TCF Financial Corporation
Annual Report 2014

Plain-text annual report

the future in focus TCF Financial Corporation | Annual Report 2014 Over the past few years, TCF has successfully reinvented the bank by implementing and executing on several key business model enhancements. These have paid off as TCF has become a much more diversified bank with a unique loan and lease origination capacity funded by core deposits resulting in exceptionally strong net interest margin and fee income. With a renewed business model built for today’s banking environment, reduced legacy credit concerns, and more opportunities still on the horizon, the future is in focus at TCF. table of contents annual report on form 10-k corporate information 1 Financial Summary 2 Select Financial Highlights 3 Letter to Our Stockholders 7 Investing in Technology and Service 1 Business 6 Risk Factors 17 Selected Financial Data A-1 Board of Directors A-2 Senior Officers A-4 Offices 18 Management’s Discussion and Analysis A-4 Stockholder Information 52 Consolidated Financial Statements A-7 Mission, Vision and Values 8 Financial Education 57 Notes to Consolidated Financial Statements 102 Other Financial Data 2014 Annual Report 1 Financial Summary (Dollars in thousands, except per-share data) 2014 2013 % 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 Non-interest income: Fees and other revenue Gains on securities, net Total non-interest income Non-interest expense: Non-interest expense Branch realignment Total non-interest expense Income before income tax expense Income tax expense Income after income tax expense Income attributable to non-controlling interest Net income Preferred stock dividends $815,629 $802,624 95,737 719,892 432,240 1,027 433,267 871,777 – 871,777 281,382 99,766 181,616 7,429 174,187 19,388 118,368 684,256 403,094 964 404,058 836,400 8,869 845,269 243,045 84,345 158,700 7,032 151,668 19,065 Net income available to common stockholders $154,799 $132,603 1.6 % (19.1) 5.2 7.2 6.5 7.2 4.2 (100.0) 3.1 15.8 18.3 14.4 5.6 14.8 1.7 16.7 Per Common Share Information: Basic earnings Diluted earnings Dividends declared Stock price: High Low Close Book value $ 0.95 $ 0.82 15.9 % 0.94 0.20 17.39 13.95 15.89 11.10 0.82 0.20 16.68 12.39 16.25 10.23 14.6 – 4.3 12.6 (2.2) 8.5 (10.1) Price to book value 1.43 X 1.59 X 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 capital ratio(1) 0.96 % 0.87 % 10.3 % 8.71 4.61 0.49 10.07 8.12 4.68 0.81 9.63 7.3 (1.5) (39.5) 4.6 (1) See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Management” (for reconciliation of GAAP to non-GAAP measures). 22 2 TCF Financial Corporation and Subsidiaries Select Financial Highlights Net Interest Margin Percent Loans & Leases Billions of Dollars Deposits Billions of Dollars 4.15% 3.99% 4.65% 4.68% 4.61% $14.8 $14.2 $15.4 $15.8 $16.4 $14.1 $14.4 $15.4 $12.2 $11.6 .53% .38% .31% .26% .26% 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 Total Deposits Average Interest Rate on Deposits Net Charge-offs Percent Non-accrual Loans & Leases and Other Real Estate Owned Millions of Dollars Tangible Common Equity1 Millions of Dollars 1.47% 1.45% 1.54% $486 $476 $433 0.81% 0.49% $1,635 $1,628 $1,366 $1,458 $1,318 $346 $282 7.20% 8.72% 7.59% 8.03% 8.50% 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 Tangible Common Equity Tangible Common Equity/Tangible Assets 2014 Earning Assets $17.3 Billion 2014 Interest Income2 $878 Million 2014 Non-interest Income $433 Million 15% Consumer real estate ( junior liens) 5% Securities & other 2% Investments 11% Inventory fi nance 2% Securities 11% Auto fi nance 21% Consumer real estate & other (fi rst mortgages) 2% Loans & leases held for sale 13% Inventory fi nance 18% Commercial 22% Leasing & equipment fi nance 18% Consumer real estate & other (fi rst mortgages) 16% Commercial 19% Leasing & equipment fi nance 17% Consumer real estate (junior liens) 8% Auto fi nance 8% Gains on sales of consumer real estate loans, net 5% Servicing fee income 2% Other 36% Deposit fees & service charges 22% Leasing & equipment fi nance 12% Card revenue 5% ATM revenue 10% Gains on sales of auto loans, net 1 See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Management” (for reconciliation of GAAP to non-GAAP measures). 2 Interest income presented on a fully tax-equivalent basis William A. Cooper, Chairman of the Board & Chief Executive Officer Dear Stockholders: It is hard to believe that it has been increased 10.1 percent to $9.72. We Our loan origination capacity is 30 years since I first took over as maintained an industry-leading net significant for a number of reasons. Chief Executive Officer at TCF. As I interest margin in 2014 of 4.61 First, it creates revenue through begin my final year leading the bank, percent, over 100 basis points greater interest income as our unique I often look back and find myself than our peer average. Our stock portfolio mix allows us to put amazed at all the exceptional things price closed the year at $15.89 with a high-yielding, high-quality earning this company has accomplished. We three-year total stockholder return of assets on our balance sheet. Second, were the first to launch totally free 61.02 percent. checking, completed several acquisitions and stock splits, acquired new businesses, started businesses from scratch, repositioned the balance sheet and successfully completed significant business model changes while reducing balance sheet credit risk to meet a changing regulatory landscape. These events laid the groundwork for the success we had in 2014 and have helped us bring the future of TCF into focus. A Look at 2014 A significant factor in our success in 2014 was our loan and lease origination engine. We originated $13.5 billion of loans and leases in 2014, up 12.2 percent from 2013. As a result, total assets now consist of 85 percent loans and leases. These originations have largely been driven by our national lending businesses, including Leasing and Equipment Finance, Inventory Finance, Gateway One Lending & Finance and our national junior lien mortgage business. We recognized 2014 was a very good year for us several years ago that the banking despite continued headwinds as industry and regulatory environment the economy showed little, if any, in America were evolving. To improvement until late in the year compete, we needed to not only and interest rates remained at succeed in our footprint businesses, historic lows. We earned net income such as branch banking, retail within our lending platforms, we have a niche lending strategy which allows our portfolio to be well diversified by type of credit, geography, industry, product and collateral type. Finally, our core loan sale capability allows us to reduce risk by actively managing loan concentrations as well as generating gains on sales and servicing fees. Given the growth of our national lending platforms, investors, rating agencies and regulators have all expressed concern about the future credit quality of these businesses. We believe our experienced manage- ment teams and effective risk mitigation strategies within these businesses provide for consistent performance moving forward. of $174.2 million, or 94 cents per lending and commercial lending, but We entered the inventory finance share, up 14.8 percent and 14.6 we needed to be successful lending business in 2008 and it is led by a percent, respectively, from 2013. nationally as well. As a result, we management team that averages Return on average tangible common developed a unique mix of lending over 30 years of experience specifi- equity increased from 9.58 percent platforms that have allowed us to cally in this industry. Business is to 10.08 percent during the year, generate originations at an generated through program while tangible book value per share extremely efficient level. relationships with strong 4 4 manufacturers, primarily in the sources of credit support, including $74 thousand. These businesses had powersports, lawn and garden, the credit of the retailer, the value of net charge-offs of only 0.10 percent appliances and electronics, and the collateral and the arrangements in 2014 and are both run by very marine industries. We finance the with the manufacturers. In addition, experienced management teams. inventory shipped to the retail credit risk is spread across more than dealers of the manufacturers. Not 9,600 active dealers in all 50 states only do we have the inventory as and Canada. Our legacy lending businesses, commercial and retail lending, have also added national lending collateral, but we underwrite each dealer’s credit and generally have agreements with manufacturers to reallocate repossessed inventory at no loss to us. These loans turn very quickly with an estimated weighted average life of four months. Auto financing, on the other hand, is components in recent years. As part a newer business which we have been of our commercial business, we in for three years. We acquired the started TCF Capital Funding, an business with a fully developed asset-based and cash flow lending origination and servicing platform, as business, in 2012. Similar to our other well as a seasoned management team businesses, TCF Capital Funding is run averaging 25 years of experience in by a very experienced management Inventory finance has been our best auto finance. Net charge-offs in 2014 team, which we recruited as a group, performing business in terms of were 0.66 percent. As the portfolio is and has seen no charge-offs since its losses, even during the recession. still maturing, losses may continue to inception. Risks are mitigated by Net charge-offs in 2014 were slowly increase and are expected to secured lending and diverse 0.04 percent while peak losses since stabilize around 75 basis points. The collateral types. While we are letting the business began were 0.17 percent biggest risks in the auto business are our legacy first residential mortgage in 2010. This is a high credit quality a weak economy and falling auto portfolio run off, we are originating business because it has multiple values. We mitigate these risks by high-quality junior lien mortgages to Loan & Lease Originations Billions of Dollars $13.5 $12.1 $10.8 $5.2 $5.5 selling our lower FICO originations high FICO borrowers across the and consistently underwriting with a United States. Risks are mitigated focus on all aspects of the transaction, through the portfolio’s strong loan- including credit, stability and ability to-value and debt-to-income ratios as to pay. The current average FICO of well as quarterly loan sales to manage the portfolio loans is 724. concentration risk. This portfolio had Our most seasoned national lending business is Leasing and Equipment Finance, which we have been in since no net charge-offs in 2014, nearly no delinquencies and a current average FICO of 742. 10 11 12 13 14 1997 with the acquisition of Winthrop In late 2014, we further mitigated the Loan & Lease Portfolio Billions of Dollars $14.8 $14.2 $15.4 $15.8 $16.4 10 11 12 13 14 Consumer Real Estate and Other Auto Finance Commercial Leasing and Equipment Finance Inventory Finance Resources Corporation, our high-tech balance sheet credit risk of our legacy leasing company. Winthrop, TCF’s retail portfolio by selling $405.9 highest ROA business, is able to million of consumer troubled debt mitigate risk by financing business- restructurings (“TDRs”) which essential equipment through high resulted in a $23.1 million pre-tax credit quality borrowers. Our other charge. We expect to recover this leasing business, TCF Equipment loss in less than three years through Finance, is well diversified in select reduced net charge-offs, lower segments such as specialty vehicles, expenses and increased margin manufacturing, medical, construction created by redeploying funds into and technology. Together, these higher yielding assets. We also businesses are well diversified by expect to see a quicker reduction equipment type and geography of non-performing assets moving with an average loan size of just forward as the TDR sale will help to TCF Financial Corporation and SubsidiariesNet Charge-offs by Business Percent Consumer Real Estate 3.00% Commerical Leasing and Equipment Finance Inventory Finance Auto Finance 2.00% 1.00% 0.00% 2010 2011 2012 2013 2014 reduce inflows into non-performing focus on strong enterprise risk assets. Our remaining accruing management, will carry us into TDR consumer portfolio totaled 2015 and beyond. 5 In addition, 89 percent of our deposits are FDIC-insured, making them very sticky even in an economic downturn. We have a track record of being able to raise deposits as needed to fund our ongoing loan and lease originations. For us to continue to attract high- quality deposits, we must remain competitive from a product and service standpoint. We have made several enhancements and will continue to do so moving forward. These have included image-enabled ATMs, upgrades to our online and mobile channels and participation in Apple PayTM. We also began offering first lien mortgages again in the $111.9 million with reserves of 23 percent at December 31, 2014. We created these TDRs by rewriting mortgage loans at lower interest rates for troubled borrowers, helping to keep thousands of TCF customers in their homes. This program, of which we are very proud, was a huge success benefiting both TCF and our customers. This portfolio sale allows us to diversify further away from our legacy consumer real estate portfolio, while providing a fresh start as we move into 2015. A Look Ahead With the overhang of our legacy branches on a correspondent basis. consumer real estate portfolio We are reviewing additional product decreased due to the TDR sale, and service opportunities, including I am excited to begin 2015. A key offering auto loans in the branches, area where the TDR sale will help credit cards, and additional online and us in 2015 is through a reduction in mobile upgrades. These efforts are regulatory and operational costs. aimed at creating new and enhanced During the first quarter of 2014, we touch points with customers to ensure consolidated 46 underperforming a long relationship with the bank. branches to further improve efficiencies as branch traffic has slowed due to increased use of online and mobile banking. Expense efficiencies will continue to be a key focus in 2015. Banking regulation will continue to be a focus in 2015. While it is too early to predict the impact of new rules, we have been proactive in taking steps to align our products with industry best practices. We Executing on the investments we We fund our asset growth primarily were one of the first banks to adopt have made in the business over the with low-cost, core deposits. This is deposit account disclosures based past few years has brought the future a key part of our strategy we expect on the Pew Charitable Trust Model into focus at TCF. We are no longer to continue in 2015 and beyond. and eliminated high-to-low sort a bank which simply gathers Average total deposits have order years ago. In addition, the deposits and makes loans in our increased for 17 consecutive quarters diversification of our revenue away footprint. As we look ahead, we are at TCF and had an average interest from banking fees will help to now a company that uses our cost of just 0.26 percent in 2014. All minimize the impact we see from high-quality deposit base to fund in all, the total cost for us to acquire future regulatory changes related to loan and lease originations not only deposits is our fee income less fees. With the increase in gains on in our markets, but also through interest and operating expenses, loan sales and servicing revenue, unique and diverse national lending which was 1.71 percent in 2014, lower banking fees made up just 53 platforms. This strategy, with a than a five-year FHLB borrowing rate. percent of total non-interest income 2014 Annual Report6 “As we look ahead, we are now a company that uses our high-quality deposit base to fund loan and lease originations not only in our markets, but also through unique and diverse national lending platforms. This strategy, with a focus on strong enterprise risk management, will carry us into 2015 and beyond.” in 2014, down from 80 percent just I also want to thank our Board of five years ago. Everyone is also anxiously waiting to see what happens with interest rates in 2015. We are well positioned for a rising rate environment. Approximately 80 percent of our assets are variable/adjustable rate Directors for their guidance over the past year. I especially want to thank Ray Barton who will retire from the Board on April 22, 2015. Ray has served on the Board since 2011 and we appreciate the leadership he has provided during his tenure. or short/medium duration fixed rate. Finally, I want to thank our employees This means that a large portion of for their hard work during another our asset base will re-price as rates challenging year. This is the group rise. In addition, 64 percent of our that makes our company great. I deposits are low or no interest cost. appreciate their dedication and Our low-cost deposit base becomes willingness to do whatever it takes much more valuable in a rising rate to put the customer first, as well as environment. We believe we are set their contributions in the community. to become a more profitable bank For example, I am proud to say that through a higher net interest margin TCF and its employees generously when rates rise. contributed over $3 million to Finally, enterprise risk management has been a key focus for us. This function has grown significantly over the past year and will continue to grow as we move into 2015. The goal charitable organizations in 2014. In addition, we have been committed to building a financially stronger community through our financial education program. of enterprise risk management is to I am very fortunate to have had the ensure we are managing all risks of opportunity to lead TCF for the last the company, including credit risk, in 30 years. I have enjoyed working a prudent and responsible manner, closely with our Board of Directors, especially given the ever-changing employees, various constituents regulatory landscape. I am very and stockholders. I am proud of how pleased with the enhancements far we have come as a company, we have made in this area. especially through some very In Closing I want to thank Barry Winslow and Earl Stratton who both announced their retirements over the past year. Barry joined TCF in 1987 and most recently served as Vice Chairman of Corporate Development. Earl joined TCF in 1985 and most recently held the role of Chief Operations Officer. Both have played an extremely influential role in TCF’s success over challenging times. While it will be difficult to walk away as CEO at the end of the year, I am comforted by the exceptionally strong manage- ment team we have in place, the best I’ve ever worked with. I look forward to continuing to work with this group as Chairman of the Board through 2017. The future is bright and in focus for TCF. the past 30 years. They are great William A. Cooper friends and will be missed. Chairman and Chief Executive Officer TCF Financial Corporation and Subsidiaries2014 Annual Report 7 Investing in Technology and Service TCF continues to make signifi cant investments to deliver even better customer experiences in all of its lines of business. From introducing new products and services to meet the needs of retail banking customers to developing new technology platforms to help our business customers manage their inventories, TCF is focused on delivering a high quality customer service experience. These enhancements provide the opportunity to grow and expand customer relationships and position us to increase the scale of our businesses. Retail Bank Investments In 2014, we invited customers to provide us with feedback about their banking experience through MakeTCFBetter.com. We received many helpful comments that identifi ed opportunities to improve our products, services and processes to be more convenient and transparent to our customers. We introduced a new residential mortgage product in TCF’s retail branches to provide a convenient and personal approach to home fi nancing. We also improved our technology platforms with upgrades to our mobile and online banking applications, as well as signifi cant upgrades to the way accounts are opened online. The new features in all of these platforms deliver a better overall user experience while providing the technology necessary to evolve our online banking platforms with additional feature enhancements in the future. Responding to customers’ requests to provide convenient banking whenever and wherever they want, we began installing a fl eet of image- enabled ATM machines that simplify basic transaction services on a 24/7 basis. TCF implemented several upgrades and feature enhancements to its mobile and online banking platforms in 2014. TCF also renewed its commitment to quality customer service. TCF retail banking employees participated in new training programs focused on ensuring they have the skills and tools they need to provide excellent service with every interaction. Investments in National Lending We made a signifi cant investment in Gateway One’s loan servicing system to expand our origination and servicing capabilities, as well as improve scalability, functionality and capacity. As the number of dealers served by Gateway One continues to grow, it is critical we have the technology in place to deliver timely information and effi ciently manage the loan origination process. These new ATMs feature We also committed to harnessing technology to facilitate envelope-free deposits for more effi cient loan and lease processes in other areas of both currency and checks our business. Leveraging industry-leading technologies, and provide a receipt image Winthrop Resources introduced a new sales transaction of the deposit made into a process that simplifi ed workfl ows, improved the effi ciency customer’s account. This of our approval processes and established an electronic improves the accuracy and document management system. These enable Winthrop convenience of conducting to deliver a more seamless experience for customers while basic transactions. providing the scalability to grow with the business. TCF is investing in new ATM technology to improve the customer experience. 