11*
10(b)-12*
10(b)-13*
10(b)-14*
Form of TCF Financial Corporation Restricted Stock Agreement and Non-Solicitation/Confidentiality
Agreement dated January 22, 2007 (“Performance-Based Stock Award”) [incorporated by reference to
Exhibit 10(b)-5 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2007]
Form of TCF Financial Corporation Restricted Stock Agreement and Non-Solicitation/Confidentiality
Agreement, dated January 22, 2007 [incorporated by reference to Exhibit 10(b)-6 to TCF Financial
Corporation’s Current Report on Form 8-K filed January 25, 2007]
Form of the 2008 Restricted Stock Agreement as executed by certain executives effective January 21, 2008
[incorporated by reference to Exhibit 10(b)-9 to TCF Financial Corporation’s Current Report on Form 8-K
filed January 25, 2008]
Form of the 2008 Nonqualified Stock Option Agreement as executed by certain executives effective January
21, 2008 [incorporated by reference to Exhibit 10(b)-10 to TCF Financial Corporation’s Current Report on
Form 8-K filed January 25, 2008]
Nonqualified Stock Option Agreement as executed by Mr. Cooper, effective July 31, 2008 [incorporated by
reference to Exhibit 10(b)-11 to TCF Financial Corporation’s Current Report on Form 8-K filed August 6, 2008]
Amended and Restated Restricted Stock Agreement as executed by Mr. Cooper, effective January 20, 2009
[incorporated by reference to Exhibit 10(b)-13 to TCF Financial Corporation’s Current Report on Form 8-K
filed January 23, 2009]
Form of Amended and Restated Restricted Stock Agreement as executed by certain executives, effective
January 20, 2009 [incorporated by reference to Exhibit 10(b)-14 to TCF Financial Corporation’s Current
Report on Form 8-K filed January 23, 2009]
Form of Year 2009 Executive Stock Award as executed by certain executives, effective January 20, 2009
[incorporated by reference to Exhibit 10(b)-15 to TCF Financial Corporation’s Current Report on Form 8-K
filed January 23, 2009]
Form of Letter Agreement entered into by certain executive officers effective December 14, 2009
[incorporated by reference to Exhibit 10(b)-15 to TCF Financial Corporation’s Current Report on Form 8-K
filed December 18, 2009]
Form of Agreement Termination Award Agreement entered into by certain executive officers effective
December 14, 2009 [incorporated by reference to Exhibit 10(b)-16 to TCF Financial Corporation’s Current
Report on Form 8-K filed December 18, 2009]
Form of 2010 Restricted Stock Award Agreement entered into by certain executive officers effective
December 14, 2009 [incorporated by reference to Exhibit 10(b)-17 to TCF Financial Corporation’s Current
Report on Form 8-K filed December 18, 2009]
Form of Restricted Stock Agreement and Non-Solicitation/Confidentiality Agreement as executed by
certain executives, effective February 16, 2011 [incorporated by reference to Exhibit 10(b)-16 to TCF
Financial Corporation’s Current Report on Form 8-K filed February 18, 2011]
Nonqualified Stock Option Agreement as executed by Barry N. Winslow, effective July 31, 2008
[incorporated by reference to Exhibit 10(b)-17 of TCF Financial Corporation’s Quarterly Report on Form
10-Q filed for the quarter ended March 31, 2011]
{ 116 } { TCF Financial Corporation and Subsidiaries }
10(b)-15*
10(b)-16*
10(b)-17*
10(b)-18*
10(c)*
10(d)*
10(e)*
10(f)*
10(f)-1*
10(g)*
10(h)*
Restricted Stock Agreement as executed by Barry N. Winslow, effective December 14, 2009 [incorporated by
reference to Exhibit 10(b)-18 of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2011]
TCF Financial Corporation Restricted Stock Agreement and Non-Solicitation/Confidentiality Agreement
as executed by James J. Urbanek, effective January 25, 2010 [incorporated by reference to Exhibit 10(b)-19
of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011]
Form of Restricted Stock Agreement as executed by William A. Cooper, effective January 17, 2012
[incorporated by reference to Exhibit 10.2 to TCF Financial Corporation’s Current Report on Form 8-K filed
January 20, 2012]
Form of Restricted Stock Agreement as executed by certain executives, effective January 17, 2012
[incorporated by reference to Exhibit 10.3 to TCF Financial Corporation’s Current Report on Form 8-K filed
January 20, 2012]