8 TCF Financial Corporation and Subsidiaries TCF Vice Chairman Tom Jasper joined Minnesota Commissioner of Commerce Mike Rothman and graduates of the TCF Financial Scholars Program from Eden Prairie High School (MN) in testing their fi nancial IQ during Financial Literacy Awareness Month. TCF Vice Chairman Tom Jasper joined Chicago Mayor Rahm Emanuel and Cook County Board President Toni Preckwinkle in congratulating students on their accomplishments through the One Summer Chicago Program. Financial Education Last year, TCF made the bold commitment to provide free Expanding our Reach in Chicago fi nancial education for both teens and adults through the TCF Financial Learning Center and the TCF Financial Scholars Program. These programs are examples of how we are investing in our customers and employees, and improving the quality of life in the communities we serve. In just the fi rst In 2014, TCF was proud to extend its support for fi nancial education in Chicago by supporting the TCF Financial Scholars Program in the Chicago Public School system. This greatly expands the reach of this valuable curriculum in the 2014–2015 school year to nearly 100 high schools in the city, full year of these programs, more than 30,000 high school encompassing more than 110,000 students. students, customers and employees benefi ted from the In addition, TCF was proud to bring the same curriculum programs. Momentum continues to build for these programs to nearly 6,500 teens participating in One Summer Chicago, and TCF has set a long-term goal of reaching two million a summer employment and internship opportunity provided teens and adults. Both the TCF Financial Scholars Program and the TCF Financial Learning Center make use of the unique methodology developed by EverFi, a leading education-technology by civic organizations, nonprofi ts and corporations. In addition to receiving critical job and life-skills training, students in the program completed the Financial Scholars Program as part of their summer experience. company unaffi liated with TCF. The courses include video, TCF Financial Learning Center for Adults animations, gamifi cation and social networking to simplify complex fi nancial concepts for teens and adults. The TCF Financial Learning Center includes practical and impartial fi nancial information that helps anyone manage their money more effectively, make decisions that strengthen TCF Financial Scholars Program for Students their fi nancial future, and gain confi dence in their fi nancial The TCF Financial Scholars Program is a teacher-led curriculum knowledge. The eight essentials of fi nancial education are: that includes six to eight hours of classroom instruction • Savings and investments combined with an interactive online learning platform for high school students. TCF funds the Financial Scholars • Mortgages • Overdrafts Program to make it available free to schools, many of which • Payment types and credit cards are mandated to teach fi nancial literacy but lack the funding • Credit scores and reports for a qualifi ed curriculum. In 2014, the TCF Financial Scholars • Identity protection Program was used in more than 340 local schools and school • Insurance and taxes districts in the communities TCF serves. • Financing higher education FORM 10-K TCF Financial Corporation For the fiscal year ended December 31, 2014 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (cid:1) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2014 or (cid:3) 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 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1) No (cid:3) 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 (cid:3) No (cid:1) 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 (cid:1) No (cid:3) 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 (cid:1) No (cid:3) 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. (cid:3) 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. Large accelerated filer (cid:1) Non-accelerated filer (cid:3) (Do not check if a smaller reporting company) (cid:3) Accelerated filer Smaller reporting company (cid:3) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No (cid:1) 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 $2,468,333,703. As of February 17, 2015, there were 167,692,420 shares outstanding of the registrant’s common stock, par value $.01 per share, its only outstanding class of common stock. DOCUMENTS INCORPORATED BY REFERENCE Specific portions of the Registrant’s definitive Proxy Statement for the 2015 Annual Meeting of Stockholders to be held on April 22, 2015 are incorporated by reference into Part III hereof. 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. 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 Item 9. Item 9A. 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 Item 9B. Other Information Part III Item 10. Item 11. Item 12. Item 13. Item 14. 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 6 13 13 13 13 14 17 18 48 51 51 52 57 102 103 103 104 105 106 106 107 107 107 107 108 109 110 Part I Item 1. Business General TCF Financial Corporation (together with its subsidiaries, ‘‘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 Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana (TCF’s primary banking markets). TCF delivers retail banking products in over 40 states and commercial banking products mainly in TCF’s primary banking markets. TCF also conducts commercial leasing and equipment finance business in all 50 states and, to a limited extent, in foreign countries; commercial inventory finance business in all 50 states and Canada and, to a limited extent, in other foreign countries and indirect auto finance business in all 50 states. TCF generated total revenue, defined as net interest income plus total non-interest income, of $1.2 billion in the U.S. in each of 2014, 2013 and 2012. International revenue was $27.9 million, $25.3 million and $21.3 million in 2014, 2013 and 2012, respectively. TCF had total assets of $19.4 billion as of December 31, 2014 and was the 45th largest publicly traded bank holding company in the United States based on total assets at September 30, 2014. 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 the 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 in all markets 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 interest cost deposits. TCF’s growth strategies include organic growth in existing businesses, development of new products and services, new customer acquisition through electronic channels and acquisitions of portfolios or companies. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. TCF continues to focus on asset growth in its leasing and equipment finance, inventory finance and auto finance businesses funded through deposit generation, as well as expanding its junior lien lending business. TCF’s reportable segments are comprised of Lending, Funding and Support Services. Lending includes consumer real estate, commercial real estate and business lending, leasing and equipment finance, inventory finance and auto finance. Funding includes branch banking and treasury services, which 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 22 of Notes to Consolidated Financial Statements, Business Segments, 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. Consumer Real Estate TCF makes consumer loans for personal, family or household purposes, such as home purchases, debt consolidation and financing of home improvements. 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 very limited extent, unsecured personal loans. Consumer loans are made on a fixed-term basis or as a revolving line of credit. Loans are originated for investment and for sale to third party financial institutions. TCF does not have any consumer real estate subprime lending programs. TCF continues to expand its junior lien lending business through the development of a national lending platform focused on junior lien loans to high credit quality customers. Commercial Real Estate and Business Lending Commercial real estate loans are loans originated by TCF that are secured by commercial real estate, including multi-family housing, retail services, office buildings, warehouse and industrial buildings, health care facilities and commercial real estate construction loans, mainly to borrowers based in its primary banking markets. 1 Commercial business loans are loans originated by TCF that are 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. TCF continues to develop its capital funding business that began in 2012 specializing in secured, asset-backed and cash flow lending to smaller middle-market companies in the U.S. Approximately 67% of TCF’s commercial business loans outstanding at December 31, 2014 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 in a growing number of select market segments including specialty vehicles, manufacturing, construction, medical, golf cart and turf, and technology and data processing. TCF’s leasing and equipment finance businesses, TCF Equipment Finance, a division of TCF Bank, 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 essential business equipment such as computers, servers, telecommunication equipment, medical equipment and other technology equipment. Inventory Finance TCF Inventory Finance, Inc. (‘‘TCF 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 of powersports, lawn and garden, electronics and appliances, recreational vehicles, marine and specialty vehicles. TCF Inventory Finance operates in all 50 states and Canada and, to a limited extent, in other foreign countries. TCF Inventory Finance’s portfolio balances are impacted by seasonal shipments 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(cid:4) and Exmark(cid:4) brands with reliable, cost-effective sources of financing. TCF maintains a 55% ownership interest in Red Iron, with Toro owning the other 45%. 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 more than 10,500 franchised and independent dealers in all 50 states. Loans are originated for investment and for sale. 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 plan accounts. TCF’s marketing strategy emphasizes attracting deposits, primarily in checking accounts, savings accounts, money market accounts and certificates of deposit. Such deposit accounts are a source of low cost funds and provide fee income, including banking fees and service charges. At December 31, 2014, TCF had 379 branches, consisting of 193 traditional branches, 178 supermarket branches and eight campus branches. TCF operates 158 branches in Illinois, 99 in Minnesota, 53 in Michigan, 35 in Colorado, 24 in Wisconsin, seven in Arizona, two in South Dakota and one in Indiana. Of its 178 supermarket branches, TCF had 118 branches in Jewel-Osco(cid:4) stores at December 31, 2014. In March 2014, TCF consolidated 37 in-store branches in Illinois and nine in Minnesota as a result of its retail banking system realignment that was announced in December 2013 to support its strategic initiatives. See ‘‘Item 1A. Risk Factors’’ for additional information regarding the risks related to TCF’s supermarket branch relationships. Non-interest income is a significant source of revenue for TCF and an important factor in TCF’s results of operations. In recent years, 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 2 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. 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, brokered deposits, repurchase agreements, federal funds and other permitted borrowings from creditworthy 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 Note 10 and Note 11 of Notes to Consolidated Financial Statements, Short-term Borrowings and Long-term Borrowings, respectively. Support Services Support Services 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, inventory finance and auto finance activities. See ‘‘Lending’’ above for more information. Competition TCF competes with a number of depository institutions and financial service providers primarily based on price and service and faces significant competition in attracting and retaining deposits and in lending activities. Direct competition for deposits comes primarily from banks, savings institutions, credit unions 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, leasing of equipment and consumer real estate junior lien loans. Expanded use of the internet has increased competition affecting TCF and its loan, lease and deposit products. Employees As of December 31, 2014, TCF had 7,023 employees, including 1,622 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 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 extensive regulation. Among other things, TCF Financial and TCF Bank are subject to 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’’). TCF’s consumer products are also regulated by the Consumer Financial Protection Bureau (‘‘CFPB’’). 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 as engaging in unsafe or unsound practices 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 compliance with the plan. TCF and TCF Bank were ‘‘well-capitalized’’ under the FDICIA capital standards as of December 31, 2014. In July 2013, the Board of Governors of the Federal Reserve System, the OCC and FDIC approved final rules (the ‘‘Final Capital Rules’’) implementing revised capital requirements to reflect the requirements of the Dodd-Frank Wall Street Reform and 3 Consumer Protection Act of 2010 (the ‘‘Dodd-Frank Act’’) and the Basel III international capital standards. Among other things, the Final Capital Rules establish a new capital ratio of common equity Tier 1 capital of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets; increase the minimum ratio of Tier 1 capital ratio from 4% to 6% and include a minimum leverage ratio of 4%; place an emphasis on common equity Tier 1 capital and change the risk weights assigned to certain instruments. Failure to meet these standards would result in limitations on capital distributions as well as executive bonuses. The Final Capital Rules became applicable to TCF on January 1, 2015 with conservation buffers phasing in over the subsequent five years. 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 in determining 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 requirements may be higher in the future than existing minimum regulatory capital requirements. 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 applicable 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 undercapitalized 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 and state law, merger and branch acquisition transactions may be subject to certain restrictions, including 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 of January 1, 2013, the aggregate balance of a depositor’s deposit accounts are insured up to at least the standard maximum deposit insurance amount of $250 thousand at each separately chartered FDIC-insured institution. Under Section 331 of the Dodd-Frank Act, the FDIC insurance assessment base is defined as average total assets minus tangible equity. 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 assessment rate for 2014 was 62 cents for each $100 of deposits. 4 Financing Corporation assessments of $1.0 million, $1.1 million and $1.1 million were paid by TCF Bank in 2014, 2013 and 2012, respectively. The Dodd-Frank Act also 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, 2014, the DIF ratio calculated by the FDIC using estimated insured deposits was 0.89%. The DIF reserve ratio would have been 0.41% using the new assessment base. In 2014, for banks with at least $10 billion in total assets, the annual insurance premiums on bank deposits insured by the DIF 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 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 and lease 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. Various enforcement remedies, including civil money penalties, may be assessed against an institution or an institution’s directors, officers, employees, agents or independent contractors. Certain enforcement actions may not be publicly disclosed by TCF or its regulatory authorities. Subsidiaries of TCF Bank are also subject to state and/or self-regulatory organization licensing, regulation and examination requirements in connection with certain activities. National Bank Investment Limitations Permissible investments by national banks are limited by the National Bank Act of 1864, as amended, 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 authority to administer and carry out the purposes and objectives of the federal consumer financial laws with respect to all consumer financial products and services. Among other things, the Dodd-Frank Act: (i) directed the Federal Reserve to issue rules limiting debit-card interchange fees for larger banks, (ii) eliminated federal preemption for subsidiaries of national banks and federal savings associations, and (iii) required larger banks to conduct annual stress tests and report results. Taxation Federal Taxation TCF’s federal income tax returns are open and subject to examination for 2012 and later tax return years. State Taxation TCF and/or its subsidiaries currently file tax returns in all states and local taxing jurisdictions which impose corporate income, franchise or other taxes. 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.’’ Foreign Taxation TCF and/or its subsidiaries currently file tax returns in Canada and certain Canadian provinces which impose corporate income taxes. 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 Note 1 and Note 12 of Notes to Consolidated Financial Statements, Summary of Significant Accounting Policies and Income Taxes, respectively, for additional information regarding TCF’s income taxes. Available Information TCF’s website, www.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 5 Form 8-K, proxy statements, 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, and 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 EX0-01-G, 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 foreign countries. 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 ability of TCF to sell or securitize 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 automobiles or equipment that 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 automobile and equipment values for automobiles and 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 leasing and 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 attract or retain 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 or 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 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. TCF Financial’s liquidity comes principally 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. 6 Competition for growth in deposits and evolving payment system developments 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. Industry developments involving payment system changes could also impose additional costs. 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 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 if 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, including reliance on other companies for the provision of key components of its business infrastructure, 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. 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 inadequate or interrupted service, could adversely affect TCF’s ability to process, record or monitor transactions, or 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. 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. Hacking and identity theft risks, in particular, could cause serious financial and reputational harm. Cyber threats are rapidly evolving and TCF may not be able to anticipate or prevent all such attacks. While TCF does not believe it has 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 its 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. In addition, there have been increasingly sophisticated and large-scale efforts on the part of third parties to breach data security with respect to financial transactions, including by intercepting account information at locations where customers make purchases, as well as through the use of social engineering schemes such as ‘‘phishing.’’ For example, large retailers such as Target Corporation, Home Depot, SUPERVALU Inc. and Neiman Marcus Group LTD LLC reported data breaches resulting in the loss of customer information. In the event that third parties are able to misappropriate financial information of TCF’s customers, even if such breaches take place due to weaknesses in other parties’ internal data security procedures, TCF could suffer reputational or financial losses which could have a material adverse effect on its financial condition and results of operations. 7 The success of TCF’s supermarket branches depends on the continued long-term success and viability of TCF’s supermarket partners, TCF’s ability to maintain licenses or lease agreements for its supermarket locations and customer preferences. A significant financial decline or change in ownership involving one of TCF’s supermarket partners, including SUPERVALU Inc. or Jewel-Osco, could result in the loss of supermarket branches or could increase costs to operate the supermarket branches. At December 31, 2014, TCF had 178 supermarket branches. Supermarket banking continues to play an important role in TCF’s deposit account strategy. 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. Also, continued difficult economic conditions, financial or labor difficulties in the supermarket industry, or a decrease in customer utilization of traditional bank branches may reduce activity in TCF’s supermarket branches. Any of these 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 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. TCF’s remedies may not fully satisfy the obligations owed to TCF upon default by a borrower. 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 will be 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 and lease loss experience, current loan and lease portfolio quality, present economic, political and regulatory conditions and unidentified losses in the current loan and lease 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 and leases, identification of additional problem loans and leases 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 and lease 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. 8 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 bank customers, depositors’ funds, federal deposit insurance funds and the banking system as a whole, not stockholders. These regulations affect TCF’s revenues, 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. Many new banking rules are issued with limited interpretive guidance. Changes to statutes, regulations or regulatory policies, including changes in interpretation or enforcement of such statutes, regulations or policies, could affect TCF in substantial and unpredictable ways. In recent years there has been an increase in the frequency of enforcement actions brought by regulatory agencies, such as the CFPB, dealing with matters such as indirect auto lending, fair lending, account fees, loan servicing and other products and services provided to customers. Changes in regulations, regulatory policies and enforcement activity could subject TCF to reduced revenues, additional costs, limits on the types of financial services and products it may offer or increased competition from non-banks offering competing financial services and products, among other things. 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. Several financial institutions, including TCF, have received sanctions and some have incurred large fines for non-compliance. 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 increase unemployment or 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. Legislative and regulatory initiatives have substantially increased compliance burdens in recent years, 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, and uncertainty remains as to many aspects of its ultimate impact. This 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. The CFPB has examination and enforcement authority over TCF Bank and its subsidiaries, and 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. Uncertainties remain concerning how the term ‘‘abusive’’ will be enforced. 9 It is highly likely that banks and bank holding companies will continue to be subject to significantly increased regulation and compliance obligations that expose TCF to risk and consequences of noncompliance, which could have a material adverse effect on TCF’s financial condition and results of operations. 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 legal and compliance, operational, reputational, strategic and market risk such as credit, interest rate, liquidity and foreign currency 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. The Company may be subject to certain risks related to originating and selling loans. When loans are sold or securitized, it is customary to make representations and warranties to the purchaser or investors about the loans and the manner in which they were originated. These agreements generally require the repurchase or substitution of loans in the event TCF breaches any of these representations or warranties. In addition, there may be a requirement to repurchase loans as a result of borrower fraud or in the event of early payment default of the borrower on a loan. TCF has not received a significant number of repurchase and indemnity demands from purchasers, and such demands have typically resulted from borrower fraud and early payment default of the borrower on loans. A material increase in repurchase and indemnity demands could have a material adverse effect on TCF’s financial condition and results of operations. TCF retains interest-only strips in connection with certain of its loan sales. The interest-only strip is recorded at fair value at the time of sale, which represents the present value of future cash flows generated by the loans to be retained by TCF. The value of these interest-only strips may be affected by factors such as changes in the behavior patterns of customers (including defaults and prepayments), changes in the strength of the economy and developments in the interest rate markets; therefore, actual performance may differ from TCF’s expectations. The impact of such factors could have a material adverse effect on the value of these interest-only strips and on TCF’s financial condition and results of operations. In addition, TCF relies on the sale and securitization of loans to generate earnings and manage its liquidity and capital levels, as well as geographical and product diversity in its loan portfolio. For example, TCF sold $2.7 billion of loans from its auto and consumer real estate businesses for a pre-tax gain of $78.8 million in 2014 including its inaugural consumer auto loan securitization of $256.3 million of loans during the third quarter of 2014 for a pre-tax gain of $7.4 million. Disruptions in the financial markets, changes to regulations that reduce the attractiveness of such loans to purchasers of the loans, or a decrease in the willingness of purchasers to purchase loans in general, or from TCF, could require TCF to decrease its lending activities or retain a greater portion of the loans it originates. Although retaining, rather than selling, loans would generate additional interest income, it would result in a decrease in the gains recognized on the sale of loans, could result in decreased liquidity, and could result in increased credit risk as TCF’s loan portfolio increased in size from loans it originated but had otherwise planned to sell. As a result, any of these developments 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 10 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 qualified replacements. 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’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. 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 all of TCF’s 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. Acquiring other banks, businesses or branches involves various risks, 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, any of which could have a material adverse effect on TCF’s financial condition and results of operations. 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. 11 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 understanding 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 accounting 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 preparation 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 restating prior period financial statements in material amounts. TCF is subject to examinations and challenges by tax authorities. TCF is subject to federal, state, and foreign 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 taxing authorities, regarding its tax positions. 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. These challenges 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. Significant legal actions could subject TCF to substantial uninsured liabilities. TCF can be subject to claims and legal actions related to its operations. These claims and legal actions, including supervisory or enforcement actions by TCF’s regulators and other government authorities or private litigation, could result in large monetary awards or penalties, as well as significant defense costs. While TCF maintains insurance coverage in amounts and with deductibles that it believes are appropriate for its operations, such insurance does not cover all types of liability, and 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 TCF’s sale or servicing of its loan, lease and deposit products. Whether or not such claims and legal action have merit, they 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. In particular, the financial services industry has increasingly been targeted by lawsuits alleging infringement of patent rights, often from patent holding companies seeking to monetize patents they have purchased or otherwise obtained. Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted and costly litigation which may be time consuming and disruptive to TCF’s operations and management. If the Company is found to infringe one or more patents or other intellectual property rights, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting the Company from utilizing certain technologies. 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 12 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. Item 1B. Unresolved Staff Comments None. Item 2. Properties Offices TCF owns its headquarters offices in Wayzata, Minnesota. Other operations facilities, located in Minnesota, Illinois, California, and South Dakota, are either owned or leased. These facilities are utilized by the Lending segment and all but the location in California are utilized by the Funding segment. The facility in Minnesota is also utilized by the Support Services segment. At December 31, 2014, TCF owned the buildings and land for 147 of its bank branch offices, owned the buildings but leased the land for 27 of its bank branch offices and leased or licensed the remaining 205 bank branch offices, all of which are functional and appropriately maintained and are utilized by both the Lending and Funding segments. These branch offices are located in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana. For more information on premises and equipment, see Note 7 of Notes to Consolidated Financial Statements, Premises and Equipment. Item 3. Legal Proceedings From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the CFPB. From time to time, borrowers and other customers, and employees and former employees, have also brought actions against TCF, in some cases claiming substantial damages. TCF and other financial services companies are subject to the risk of class action litigation. 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 failures related to regulatory compliance. Item 4. Mine Safety Disclosures Not applicable. 13 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 February 17, 2015, there were 5,913 holders of record of TCF’s common stock. 2014: Fourth Quarter Third Quarter Second Quarter First Quarter 2013: Fourth Quarter Third Quarter Second Quarter First Quarter High Low Dividends Declared $16.12 16.95 17.30 17.39 $16.46 16.68 15.32 15.04 $13.95 15.12 15.01 15.31 $14.29 13.69 13.49 12.39 $0.05 0.05 0.05 0.05 $0.05 0.05 0.05 0.05 The Board of Directors of TCF Financial and TCF Bank have each adopted a Capital Planning Policy 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 14 of Notes to Consolidated Financial Statements, Regulatory Capital Requirements. 14 Total Return Performance The following chart 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 (‘‘S&P’’) 500 Stock Index, the SNL U.S. Bank and Thrift Index and a TCF-selected group of peer institutions (assuming the investment of $100 in each index on December 31, 2009 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, 2013. TCF Total Stock Return Performance Chart TCF Financial Corporation SNL Bank and Thrift (1) S&P 500 Index TCF Peer Group (2) 225 200 175 150 125 100 75 e u l a V x e d n I 50 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12FEB201504432999 12/31/14 Index TCF Financial Corporation SNL Bank and Thrift(1) S&P 500 Index TCF Peer Group(2) Year Ended December 31, 2009 $100.00 100.00 100.00 100.00 2010 $110.16 111.64 115.06 111.38 2011 $ 77.91 86.81 117.49 94.98 2012 $ 93.44 116.57 136.30 108.02 2013 $126.68 159.61 180.44 151.86 2014 $125.46 178.18 205.14 155.65 (1) Includes all major exchange (NYSE, NYSE MKT, NASDAQ) banks and thrifts in SNL’s coverage universe (445 companies as of December 31, 2014). (2) The TCF Peer Group consists of publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of September 30, 2013, including: New York Community Bancorp, Inc.; First Republic Bank; Hudson City Bancorp, Inc.; First Niagara Financial Group, Inc.; Popular, Inc.; People’s United Financial, Inc.; City National Corporation; BOK Financial Corporation; Synovus Financial Corp.; East West Bancorp, Inc.; First Horizon National Corporation; FirstMerit Corporation; SVB Financial Group; Associated Banc-Corp; Cullen/Frost Bankers, Inc.; Commerce Bancshares, Inc.; First Citizens BancShares, Inc.; Signature Bank; Webster Financial Corporation; Hancock Holding Company; Susquehanna Bancshares, Inc.; Wintrust Financial Corporation; EverBank Financial Corp; Fulton Financial Corporation; UMB Financial Corporation; Prosperity Bancshares, Inc.; Astoria Financial Corporation; First National of Nebraska, Inc.; Valley National Bancorp; BankUnited, Inc.; PrivateBancorp, Inc.; Bank of Hawaii Corporation; Investors Bancorp, Inc.; IBERIABANK Corporation; Washington Federal, Inc.; BancorpSouth, Inc.; F.N.B. Corporation; First BanCorp.; International Bancshares Corporation; Flagstar Bancorp, Inc.; Trustmark Corporation; Umpqua Holdings Corporation; TFS Financial Corporation; Cathay General Bancorp; Texas Capital Bancshares, Inc.; and Central Bancompany, Inc. 15 Repurchases of TCF Stock The following table summarizes share repurchase activity for the quarter ended December 31, 2014. October 1 to October 31, 2014: Share repurchase program(1) Employee transactions(2) November 1 to November 30, 2014: Share repurchase program(1) Employee transactions(2) December 1 to December 31, 2014: 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 – 4,603 $ – 15.43 – – – – – – – – – 4,603 $ – 15.43 Total Maximum Number of Shares Number of Shares that May Yet be Purchased Under the Plan Purchased as Part of Publicly Announced Plan – 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 stock 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. 16 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 (Dollars in thousands, except per-share data) 2014 2013 2012 2011 2010 At or For the Year Ended December 31, Consolidated Income: Net interest income Fees and other revenue Gains (losses) on securities, net Total revenue Provision for credit losses Non-interest expense Loss on termination of debt Income (loss) before income tax expense (benefit) Income tax expense (benefit) Income attributable to non-controlling interest Net income (loss) attributable to TCF Financial Corporation Preferred stock dividends Net income (loss) available to common stockholders Per common share: Basic earnings (loss) Diluted earnings (loss) Dividends declared Consolidated Financial Condition: Loans and leases Total assets Deposits Borrowings Total equity Book value per common share Financial Ratios: Return on average assets Return on average common equity Net interest margin(1) Average total equity to average assets Dividend payout ratio Credit Quality Ratios: $ 815,629 $ 432,240 1,027 802,624 $ 403,094 964 780,019 $ 388,191 102,232 699,688 $ 437,171 7,263 699,202 508,862 29,123 1,248,896 95,737 871,777 – 281,382 99,766 7,429 174,187 19,388 1,206,682 118,368 845,269 – 243,045 84,345 7,032 151,668 19,065 1,270,442 247,443 811,819 550,735 (339,555) (132,858) 6,187 (212,884) 5,606 1,144,122 200,843 764,451 – 178,828 64,441 4,993 109,394 – 1,237,187 236,437 756,335 – 244,415 90,171 3,297 150,947 – 154,799 $ 132,603 $ (218,490) $ 109,394 $ 150,947 0.95 $ 0.94 $ 0.20 $ 0.82 $ 0.82 $ 0.20 $ (1.37) $ (1.37) $ 0.20 $ 0.71 $ 0.71 $ 0.20 $ 1.08 1.08 0.20 $ $ $ $ $16,401,646 $15,846,939 $15,425,724 $14,150,255 $14,788,304 18,465,025 18,225,917 11,585,115 14,050,786 4,985,611 1,933,815 1,471,663 1,876,643 10.30 9.79 19,394,611 15,449,882 1,236,490 2,135,364 11.10 18,379,840 14,432,776 1,488,243 1,964,759 10.23 18,979,388 12,202,004 4,388,080 1,878,627 11.65 0.96% 8.71 4.61 10.89 21.28 0.87% 8.12 4.68 10.46 24.30 (1.14)% (13.33) 4.65 9.66 (14.60) 0.61% 6.32 3.99 9.24 28.10 0.85% 10.67 4.15 7.83 18.52 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 1.32% 1.75% 2.46% 2.11% 2.33% 1.71 1.00 0.49 2.17 1.59 0.81 3.07 1.73 1.54 3.03 1.81 1.45 3.26 1.80 1.47 (1) Net interest income divided by average interest-earning assets. 17 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Table of Contents Description 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 Held to Maturity and 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 Management Critical Accounting Policies Recent Accounting Developments Legislative and Regulatory Developments Forward-Looking Information Page 19 19 19 20 21 21 25 26 27 28 28 28 29 32 40 40 41 41 42 42 44 44 46 46 18 Management’s discussion and analysis of the consolidated financial condition and results of operations of TCF Financial Corporation should be read in conjunction with ‘‘Part I, Item 1A. Risk Factors,’’ ‘‘Item 6. Selected Financial Data’’ and ‘‘Item 8. Consolidated Financial Statements.’’ Overview TCF Financial Corporation, a Delaware corporation (‘‘we,’’ ‘‘us,’’ ‘‘our,’’ ‘‘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. References herein to ‘‘TCF Financial’’ refer to TCF Financial Corporation on an unconsolidated basis. At December 31, 2014, TCF had 379 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana (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 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 in all markets 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 interest cost deposits. TCF’s growth strategies include organic growth in existing businesses, development of new products and services, new customer acquisition through electronic channels and acquisitions of portfolios or companies. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. TCF continues to focus on asset growth in its leasing and equipment finance, inventory finance and auto finance businesses funded through deposit generation, as well as expanding its junior lien lending business. Net interest income, the difference between interest income earned on loans and leases, securities, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 65.3%, 66.5% and 61.4% of TCF’s total revenue in 2014, 2013 and 2012, 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 a management Asset & Liability Committee and through related interest-rate risk monitoring and management policies. See ‘‘Part I, Item 1A. Risk Factors’’ and ‘‘Part II, 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 component of TCF’s results of operations. Increasing fee and service charge revenue has been challenging as a result of changing customer behavior and the impact of changes in regulations. Providing a wide range of retail banking services is an integral component of TCF’s business philosophy and a major strategy for generating non-interest income. Key drivers of bank fees and service charges are the number of deposit accounts and related transaction activity. In addition, as an effort to diversify TCF’s non-interest income sources, the Company continues to increase loan sales, primarily in auto finance and consumer real estate, to generate gains on sales as well as increase servicing fee income through the growth of loans sold with servicing retained by TCF. The following portions of this 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 2014, 2013 and 2012 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 earnings per common share of 94 cents for 2014, compared with diluted earnings per common share of 82 cents for 2013 and diluted loss per common share of $1.37 for 2012. TCF reported net income of $174.2 million for 2014, compared with net income of $151.7 million for 2013 and a net loss of $212.9 million for 2012. TCF’s 2012 net loss included a non-recurring 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. Return on average assets was 0.96% for 2014, compared with 0.87% for 2013 and a negative return of 1.14% for 2012. Return on average common equity was 8.71% for 2014, compared with 8.12% for 2013 and a negative return of 13.33% for 2012. The negative returns on average assets and average common equity for 2012 were due to the balance sheet repositioning discussed above. 19 Reportable Segment Results Lending TCF’s lending strategy is primarily to originate high credit quality secured loans and leases for investment and for sale. The lending portfolio consists of consumer real estate, commercial real estate and business lending, leasing and equipment finance, inventory finance and auto finance. Lending’s disciplined portfolio growth generates earning assets and, along with its fee generating capabilities, produces a significant portion of the Company’s revenue and net income. Lending generated net income available to common stockholders of $174.7 million for 2014, compared with $136.2 million and $30.9 million for 2013 and 2012, respectively. Lending net interest income totaled $592.4 million for 2014, an increase of 4.2% from $568.3 million for 2013, which increased 8.4% from $524.4 million for 2012. The increase in 2014 was primarily driven by higher average loan and lease balances in the auto finance, leasing and equipment finance and inventory finance businesses. This was partially offset by margin reduction resulting from the competitive low interest rate environment and reduced interest income due to lower consumer real estate loan average balances resulting from continued run-off of the first mortgage lien portfolio, as well as a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable rate loans due to marketplace demand.The increase in 2013 was primarily due to higher average balances driven by continued growth in the auto finance and inventory finance businesses, partially offset by downward pressure on yields across the lending businesses due to the low-interest rate environment. Lending provision for credit losses totaled $92.8 million for 2014, a decrease of 19.6% from $115.4 million for 2013, which decreased 53.0% from $245.4 million for 2012. The decrease in provision expense in 2014 was primarily due to decreased net charge-offs in the consumer real estate and commercial portfolios. This decrease was partially offset by additional provision expense related to the sale of consumer real estate troubled debt restructuring (‘‘TDR’’) loans and an increase in provision for credit losses in the auto finance portfolio due to growth coupled with maturation of prior years’ originations. The decrease in net charge-offs in the consumer real estate portfolio is primarily due to the improving economy, as incidents of default decrease and home values increase. The decrease in net charge-offs in the commercial portfolio is primarily due to improved credit quality and continued efforts to actively work out problem loans. The decrease in 2013 was primarily due to a decrease in net charge-offs in the consumer real estate portfolio resulting from improved home values and a reduction in incidents of default, decreased net charge-offs in the commercial portfolio due to improved credit quality and continued efforts to actively work out problem loans and the impact of clarifying bankruptcy-related regulatory guidance related to consumer loans adopted in 2012. See ‘‘Consolidated Income Statement Analysis – Provision for Credit Losses’’ in this Management’s Discussion and Analysis for further discussion. Lending non-interest income totaled $211.2 million for 2014, an increase of 25.4% from $168.4 million for 2013, which increased 21.6% from $138.5 million for 2012. The increases were primarily due to increases in gains on sales of auto loans and consumer real estate loans, along with increased servicing fee income due to an increase in loans serviced for others. Total loans and leases serviced for others was $3.4 billion as of December 31, 2014, compared to $2.0 billion and $1.0 billion as of December 31, 2013 and 2012, respectively. See ‘‘Consolidated Income Statement Analysis – Non-Interest Income’’ in this Management’s Discussion and Analysis for further discussion. Lending non-interest expense totaled $426.3 million for 2014, an increase of 6.2% from $401.3 million for 2013, which increased 9.3% from $367.2 million for 2012. The increase in 2014 was primarily due to increased staff levels to support the continued growth of the auto finance business and expenses related to higher commissions and performance incentives based on production results, partially offset by a decrease in foreclosed real estate and repossessed assets expense, net due to increased gains on the sales of foreclosed properties and lower write-downs on existing foreclosed properties due to improved property values. The increase in 2013 was primarily due to increased staff levels to support the growth of the auto finance business and expenses related to higher commissions based on production results and performance incentives, partially offset by reduced expenses related to fewer foreclosed consumer properties and a reduction in write-downs in balances of existing foreclosed real estate properties as a result of improved real estate values. Funding TCF’s funding is primarily derived from branch banking and wholesale borrowings, with a focus on building and maintaining quality customer relationships. Deposits are generated from consumers and small businesses providing a source of low cost funds and fee income. Borrowings may be used to offset reductions in deposits or to support lending activities. Funding reported net income available to common stockholders of $6.1 million for 2014, compared with net income available to common stockholders of $17.3 million and a net loss available to common stockholders of $239.3 million for 2013 and 2012, respectively. Funding net interest income totaled $226.3 million for 2014, a decrease of 4.6% from $237.3 million for 2013, which decreased 8.1% from $258.3 million for 2012. The decrease in 2014 was primarily due to a reduction in interest income as a result of lower balances of mortgage-backed securities, partially offset by the reduced cost of borrowings. The decrease in 2013 was primarily due to a reduction in interest income as a result of lower balances of mortgage-backed securities. 20 Funding non-interest income totaled $220.6 million for 2014, a decrease of 6.2% from $235.2 million for 2013, which decreased 30.6% from $338.9 million for 2012. The decrease in 2014 was primarily due to a reduction in fees and service charges due to customer behavior changes and higher average checking account balances per customer. The decrease in 2013 was primarily due to higher gains on sales of securities during 2012 related to the balance sheet repositioning, lower transaction activity and higher average checking account balances per customer, partially offset by a larger account base. Funding non-interest expense totaled $434.1 million for 2014, a decrease of 1.9% from $442.6 million for 2013, which decreased 54.4% from $969.8 million for 2012. The decrease in 2014 was primarily due to the branch realignment which resulted in a pre-tax charge of $8.9 million in the fourth quarter of 2013. The decrease in 2013 was primarily due to the loss on termination of debt in connection with the balance sheet repositioning completed in the first quarter of 2012. 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 65.3% of TCF’s total revenue for 2014, compared with 66.5% for 2013 and 61.4% for 2012. 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 both non-interest bearing deposits and interest-bearing liabilities, the level of non-accrual loans and leases and other real estate owned and the impact of modified loans and leases. 