TCF Financial Corporation Executive Deferred Compensation Plan as amended and restated through
January 24, 2005 [incorporated by reference to Exhibit 10(c) to TCF Financial Corporation’s Current
Report on Form 8-K filed January 27, 2005]
Restated Trust Agreement as executed with First National Bank in Sioux Falls as trustee effective as of
October 1, 2000 [incorporated by reference to Exhibit 10(d) of TCF Financial Corporation’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2000]; as amended by amendment adopted April
30, 2001 [incorporated by reference to Exhibit 10(d) of TCF Financial Corporation’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001]; and as amended by amendments adopted May 3, 2002
[incorporated by reference to Exhibit 10(d) of TCF Financial Corporation’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002]; and as amended by Third Amendment of Trust Agreement for TCF
Executive Deferred Compensation Plan effective as of June 30, 2003 [incorporated by reference to Exhibit
10(d) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003]
Amended and Restated Agreement (2012) with William A. Cooper between William A. Cooper and TCF
Financial Corporation effective as of January 25, 2012 [incorporated by reference to Exhibit 10.1 to TCF
Financial Corporation’s Current Report on Form 8-K filed January 30, 2012]
TCF Financial Corporation Supplemental Employee Retirement Plan — ESPP Plan as amended and restated
through January 24, 2005 [incorporated by reference to Exhibit 10(j) of TCF Financial Corporation’s Current
Report on Form 8-K filed January 27, 2005]
TCF Employees Stock Purchase Plan - Supplemental Plan, as amended and restated effective January 1,
2011 [incorporated by reference to Exhibit 10(j)-1 to TCF Financial Corporation’s Current Report on Form
8-K filed May 2, 2011]
Trust Agreement for TCF Employees Stock Purchase Plan Supplemental Executive Retirement Plan (“SERP”)
effective January 1, 2009 and dated November 20, 2008 [incorporated by reference to Exhibit 10(k) to TCF
Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008]
TCF Financial Corporation Senior Officer Deferred Compensation Plan as amended and restated through
January 24, 2005 [incorporated by reference to Exhibit 10(l) to TCF Financial Corporation’s Current Report
on Form 8-K filed January 27, 2005]
{ 117 }
{ 2012 Form 10K } 10(i)*
10(j)*
10(j)-1*
10(j)-2*
10(j)-3*
10(k)*
10(l)*
10(m)*
10(m)-1*
10(n)*
Trust Agreement for TCF Financial Senior Officer Deferred Compensation Plan as executed with First
National Bank in Sioux Falls as trustee effective as of October 1, 2000 [incorporated by reference to Exhibit
10(m) of TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31,
2000]; as amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(m)
of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001];
and as amended by Second Amendment of Trust Agreement for TCF Financial Senior Officers Deferred
Compensation Plan effective as of June 30, 2003 [incorporated by reference to Exhibit 10(m) of TCF
Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003]
Directors Stock Grant Program, as amended and restated April 25, 2012 [incorporated by reference
to Exhibit 10(j) of TCF Financial Corporation’s Quarterly Report on Form 10-Q filed for the quarter ended
June 30, 2012]
Resolution adopting Directors Stock Grant Program goal for fiscal year 2009 and after [incorporated
by reference to Exhibit 10(n)-1 of TCF Financial Corporation’s Current Report on Form 8-K filed
January 23, 2009]
Form of Director’s Restricted Stock Agreement dated January 24, 2012 [incorporated by reference to
Exhibit 10(j)-1 of TCF Financial Corporation’s Quarterly Report on Form 10-Q filed for the quarter ended
June 30, 2012]
Form of Deferred Director’s Restricted Stock Agreement dated January 24, 2012 [incorporated by reference
to Exhibit 10(j)-2 of TCF Financial Corporation’s Quarterly Report on Form 10-Q filed for the quarter ended
June 30, 2012]
Form of 2012 Management Incentive Plan — Executive, as executed by certain executives of TCF Financial
Corporation, effective January 1, 2012 [incorporated by reference to Exhibit 10.1 of TCF Financial
Corporation’s Current Report on Form 8-K filed January 20, 2012]
TCF Performance-Based Compensation Policy for Covered Executive Officers, as approved effective January
1, 2011 [incorporated by reference to Exhibit 10(p) to TCF Financial Corporation’s Current Report on Form
8-K filed May 2, 2011]
TCF Financial Corporation TCF Directors Deferred Compensation Plan as amended and restated through
January 24, 2005 [incorporated by reference to Exhibit 10(r) of TCF Financial Corporation’s Current Report
on Form 8-K filed January 27, 2005]
TCF Financial Corporation TCF Directors 2005 Deferred Compensation Plan, adopted effective as of January
6, 2005, as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(r)-1
of TCF Financial Corporation’s Current Report on Form 8-K filed January 27, 2005]; and as amended by
Amendment of Directors 2005 Deferred Compensation Plan effective July 19, 2010 [incorporated by
reference to Exhibit 10(r)-1 of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2010]
Trust Agreement for TCF Directors Deferred Compensation Plan [incorporated by reference to Exhibit 10(d)
to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000]; as
amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(s) of TCF Financial
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001]; as amended by
amendment adopted October 10, 2001 [incorporated by reference to Exhibit 10(s) of TCF Financial
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001]; and as amended
by amendments adopted May 3, 2002 [incorporated by reference to Exhibit 10(s) of TCF Financial
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002]; and as amended
{ 118 } { TCF Financial Corporation and Subsidiaries }
10(o)*
10(p)*
10(q)*
10(r)*
12(a)#
12(b)#
21#
23#
31.1#
31.2#
32.1#
32.2#
99.1
99.2
101#
by Third Amendment of TCF Directors Deferred Compensation Trust effective as of June 30, 2003
[incorporated by reference to Exhibit 10(s) of TCF Financial Corporation’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003]
Amended and Restated TCF Director Retirement Plan effective as of October 17, 2011 [incorporated
by reference to Exhibit 10(t) of TCF Financial Corporation’s Quarterly Report on Form 10-Q filed for the
quarter ended September 30, 2011]
TCF Employees Deferred Stock Compensation Plan, effective January 1, 2011 [incorporated by reference
to Exhibit 10(u) to TCF Financial Corporation’s Current Report on Form 8-K filed February 18, 2011]
Form of Rabbi Trust Agreement for the TCF Employees Deferred Stock Compensation Plan [incorporated
by reference to Exhibit 10(v) to TCF Financial Corporation’s Current Report on Form 8-K filed
February 18, 2011]
Letter Agreement between TCF and Neil W. Brown entered into on December 14, 2012
[incorporated by reference to Exhibit 99.1 to TCF Financial Corporation’s Current Report on Form 8-K
filed December 20, 2012]
Consolidated Ratios of Earnings to Fixed Charges for years ended December 31, 2012, 2011, 2010,
2009 and 2008
Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends for years ended
December 31, 2012, 2011, 2010, 2009 and 2008
Subsidiaries of TCF Financial Corporation (as of December 31, 2012)
Consent of KPMG LLP dated February 22, 2013
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Form of Consent Order, dated July 20, 2010, issued by the Office of the Comptroller of the Currency in the
matter of TCF National Bank [incorporated by reference to Exhibit 99.1 to TCF Financial Corporation’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010]
Form of Stipulation and Consent to the Issuance of a Consent Order dated July 20, 2010, issued by the
Office of the Comptroller of the Currency in the matter of TCF National Bank [incorporated by reference to
Exhibit 99.2 to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2010]
Financial Statements of the Company for the period ended December 31, 2012, formatted in XBRL: (i) the
Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) the
Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to
Consolidated Financial Statements.
* Executive Contract
# Filed herein
{ 119 }
{ 2012 Form 10K } Board of Directors
Senior Officers
William A. Cooper 5
Chairman of the Board and Chief Executive Officer
Raymond L. Barton 1,3,4,5,6
Chairman, Great Clips, Inc.
Peter Bell 3,6
Former Chair, Metropolitan Council
William F. Bieber 1,3,4,6
Chairman, ATEK Companies, Inc.