21 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. Year Ended December 31, 2014 2013 Change Average Balance Interest Yields and Rates Average Balance Yields and Interest Rates Average Balance Interest Yields and Rates (bps) $ 586,803 $ 15,390 5,281 197,943 11,994 447,016 21,128 259,186 2.62% $ 2.67 2.68 8.15 768,180 $ 15,041 277 18,074 11,647 6,737 648,630 155,337 1.96% $(181,377) $ 4.11 2.79 7.50 191,206 (201,614) 103,849 349 5,004 (6,080) 9,481 66 (144) (11) 65 (Dollars in thousands) Assets: Investments and other Securities held to maturity Securities available for sale(1) Loans and leases held for sale Loans and leases: Consumer real estate: Fixed-rate Variable-rate 3,359,670 2,788,882 190,973 143,431 Total consumer real estate 6,148,552 334,404 Commercial: Fixed-rate Variable- and adjustable-rate Total commercial Leasing and equipment finance Inventory finance Auto finance Other 1,469,579 1,665,788 73,752 66,450 3,135,367 140,202 3,531,256 1,888,080 1,567,904 12,071 166,974 112,603 68,595 931 Total loans and leases(2) 16,283,230 823,709 Total interest-earning assets 17,774,178 877,502 Other assets(3) Total assets Liabilities and Equity: Non-interest bearing deposits: Retail Small business Commercial and custodial 1,124,226 $18,898,404 $ 1,546,453 806,649 413,893 Total non-interest bearing deposits 2,766,995 Interest-bearing deposits: Checking Savings Money market Subtotal Certificates of deposit 2,328,402 5,693,751 1,312,483 9,334,636 2,840,922 921 8,343 7,032 16,296 22,089 Total interest-bearing deposits 12,175,558 38,385 Total deposits 14,942,553 38,385 Borrowings: Short-term borrowings Long-term borrowings Total borrowings 83,673 1,311,176 261 19,954 1,394,849 20,215 Total interest-bearing liabilities 13,570,407 58,600 Total deposits and borrowings 16,337,402 58,600 Other liabilities Total liabilities Total TCF Financial Corp. stockholders’ equity Non-controlling interest in subsidiaries Total equity 502,560 16,839,962 2,041,428 17,014 2,058,442 Total liabilities and equity $18,898,404 (14) 3 (8) (27) (15) (30) (24) (7) (47) (39) (21) (10) (2) (5) 25 (1) (8) 1 – (29) 6 (1) (3) (3) 5.68 5.14 5.44 5.02 3.99 4.47 4.73 5.96 4.37 7.71 5.06 4.94 0.04 0.15 0.54 0.17 0.78 0.32 0.26 0.31 1.52 1.45 0.43 0.36 3,746,029 2,703,921 217,891 138,192 5.82 5.11 (386,359) 84,961 (26,918) 5,239 6,449,950 356,083 5.52 (301,398) (21,679) 1,771,959 1,490,787 93,760 61,752 5.29 4.14 (302,380) 175,001 (20,008) 4,698 3,262,746 155,512 4.77 (127,379) (15,310) 3,260,425 1,723,253 907,571 13,088 162,035 103,844 43,921 1,060 4.97 6.03 4.84 8.10 270,831 164,827 660,333 (1,017) 4,939 8,759 24,674 (129) 15,617,033 822,455 5.27 666,197 1,254 17,195,917 867,494 5.04 578,261 10,008 1,092,681 $18,288,598 $ 1,442,356 771,827 345,713 2,559,896 31,545 $ 609,806 $ 104,097 34,822 68,180 207,099 2,313,794 6,147,030 818,814 9,279,638 2,369,992 1,485 12,437 2,391 16,313 20,291 0.06 0.20 0.29 0.18 0.86 14,608 (453,279) 493,669 54,998 470,930 (564) (4,094) 4,641 (17) 1,798 11,649,630 36,604 0.31 525,928 1,781 14,209,526 36,604 0.26 733,027 1,781 7,685 1,724,002 46 25,266 0.60 1.46 75,988 (412,826) 215 (5,312) 1,731,687 25,312 1.46 (336,838) (5,097) 13,381,317 61,916 0.46 189,090 (3,316) 15,941,213 61,916 0.39 396,189 (3,316) 434,763 16,375,976 1,896,131 16,491 1,912,622 $18,288,598 67,797 463,986 145,297 523 145,820 $ 609,806 Net interest income and margin $818,902 4.61 $805,578 4.68 $ 13,324 (7) (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. 22 Year Ended December 31, 2013 2012 Change Average Balance Interest Yields and Rates Average Balance Yields and Interest Rates Average Balance Interest Yields and Rates (bps) $ 768,180 $ 15,041 277 18,074 11,647 6,737 648,630 155,337 1.96% $ 4.11 2.79 7.50 567,907 $ 10,123 281 35,150 3,689 6,515 1,056,048 46,201 1.78% $ 4.31 3.33 7.98 200,273 $ 222 (407,418) 109,136 4,918 (4) (17,076) 7,958 (Dollars in thousands) Assets: Investments and other Securities held to maturity Securities available for sale(1) Loans and leases held for sale Loans and leases: Consumer real estate: Fixed-rate Variable-rate 3,746,029 2,703,921 217,891 138,192 Total consumer real estate 6,449,950 356,083 Commercial: Fixed-rate Variable- and adjustable-rate Total commercial Leasing and equipment finance Inventory finance Auto finance Other 1,771,959 1,490,787 93,760 61,752 3,262,746 155,512 3,260,425 1,723,253 907,571 13,088 162,035 103,844 43,921 1,060 Total loans and leases(2) 15,617,033 822,455 Total interest-earning assets 17,195,917 867,494 Other assets(3) Total assets Liabilities and Equity: Non-interest bearing deposits: Retail Small business Commercial and custodial 1,092,681 $18,288,598 $ 1,442,356 771,827 345,713 Total non-interest bearing deposits 2,559,896 Interest-bearing deposits: Checking Savings Money market Subtotal Certificates of deposit 2,313,794 6,147,030 818,814 9,279,638 2,369,992 1,485 12,437 2,391 16,313 20,291 Total interest-bearing deposits 11,649,630 36,604 Total deposits 14,209,526 36,604 Borrowings: Short-term borrowings Long-term borrowings Total borrowings 7,685 1,724,002 46 25,266 1,731,687 25,312 Total interest-bearing liabilities 13,381,317 61,916 Total deposits and borrowings 15,941,213 61,916 Other liabilities Total liabilities Total TCF Financial Corp. stockholders’ equity Non-controlling interest in subsidiaries Total equity 434,763 16,375,976 1,896,131 16,491 1,912,622 Total liabilities and equity $18,288,598 18 (20) (54) (48) (11) 7 (8) (26) (55) (41) (45) (17) (122) 5 (26) (23) (8) (13) (8) (10) (2) (7) (5) 30 (112) (86) (31) (27) 5.82 5.11 5.52 5.29 4.14 4.77 4.97 6.03 4.84 8.10 5.27 5.04 0.06 0.20 0.29 0.18 0.86 0.31 0.26 0.60 1.46 1.46 0.46 0.39 4,254,039 2,503,473 252,233 126,158 5.93 5.04 (508,010) 200,448 (34,342) 12,034 6,757,512 378,391 5.60 (307,562) (22,308) 1,975,669 1,509,549 109,588 70,858 5.55 4.69 (203,710) (18,762) (15,828) (9,106) 3,485,218 180,446 5.18 (222,472) (24,934) 3,155,946 1,434,643 296,083 16,549 170,991 88,934 17,949 1,332 5.42 6.20 6.06 8.05 104,479 288,610 611,488 (3,461) (8,956) 14,910 25,972 (272) 15,145,951 838,043 5.53 471,082 (15,588) 16,822,622 887,286 5.27 373,295 (19,792) 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 3,105 19,834 2,859 25,798 15,189 0.14 0.33 0.37 0.28 0.88 (140,361) $ 232,934 $ 130,795 32,878 28,281 191,954 57,557 109,091 48,710 215,358 642,133 (1,620) (7,397) (468) (9,485) 5,102 10,792,139 40,987 0.38 857,491 (4,383) 13,160,081 40,987 0.31 1,049,445 (4,383) 312,417 2,426,655 937 62,680 0.30 2.58 (304,732) (702,653) (891) (37,414) 2,739,072 63,617 2.32 (1,007,385) (38,305) 13,531,211 104,604 0.77 (149,894) (42,688) 15,899,153 104,604 0.66 42,060 (42,688) 412,170 16,311,323 1,729,537 14,804 1,744,341 $18,055,664 22,593 64,653 166,594 1,687 168,281 $ 232,934 Net interest income and margin $805,578 4.68 $782,682 4.65 $ 22,896 3 (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. 23 The following table presents the components of the changes in net interest income by volume and rate. (In thousands) Interest income: Investments and other Securities held to maturity Securities available for sale Loans and leases held for sale Loans and leases: Consumer real estate: Fixed-rate Variable-rate Total consumer real estate Commercial: Fixed-rate Variable- and adjustable-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 Year Ended December 31, 2014 Versus Same Period in 2013 Increase (Decrease) Due to December 31, 2013 Versus Same Period in 2012 Increase (Decrease) Due to Volume(1) Rate(1) Total Volume(1) Rate(1) Total $ (4,046) $ 4,395 (130) (649) 1,093 5,134 (5,431) 8,388 $ 349 5,004 (6,080) 9,481 $ 3,854 9 (12,008) 8,227 $ 1,064 (13) (5,068) (269) $ 4,918 (4) (17,076) 7,958 (22,055) 4,365 (16,452) (15,365) 7,045 (5,926) 13,047 9,839 29,246 (79) 34,365 28,790 10 (865) 1,946 3,779 (4,863) 874 (5,227) (26,918) 5,239 (21,679) (4,643) (2,347) (9,384) (8,108) (1,080) (4,572) (50) (33,111) (18,782) (574) (3,229) 2,695 (1,981) (20,008) 4,698 (15,310) 4,939 8,759 24,674 (129) 1,254 10,008 (564) (4,094) 4,641 1,798 (29,117) 10,545 (16,296) (10,762) (855) (10,921) 5,527 17,703 30,367 (277) 26,280 20,023 78 354 174 5,538 (5,225) 1,489 (6,012) (5,066) (8,251) (14,013) (14,483) (2,793) (4,395) 5 (41,868) (39,815) (1,698) (7,751) (642) (436) (34,342) 12,034 (22,308) (15,828) (9,106) (24,934) (8,956) 14,910 25,972 (272) (15,588) (19,792) (1,620) (7,397) (468) 5,102 248 (6,265) (4,901) 861 $ 26,802 (33) 953 (196) (4,177) 215 (5,312) (5,097) (3,316) $(13,478) $ 13,324 (1,368) (14,988) (19,062) (1,143) $ 18,806 477 (22,426) (19,243) (41,545) $ 4,090 (891) (37,414) (38,305) (42,688) $ 22,896 (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 of $3.3 million, was $818.9 million for 2014, an increase of 1.7% from $805.6 million for 2013, which was up 2.9% from $782.7 million for 2012. The increase in 2014 was primarily driven by higher average loan and lease balances in the auto finance, leasing and equipment finance and inventory finance businesses and reduced cost of borrowings, partially offset by margin reduction resulting from the competitive low interest rate environment and growth in the auto finance business which has a lower yield when compared to the other TCF asset classes, as well as reduced interest income due to lower consumer real estate loan average balances resulting from continued run-off of the first mortgage lien portfolio and ongoing loan sales, as well as a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable rate loans due to marketplace demand. The increase in net interest income in 2013 was primarily driven by higher average loan and lease balances in the auto finance and inventory finance businesses as well as the balance sheet repositioning in 2012 which resulted in a reduction to the cost of borrowings, partially offset by a reduction of interest income on lower balances of mortgage-backed securities. The increase in 2013 was partially offset by downward pressure on yields across the lending businesses in this low interest rate environment, lower average balances of commercial fixed-rate loans due to run-off exceeding originations, and lower average balances of consumer real estate loans driven by run-off in the first mortgage real estate business and ongoing loan sales of junior lien consumer mortgages. 24 Net interest margin was 4.61%, 4.68% and 4.65% for 2014, 2013 and 2012, respectively. The decrease in 2014 was primarily due to continued margin reduction resulting from the ongoing competitive low interest rate environment and growth in the auto finance business, which has a lower yield compared to the other TCF asset classes. The increase in 2013 was primarily due to the balance sheet repositioning in 2012, partially offset by downward pressure on origination yields in the lending businesses due to the low interest rate environment, and a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable-rate loans due to marketplace demand. Provision for Credit Losses The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses, which is a critical accounting estimate. TCF’s methodologies for determining and allocating the allowance for loan and lease losses and the related provision for credit losses focus on historical trends in net charge-offs, delinquencies in the loan and lease portfolio, 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, 2014, 2013, and 2012. (Dollars in thousands) Consumer real estate Commercial Leasing and equipment finance Inventory finance Auto finance Other 2014 Year Ended December 31, 2013 2012 2014/2013 2013/2012 Change $63,973 (259) 66.8% $ 87,100 12,515 (0.3) 73.6% $178,496 43,498 10.6 72.1% $(23,127) 17.6 (12,774) N.M. (26.6)% $ (91,396) (30,983) (51.2)% (71.2) 3,324 2,498 23,742 2,459 3.5 2.6 24.8 2.6 1,005 1,949 13,215 2,584 0.8 1.6 11.2 2.2 10,054 6,060 6,726 2,609 4.1 2.4 2.7 1.1 2,319 N.M. 28.2 79.7 (4.8) 549 10,527 (125) (9,049) (4,111) 6,489 (25) (90.0) (67.8) 96.5 (1.0) Total $95,737 100.0% $118,368 100.0% $247,443 100.0% $(22,631) (19.1) $(129,075) (52.2) N.M. Not Meaningful. TCF provided $95.7 million for credit losses for 2014, compared with $118.4 million for 2013 and $247.4 million for 2012. The decrease in provision expense in 2014 was primarily due to a decrease in net charge-offs in the consumer real estate and commercial portfolios. This decrease was partially offset by additional provision expense related to the sale of consumer real estate TDR loans and an increase in provision for credit losses in the auto finance portfolio due to growth coupled with maturation of prior years’ originations. The decrease in net charge-offs in the consumer real estate portfolio is primarily due to the improving economy, as incidents of default decrease and home values increase. The decrease in net charge-offs in the commercial portfolio is primarily due to improved credit quality and continued efforts to actively work out problem loans. The decrease in provision expense in 2013 was primarily due to decreased net charge-offs in the consumer real estate portfolio due to improved home values and a reduction in incidents of default, decreased net charge-offs in the commercial portfolio due to improved credit quality and continued efforts to actively work out problem loans and the impact of clarifying bankruptcy-related regulatory guidance related to consumer loans adopted in 2012. Net loan and lease charge-offs were $79.3 million for 2014, or 0.49% of average loans and leases, compared with $126.4 million, or 0.81% of average loans and leases, for 2013 and $233.8 million, or 1.54% of average loans and leases, for 2012. The decrease in 2014 was primarily due to a decrease in net charge-offs in the consumer real estate and commercial portfolios. The decrease in net charge-offs in the consumer real estate portfolio is primarily due to the improving economy, as incidents of default decrease and home values increase. The decrease in net charge-offs in the commercial portfolio is primarily due to improved credit quality and continued efforts to actively work out problem loans. The decrease in 2013 was primarily due to improved credit quality in the consumer real estate portfolio as home values improved and incidents of default declined, as well as improved credit quality in the commercial portfolio and continued efforts to actively work out problem loans, and the impact of the clarifying bankruptcy- related regulatory guidance adopted in 2012. For additional information, see ‘‘Consolidated Financial Condition Analysis – Credit Quality’’ in this Management’s Discussion and Analysis. 25 Non-Interest Income Non-interest income is a significant source of revenue for TCF, representing 34.7%, 33.5% and 38.6% of total revenue for 2014, 2013 and 2012, respectively, and is an important factor in TCF’s results of operations. Total fees and other revenue were $432.2 million for 2014, compared with $403.1 million and $388.2 million for 2013 and 2012, respectively. The following table summarizes the components of non-interest income. Year Ended December 31, (Dollars in thousands) 2014 2013 2012 2011 2010 Fees and service charges Card revenue ATM revenue $154,386 51,323 22,225 $166,606 51,920 22,656 $177,953 52,638 24,181 $219,363 96,147 27,927 $273,181 111,067 29,836 Subtotal Gains on sales of auto loans, net Gains on sales of consumer real estate loans, net Servicing fee income Subtotal Leasing and equipment finance Other 227,934 43,565 241,182 29,699 254,772 22,101 343,437 1,133 414,084 – 34,794 21,444 99,803 93,799 10,704 21,692 13,406 64,797 90,919 6,196 5,413 7,759 35,273 92,172 5,974 – 970 2,103 89,167 2,464 – – – 89,194 5,584 Fees and other revenue Gains (losses) on securities, net 432,240 1,027 403,094 964 388,191 102,232 437,171 7,263 508,862 29,123 Total non-interest income $433,267 $404,058 $490,423 $444,434 $537,985 Total non-interest income as a percentage of total revenue N.M. Not Meaningful. 34.7% 33.5% 38.6% 38.8% 43.5% Compound Annual Growth Rate 1-Year 2014/2013 5-Year 2014/2009 (7.3)% (1.1) (1.9) (5.5) 46.7 60.4 60.0 54.0 3.2 72.8 7.2 6.5 7.2 (11.7)% (13.3) (6.1) (11.6) N.M. N.M. N.M. N.M. 6.3 15.4 (2.7) (48.9) (3.8) Fees and Service Charges Fees and service charges totaled $154.4 million for 2014, compared with $166.6 million and $178.0 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to customer behavior changes and higher average checking account balances per customer. The decrease in 2013 was primarily due to lower transaction activity and higher average checking account balances per customer, partially offset by a larger account base. Card Revenue Card revenue, primarily interchange fees, totaled $51.3 million for 2014, compared with $51.9 million and $52.6 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to fewer checking accounts with debit cards. The decrease in 2013 was primarily due to lower card transaction volume. TCF is the 17th largest issuer of Visa(cid:4) consumer debit cards and the 13th largest issuer of Visa small business debit cards in the United States, based on payment volume for the three months ended September 30, 2014, as provided by Visa. TCF earns interchange revenue from customer card transactions paid primarily by merchants, not TCF’s customers. Card revenue represented 22.5%, 21.5% and 20.7% of banking fee revenue for 2014, 2013 and 2012, respectively. Gains on Sales of Auto Loans, Net TCF sold $1.3 billion of auto loans and recognized a gain of $44.7 million for 2014, compared to sales of $795.3 million and $536.7 million of auto loans with recognized gains of $29.7 million and $22.1 million for 2013 and 2012, respectively. The increases in sales were primarily due to the continued growth of the auto finance business as TCF continues to sell a percentage of its originations each quarter. Included in 2014 is $256.3 million of loans sold related to the execution of the Company’s inaugural auto loan securitization, which took place in July 2014, and resulted in a net gain of $7.4 million. Gains on Sales of Consumer Real Estate Loans, Net TCF sold $1.4 billion of consumer real estate loans and recognized a gain of $34.1 million for 2014, compared to sales of $763.1 million and $161.8 million of consumer real estate loans with recognized gains of $21.7 million and $5.4 million for 2013 and 2012, respectively. Included in 2014 was $405.9 million related to the portfolio sale of consumer real estate TDR loans, which resulted in a net loss of $4.8 million. 26 Servicing Fee Income Servicing fee income totaled $21.4 million for 2014, compared with $13.4 million and $7.8 million for 2013 and 2012, respectively. The increases were primarily due to an increase in the portfolio of consumer real estate and auto loans sold with servicing retained by TCF. Total loans and leases serviced for others was $3.4 billion as of December 31, 2014, compared to $2.0 billion and $1.0 billion as of December 31, 2013 and 2012, respectively. Leasing and Equipment Finance Leasing and equipment finance income totaled $93.8 million for 2014, compared with $90.9 million and $92.2 million for 2013 and 2012, respectively. The increase in 2014 and the decrease in 2013 were primarily due to customer-driven events impacting sales-type lease revenue. Gains (Losses) on Securities, Net Gains (losses) on securities, net totaled $1.0 million for 2014, compared with $1.0 million and $102.2 million for 2013 and 2012, respectively. The gains in 2012 included $90.2 million related to sales of mortgage-backed securities (including a pre-tax net gain of $77.0 million as a result of the balance sheet repositioning) and a pre-tax net gain of $13.1 million as a result of the sale of Visa Class B stock. Non-Interest Expense Total non-interest expense was $871.8 million for 2014, compared with $845.3 million and $1.4 billion for 2013 and 2012, respectively. Non-interest expense increased $26.5 million, or 3.1%, in 2014 and decreased $517.3 million, or 38.0%, in 2013. The following table presents the components of non-interest expense. Year Ended December 31, Compound Annual Growth Rate 2014 (Dollars in thousands) Compensation and employee benefits $452,942 $429,188 $ 393,841 $348,792 $346,072 126,551 Occupancy and equipment 23,584 FDIC insurance 37,106 Operating lease depreciation 30,366 Advertising and marketing 146,253 Other 134,694 32,066 24,500 21,477 167,777 139,023 25,123 27,152 22,943 179,904 126,437 28,747 30,007 32,925 145,489 130,792 30,425 25,378 25,241 163,897 2011 2012 2013 Subtotal Loss on termination of debt Branch realignment Foreclosed real estate and repossessed assets, net Other credit costs, net 847,087 – – 809,702 – 8,869 769,574 550,735 – 712,397 – – 709,932 – – 24,567 123 27,950 (1,252) 41,358 887 49,238 2,816 40,385 6,018 Total non-interest expense $871,777 $845,269 $1,362,554 $764,451 $756,335 N.M. Not Meaningful. 1-Year 2010 2014/2013 5-Year 2014/2009 5.5% 1.9 5.6 4.0 (13.7) 4.7 3.8 N.M. N.M. (5.1) (60.1) 2.9 5.5% 3.2 (21.7) 10.8 6.8 7.2 4.6 – (100.0) (12.1) N.M. 3.1 Compensation and Employee Benefits Compensation and employee benefits expense totaled $452.9 million for 2014, compared with $429.2 million and $393.8 million for 2013 and 2012, respectively. The increase in 2014 was primarily due to increased staff levels to support the growth and needs of auto finance and risk management, higher commissions based on production results and an increase in the annual pension plan valuation adjustment. The increase in 2013 was primarily due to increased staff levels to support the growth of auto finance and expenses related to higher commissions based on production results and performance incentives. FDIC Insurance FDIC premium expense totaled $25.1 million for 2014, compared with $32.1 million and $30.4 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to a lower assessment rate due to overall improving credit metrics inclusive of the portfolio sale of consumer real estate TDR loans and a non-recurring assessment rate catch-up. The increase in 2013 was primarily due to a higher overall assessment base. Other Non-Interest Expense Other non-interest expense totaled $179.9 million for 2014, compared with $167.8 million and $163.9 million for 2013 and 2012, respectively. The increase in 2014 was primarily due to increased loan and lease processing expense due to increases in loan originations. The increase in 2013 was primarily due to an increase in regulatory compliance costs and increased loan and lease processing expense in the consumer real estate and auto finance businesses. Loss on Termination of Debt of $550.7 million. In the first quarter of 2012, TCF restructured $3.6 billion of long-term borrowings at a pre-tax loss Branch Realignment TCF executed a realignment of its retail banking system to support its strategic initiatives which resulted in a pre-tax charge of $8.9 million in the fourth quarter of 2013. The consolidation of 37 branches in Illinois and nine branches in Minnesota occurred in the first quarter of 2014. 27 Foreclosed Real Estate and Repossessed Assets, Net Foreclosed real estate and repossessed assets expense, net totaled $24.6 million for 2014, compared with $28.0 million and $41.4 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to increased gains on the sales of foreclosed properties and lower write-downs on existing foreclosed properties as a result of improved property values as well as fewer consumer real estate owned properties. The decrease in 2013 was primarily due to reduced expenses related to fewer foreclosed consumer properties primarily driven by a portfolio sale of real estate owned properties during the first quarter of 2013, a decrease in additions to foreclosed consumer properties and lower write-downs to existing foreclosed real estate properties as a result of improved real estate property values. Income Taxes Income tax expense represented 35.5% of income before income tax expense in 2014, compared with 34.7% in 2013 and income tax benefit of 39.1% of loss before income tax benefit in 2012. The higher effective income tax rate for 2014 compared with 2013 was primarily due to proportionately smaller foreign tax effects. The higher effective income tax rate for 2012 was primarily due to the pre-tax loss which resulted from the 2012 balance sheet repositioning. Consolidated Financial Condition Analysis Securities Held to Maturity and Securities Available for Sale TCF’s securities held to maturity and securities available for sale portfolios primarily consist of fixed-rate mortgage-backed securities issued by the Federal National Mortgage Association. Securities held to maturity were $214.5 million, or 1.1% of total assets, at December 31, 2014, compared to $19.9 million, or 0.1% of total assets, at December 31, 2013. Securities available for sale were $463.3 million, or 2.4% of total assets, at December 31, 2014, compared to $551.1 million, or 3.0% of total assets, at December 31, 2013. Net unrealized pre-tax gains on securities available for sale totaled $1.7 million at December 31, 2014, compared with net unrealized pre-tax losses of $43.0 million at December 31, 2013. TCF may, from time to time, sell securities and utilize the proceeds to reduce borrowings, fund growth in loans and leases or for other corporate purposes. During 2014 and 2013, TCF transferred $191.7 million and $9.3 million, respectively, in available for sale mortgage-backed securities to held to maturity, reflecting TCF’s intent to hold those securities to maturity. 