Theodore J. Bigos 1,3,4,6
Owner, Bigos Management, Inc.
Thomas A. Cusick 2,3,6,7
Retired Vice Chairman, TCF Financial Corporation
Craig R. Dahl
Vice Chairman and Executive Vice President, Lending
Karen L. Grandstrand 2,3,5,6,7
Partner, Fredrikson & Byron, P.A.
Thomas F. Jasper
Vice Chairman and Executive Vice President, Funding,
Operations & Finance
George G. Johnson 2,3,6,7
CPA/Managing Director, George Johnson & Company
and George Johnson Consultants
Vance K. Opperman 1,2,3,4,5,6,7
President and Chief Executive Officer, Key Investment, Inc.
James M. Ramstad 3,6
Former United States Congressman
Gerald A. Schwalbach 1,2,3,4,5,6,7
Chairman, Spensa Development Group, LLC
Barry N. Winslow
Vice Chairman, Corporate Development
Richard A. Zona 2,3,5,6,7
Retired Vice Chairman, U.S. Bancorp
1 Advisory Committee — TCF Employees Stock Purchase Plan
2 Audit Committee
3 BSA Compliance Committee
4 Compensation/Nominating/Corporate Governance Committee
5 Executive Committee
6 Finance Committee
7 Risk Committee
{ 120 } { TCF Financial Corporation and Subsidiaries }
Senior Vice Presidents
Bradley C. Barthels
Rose M. Dickey
Michael A. Dill
Calvin E. Fuoss
Donald J. Hawkins
Daniel B. Hoffman
Monica R. Husnik
Matthew D. Krueger
Vicki L. Makowka
Jeffery D. Memeti
Bjorn J. Peterson
Carol B. Schirmers
Thomas K. Torossian
Jason R. Voronyak
Katrina Williams
Commercial Lending
Managing Director
James J. Urbanek
President, TCF Capital Funding
Joseph P. Gaffigan
Executive Vice Presidents
Douglas W. Benner
Thomas R. Bobak
Robert A. Henry
Michael R. Klemz
Senior Vice Presidents
Barbara L. Buss
Larry M. Czekaj
Jeffrey T. Doering
Michael B. Hagen
Thomas G. Karle
Martin J. Krogman
Anthony J. Laszewksi
Mark W. Lucke
Russell P. McMinn
Douglas A. Ortyn
William R. Patterson
Guy J. Rau
Janelle J. Rietz-Kamenar
Michael Roidt
Elisabeth A. Rojas
Edward J. Ryczek
Lisa M. Salazar
Patrick P. Skiles
Cynthia L. Smith
David J. Veurink
TCF Financial Corporation
Chairman of the Board
and Chief Executive Officer
William A. Cooper
Vice Chairman,
Corporate Development
Barry N. Winslow
Vice Chairman and Executive
Vice President, Lending
Craig R. Dahl
Vice Chairman and Executive
Vice President, Funding,
Operations & Finance
Thomas F. Jasper
Executive Vice President
and Chief Financial Officer
Michael S. Jones
Executive Vice President
and Chief Operations Officer
Earl D. Stratton
Chief Risk Officer
David M. Stautz
Chief Audit Executive Officer
Andrew J. Jackson
Senior Vice Presidents
Susan D. Bode
Joseph T. Green
Jason E. Korstange
Brian W. Maass
Barbara E. Shaw
lending
Vice Chairman and Executive
Vice President, Lending
Craig R. Dahl
Executive Vice President
and Chief Lending Officer
Mark D. Nyquist
Senior Vice President and
Director of Talent Management
Gloria J. Charley
Retail Lending
Managing Director
Mark W. Rohde
Executive Vice Presidents
Robert J. Brueggeman
Joseph W. Doyle
Claire M. Graupmann
Matthew R. Wiley
TCF Equipment Finance, Inc.
President and
Chief Executive Officer
William S. Henak
Executive Vice President
Bradley C. Gunstad
Mark D. Nyquist
Senior Vice Presidents
Gary W. Anderson
Gloria J. Charley
Richard J. Chenitz
Peter C. Darin
Walter E. Dzielsky
Michael A. Kloos
Scott L. Lane
Brick W. Moore
Jodie L. Palmer
Gary A. Peterson
Robert J. Stark
Mark H. Valentine
Judy I. VanOsdel
Winthrop Resources
Corporation
Co-Presidents
Paul L. Gendler
Richard J. Pieper
Senior Vice Presidents
Gary W. Anderson
Barbara E. King
Scott L. Lane
Abigail R. Nesbitt
Jeffrey L. Ripperton
Dean J. Stinchfield
Bradley R. Swenson
TCF Inventory Finance, Inc.
President and
Chief Executive Officer
Rosario A. Perrelli
Executive Vice Presidents
Vincent E. Hillery
Peter D. Kelley
Christopher Meals
Senior Vice Presidents
Peter J. Baranowski
Thomas E. Evans
Kevin L. Harrington
James S. Raymond
Larry M. Tagli
Mark J. Wrend
Dornett Y. Wright
TCF Commercial Finance
Canada, Inc.
President
Peter D. Kelley
Gateway One Lending
& Finance, LLC
Chief Executive Officer
G. Brian MacInnis
President
David G. MacInnis
Chief Operating Officer
Todd A. Pierson
Chief Financial Officer
Gerald A. Wilkins
Chief Credit Officer
Charles Tocker
Executive Vice President
Andrew B. Sturm
Senior Vice President
Sydney S. Libsack
Funding
Vice Chairman and
Executive Vice President,
Funding, Operations & Finance
Thomas F. Jasper
Senior Vice President and
Director of Talent Management
Anne M. Johnson
Branch Banking
Executive Vice President
and Chief Operations Officer
Earl D. Stratton
Managing Director
of Branch Banking
Mark L. Jeter
Managing Director of Customer
Segmentation and Alternative
Channel Management
Geoffrey C. Thomas
Executive Vice Presidents
Robert C. Borgstrom
Luis J. Campos
Timothy G. Doyle
Mark W. Gault
James L. Koon
Timothy B. Meyer
Michael J. Olson
Human Resources
Executive Vice President and
Corporate Human Resources
Director, TCF National Bank
Barbara E. Shaw
Senior Vice Presidents
Edward J. Gallagher
Viane R. Hoefs
Roger T. Sorensen
Legal /Compliance
Executive Vice President,
General Counsel and Secretary,
TCF National Bank
Joseph T. Green
Executive Vice Presidents
Bradley C. Gunstad
Brian J. Hurd
Senior Vice Presidents
Sheri A. Ahl
Neysa M. Alecu
Gary L. Fineman
Linda J. Firth
Shelley A. Fitzmaurice
Douglass B. Hiatt
Charles P. Hoffman, Jr.
Kirk D. Johnson
Gloria J. Karsky
Jacqueline A. Layton
Janella Jane Miller
R. Elizabeth Topoluk
Enterprise Risk Management
Chief Risk Officer
David M. Stautz
Risk Control Services
Chief Audit Executive Officer
Andrew J. Jackson
Credit Review
Senior Vice President
Scott D. Campbell
Senior Vice Presidents
Delia M. Conrad
Peter R. Daugherty
Jennifer K. Rohling
Cathleen L. Wilkins
Finance/ Treasury
Executive Vice President
and Chief Financial Officer
Michael S. Jones
Executive Vice President
and Principal Accounting Officer,
TCF National Bank
Susan D. Bode
Executive Vice President and
Treasurer, TCF National Bank
Brian W. Maass
Senior Vice Presidents
James M. Dunne
Brian P. Engels
Anne M. Johnson
Christy A. Powers
Operations
Executive Vice President
and Chief Operations Officer,
TCF Financial Corporation
Earl D. Stratton
Executive Vice Presidents
Gregg R. Goudy
James C. LaPlante
Michael J. Olson
Senior Vice Presidents
Ronald L. Britz
Beverly L. Burman
Patricia A. Buss
Carol Jean F. Felth
Christopher N. Germann
Beatrice E. Lingen
James M. Matheis
Anton J. Negrini
Richard J. Nelson
Leonard D. Steele
William N. Welch
Corporate Development
and Administration
Vice Chairman,
Corporate Development
Barry N. Winslow
{ 121 }
{ 2012 Annual Report } Offices
Executive Offices
Minnesota/South Dakota
TCF Equipment Finance, Inc.