28 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 At December 31, 2014 2013 2012 2011 Compound Annual Growth Rate 5-Year 1-Year 2010 2014/2013 2014/2009 $ 3,139,152 $ 3,766,421 $ 4,239,524 $ 4,742,423 $ 4,893,887 2,262,194 2,152,868 2,543,212 2,434,977 2,572,905 (16.7)% (1.2) (8.7)% 1.9 Total consumer real estate 5,682,364 6,339,326 6,674,501 6,895,291 7,156,081 (10.4) Commercial: Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Auto finance Other 2,624,255 533,410 3,157,665 3,745,322 1,877,090 1,915,061 24,144 2,743,697 404,655 3,148,352 3,428,755 1,664,377 1,239,386 26,743 3,080,942 324,293 3,405,235 3,198,017 1,567,214 552,833 27,924 3,198,698 250,794 3,449,492 3,142,259 624,700 3,628 34,885 3,328,216 317,987 3,646,203 3,154,478 792,354 – 39,188 Total loans and leases $16,401,646 $15,846,939 $15,425,724 $14,150,255 $14,788,304 (4.4) 31.8 0.3 9.2 12.8 54.5 (9.7) 3.5 (4.8) (4.3) 3.5 (3.2) 4.0 32.0 N.M. (14.0) 2.4 N.M. Not Meaningful. (In thousands) Geographic Distribution: Minnesota Illinois California Michigan Wisconsin Colorado Texas Canada Florida New York Ohio Pennsylvania North Carolina Arizona New Jersey Georgia Indiana Washington Other Consumer Real Estate Commercial Leasing and Equipment Finance Inventory Finance Auto Finance Other Total At December 31, 2014 $1,903,494 1,429,226 651,447 556,214 315,832 399,811 3 – 16,827 7,662 5,239 15,377 70 71,064 18,020 15,563 23,520 82,800 170,195 $ 814,248 566,342 33,304 493,184 535,355 167,813 30,451 – 47,182 – 70,707 – 21,661 32,302 – 8,400 52,054 11,907 272,755 $ 98,591 $ 130,125 523,361 140,164 62,004 64,395 365,944 1,053 167,658 200,206 133,495 153,500 133,804 82,724 147,043 93,890 69,027 53,257 1,125,081 62,701 $ 44,688 57,918 64,465 54,676 21,538 132,481 525,891 71,334 55,080 52,066 54,632 37,977 13,138 18,202 32,523 35,453 25,602 516,725 36,238 $10,060 $ 2,925,332 2,265,839 90,138 1,610,835 344,778 1,293,420 36,643 987,001 18,012 696,729 38,803 651,370 122,487 526,944 – 406,412 103,357 343,455 80,473 300,921 39,414 300,162 76,644 259,219 65,674 259,122 59,644 250,127 66,862 230,845 80,469 205,967 25,911 205,081 31,511 2,682,865 598,003 5,320 27 2,750 1,122 4,369 4 – 54 34 – 9 33 250 – – 2 4 106 Total $5,682,364 $3,157,665 $3,745,322 $1,877,090 $1,915,061 $24,144 $16,401,646 29 Loans and leases outstanding at December 31, 2014, 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 At December 31, 2014(1) Consumer Real Estate Commercial $ 142,862 139,970 153,822 369,490 822,424 935,776 3,118,020 $ 452,918 384,007 519,980 1,354,390 435,233 8,285 2,852 Leasing and Equipment Finance $1,277,140 962,238 696,560 704,794 104,590 – – Inventory Finance Auto Finance Other Total $1,877,090 – – – – – – $ 376,920 392,767 394,619 625,536 125,219 – – $ 3,483 1,033 752 1,112 2,423 1,978 13,363 $ 4,130,413 1,880,015 1,765,733 3,055,322 1,489,889 946,039 3,134,235 Total after 1 year 5,539,502 2,704,747 2,468,182 – 1,538,141 20,661 12,271,233 Total $5,682,364 $3,157,665 $3,745,322 $1,877,090 $1,915,061 $24,144 $16,401,646 Amounts due after 1 year on: Fixed-rate loans and leases Variable- and adjustable-rate loans $2,842,852 $1,365,948 $2,449,715 2,696,650 1,338,799 18,467 Total after 1 year $5,539,502 $2,704,747 $2,468,182 $ $ – – – $1,538,141 $20,438 $ 8,217,094 – 223 4,054,139 $1,538,141 $20,661 $12,271,233 (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. Consumer Real Estate Consumer real estate loans decreased $657.0 million, or 10.4%, from December 31, 2013 to $5.7 billion at December 31, 2014, primarily due to the sale of $405.9 million of consumer real estate TDR loans and continued run-off of the first mortgage lien portfolio. TCF’s consumer real estate loan portfolio represented 34.6% of its total loan and lease portfolio at December 31, 2014, down from 40.0% at December 31, 2013. TCF’s consumer real estate portfolio is secured by mortgages on residential real estate. At December 31, 2014, 55.2% of loan balances were secured by first mortgages and 44.8% were secured by junior lien mortgages with an average loan size of $106 thousand secured by first mortgages and $42 thousand secured by junior lien mortgages. At December 31, 2014, 47.7% of the consumer real estate portfolio carried a variable interest rate tied to the prime rate, compared with 44.2% at December 31, 2013. At December 31, 2014, 59.1% of TCF’s consumer real estate loans consisted of closed-end loans, compared with 63.7% at December 31, 2013. TCF’s closed-end consumer real estate loans require payments of principal and interest over a fixed term. At December 31, 2014 and 2013, 82.8% and 88.1%, respectively, of TCF’s consumer real estate loans were in TCF’s primary banking markets. The average Fair Isaac Corporation (‘‘FICO(R)’’) credit score at loan origination for the consumer real estate lending portfolio was 734 as of December 31, 2014 and 723 as of December 31, 2013. 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 730 at December 31, 2014 and 717 at December 31, 2013. At December 31, 2014, total consumer real estate lines of credit outstanding were $2.3 billion, down from $2.5 billion at December 31, 2013. Included in these lines of credit are $2.1 billion of junior lien home equity lines of credit (‘‘HELOCs’’) as of both December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, $1.3 billion and $1.1 billion, respectively, of the junior lien HELOCs had a 10-year interest-only draw period and a 20-year amortization repayment period and all were within the 10-year initial draw period and will not convert to amortizing loans until 2021 or later. At December 31, 2014 and 2013, $816.0 million and $969.2 million, respectively, of the junior lien HELOCs were interest-only revolving draw loans with no defined amortization period and original draw periods of 5 to 40 years. As of December 31, 2014, 14.6% of these loans will mature in the next five years. Outstanding balances on consumer real estate lines of credit were 67.2% of total lines of credit in 2014, compared to 66.5% in 2013. 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 also has not originated consumer real estate loans with multiple payment options or loans with ‘‘teaser’’ interest rates. At December 31, 2014, 51.2% of the consumer real estate loan balance had been originated since January 1, 2009 with net charge-offs of less than 0.1%. TCF’s consumer real estate portfolio is subject to the risk of falling home values and to the general economic environment, particularly unemployment. 30 Commercial Real Estate and Business Lending Commercial real estate loans decreased $119.4 million from December 31, 2013 to $2.6 billion at December 31, 2014. The decrease in commercial real estate loans was due to run-off exceeding new originations as well as continued efforts to actively work out problem loans.Variable and adjustable-rate loans represented 53.9% of commercial real estate loans outstanding at December 31, 2014, compared with 45.7% at December 31, 2013. At December 31, 2014, 88.3% of TCF’s commercial real estate loans outstanding were secured by properties located in its primary banking markets compared with 88.7% at December 31, 2013. Commercial business loans increased $128.8 million to $533.4 million at December 31, 2014. With an emphasis on secured lending, 99.9% of TCF’s commercial real estate and commercial business loans were secured either by properties or other business assets at December 31, 2014, compared with 99.0% at December 31, 2013. The following table summarizes TCF’s commercial real estate loan portfolio by property and loan type. (In thousands) Multi-family housing Retail services(1) Office buildings Warehouse/industrial buildings Health care facilities Hotels and motels Residential home builders Other Total At December 31, 2014 Construction and Development Total Permanent 2013 Construction and Development Total $141,695 $ 958,626 $ 899,604 558,739 373,178 349,534 377,967 306,322 299,354 193,384 254,351 165,537 147,292 13,196 18,532 118,357 194,955 9,104 5,294 9,197 25,176 7,499 6,398 37,748 $ 48,395 $ 947,999 569,543 351,568 306,322 226,900 168,247 21,441 151,677 10,804 2,034 – 33,516 2,710 8,245 33,320 $242,111 $2,624,255 $2,604,673 $139,024 $2,743,697 Permanent $ 816,931 364,074 372,673 290,157 229,175 139,793 12,134 157,207 $2,382,144 (1) Primarily retail strip shopping centers and malls, convenience stores, supermarkets, restaurants and automobile related businesses. Leasing and Equipment Finance The following table summarizes TCF’s leasing and equipment finance portfolio by equipment type. (Dollars in thousands) Equipment Type: Specialty vehicles Construction Medical Manufacturing Golf cart and turf Technology and data processing Furniture and fixtures Trucks and trailers Agricultural Other Total At December 31, 2014 2013 Balance Percent of Total Balance Percent of Total $1,007,518 429,123 387,514 365,176 344,979 262,146 252,439 218,664 127,898 349,865 26.9% $ 849,150 400,425 11.5 393,337 10.3 407,478 9.8 327,141 9.2 260,849 7.0 212,857 6.7 150,266 5.8 98,582 3.4 328,670 9.4 24.8% 11.7 11.5 11.9 9.5 7.6 6.2 4.4 2.9 9.5 $3,745,322 100.0% $3,428,755 100.0% The leasing and equipment finance portfolio consisted of $1.9 billion of leases and $1.8 billion of loans at December 31, 2014, increases of 3.0% and 16.9%, respectively, from $1.9 billion of leases and $1.5 billion of loans at December 31, 2013. The uninstalled backlog of approved transactions was $418.0 million at December 31, 2014, compared with $454.4 million at December 31, 2013. The average size of transactions originated during 2014 was $118 thousand, compared with $115 thousand during 2013. 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, for information on lease accounting. 31 At December 31, 2014 and 2013, $92.9 million and $68.5 million, respectively, of TCF’s lease portfolio was discounted with third- party financial institutions on a non-recourse basis, which is recorded in long-term borrowings. The leasing and equipment finance portfolio table above includes lease residuals, including those 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, 2014, lease residuals totaled $109.8 million, or 10.1% of original equipment value, including $14.2 million related to non-recourse sales, compared with $108.2 million, or 9.1% of original equipment value, including $15.2 million related to non-recourse sales at December 31, 2013. 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 At December 31, 2014 2013 Balance Percent of Total Balance Percent of Total $ 966,504 348,760 58,842 502,984 51.5% $ 929,111 298,415 18.6 57,264 3.1 379,587 26.8 55.8% 18.0 3.4 22.8 $1,877,090 100.0% $1,664,377 100.0% Inventory finance continued to expand its core programs during 2014, with an increase in the total portfolio to $1.9 billion, or 11.4% of total loans and leases, at December 31, 2014, compared with $1.7 billion, or 10.5% of total loans and leases at December 31, 2013. The increase was primarily due to continued growth in new dealer relationships within the other industries segment. Inventory finance originations increased to $5.5 billion in 2014 compared to $5.1 billion in 2013. Auto Finance TCF’s auto finance loan portfolio represented 11.7% of TCF’s total loan and lease portfolio at December 31, 2014, compared with 7.8% at December 31, 2013. The auto finance portfolio increased significantly in 2014 to $1.9 billion from $1.2 billion at December 31, 2013, due to continued growth as TCF expands the number of active dealers in its network by expanding its sales force in existing territories. As of December 31, 2014, the auto finance network included more than 10,500 active dealers in 50 states, compared with about 8,500 active dealers in 45 states as of December 31, 2013. The auto finance portfolio consisted of 25.4% new car loans and 74.6% used car loans at December 31, 2014, compared with 23.3% and 76.7%, respectively, at December 31, 2013. The average FICO score for the auto finance portfolio was 724 at both December 31, 2014 and 2013. Credit Quality The following sections 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 this section: (cid:127) Loans that are over 60-days delinquent have a higher potential to become non-performing and generally are a leading indicator for future charge-off trends. (cid:127) TDR loans are loans to financially troubled 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. (cid:127) 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. (cid:127) 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. 32 Included in Note 6 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 for collateral dependent loans at the fair value of collateral less selling expense; however, if payment or satisfaction of the loan is dependent on the operation, rather than the sale of the collateral, the impairment does not include selling costs. Impaired loans comprise a portion of non-accrual loans and accruing TDR loans. Impaired loan accounting policies prescribe specific methodologies for determining a portion of the allowance for loan and lease losses. Past Due Loans and Leases The following table summarizes TCF’s over 60-day delinquent loan and lease portfolio by type, excluding non-accrual loans and leases. Delinquent balances are determined based on the contractual terms of the loan or lease. See Note 6 of Notes to Consolidated Financial Statements, Allowance for Loan and Lease Losses and Credit Quality Information, for additional information. (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 Inventory finance Auto finance Other Subtotal Delinquencies in acquired portfolios Total At December 31, 2014 2013 Principal Balances Percentage of Portfolio Principal Balances Percentage of Portfolio $13,370 2,091 15,461 – – – 2,549 75 4,263 – 22,348 88 $22,436 0.49% $20,894 3,532 0.08 0.30 24,426 – – – 0.07 – 0.22 – 0.14 0.03 0.14 886 544 1,430 2,401 50 1,877 10 30,194 458 $30,652 0.58% 0.14 0.40 0.03 0.14 0.05 0.07 – 0.15 0.04 0.19 1.64 0.20 Loan Modifications The following table provides a summary of accruing TDR loans. (Dollars in thousands) Consumer real estate Commercial Leasing and equipment finance Inventory finance Other Total 2014 $111,933 80,375 924 527 89 At December 31, 2012 $478,262 144,508 1,050 – 38 2011 $433,078 98,448 776 – – 2013 $506,640 120,871 1,021 4,212 93 2010 $337,401 48,838 – – – $193,848 $632,837 $623,858 $532,302 $386,239 Over 60-day delinquency as a percentage of total accruing TDR loans 1.39% 1.28% 4.34% 5.69% 4.64% Accruing TDR loans at December 31, 2014, decreased $439.0 million, or 69.4%, from December 31, 2013, primarily due to the portfolio sale of consumer real estate TDR loans in the fourth quarter of 2014, along with the continued efforts to actively work out problem loans in the commercial portfolio. TCF modifies loans through forgiveness of interest or reductions in interest rates, extension of payment dates or term extensions with reduction of contractual payments, but generally not through reductions of principal. Loan modifications to borrowers who have not been granted concessions are not included in the table above. Loan modifications to troubled borrowers 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 if the 33 loan is performing based on the restructured terms; however, these loans are still considered impaired and follow TCF’s impaired loan reserve policies. Under consumer real estate programs, TCF typically reduces a customer’s contractual payments by an amount 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 reported as non-accrual TDR loans upon discharge as a result of the removal of the borrower’s personal liability on the loan. Due to additional clarifying regulatory guidance adopted in the first quarter of 2014, these loans may now return to accrual status when TCF expects full repayment of the remaining pre-discharged contractual principal and interest. Although loans classified as TDR loans are considered impaired, TCF received more than 47% of the original contractual interest due on accruing consumer real estate TDR loans in 2014, yielding 3.3%, by modifying the loans to qualified customers instead of foreclosing on the property. 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. Loans modified when on non-accrual status continue to be reported as non-accrual loans until there is sustained repayment performance for a reasonable period of at least six consecutive months. At December 31, 2014, 87.7% of total commercial TDR loans were accruing and TCF recognized more than 93% of the original contractual interest due on accruing commercial TDR loans in 2014. At December 31, 2014, collection of principal and interest under the modified terms was reasonably assured on all accruing commercial TDR loans. TCF utilizes a multiple note structure as a workout alternative for certain commercial loans, which restructures a troubled loan into two notes. When utilizing this multiple note structure, 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. If the loan was modified at an interest rate equal to the yield of a new loan originated with comparable risk at the time of restructuring and the loan is performing based on the terms of the restructuring agreement, this note may be removed from TDR loan classification in the calendar year after modification. 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. The second note is charged-off. This second note is a separate and distinct legal contract and is still outstanding. Should the borrower’s financial position improve, the loan may become recoverable. At December 31, 2014, one TDR loan restructured as multiple notes with a combined total contractual balance of $12.4 million and a remaining book balance of $11.4 million is included in the preceding table. See Note 6 of Notes to Consolidated Financial Statements, Allowance for Loan and Lease Losses and Credit Quality Information, for additional information regarding TCF’s loan modifications. 34 Non-accrual Loans and Leases and Other Real Estate Owned The following table summarizes TCF’s non-accrual loans and leases and other real estate owned. (Dollars in thousands) Consumer real estate: First mortgage lien Junior lien At December 31, 2014 2013 2012 2011 2010 $137,790 35,481 $180,811 38,222 $199,631 35,269 $129,114 20,257 $140,871 26,626 Total consumer real estate 173,271 219,033 234,900 149,371 167,497 Commercial: Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Auto finance Other 24,554 481 25,035 12,670 2,082 3,676 – 36,178 4,361 40,539 14,041 2,529 470 410 Total non-accrual loans and leases Other real estate owned 216,734 65,650 277,022 68,874 118,300 9,446 127,746 13,652 1,487 101 1,571 379,457 96,978 104,744 22,775 127,519 20,583 823 – 15 298,311 134,898 104,305 37,943 142,248 34,407 1,055 – 50 345,257 141,065 Total non-accrual loans and leases and other real estate owned Non-accrual loans and leases as a percentage of total loans and leases Non-accrual loans and leases and other real estate owned as a percentage of total loans and leases and other real estate owned Allowance for loan and lease losses as a percentage of non-accrual loans and leases $282,384 $345,896 $476,435 $433,209 $486,322 1.32% 1.75% 2.46% 2.11% 2.33% 1.71 2.17 3.07 3.03 3.26 75.75 91.05 70.40 85.71 76.99 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 Inventory finance Auto finance Other Total At December 31, 2014 $ 87,685 11,265 1,953 37 3,676 – $104,616 2013 $134,487 26,209 2,447 – 470 1 $163,614 2012 $173,587 92,311 2,794 – 101 – $268,793 2011 $ 46,728 83,154 979 – – – $130,861 2010 $30,511 17,487 1,284 – – – $49,282 Non-accrual loans and leases at December 31, 2014 decreased $60.3 million, or 21.8%, from December 31, 2013, primarily due to the portfolio sale of consumer real estate TDR loans which included some non-accrual TDR loans, continued efforts to actively work out commercial loans and improved credit quality in the commercial portfolio. Consumer real estate loans are generally placed on non-accrual status once they become 90 days past due and are charged-off to the estimated fair value of underlying collateral, less estimated selling costs, no later than 150 days past due. Commercial loans are generally placed on non-accrual status once they become 90 days past due unless they are well secured and in the process of collection. Auto loans are generally charged-off to the fair value of the collateral, less estimated selling costs, upon entering non-accrual status no later than 120 days past due. 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. 35 Changes in the amount of non-accrual loans and leases for the years ended December 31, 2014 and 2013 are summarized in the following tables. (In thousands) Balance, beginning of period Additions Charge-offs Transfers to other assets Return to accrual status Payments received Sales Other, net At or For the Year Ended December 31, 2014 Consumer Real Estate Commercial $ 40,539 29,653 (8,491) (3,717) – (33,401) (607) 1,059 $219,033 184,385 (55,107) (62,281) (51,269) (20,757) (41,458) 725 Leasing and Equipment Finance $14,041 18,380 (5,040) (3,027) (1,683) (9,549) – (452) Inventory Finance $ 2,529 7,107 (515) (306) (2,852) (3,398) – (483) Auto Finance Other $ 410 92 (91) (12) – (209) (189) (1) $ 470 4,280 (100) (135) – (839) – – Total $277,022 243,897 (69,344) (69,478) (55,804) (68,153) (42,254) 848 Balance, end of period $173,271 $ 25,035 $12,670 $ 2,082 $3,676 $ – $216,734 (In thousands) Balance, beginning of period Additions Charge-offs Transfers to other assets Return to accrual status Payments received Sales Other, net At or For the Year Ended December 31, 2013 Consumer Real Estate $234,900 222,443 (38,283) (66,267) (71,229) (19,865) (43,434) 768 Commercial $127,746 13,315 (27,325) (13,885) (9,057) (53,985) (309) 4,039 Leasing and Equipment Finance $13,652 19,219 (5,461) (2,252) (1,748) (9,267) – (102) Inventory Finance $ 1,487 7,608 (721) (526) (3,321) (2,292) – 294 Auto Finance $ 101 497 (10) (10) – (114) – 6 Other $1,571 29 (173) (56) – (503) (453) (5) Total $379,457 263,111 (71,973) (82,996) (85,355) (86,026) (44,196) 5,000 Balance, end of period $219,033 $ 40,539 $14,041 $ 2,529 $ 470 $ 410 $277,022 In 2014, additions to non-accrual loans and leases decreased $19.2 million, charge-offs of non-accrual loans and leases decreased $2.6 million, non-accrual loans and leases that returned to accrual status decreased $29.6 million, payments received on non-accrual loans and leases decreased $17.9 million and non-accrual loans and leases transferred to other assets decreased $13.5 million, compared with 2013. These changes were primarily due to improved credit quality in the consumer real estate and commercial portfolios. Loan Credit Classifications TCF assesses the risk of its loan and lease portfolio utilizing numerous risk characteristics as outlined in the previous sections. The loan credit classifications represent an additional characteristic that is closely monitored in the overall credit risk process. The loan credit classifications derived from standard regulatory rating definitions include: accruing non-classified (pass and special mention) and accruing classified (substandard and doubtful). Accruing classified loans and leases have well-defined weaknesses, but may never become non-accrual or result in a loss. 36 The following tables summarize accruing loans and leases by portfolio and regulatory classification and non-accrual loans and leases by portfolio. (Dollars in thousands) Pass Special Mention Substandard Doubtful Accruing Non-accrual Total Total Total Loans and Leases Accruing Non-classified Accruing Classified At December 31, 2014 Consumer real estate Commercial Leasing and equipment finance Inventory finance Auto finance Other $ 5,395,103 3,033,992 3,704,565 1,661,701 1,906,740 24,136 $ 69,811 46,935 16,539 90,413 – 8 $ $ 44,179 51,703 11,548 122,894 4,645 – Total loans and leases $15,726,237 $223,706 $234,969 $ – – – – – – – $ 5,509,093 3,132,630 3,732,652 1,875,008 1,911,385 24,144 $173,271 25,035 12,670 2,082 3,676 – $ 5,682,364 3,157,665 3,745,322 1,877,090 1,915,061 24,144 $16,184,912 $216,734 $16,401,646 Percent of total loans and leases 95.9% 1.4% 1.4% –% 98.7% 1.3% 100.0% At December 31, 2013 Accruing Non-classified Accruing Classified (Dollars in thousands) Pass Special Mention Substandard Doubtful Consumer real estate Commercial Leasing and equipment finance Inventory finance Auto finance Other $ 6,049,617 2,896,795 3,386,301 1,509,960 1,236,405 26,263 $ 21,309 54,711 15,966 87,024 – 68 $ $ 49,367 156,307 12,445 64,864 2,511 2 Total loans and leases $15,105,341 $179,078 $285,496 $ – – 2 – – – 2 Total Accruing Total Non-accrual Total Loans and Leases $ 6,120,293 3,107,813 3,414,714 1,661,848 1,238,916 26,333 $219,033 40,539 14,041 2,529 470 410 $ 6,339,326 3,148,352 3,428,755 1,664,377 1,239,386 26,743 $15,569,917 $277,022 $15,846,939 Percent of total loans and leases 95.3% 1.1% 1.8% –% 98.2% 1.8% 100.0% The combined balance of accruing classified loans and leases and non-accrual loans and leases was $451.7 million at December 31, 2014, a decrease of $110.8 million from December 31, 2013. The decrease is primarily due to a decline of $104.6 million of accruing classified loans in the commercial portfolio due to improved credit quality and a decrease of $60.3 million in non-accrual loans and leases primarily due to the portfolio sale of consumer real estate TDR loans, which included some non-accrual TDR loans, continued efforts to actively work out commercial loans and improved credit quality in the commercial portfolio. Included in the table above in the non-accrual column are $50.0 million and $81.5 million of consumer loans discharged in Chapter 7 bankruptcy that were not reaffirmed at December 31, 2014 and 2013, respectively. Allowance for Loan and Lease Losses The determination of the allowance for loan and lease losses is a critical accounting estimate. TCF’s evaluation of incurred losses is based upon historical loss rates multiplied by the respective portfolio’s loss emergence period. Factors utilized in the determination of the amount of the allowance include historical trends in loss rates, the portfolios’ overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values and prevailing economic conditions. The various factors used in the methodologies are reviewed on a periodic basis. The Company considers the allowance for loan and lease losses of $164.2 million appropriate to cover losses incurred in the loan and lease portfolios at December 31, 2014. 