TCF Financial Corporation
200 Lake Street East
Mail Code: EX0-03-A
Wayzata, MN 55391-1693
(952) 745-2760
TCF National Bank
Headquarters
2508 South Louise Avenue
Sioux Falls, SD 57106
Headquarters
11100 Wayzata Boulevard
Suite 801
Minnetonka, MN 55305
(952) 656-5080
Winthrop Resources Corporation
Headquarters
11100 Wayzata Boulevard
Suite 800
Minnetonka, MN 55305
(952) 936-0226
TCF Inventory Finance, Inc.
Headquarters
1475 East Woodfield Road
Suite 1100
Schaumburg, IL 60173
(877) 872-8234
TCF Commercial Finance Canada, Inc.
Headquarters
700 Dorval Drive
Suite 705
Oakville, Ontario L6K 3V3
Canada
(877) 800-4430
Gateway One lending & Finance, llC
Headquarters
160 North Riverview Drive
Suite 100
Anaheim, CA 92808
(888) 810-8740
Traditional Branches
Minneapolis/St. Paul Area (44)
Greater Minnesota (2)
South Dakota (1)
Supermarket Branches
Minneapolis/St. Paul Area (55)
Greater Minnesota (3)
Campus Branches
Minneapolis/St. Paul Area (2)
Greater Minnesota (2)
Illinois/Wisconsin/Indiana
Traditional Branches
Chicagoland (37)
Milwaukee Area (10)
Kenosha/Racine Area (6)
Supermarket Branches
Chicagoland (154)
Milwaukee Area (8)
Kenosha/Racine Area (1)
Indiana (4)
Campus Branches
Chicagoland (2)
Greater Illinois (1)
Michigan
Traditional Branches
Metro Detroit Area (51)
Supermarket Branches
Metro Detroit Area (1)
Campus Branches
Metro Detroit Area (1)
Colorado/Arizona
Traditional Branches
Metro Denver Area (26)
Colorado Springs (8)
Metro Phoenix Area (7)
Supermarket Branches
Metro Denver Area (2)
{ 122 } { TCF Financial Corporation and Subsidiaries }
Stockholder Information
Stock Data
Year
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2008
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Close
High
Low
Dividends
Paid
Per Share
$12.15
11.94
11.48
11.89
$10.32
9.16
13.80
15.86
$14.81
16.19
16.61
15.94
$13.62
13.04
13.37
11.76
$13.66
18.00
12.03
17.92
$12.49
12.43
12.53
12.58
$11.68
14.37
16.04
17.37
$16.63
17.66
18.89
16.83
$14.72
15.83
16.67
14.31
$20.00
28.00
19.31
22.04
$10.45
9.59
10.43
10.04
$ 8.61
8.66
13.37
14.60
$12.90
13.87
14.95
13.40
$11.36
12.71
11.37
8.74
$11.22
9.25
11.91
14.65
$.05
.05
.05
.05
$.05
.05
.05
.05
$.05
.05
.05
.05
$.05
.05
.05
.25
$.25
.25
.25
.25
For more historical information on TCF’s stock price and
dividend, visit http://ir.tcfbank.com.
Trading of Common Stock
The common stock of TCF Financial Corporation is listed
on the New York Stock Exchange under the symbol TCB. At
December 31, 2012, TCF had approximately 163.4 million
shares of common stock outstanding.
Annual Meeting
The Annual Meeting of Stockholders of TCF will be held
on Wednesday, April 24, 2013, 3:30 p.m. (local time) at
the Marriott Minneapolis West, 9960 Wayzata Boulevard,
St. Louis Park, Minnesota.
Transfer Agent and Registrar
Computershare Trust Company, N.A.
PO Box 43078
Providence, RI 02940-3078
(800) 443-6852
www.computershare.com
Direct Stock Purchase and Dividend Reinvestment Plan
Computershare Trust Company, N.A. offers the
Computershare Investment Plan, a direct stock purchase
and dividend reinvestment plan for TCF Financial Corporation
common stock. This stockholder-paid program provides a
low-cost alternative to traditional retail brokerage methods
of purchasing, holding and selling TCF common stock. The
Plan is sponsored and administered by our Transfer Agent,
Computershare, Inc. Information is available from:
Computershare Investment Plan for TCF Financial Corporation
c/o Computershare
PO Box 43078
Providence, RI 02940-3078
(800) 443-6852
www.computershare.com
Note to Stockholders
It is important for registered stockholders to keep the
transfer agent informed of their current address and to cash
their dividend payments; otherwise, TCF may be required
by state law to report and deliver (or “escheat”) these
shares and any unclaimed dividends as unclaimed property,
even if TCF does not have physical possession of the stock
certificate. In other words, TCF is required to escheat shares
and un-cashed dividends if there has been no stockholder-
initiated activity or no stockholder contact with the transfer
agent within the state’s dormancy period. Unclaimed
property rules vary by state. Some states do not consider
the act of reinvesting dividends in a dividend reinvestment
plan as account activity that would signify a stockholder’s
continued interest in the underlying shares of stock.
Your failure to keep an active account can result in the
escheatment of your shares and any un-cashed dividends
to the state, in which case you will need to request a refund
of the unclaimed property from the state.
Stockholders holding shares in street name should contact
their broker regarding questions about escheatment and
unclaimed property laws.
TCF is not providing legal advice on unclaimed property laws.
{ 123 }
{ 2012 Annual Report } Investor/Analyst Contact
Jason Korstange
Senior Vice President
Corporate Communications
(952) 745-2755
Justin Horstman
Assistant Vice President
Investor Relations
(952) 745-2756
Credit Ratings
Available Information
Please visit our website at http://ir.tcfbank.com for free
access to TCF investor information, news releases, investor
presentations, quarterly conference calls, annual reports,
and SEC filings. Information may also be obtained, free of
charge, from:
TCF Financial Corporation
Corporate Communications
200 Lake Street East
Mail Code: EX0-01-C
Wayzata, MN 55391-1693
(952) 745-2760
Last Review
November 2012
Stable
Last Review
February 2013
Negative
Fitch Ratings
Outlook
TCF Financial Corporation:
Long-term IDR
Short-term IDR
Standard & Poor’s
Outlook
TCF Financial Corporation:
Long-term Counterparty
Short-term Counterparty
TCF National Bank:
Long-term Counterparty
Short-term Counterparty
Preferred Stock
Subordinated Debt
BBB-
A-3
BBB
A-2
BB
BBB-
TCF National Bank:
Long-term IDR
Short-term IDR
Preferred Stock
Subordinated Debt
BBB-
F3
BBB-
F3
B
BB+
Stock Price Performance (In Dollars)
Stock Price Performance (In Dollars)
Stock Price*
Dividends*
5
9
/
0
3
/
1
1
t
i
l
p
S
k
c
o
t
S
7
9
/
8
2
/
1
1
t
i
l
p
S
k
c
o
t
S
4
0
/
3
/
9
t
i
l
p
S
k
c
o
t
S
$35
30
25
20
15
10
5
Year
Ending
Last Review
February 2013
Negative Watch
Moody’s
Outlook
TCF National Bank:
Long-term Issuer
Long-term Deposits
Short-term Deposits
Bank Financial Strength
Subordinated Debt
A3
A3
Prime-2
C
Baa1
$1.50
1.25
1.00
0.75
0.50
0.25
0.00
6-86
12-86
12-88
12-90
12-92
12-94
12-96
12-98
12-00
12-02
12-04
12-06
12-08
12-10
12-12
*Stock split adjusted
For more historical information on TCF’s stock price and dividend, visit http://ir.tcfbank.com.
{ 124 } { TCF Financial Corporation and Subsidiaries }
Corporate Philosophy
Functionally Organized. TCF’s functionally organized management
structure emphasizes four key initiatives: 1) Enterprise Risk
Management, 2) Lending, 3) Funding and 4) Corporate Development.
This functionally organized management structure is supported by
focused profit center reporting and creates a highly responsive and
performance driven culture.
Shareholder Value. TCF focuses on increasing long-term shareholder
value by making sound business decisions, taking advantage of
marketplace opportunities, and preparing for various economic
conditions through balance sheet diversification. Our goal is to make
TCF stock a strong, long-term investment.