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, an 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. 37 In conjunction with Note 6 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. (Dollars in thousands) Consumer real estate: First mortgage lien Junior lien Credit Loss Reserves At December 31, Allowance as a Percentage of Total Loans and Leases Outstanding At December 31, 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 $ 55,319 30,042 $133,009 43,021 $119,957 62,056 $115,740 67,695 $105,634 67,216 1.76% 3.53% 2.83% 2.44% 2.16% 1.18 3.14 2.55 2.97 1.67 Consumer real estate 85,361 176,030 182,013 183,435 172,850 1.50 2.78 2.73 2.66 2.42 Commercial: 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. 24,616 6,751 31,367 18,446 10,020 18,230 745 32,405 5,062 37,467 18,733 8,592 10,623 785 47,821 3,754 51,575 21,037 7,569 4,136 798 40,446 6,508 46,954 21,173 2,996 – 1,114 50,788 11,690 0.94 1.27 1.18 1.25 1.55 1.16 1.26 2.59 1.53 3.68 62,478 0.99 1.19 1.51 1.36 1.71 26,301 2,537 – 1,653 0.49 0.53 0.95 3.09 0.55 0.52 0.86 2.94 0.66 0.48 0.75 2.86 0.67 0.48 – 3.19 0.83 0.32 – 4.22 164,169 252,230 267,128 255,672 265,819 1.00 1.59 1.73 1.81 1.80 943 980 2,456 1,829 2,353 N.A. N.A. N.A. N.A. N.A $165,112 $253,210 $269,584 $257,501 $268,172 1.01 1.60 1.75 1.82 1.81 At December 31, 2014, the allowance as a percent of total loans and leases decreased to 1.00%, compared with 1.59% at December 31, 2013. This decrease was primarily due to the portfolio sale of consumer real estate TDR loans during the fourth quarter of 2014 resulting in a reduction in the overall credit risk present as of December 31, 2014. 38 The following table sets forth a reconciliation of changes in the allowance for loan and lease losses. (Dollars in thousands) Balance, beginning of period Charge-offs: Consumer real estate: First mortgage lien Junior lien 2014 $ 252,230 Year Ended December 31, 2013 $ 267,128 2012 $ 255,672 2011 $ 265,819 2010 $ 244,471 (43,632) (19,494) (60,363) (37,145) (101,595) (83,190) (94,724) (62,130) (78,605) (56,125) Total consumer real estate (63,126) (97,508) (184,785) (156,854) (134,730) Commercial: 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: Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Auto finance Other (8,646) (11) (8,657) (7,316) (1,653) (11,856) (8,359) (28,287) (657) (28,944) (7,277) (1,141) (5,305) (9,115) (34,642) (6,194) (40,836) (15,248) (1,838) (1,164) (10,239) (32,890) (9,843) (42,733) (16,984) (1,044) – (12,680) (45,682) (4,045) (49,727) (34,745) (1,484) – (16,377) (100,967) (149,290) (254,110) (230,295) (237,063) 1,513 5,354 6,867 754 2,133 2,887 3,705 826 1,491 5,860 2,055 6,589 8,644 2,667 103 2,770 3,968 373 607 6,518 1,067 4,582 5,649 1,762 197 1,959 5,058 333 30 7,314 510 3,233 3,743 1,502 152 1,654 4,461 193 – 9,262 2,237 2,633 4,870 724 603 1,327 4,100 339 – 11,338 21,974 Total recoveries 21,636 22,880 20,343 19,313 Net charge-offs Provision charged to operations Other(1) Balance, end of period (79,331) 95,737 (104,467) (126,410) 118,368 (6,856) (233,767) 247,443 (2,220) (210,982) 200,843 (8) (215,089) 236,437 – $ 164,169 $ 252,230 $ 267,128 $ 255,672 $ 265,819 Net charge-offs as a percentage of average loans and leases 0.49% 0.81% 1.54% 1.45% 1.47% (1) Included in Other in 2014 is the transfer of $95.3 million, comprised of $77.0 million of previously established allowance for loan and lease losses and an additional $18.3 million of write-downs arising from the transfer to loans held for sale in conjunction with the portfolio sale of consumer real estate TDR loans. During 2014, consumer real estate net charge-offs decreased $32.6 million from 2013 and commercial net charge-offs decreased $20.4 million from 2013. The decrease in net charge-offs in the consumer real estate portfolio is primarily due to the improving economy, as incidents of default decrease and home values increase. The decrease in net charge-offs in the commercial portfolio is primarily due to improved credit quality and continued efforts to work out problem loans. 39 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) Consumer real estate Commercial real estate Total other real estate owned Repossessed and returned assets At December 31, 2014 2013 2012 2011 2010 $44,932 20,718 65,650 3,525 $47,637 21,237 68,874 3,505 $ 69,599 27,379 $ 87,792 47,106 $ 90,115 50,950 96,978 3,510 134,898 4,758 141,065 8,325 Total other real estate owned and repossessed and returned assets $69,175 $72,379 $100,488 $139,656 $149,390 (1) Includes properties owned and foreclosed properties subject to redemption. Total consumer real estate properties reported in other real estate owned included 277 owned properties and 146 foreclosed properties subject to redemption at December 31, 2014, compared with 336 owned properties and 143 foreclosed properties subject to redemption at December 31, 2013. The decrease in owned properties from December 31, 2013 resulted from sales of 647 properties, partially offset by the addition of 588 properties. The average length of time of consumer real estate properties sold during 2014 was approximately 5.4 months from the date the properties were listed for sale. The changes in the amount of other real estate owned for the years ended December 31, 2014 and 2013 are summarized in the following table. (In thousands) Balance, beginning of period Transferred in, net of charge-offs Sales Write-downs Other, net Balance, end of period (In thousands) Balance, beginning of period Transferred in, net of charge-offs Sales Write-downs Other, net Balance, end of period At or For the Year Ended December 31, 2014 Total Commercial $ 68,874 $21,237 62,985 3,717 (59,233) (3,824) (14,432) (6,562) 7,456 6,150 Consumer $ 47,637 59,268 (55,409) (7,870) 1,306 $ 44,932 $20,718 $ 65,650 At or For the Year Ended December 31, 2013 Total $ 96,978 81,742 (96,973) (15,257) 2,384 Commercial $27,379 13,808 (8,969) (8,247) (2,734) Consumer $ 69,599 67,934 (88,004) (7,010) 5,118 $ 47,637 $21,237 $ 68,874 Transfers into other real estate owned decreased by $18.8 million in 2014 compared with 2013. Sales of other real estate owned decreased by $37.7 million in 2014 compared with 2013. 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 Bank’s management Asset & Liability Committee (‘‘ALCO’’) and the Finance Committee of the TCF Financial 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. TCF Bank had $767.0 million and $550.0 million of net liquidity qualifying interest-bearing deposits at the Federal Reserve Bank at December 31, 2014 and 2013, respectively. Interest-bearing deposits held at the Federal Reserve Bank and unencumbered securities were $1.4 billion and $1.1 billion at December 31, 2014 and 2013, respectively. 40 ALCO and the Finance Committee of the TCF Financial 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 $71.8 million and $62.8 million at December 31, 2014 and 2013, respectively. 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, loan sales and borrowings. Lending activities, such as loan originations and purchases and equipment purchases for lease financing, are the primary uses of TCF’s funds. 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 FHLB of Des Moines, institutional sources under repurchase agreements and other sources. The primary source of funding for TCF Commercial Finance Canada, Inc. (‘‘TCFCFC’’) is a line of credit with TCF Bank. Primarily for contingency purposes, TCFCFC maintains a $20.0 million Canadian dollar-denominated line of credit facility with a counterparty, which is guaranteed by TCF Bank and was unused at both December 31, 2014 and 2013. Deposits Deposits totaled $15.4 billion at December 31, 2014, an increase of $1.0 billion, or 7.0%, from December 31, 2013, primarily due to promotions for money market accounts and certificates of deposit. Checking, savings and money market deposits are an important source of low interest cost funds for TCF. These deposits totaled $12.4 billion at December 31, 2014, an increase of $0.4 billion from December 31, 2013, and comprised 80.3% of total deposits at December 31, 2014, compared with 83.2% of total deposits at December 31, 2013. The average balance of these forms of deposits during 2014 was $12.1 billion, an increase of $0.3 billion from the $11.8 billion average balance for 2013. Certificates of deposit totaled $3.0 billion at December 31, 2014, compared with $2.4 billion at December 31, 2013. Non-interest bearing checking represented 18.3% of total deposits at both December 31, 2014 and 2013. TCF’s weighted- average rate for deposits, including non-interest bearing deposits, was 0.26% at both December 31, 2014 and 2013. Borrowings Borrowings totaled $1.2 billion and $1.5 billion at December 31, 2014 and 2013, respectively. The weighted- average rate on long-term borrowings was 1.63% and 1.41% at December 31, 2014 and 2013, respectively. Historically, TCF has borrowed primarily from the FHLB of Des Moines, institutional sources under repurchase agreements and other sources. At December 31, 2014, TCF had $2.6 billion of unused, secured borrowing capacity at the FHLB of Des Moines. On March 17, 2014, TCF Bank redeemed the aggregate principal amount of $50.0 million of subordinated notes due 2015, since the notes no longer qualified for treatment as Tier 2 or supplementary capital prior to redemption. See Note 11 of Notes to Consolidated Financial Statements, Long-term Borrowings, for additional information regarding TCF’s long-term borrowings. 41 Contractual Obligations and Commitments As disclosed in Note 10, Note 11 and Note 17 of Notes to Consolidated Financial Statements, Short-term Borrowings, Long-term Borrowings and Financial Instruments with Off-Balance Sheet Risk, respectively, TCF has certain obligations and commitments to make future payments under contracts. At December 31, 2014, the aggregate contractual obligations 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 Payments Due by Period Total Less than 1 year 1-3 years 3-5 years More than 5 years $1,236,490 3,049,189 $ 164,999 1,829,969 $ 950,433 1,133,486 $ 11,621 58,870 $ 109,437 26,864 193,271 101,329 36,240 26,894 38,116 3,217 57,793 29,036 5,730 41,554 16,425 5,804 67,030 17,752 21,489 Total $4,616,519 $2,063,195 $2,176,478 $134,274 $ 242,572 (1) Includes accrued interest and future contractual interest obligations on borrowings and time deposits. (In thousands) Commitments: Commitments to extend credit: Consumer real estate and other Commercial Leasing and equipment finance Amount of Commitment – Expiration by Period Total Less than 1 year 1-3 years 3-5 years More than 5 years $1,314,826 609,618 140,261 $ 28,444 159,184 140,261 $ 99,785 124,701 – $138,279 229,347 – $1,048,318 96,386 – Total commitments to extend credit 2,064,705 327,889 224,486 367,626 1,144,704 Standby letters of credit and guarantees on industrial revenue bonds 14,676 12,788 1,458 430 – Total $2,079,381 $ 340,677 $ 225,944 $368,056 $1,144,704 Unrecognized tax benefits, projected benefit obligations, demand deposits with indeterminate maturities and discretionary credit facilities which do not obligate the Company to lend have been excluded from the contractual obligations table above. Campus marketing agreements consist of fixed or minimum obligations for exclusive marketing and naming rights with four campuses. TCF is obligated to make annual payments for the exclusive marketing rights at these four campuses through 2029. TCF also has various renewal options, which may extend the terms of these agreements. 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 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 are conditional commitments issued by TCF guaranteeing the performance of a customer to a third party. These conditional commitments expire in various years through 2018. 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. Capital Management TCF is committed to managing capital to maintain protection for depositors and creditors. TCF employs a variety of capital management tools to achieve its capital goals, including, but not limited to, dividends, public offerings of preferred and common stock, common stock repurchases and the issuance or redemption of subordinated debt and other capital instruments. TCF maintains a Capital Planning and Dividend Policy which applies to TCF Financial and incorporates TCF Bank’s Capital Planning and Dividend Policy. These 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. At December 31, 2014 and 2013, regulatory capital for TCF 42 and TCF Bank exceeded their regulatory capital requirements. See Note 14 of Notes to Consolidated Financial Statements, Regulatory Capital Requirements. Preferred Stock At December 31, 2014, there were 6,900,000 depositary shares outstanding, each representing a 1/1,000th interest in a share of the Series A Non-Cumulative Perpetual Preferred Stock of TCF Financial Corporation, par value $.01 per share, with a liquidation preference of $25,000 per share (equivalent to $25 per depositary share)(‘‘Series A Preferred Stock’’). 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%. At December 31, 2014, there were 4,000,000 shares outstanding of 6.45% Series B Non-Cumulative Perpetual Preferred Stock of TCF Financial Corporation, par value $.01 per share, with a liquidation preference of $25 per share (‘‘Series B Preferred Stock’’). 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 Total equity at December 31, 2014 was $2.1 billion, or 11.0% of total assets, compared with $2.0 billion, or 10.7% of total assets, at December 31, 2013. Dividends to common stockholders on a per share basis totaled 5 cents for each quarter of the years ended December 31, 2014 and 2013. TCF’s common dividend payout ratio for the quarters ended December 31, 2014 and 2013 were 41.67% and 22.99%, respectively. TCF Financial’s primary funding sources for dividends are earnings and dividends received from TCF Bank. At December 31, 2014, TCF had 5.4 million shares remaining in its stock repurchase program authorized by its Board of Directors, which has no expiration. Prior consultation with the Federal Reserve is required by regulation before TCF could repurchase any shares of its common stock. Tangible common equity at December 31, 2014 was $1.6 billion, or 8.50% of total tangible assets, compared with $1.5 billion, or 8.03% of total tangible assets, at December 31, 2013. Tangible common equity and the Tier 1 common capital ratio are not financial measures recognized under generally accepted accounting principles in the United States (‘‘GAAP’’) (i.e., non-GAAP). Tangible common equity represents total equity less preferred stock, goodwill, other intangible assets 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 common equity to tangible assets and the Tier 1 common capital ratio. These non-GAAP financial measures 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. 43 The following table includes reconciliations of the non-GAAP financial measures of tangible common equity, tangible assets and Tier 1 common capital to the GAAP measures of total equity, total assets and Tier 1 risk-based capital, respectively. (Dollars in thousands) Computation of tangible 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 2014 2013 2012 2011 2010 At December 31, $ 2,135,364 $ 1,964,759 $ 1,876,643 $ 1,878,627 $ 1,480,163 13,715 11,791 13,270 10,494 8,500 2,121,649 1,952,968 1,863,373 1,868,133 1,471,663 263,240 225,640 4,641 263,240 225,640 6,326 263,240 225,640 8,674 – 225,640 7,134 – 152,599 1,232 Tangible common equity $ 1,628,128 $ 1,457,762 $ 1,365,819 $ 1,635,359 $ 1,317,832 Total assets Less: Goodwill Other intangibles Tangible assets $19,394,611 $18,379,840 $18,225,917 $18,979,388 $18,465,025 225,640 4,641 225,640 6,326 225,640 8,674 225,640 7,134 152,599 1,232 $19,164,330 $18,147,874 $17,991,603 $18,746,614 $18,311,194 Tangible common equity to tangible assets 8.50% 8.03% 7.59% 8.72% 7.20% Computation of Tier 1 risk-based capital ratio: Total Tier 1 capital Total risk-weighted assets $ 1,919,887 $16,321,425 $ 1,763,682 $15,455,706 $ 1,633,336 $14,733,203 $ 1,706,926 $13,475,330 $ 1,459,703 $13,936,629 Total Tier 1 risk-based capital ratio 11.76% 11.41% 11.09% 12.67% 10.47% Computation of Tier 1 common capital ratio: Total Tier 1 capital Less: Preferred stock Qualifying non-controlling interest in subsidiaries Qualifying trust preferred securities $ 1,919,887 $ 1,763,682 $ 1,633,336 $ 1,706,926 $ 1,459,703 263,240 263,240 263,240 – – 13,715 – 11,791 – 13,270 – 10,494 115,000 8,500 115,000 Total Tier 1 common capital $ 1,642,932 $ 1,488,651 $ 1,356,826 $ 1,581,432 $ 1,336,203 Total risk-weighted assets Total Tier 1 common capital ratio $16,321,425 $15,455,706 $14,733,203 $13,475,330 $13,936,629 10.07% 9.63% 9.21% 11.74% 9.59% 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, Summary of Significant Accounting Policies, for further discussion of critical accounting policies. Recent Accounting Developments In January 2015, the FASB issued Accounting Standards Update (‘‘ASU’’) No. 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates from GAAP the concept of an extraordinary item. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings per share data applicable to an extraordinary item. However, presentation and disclosure guidance for items that are unusual in nature and occur infrequently will be retained. The adoption of this ASU will be required on a prospective or retrospective basis beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2016. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. In November 2014, the FASB issued ASU No. 2014-17, Business Combinations: Pushdown Accounting, which provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in 44 which an acquirer obtains control of the acquired entity. This ASU became effective and was adopted by TCF on November 18, 2014. The adoption of this ASU did not have an impact on our consolidated financial statements. In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity, which requires an entity that issues or invests in hybrid financial instruments, issued in the form of a share, to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances and including the embedded derivative feature that is being evaluated for separate accounting from the host contract. The adoption of this ASU will be required on a modified retrospective basis beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2016. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern. If substantial doubt exists and is not alleviated, or if substantial doubt exists and is alleviated by consideration of management’s plans, footnote disclosures are required. The adoption of this ASU will be required on a prospective basis beginning with TCF’s Annual Report on Form 10-K for the year ending December 31, 2016. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. In August 2014, the FASB issued ASU No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, which clarified that creditors should classify certain government-guaranteed mortgage loans upon foreclosure as a separate other receivable. The separate other receivable will be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The adoption of this ASU will be required on a prospective or modified retrospective basis beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2015. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. In August 2014, the FASB issued ASU No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity, which amends guidance on the measurement of financial assets and financial liabilities of a consolidated collateralized financing entity. Under the ASU, a reporting entity that has consolidated a collateralized financing entity may elect to measure the financial assets and financial liabilities using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. When this measurement alternative is not elected, this ASU clarifies that the fair value of financial assets and financial liabilities should be measured in accordance with existing fair value guidance and any difference in the fair value of financial assets and financial liabilities should be reflected in earnings and attributed to the reporting entity. The adoption of this ASU will be required on a retrospective or modified retrospective basis beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2016. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Under the ASU, an entity would not record compensation expense related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. The adoption of this ASU will be required, either on a retrospective basis or prospective basis, beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2016. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which makes limited amendments to guidance in Topic 860 on accounting for certain repurchase agreements. The ASU requires entities to account for repurchase-to-maturity transactions as secured borrowings, eliminates accounting guidance on linking repurchase financing transactions and expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers accounted for as secured borrowings. The adoption of this ASU, as it relates to accounting changes and disclosures for certain transfers of financial assets treated as sales will be required beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2015. The adoption of this ASU, as it relates to disclosures for certain transfers of financial assets accounted for as secured borrowings, will be required beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2015. Upon adoption of this ASU, changes in accounting for transactions outstanding are required to be presented as a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period, and disclosures are not required to be presented for comparative periods. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. 45 In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of this ASU will be required, using one of two retrospective application methods, beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2017. Management is currently evaluating the potential impact of this guidance on our consolidated financial statements. In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the guidance for reporting discontinued operations and requires certain disclosures about a disposal of an individually significant component of an entity. The adoption of this ASU will be required on a prospective basis beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2015. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. Legislative and Regulatory Developments Federal and state legislation impose 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. Interchange Litigation On January 20, 2015, the Supreme Court denied the request made by a group of trade associations and merchants seeking review of a decision of the U.S. Court of Appeals, which largely upheld the Federal Reserve Board’s rules governing debit card interchange fees. 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 those arising from government shutdowns, defaults, anticipated defaults or rating agency downgrades of sovereign debt (including debt of the U.S.), or increases in unemployment 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, increased deposit costs due to competition for deposit growth and evolving payment system developments, deposit account attrition or an inability to increase the number of deposit accounts; customers completing financial transactions without using a bank; adverse changes in credit quality and other risks posed by TCF’s loan, lease, investment, securities held to maturity and securities available for sale portfolios, including declines in commercial or residential real estate values, changes in the allowance for loan and lease losses dictated by new market conditions or regulatory requirements, or the inability of home equity line borrowers to make increased payments caused by increased interest rates or amortization of principal; deviations from estimates of prepayment rates and fluctuations in interest rates that result in decreases in the value of assets such as interest-only strips that arise in connection with TCF’s loan sales activity; interest rate risks resulting from fluctuations in prevailing interest rates or other factors that result in a mismatch between yields earned on TCF’s interest-earning assets and the rates paid on its deposits and borrowings; foreign currency exchange risks; counterparty risk, including the risk of defaults by our counterparties or diminished availability of counterparties 46 who satisfy our credit quality requirements; decreases in demand for the types of equipment that TCF leases or finances; the effect of any negative publicity. Legislative and Regulatory Requirements New consumer protection and supervisory requirements and regulations, including those resulting from action by the CFPB and changes in the scope of Federal preemption of state laws that could be applied to national banks and their subsidiaries; the imposition of requirements that adversely impact TCF’s deposit, lending, loan collection and other business activities such as mortgage foreclosure moratorium laws, further regulation of financial institution campus banking programs, use by municipalities of eminent domain on property securing troubled residential mortgage loans, or imposition of underwriting or other limitations that impact the ability to use certain variable-rate products; changes affecting customer account charges and fee income, including changes to interchange rates; regulatory actions or changes in customer opt-in preferences with respect to overdrafts, which may have an adverse impact on TCF’s fee revenue; changes to bankruptcy laws which would result in the loss of all or part of TCF’s security interest due to collateral value declines; deficiencies in TCF’s compliance under the Bank Secrecy Act in past or future periods, which may result in regulatory enforcement action including monetary penalties; increased health care costs resulting from Federal health care reform; regulatory criticism and resulting enforcement actions or other adverse consequences such as increased capital requirements, higher deposit insurance assessments or monetary damages or penalties; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to enterprise risk management, the Bank Secrecy Act and anti-money laundering compliance activity. Earnings/Capital Risks and Constraints, Liquidity Risks Limitations on TCF’s ability to pay dividends or to increase dividends because of financial performance deterioration, regulatory restrictions or limitations; increased deposit insurance premiums, special assessments or other costs related to adverse conditions in the banking industry, the impact on banks of regulatory reform, including additional capital, leverage, liquidity and risk management requirements or changes in the composition of qualifying regulatory capital; adverse changes in securities markets directly or indirectly affecting TCF’s ability to sell assets or to fund its operations; diminished unsecured borrowing capacity resulting from TCF credit rating downgrades 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 future retail deposit account changes, including limitations on TCF’s ability to predict customer behavior and the impact on TCF’s fee revenues. Branching Risk; Growth Risks Adverse developments affecting TCF’s supermarket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches; costs related to closing underperforming branches; 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 the inventory finance business; failure to effectuate, and risks of claims related to, sales and securitizations of loans; risks related to new product additions and addition of distribution channels (or entry into new markets) for existing products. Technological and Operational Matters Technological or operational difficulties, loss or theft of information, cyber-attacks and other security breaches, counterparty failures and the possibility that deposit account losses (fraudulent checks, etc.) may increase; failure to keep pace with technological change, including the failure to develop and maintain technology necessary to satisfy customer demands. Litigation Risks Results of litigation or government enforcement actions, including class action litigation or enforcement actions concerning TCF’s lending or deposit activities including account 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 federal, state or foreign tax assessments or findings in tax audits; lack of or inadequate insurance coverage for claims against TCF; potential for claims and legal action related to TCF’s fiduciary responsibilities. 47 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 portfolios. TCF’s Enterprise Risk Management Committee meets at least quarterly and is responsible for monitoring the loan and lease portfolio composition and risk tolerance within the various segments of the portfolio. The Enterprise 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 loans, 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, essentially all of the amortized cost of securities held in the securities available for sale portfolio are issued and guaranteed by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government National Mortgage Association as of December 31, 2014. Interest Rate Risk ALCO and the Finance Committee of TCF Financial’s Board of Directors have adopted interest rate risk policy limits which are incorporated into the Company’s investment policy. 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 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. Although TCF manages other risks, such as credit risk, liquidity risk, operational and other risks in the normal course of its business, the Company considers interest rate risk to be one of its more significant market risks. 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 re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in customer behavior and changes in relationships between 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. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. TCF, like most financial institutions, has material interest-rate risk exposure to changes in both short-term and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate or LIBOR). TCF’s 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. ALCO manages TCF’s interest rate risk based on interest rate expectations and other factors. The principal objective of TCF’s management asset and liability activities is to provide maximum 48 levels of net interest income and facilitate the funding needs of the Company,while maintaining acceptable levels of interest rate risk and liquidity risk. ALCO primarily uses two interest rate risk tools with policy limits to evaluate TCF’s interest rate risk: net interest income simulation and economic value of equity (‘‘EVE’’). In addition, interest rate gap is reviewed to monitor asset and liability repricing over various time periods. Net Interest Income Simulation Management utilizes net interest income simulation models to estimate the near-term effects of changing interest rates on its net interest income. Net interest income simulation involves forecasting net interest income under a variety of scenarios, including the level of interest rates, the shape of the yield curve and the spreads between market interest rates. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit re-pricings and events outside management’s 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 subjective and, as a result, net interest income simulation results will 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. TCF performs various sensitivity analyses on assumptions of new loan spreads, prepayment rates, basis risk, deposit attrition and deposit re-pricing. The following table presents changes in TCF’s net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate increase of 100 basis points and 200 basis points. The impact of planned growth and new business activities is factored into the simulation model. (Dollars in millions) Immediate Change in Interest Rates: +200 basis points +100 basis points Impact on Net Interest Income Year Ended December 31, 2014 2013 $73.6 39.4 8.9% $64.4 36.7 4.7 7.9% 4.5 As of December 31, 2014, 50.5% of TCF’s loan and lease balances will reprice or are expected to pay down in the next 12 months and 64.1% of TCF’s deposit balances are low cost or no cost deposits. The mix of assets repricing compared to low cost or no cost deposits should enable TCF to increase net interest income when interest rates rise. Economic Value of Equity Management also uses EVE to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analysis. Net interest income simulation highlights exposure over a relatively short time period, while EVE 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 present value of liability cash flows. EVE 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, EVE 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. Interest Rate Gap The interest rate gap is the difference between interest-earning assets and interest-bearing liabilities re-pricing within a given period and represents the net asset or liability sensitivity at a point in time. An interest rate gap measure 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. 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 TCF Financial’s 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 be required to receive regulatory approval prior to making 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 14 of Notes to Consolidated Financial Statements, Regulatory Capital Requirements, for further information. 49 ALCO and the Finance Committee of TCF Financial’s Board of Directors have adopted a Liquidity Management Policy for TCF Bank 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 defines liquidity stress scenarios and establishes asset liquidity target ranges based upon those stress scenarios 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 agreements. At December 31, 2014, 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 incremental borrowing capacity at the 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 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. See Note 18 of Notes to Consolidated Financial Statements, Derivative Instruments, for further information. 50 Item 8. Financial Statements and Supplementary Data 21JUL200414412105 Report of Independent Registered Public Accounting 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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2014, 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, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. 8OCT201312085186 Minneapolis, Minnesota February 23, 2015 51 Consolidated Statements of Financial Condition (Dollars in thousands, except per-share data) Assets: Cash and due from banks Investments Securities held to maturity Securities available for sale Loans and leases held for sale Loans and leases: Consumer real estate: First mortgage lien Junior lien Total 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 $0.01 per share, 30,000,000 shares authorized; 4,006,900 shares issued Common stock, par value $0.01 per share, 280,000,000 shares authorized; 167,503,568 and 165,164,861 shares issued, respectively Additional paid-in capital Retained earnings, subject to certain restrictions Accumulated other comprehensive loss 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. 52 At December 31, 2014 2013 $ 1,115,250 85,492 214,454 463,294 132,266 $ 915,076 94,326 19,912 551,064 79,768 3,139,152 2,543,212 5,682,364 3,157,665 3,745,322 1,877,090 1,915,061 24,144 3,766,421 2,572,905 6,339,326 3,148,352 3,428,755 1,664,377 1,239,386 26,743 16,401,646 (164,169) 15,846,939 (252,230) 16,237,477 436,361 225,640 484,377 15,594,709 437,602 225,640 461,743 $19,394,611 $18,379,840 $ 5,195,243 5,212,320 1,993,130 3,049,189 $ 4,980,451 6,194,003 831,910 2,426,412 15,449,882 14,432,776 4,425 1,232,065 1,236,490 572,875 4,918 1,483,325 1,488,243 494,062 17,259,247 16,415,081 263,240 263,240 1,675 817,130 1,099,914 (10,910) (49,400) 2,121,649 13,715 1,652 779,641 977,846 (27,213) (42,198) 1,952,968 11,791 2,135,364 1,964,759 $19,394,611 $18,379,840 Consolidated Statements of Income (In thousands, except per-share data) Interest income: Loans and leases Securities available for sale Securities held to maturity 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 Gains on sales of auto loans, net Gains on sales of consumer real estate loans, net Servicing fee income Subtotal Leasing and equipment finance Other Fees and other revenue Gains (losses) 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 Other Subtotal Loss on termination of debt Branch realignment Foreclosed real estate and repossessed assets, net Other credit costs, net Total non-interest expense Income (loss) before income tax expense (benefit) Income tax expense (benefit) Income (loss) after income tax expense (benefit) Income attributable to non-controlling interest Net income (loss) attributable to TCF Financial Corporation Preferred stock dividends Year Ended December 31, 2013 2014 2012 $820,436 11,994 5,281 36,518 $819,501 18,074 277 26,688 $ 835,380 35,150 281 13,812 874,229 864,540 884,623 38,385 20,215 58,600 815,629 95,737 719,892 154,386 51,323 22,225 227,934 43,565 34,794 21,444 99,803 93,799 10,704 432,240 1,027 433,267 452,942 139,023 25,123 27,152 22,943 179,904 847,087 – – 24,567 123 871,777 281,382 99,766 181,616 7,429 174,187 19,388 36,604 25,312 61,916 802,624 118,368 684,256 166,606 51,920 22,656 241,182 29,699 21,692 13,406 64,797 90,919 6,196 403,094 964 404,058 429,188 134,694 32,066 24,500 21,477 167,777 809,702 – 8,869 27,950 (1,252) 845,269 243,045 84,345 158,700 7,032 151,668 19,065 40,987 63,617 104,604 780,019 247,443 532,576 177,953 52,638 24,181 254,772 22,101 5,413 7,759 35,273 92,172 5,974 388,191 102,232 490,423 393,841 130,792 30,425 25,378 25,241 163,897 769,574 550,735 – 41,358 887 1,362,554 (339,555) (132,858) (206,697) 6,187 (212,884) 5,606 Net income (loss) available to common stockholders $154,799 $132,603 $ (218,490) Net income (loss) per common share: Basic Diluted See accompanying notes to consolidated financial statements. $ $ 0.95 0.94 $ $ 0.82 0.82 $ $ (1.37) (1.37) 53 Consolidated Statements of Comprehensive Income (In thousands) Net income (loss) attributable to TCF Financial Corporation Other comprehensive income (loss): Securities available for sale: Year Ended December 31, 2014 $174,187 2013 $151,668 2012 $(212,884) Unrealized gains (losses) arising during the period Reclassification of net (gains) losses to net income (loss) 29,071 (76) (61,177) (860) 19,794 (89,879) Net investment hedge: Unrealized gains (losses) arising during the period Foreign currency translation adjustment: Unrealized gains (losses) arising during the period Recognized postretirement prior service cost: Unrealized gains (losses) arising during the period Reclassification of net (gains) losses to net income (loss) Income tax (expense) benefit Total other comprehensive income (loss) Comprehensive income (loss) See accompanying notes to consolidated financial statements. 3,126 1,625 (3,704) (1,979) – (47) (12,067) – (46) 22,781 (630) 531 151 (28) 25,678 16,303 (39,656) (44,383) $190,490 $112,012 $(257,267) 54 Consolidated Statements of Equity TCF Financial Corporation (Dollars in thousands) Preferred Common Number of Shares Issued Preferred Common Stock Stock Additional Paid-in Capital Accumulated Other Retained Comprehensive Income (Loss) Earnings Treasury Stock and Other Non- controlling Interests Total Total Equity Balance, December 31, 2011 – 160,366,380 $ $1,604 $715,247 $1,127,823 $ 56,826 $(33,367) $1,868,133 $10,494 $1,878,627 Balance, December 31, 2012 4,006,900 163,428,763 $263,240 $1,634 $750,040 $ 877,445 $ 12,443 $(41,429) $1,863,373 $13,270 $1,876,643 Net loss attributable to TCF Financial Corporation Other comprehensive income (loss) Public offering of preferred stock Net investment by (distribution to) non-controlling interest Dividends on preferred stock Dividends on common stock Grants of restricted stock Common shares purchased by TCF employee benefit plans Cancellation of shares of restricted stock Cancellation of common shares for tax withholding Net amortization of stock compensation Stock compensation tax (expense) benefit Change in shares held in trust for deferred compensation plans, at cost – – 4,006,900 – – – – – – – – – – – – – – – – 1,822,025 1,742,990 (322,908) (179,724) – – – – – – 263,240 – – – – – – – – – – – – – – – – 18 17 (3) (2) – – – – – – – – – (18) 19,445 (1,198) (1,947) 11,108 (659) 8,062 (212,884) – – – (44,383) – – (5,606) (31,904) – – 16 – – – – – – – – – – – – – – Net income attributable to TCF Financial Corporation Other comprehensive income (loss) Net investment by (distribution to) non-controlling interest Dividends on preferred stock Dividends on common stock Grants of restricted stock Common shares purchased by TCF employee benefit plans Cancellation of shares of restricted stock Cancellation of common shares for tax withholding Net amortization of stock compensation Stock compensation tax (expense) benefit Change in shares held in trust for deferred compensation plans, at cost – – – – – – – – – – – – – – – – – 532,777 1,389,819 (120,313) (66,185) – – – – – – – – – – – – – – – – – – – – 5 – – – – – (5) 14 20,165 – (1) – – – (299) (954) 10,398 (473) 769 151,668 – – (39,656) – (19,065) (32,227) – – 25 – – – – – – – – – – – – – – Net income attributable to TCF Financial Corporation Other comprehensive income (loss) Net investment by (distribution to) non-controlling interest Dividends on preferred stock Dividends on common stock Grants of restricted stock Common shares purchased by TCF employee benefit plans Cancellation of shares of restricted stock Cancellation of common shares for tax withholding Net amortization of stock compensation Exercise of stock options Stock compensation tax (expense) benefit Change in shares held in trust for deferred compensation plans, at cost – – – – – – – – – – – – – – – – – – 1,152,906 1,452,837 (108,490) (205,546) – 47,000 – – – – – – – – – – – – – – – – – – – – 11 15 – – – – – (11) 23,068 (1) (519) (2) (3,332) – – – – 9,025 740 1,316 7,202 174,187 – – 16,303 – (19,388) (32,731) – – – – – – – – – – – – – – – – – – – (8,062) – 151,668 7,032 158,700 (39,656) – (39,656) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (212,884) 6,187 (206,697) (44,383) 263,240 – – (44,383) 263,240 – (5,606) (31,904) – 19,462 (1,185) (1,949) 11,108 (659) – (19,065) (32,227) – 20,179 (274) (955) 10,398 (473) – (19,388) (32,731) – 23,083 (520) (3,334) 9,025 740 1,316 (3,411) – – – – – – – – – (3,411) (5,606) (31,904) – 19,462 (1,185) (1,949) 11,108 (659) – (8,511) – – – – – – – – – (8,511) (19,065) (32,227) – 20,179 (274) (955) 10,398 (473) – (5,505) – – – – – – – – – – (5,505) (19,388) (32,731) – 23,083 (520) (3,334) 9,025 740 1,316 – (769) – 174,187 7,429 181,616 16,303 – 16,303 Balance, December 31, 2013 4,006,900 165,164,861 $263,240 $1,652 $779,641 $ 977,846 $(27,213) $(42,198) $1,952,968 $11,791 $1,964,759 Balance, December 31, 2014 4,006,900 167,503,568 $263,240 $1,675 $817,130 $1,099,914 $(10,910) $(49,400) $2,121,649 $13,715 $2,135,364 See accompanying notes to consolidated financial statements. 55 (7,202) – Consolidated Statements of Cash Flows (In thousands) Cash flows from operating activities: Year Ended December 31, 2014 2013 2012 Net income (loss) attributable to TCF Financial Corporation Adjustments to reconcile net income (loss) to net cash provided by (used in) $ 174,187 $ 151,668 $ (212,884) operating activities: Provision for credit losses Depreciation and amortization Proceeds from sales of loans and leases held for sale Gains on sales of assets, net Loss on termination of debt Net income attributable to non-controlling interest Originations of loans held for sale, net of repayments Net change in other assets and accrued expenses and other liabilities Other, net Net cash provided by (used in) 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 inventory finance portfolios Proceeds from sales of loans Proceeds from sales of lease receivables Proceeds from sales of securities Purchases of securities Proceeds from maturities of and principal collected on securities 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 95,737 128,701 571,551 (90,736) – 7,429 (626,172) 83,624 (32,571) 311,750 118,368 117,950 277,180 (61,265) – 7,032 (353,982) 190,371 (36,288) 411,034 (2,190,753) (920,985) – 2,278,812 25,468 2,813 (139,080) 58,151 (97,000) 105,931 67,049 (45,469) 30,140 (1,196,030) (904,383) (9,658) 1,378,235 43,215 46,506 (53,312) 91,424 (18,789) 40,976 102,250 (37,859) 35,636 247,443 109,192 161,221 (140,665) 550,735 6,187 (171,420) (67,985) 14,839 496,663 (1,353,981) (938,228) (37,527) 560,421 78,805 2,089,044 (645,880) 202,900 (157,517) 197,571 132,044 (44,082) 39,949 Net cash provided by (used in) investing activities (824,923) (481,789) 123,519 Cash flows from financing activities: Net change in deposits Net change in short-term borrowings Proceeds from long-term borrowings Payments on long-term borrowings Net proceeds from public offerings of preferred stock Redemption of subordinated debt Redemption of trust preferred securities Net investment by (distribution to) 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 Exercise of stock options Net cash provided by (used in) financing activities Net change in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period Supplemental disclosures of cash flow information: Cash paid (received) for: 997,661 (493) 2,808,612 (3,009,948) – (50,000) – (5,505) (19,388) (32,731) 1,316 23,083 740 370,356 2,299 744,348 (1,120,402) – (71,020) – (8,511) (19,065) (32,227) (473) 20,179 – 1,848,782 (3,797) 1,283,466 (4,164,102) 263,240 – (115,010) (3,411) (5,606) (31,904) (659) 19,462 – 713,347 200,174 915,076 (114,516) (909,539) (185,271) 1,100,347 (289,357) 1,389,704 $ 1,115,250 $ 915,076 $ 1,100,347 Interest on deposits and borrowings Income taxes, net Transfer of loans to other assets Transfer of securities available for sale to securities held to maturity $ $ $ $ 55,954 113,562 91,180 191,665 See accompanying notes to consolidated financial statements 56 61,453 (28,456) $ $ $ $ 112,463 9,342 $ $ 108,524 (13,376) $ 137,311 – $ Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Basis of Presentation TCF Financial Corporation, a Delaware corporation (‘‘we,’’ ‘‘us,’’ ‘‘our,’’ ‘‘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. References herein to ‘‘TCF Financial’’ refer to TCF Financial Corporation on an unconsolidated basis. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. The preparation of financial statements in conformity with U.S. 