Convenience. TCF emphasizes convenience in banking; we’re open
12 hours a day, seven days a week, 364 days per year. TCF banks a large
and diverse customer base. We provide customers innovative products
through multiple banking channels, including traditional, supermarket
and campus branches, TCF Express Teller® and other ATMs, debit cards,
phone banking, Internet banking and mobile banking.
Checking Accounts. TCF focuses on growing and retaining its large
number of low-interest cost checking accounts by offering convenient
hours and delivery channels, and products with many free features,
including TCF Free Checking. TCF uses Free Checking as the anchor
account to build additional customer relationships.
Deposits. TCF earns a significant portion of its profits from the deposit
side of the bank. We accumulate a large number of low cost accounts
through convenient services and products targeted to a broad range
of customers. As a result of the profits we earn from the deposit
business, we can minimize credit risk on the asset side.
Secured and Diversified Lender. TCF maintains a secured loan and
lease portfolio that is well-diversified by type (consumer, commercial,
national lending) and by geography. We further diversify our asset
portfolio by industry, product and collateral type to minimize
concentration risk. In addition, we require our loans and leases to
be supported by collateral to provide an alternate repayment source
beyond cash flow from the borrower, which helps mitigate losses. We
emphasize credit quality over asset growth as the costs of poor credit
quality far outweigh the benefits of unwise asset growth.
Conservative Underwriting. TCF’s diversified asset portfolio and our
extensive credit review practices reduce our credit risks while creating
profitability and sustainable growth, even in the most challenging
economic environments. We extend credit to high-quality customers
and invest only in programs that add value to the organization and
yield solid returns.
Interest-rate Risk. TCF believes interest-rate risk should be
minimized. Interest-rate speculation does not generate consistent
profits and is high risk.
Capital and Liquidity. TCF focuses on prudent capital and liquidity
management which strengthens our capital position, increases our
borrowing capacity, and reduces our costs and risks. We are solidly
capitalized and have access to ample liquidity to conduct business.
TCF’s financial strength makes us a safe and sound financial institution.
Expansion. TCF grows through de novo expansion, acquisition, and
process improvement. We are growing by starting and acquiring new
businesses, opening new branches, offering new products and services,
and improving execution on sales efforts of existing products.
The Customer First. TCF strives to place The Customer First. We believe
providing great service helps to retain existing customers, attract
new customers, create value for our stockholders, and build pride in
our employees. We also respect customers’ concerns about privacy
and know they place their trust in us. TCF is committed to protecting
the private information of our customers and retaining that trust is
our priority.
Stock Ownership. TCF encourages stock ownership by our officers,
directors and employees. We have a mutuality of interest with
our stockholders, and our goal is to earn for them an above-
average return.
Technology. TCF places a high priority on the development of
technology to enhance productivity, customer service and new
products. Properly applied technology increases revenue, reduces
costs and enhances customer service. We centralize back office
activities and decentralize the banking process.
Conservative Accounting. TCF utilizes conservative accounting and
financial reporting principles that accurately and honestly report
our financial condition and results of operations. We believe good
accounting drives good business decision-making.
Employee Communication and Behavior. TCF encourages open
employee communication and places the highest priority on honesty,
integrity and ethical behavior.
Bank Regulators. Bank regulators play an essential role in the
banking industry. Open and effective communication with regulators
throughout the organization is essential to ensuring effective,
efficient and productive bank supervision. TCF is committed to
maintaining strong, positive and professional working relationships
with its regulators.
Equal Treatment. TCF does not discriminate against anyone in
employment or the extension of credit. As a result of TCF’s community
banking philosophy, we market our products and services to everyone
in the communities we serve.
Community Participation. TCF believes in community participation,
both financially and through volunteerism. We feel a responsibility
to help those less fortunate.
Talent Management. TCF believes in fostering strong talent management
to attract highly skilled managers and employees and emphasizes offering
advancement opportunities to existing employees when appropriate.
{ 125 }
TCF Financial Corporation | 200 Lake Street East Wayzata, MN 55391-1693 | tcfbank.com
TCFIR9353