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 financing 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. Loans classified as troubled debt restructuring (‘‘TDR’’) loans are considered impaired loans. TCF individually evaluates impairment on all impaired commercial and inventory finance loans, certain large impaired equipment finance loans and leases, large consumer real estate TDR loans, auto finance TDR loans and all non-accrual Winthrop Resources Corporation (‘‘Winthrop’’) leases. All other loans and leases are evaluated collectively for impairment. See Note 6, Allowance for Loan and Lease Losses and Credit Quality Information, for a definition of impaired loans. Loan impairment on consumer real estate TDR loans is a key component of the allowance for loan and lease losses. Impairment 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 the collateral less selling expenses. See Note 6, 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. 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; however, if payment or satisfaction of the loan is dependent on the operation, rather than the sale of the collateral, the impairment does not include selling costs. 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 their historical loss rates multiplied by the respective loss emergence period. Factors utilized in the determination of the amount of the allowance include historical trends in loss rates, the portfolio’s overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values and prevailing economic conditions. 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 in calculating the allowance for loan and lease losses. Consumer real estate loans are charged off to the estimated fair value of underlying collateral, less estimated selling costs, no later than 150 days past due. 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. Auto finance loans are generally charged off to the estimated fair value of underlying collateral, less estimated selling costs, if repossession is reasonably assured and in process. Otherwise, auto finance loans are charged off in full no later than 120 days past due. Deposit account overdrafts, which are included within other loans, are charged off at or 57 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 component, 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. 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 58 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 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 Income. Other Significant Accounting Policies Investments Investments are carried at cost. TCF periodically evaluates investments for other than temporary impairment with losses, if any, recorded in non-interest income within gains (losses) on securities, net. Securities Held to Maturity Securities held to maturity are carried at cost and adjusted for amortization of premiums or accretion of discounts using a level yield method; however, transfers of securities available for sale to securities held to maturity are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of each transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held to maturity investment security. Such amounts are then amortized over the remaining life of the transferred security as an adjustment of the yield on those securities. TCF periodically evaluates securities held to maturity for other than temporary impairment. Declines in value considered other than temporary, if any, would be recorded as non-interest income within gains (losses) 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 in non-interest income within gains (losses) on securities, net. 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 amount by which cost exceeds fair value is initially recorded as a valuation allowance and subsequently reflected in the gain or loss on sale when sold. From time to time, management identifies and designates primarily consumer real estate and auto finance loans held in the loan portfolios for sale. These loans are transferred to loans and leases held for sale at the lower of cost or fair market value at the time of transfer. Any associated allowance for loan and lease losses is transferred to the valuation allowance. 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. Non-accrual Loans and Leases Loans and leases are generally placed on non-accrual status when the collection of interest and principal is 90 days or more past due unless, in the case of commercial loans, they are well-secured and in the process of collection. Auto loans are placed on non-accrual status when interest and principal is 120 days past due. Delinquent junior lien loans are also placed on non-accrual status when there is evidence that the related third-party first lien mortgage may be 90 days or more past due. Loans on non-accrual status are generally 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 until TCF expects full repayment of the remaining pre-discharged contractual principal and interest. Income on 59 these loans is recognized on a cash basis when there is sustained repayment performance for six consecutive months, the loan is not more than 60 days delinquent and a current credit evaluation has been completed. 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 discounted with third-party financial institutions on a non-recourse basis, 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. 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 based on independent appraisals, real estate brokers’ price opinions or automated valuation methods, 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. 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 estimated costs to sell, declines to less than the carrying amount of the asset, the shortfall is recognized in the period in which it becomes known and is included in foreclosed real estate and repossessed assets, net expense. Operating expenses of properties and recoveries on sales of other real estate owned are also 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, 2014 and 2013, was $65.7 million and $68.9 million, respectively. Repossessed and returned assets at both December 31, 2014 and 2013, was $3.5 million. 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. 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 generally 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 initial investment, or fair value, and the 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 intangibles, 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 impairment on an annual basis at the reporting unit level. Interim impairment analysis may be required if events occur or circumstances 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 indicate a possible inability to realize their carrying amounts. When testing for goodwill impairment, TCF initially performs 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 60 quantitative analysis is performed. 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 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 15, 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. Cash and Due from Banks At December 31, 2014 and 2013, TCF Bank was required by Federal Reserve regulations to maintain reserves of $98.7 million and $95.5 million, respectively, in cash on hand or at the Federal Reserve Bank. TCF maintains cash balances that are restricted as to their use in accordance with certain contractual agreements primarily related to the sale and servicing of auto loans and consumer real estate loans. Cash payments received on loans serviced for third parties are held in separate accounts until remitted. TCF also retains cash balances for potential loss recourse on certain sold auto loans as well as cash for collateral on certain borrowings, foreign exchange contracts and interest rate contracts. TCF maintained restricted cash totaling $67.8 million and $46.1 million at December 31, 2014 and 2013, respectively. TCF had cash held in interest-bearing accounts of $842.1 million and $613.3 million at December 31, 2014 and 2013, respectively. Note 3. Investments Investments consisted of the following. (In thousands) Federal Home Loan Bank stock, at cost Federal Reserve Bank stock, at cost Total investments At December 31, 2014 $47,914 37,578 2013 $56,845 37,481 $85,492 $94,326 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 Banks (‘‘FHLBanks’’) obtain their funding primarily through issuance of consolidated obligations of the FHLB system. The U.S. Government does not guarantee these obligations and each of the 12 FHLBanks are 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. 61 TCF Bank is required to hold Federal Reserve Bank stock equal to 6% of TCF Bank’s capital surplus, which is defined as 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. The yield on investments, which have no stated contractual maturity, is 4.25% and 3.93% at December 31, 2014 and 2013, respectively. Note 4. Securities Available for Sale and Securities Held to Maturity Securities consisted of the following. 2014 2013 At December 31, (Dollars in thousands) Securities available for sale: Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other Other securities Total securities available for sale Gross Amortized Unrealized Unrealized Losses Gross Gains Cost Gross Fair Amortized Unrealized Unrealized Losses Gross Gains Cost Value Fair Value $461,575 55 – $2,405 – – $741 – – $463,239 55 – $592,283 93 1,642 $1,131 – 1,292 $45,377 – – $548,037 93 2,934 $461,630 $2,405 $741 $463,294 $594,018 $2,423 $45,377 $551,064 Weighted-average yield 2.62% 2.65% Securities held to maturity: Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other securities Total securities held to maturity $209,538 4,916 $7,988 – $109 – $217,417 4,916 $ 14,610 5,302 $214,454 $7,988 $109 $222,333 $ 19,912 $ $ – – – $ $ – – – $ 14,610 5,302 $ 19,912 Weighted-average yield 2.64% 3.43% Gross realized gains of $1.2 million, $1.2 million and $90.2 million were recognized on sales of securities available for sale during 2014, 2013 and 2012, respectively. At December 31, 2014 and 2013, mortgage-backed securities with a carrying value of $8.2 million and $14.7 million, respectively, were pledged as collateral to secure certain deposits and borrowings. There were no impairment charges recognized on securities available for sale during 2014 or 2013. During 2012, TCF recorded impairment charges of $0.2 million on other securities as full recovery was not expected. Unrealized losses on securities available for sale are due to changes in interest rates. TCF has the ability and intent to hold these investments until a recovery of fair value occurs. During 2014 and 2013, TCF transferred $191.7 million and $9.3 million, respectively, of available for sale mortgage-backed securities to held to maturity, reflecting TCF’s intent and ability to hold these securities to maturity. At December 31, 2014 and 2013, the unrealized holding loss on the transferred securities retained in accumulated other comprehensive loss totaled $16.0 million and $0.3 million, respectively. These amounts are amortized over the remaining life of the transferred security. Other held to maturity securities consist primarily of non-trading mortgage-backed securities and other bonds which qualify for investment credit under the Community Reinvestment Act. During 2014, 2013 and 2012, TCF recorded an impairment charge of $0.1 million, $0.2 million and $0.9 million, respectively, on held to maturity securities, which had a carrying value of $4.9 million, $5.3 million and $5.7 million at December 31, 2014, 2013 and 2012, respectively. 62 The following tables show the gross unrealized losses and fair value of securities available for sale at December 31, 2014 and 2013 and securities held to maturity at December 31, 2014, aggregated by investment category and the length of time the securities were in a continuous loss position. There were no gross unrealized losses for securities held to maturity at December 31, 2013. At December 31, 2014 Less than 12 months 12 months or more Total Fair Unrealized Losses Value Fair Unrealized Losses Value Fair Unrealized Losses Value $ $ – – $ $ – – $198,550 $198,550 $741 $198,550 $741 $198,550 $2,602 $2,602 $109 $109 $ $ – – $ $ – – $ $ 2,602 2,602 $741 $741 $109 $109 At December 31, 2013 Less than 12 months Fair Value Unrealized Losses 12 months or more Total Fair Value Unrealized Losses Fair Value Unrealized Losses (In thousands) Securities available for sale: Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Total securities available for sale Securities held to maturity: Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Total securities held to maturity (In thousands) Securities available for sale: Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies $353,449 $22,678 $156,472 $22,699 $509,921 Total securities available for sale $353,449 $22,678 $156,472 $22,699 $509,921 $45,377 $45,377 The amortized cost, fair value and yield of securities available for sale and securities held to maturity by contractual maturity at December 31, 2014 and 2013, are shown below. The remaining contractual principal maturities do not consider possible prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay. (Dollars in thousands) Securities available for sale: Due in one year or less Due in 1-5 years Due in 5-10 years Due after 10 years No stated maturity At December 31, 2014 2013 Amortized Cost Fair Value Yield Amortized Cost Fair Value Yield $ 4 76 86,806 374,744 – $ 4 76 87,594 375,620 – 11.63% 4.53 1.93 2.78 – $ – 138 24,328 567,910 1,642 $ – 140 24,543 523,447 2,934 –% 5.24 2.17 2.67 – Total securities available for sale $461,630 $463,294 2.62 $594,018 $551,064 2.65 Securities held to maturity: Due in one year or less Due in 1-5 years Due in 5-10 years Due after 10 years $ 500 2,500 400 211,054 $ 500 2,500 400 218,933 2.00% 3.08 3.00 2.64 $ – 3,000 – 16,912 $ – 3,000 – 16,912 Total securities held to maturity $214,454 $222,333 2.64 $ 19,912 $ 19,912 –% 2.90 – 3.52 3.43 63 Note 5. Loans and Leases Loans and leases consisted of the following. (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 Inventory finance Auto finance Other Total loans and leases(1) At December 31, 2014 2013 Percent Change $ 3,139,152 2,543,212 $ 3,766,421 2,572,905 (16.7)% (1.2) 5,682,364 6,339,326 (10.4) 2,382,144 242,111 2,624,255 533,410 3,157,665 3,745,322 1,877,090 1,915,061 24,144 2,604,673 139,024 2,743,697 404,655 3,148,352 3,428,755 1,664,377 1,239,386 26,743 $16,401,646 $15,846,939 (8.5) 74.2 (4.4) 31.8 0.3 9.2 12.8 54.5 (9.7) 3.5 (1) Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was $43.4 million and $30.3 million at December 31, 2014 and 2013, respectively. The consumer real estate junior lien portfolio was comprised of $2.1 billion of home equity lines of credit (‘‘HELOCs’’) and $424.4 million of amortizing junior lien mortgage loans at December 31, 2014, compared with $2.1 billion and $505.5 million at December 31, 2013, respectively. At December 31, 2014 and 2013, $1.3 billion and $1.1 billion, respectively, of the consumer real estate junior lien HELOCs had a 10-year interest-only draw period and a 20-year amortization repayment period and all were within the 10-year initial draw period and will not convert to amortizing loans until 2021 or later. At December 31, 2014 and 2013, $816.0 million and $969.2 million, respectively, of the consumer real estate junior lien HELOCs were interest-only revolving draw loans with no defined amortization period and original draw periods of 5 to 40 years. As of December 31, 2014, 14.6% of these loans will mature in the next five years. In 2014 and 2013, TCF sold $1.3 billion and $0.8 billion, respectively, of consumer auto loans with servicing retained, received cash of $1.4 billion and $0.8 billion, respectively, and recognized net gains of $44.7 million and $29.7 million, respectively. Related to these sales, TCF retained interest-only strips of $17.9 million and $50.7 million in 2014 and 2013, respectively. Total interest-only strips related to sales of auto loans totaled $48.6 million and $64.9 million at December 31, 2014 and 2013, respectively. TCF recorded impairment charges on these interest-only strips of $3.5 million and $5.4 million in 2014 and 2013, respectively, primarily as a result of higher prepayments than originally assumed. Contractual recourse liabilities related to sales of auto loans totaled $0.7 million and $1.1 million at December 31, 2014 and 2013, 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 based on the amount demanded by the marketplace. TCF’s managed auto loan portfolio, which includes portfolio loans, loans held for sale and loans sold and serviced for others, totaled $3.8 billion and $2.4 billion at December 31, 2014 and 2013, respectively. In July 2014, TCF transferred consumer auto loans totaling $256.3 million with servicing retained to a trust in the Company’s inaugural securitization transaction, received cash proceeds of $266.7 million and recognized gains of $7.4 million, which qualified for sale accounting and is included in the amounts above. This trust is considered a variable interest entity due to its limited capitalization and special purpose nature, however it is not consolidated as TCF is not the primary beneficiary because the Company does not have a variable interest in the trust. In 2014 and 2013, TCF sold $1.4 billion and $0.8 billion, respectively, of consumer real estate loans, received cash of $1.4 billion and $0.8 billion, respectively, and recognized net gains of $34.1 million and $21.7 million, respectively. Related to these sales, TCF retained interest-only strips of $10.8 million and $22.2 million in 2014 and 2013, respectively. Total interest-only strips related to sales of consumer real estate loans totaled $21.2 million and $19.6 million at December 31, 2014 and 2013, respectively. TCF had no impairment charges on these interest-only strips in 2014 and recorded impairment charges of $0.5 million on these 64 interest-only strips in 2013. Contractual recourse liabilities related to sales of consumer real estate loans totaled $0.6 million at both December 31, 2014 and 2013. No servicing assets or liabilities related to consumer real estate 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 based on the amount demanded by the marketplace. During the fourth quarter of 2014, TCF sold consumer real estate TDR loans totaling $405.9 million, received cash proceeds of $314.0 million and recognized losses of $4.8 million which are included in the amounts above. TCF’s managed consumer real estate loan portfolio, which includes portfolio loans, loans held for sale and loans sold and serviced for others, totaled $7.1 billion and $7.0 billion at December 31, 2014 and 2013, respectively. From time to time, TCF sells leasing and equipment finance loans and minimum lease payment receivables to third-party financial institutions at fixed rates. In 2014 and 2013, TCF sold $66.9 million and $60.3 million, respectively, of loans and minimum lease payment receivables, received cash of $68.2 million and $62.1 million, respectively, and recognized net gains of $0.4 million and $0.5 million, respectively. Related to these sales, TCF established servicing liabilities of $0.8 million and $1.3 million in 2014 and 2013, respectively. At December 31, 2014 and 2013, TCF had total servicing liabilities related to leasing and equipment finance of $1.5 million and $1.7 million, respectively. At December 31, 2014 and 2013, TCF had lease residuals related to non-recourse sales of $14.2 million and $15.2 million, respectively. TCF’s managed leasing and equipment finance loan portfolio, which includes portfolio loans and leases, loans held for sale, operating leases and loans and leases sold and serviced for others, totaled $4.0 billion and $3.7 billion at December 31, 2014 and 2013, respectively. There were no material sales of commercial loans in 2014. In 2013, TCF sold $86.5 million of commercial loans and recognized a net gain of $1.6 million, with no servicing liabilities related to these sales. TCF’s agreements to sell auto and consumer real estate loans typically contain certain representations and warranties regarding the loans sold. These representations and warranties generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer, the loan’s compliance with the criteria set forth in the agreement, payment delinquency and compliance with applicable laws and regulations. TCF may be required to repurchase loans in the event of an unremedied breach of these representations or warranties. In 2014, 2013 and 2012, losses related to repurchases pursuant to such representations and warranties were immaterial. The majority of such repurchases were of consumer auto loans where TCF typically has contractual agreements with the automobile dealerships that originated the loans requiring the dealers to repurchase such contracts from TCF. Future minimum lease payments receivable for direct financing, sales-type leases and operating leases as of December 31, 2014 are as follows: (In thousands) 2015 2016 2017 2018 2019 Thereafter Total $ 711,813 529,282 365,547 213,241 105,650 36,949 $1,962,482 65 Note 6. 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 lease losses. TCF’s key credit quality indicator is the receivable’s payment performance status, defined as accruing or non-accruing. At or For the Year Ended December 31, 2014 (In thousands) Balance, beginning of period Charge-offs Recoveries Net charge-offs Provision for credit losses Other(1) Consumer Real Estate Commercial Leasing and Equipment Finance $37,467 (8,657) 2,887 $18,733 (7,316) 3,705 Inventory Finance $ 8,592 (1,653) 826 Auto Finance $ 10,623 (11,856) 1,491 Other $ 785 (8,359) 5,860 Total $ 252,230 (100,967) 21,636 (5,770) (3,611) (827) (10,365) (2,499) (79,331) (259) (71) 3,324 – 2,498 (243) 23,742 (5,770) 2,459 – 95,737 (104,467) $176,030 (63,126) 6,867 (56,259) 63,973 (98,383) Balance, end of period $ 85,361 $31,367 $18,446 $10,020 $ 18,230 $ 745 $ 164,169 (In thousands) Balance, beginning of period Charge-offs Recoveries At or For the Year Ended December 31, 2013 Consumer Real Estate Commercial Leasing and Equipment Finance $182,013 (97,508) 8,644 $ 51,575 (28,944) 2,770 $21,037 (7,277) 3,968 Inventory Finance $ 7,569 (1,141) 373 Auto Finance $ 4,136 (5,305) 607 Other $ 798 (9,115) 6,518 Total $ 267,128 (149,290) 22,880 Net charge-offs (88,864) (26,174) (3,309) (768) (4,698) (2,597) (126,410) Provision for credit losses Other 87,100 (4,219) 12,515 (449) 1,005 – 1,949 (158) 13,215 (2,030) 2,584 – 118,368 (6,856) Balance, end of period $176,030 $ 37,467 $18,733 $ 8,592 $10,623 $ 785 $ 252,230 (1) Included in Other for consumer real estate is the transfer of $95.3 million, comprised of $77.0 million of previously established allowance for loan and lease losses and an additional $18.3 million of write-downs arising from the transfer to loans held for sale in conjunction with the portfolio sale of consumer real estate TDR loans. 66 The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology. (In thousands) Allowance for loan and lease losses: Collectively evaluated for impairment Individually evaluated for impairment Total Loans and leases outstanding: Collectively evaluated for impairment Individually evaluated for impairment Loans acquired with deteriorated credit Consumer Real Estate Commercial Leasing and Equipment Finance Inventory Finance Auto Finance Other Total At December 31, 2014 $ $ 57,167 28,194 85,361 $ $ 27,594 3,773 31,367 $ $ 16,310 2,136 $ $ 9,627 393 17,046 1,184 $ 741 4 $ 128,485 35,684 18,446 $ 10,020 $ 18,230 $ 745 $ 164,169 $5,462,005 220,359 $3,038,378 119,287 $3,731,420 13,763 $1,874,481 2,609 $1,911,267 3,676 $24,055 89 $16,041,606 359,783 quality Total – – 139 – 118 – 257 $5,682,364 $3,157,665 $3,745,322 $1,877,090 $1,915,061 $24,144 $16,401,646 (In thousands) Allowance for loan and lease losses: Collectively evaluated for impairment Individually evaluated for impairment Total Loans and leases outstanding: Collectively evaluated for impairment Individually evaluated for impairment Loans acquired with deteriorated credit Consumer Real Estate Commercial Leasing and Equipment Finance Inventory Finance Auto Finance Other Total At December 31, 2013 $ 54,449 121,581 $ 176,030 $ $ 28,994 8,473 37,467 $ $ 17,093 1,640 $ $ 8,308 284 10,528 95 18,733 $ 8,592 $ 10,623 $ $ $ 781 4 120,153 132,077 785 $ 252,230 $5,673,518 665,808 $2,971,308 177,044 $3,412,769 15,139 $1,657,636 6,741 $1,238,556 470 $26,649 94 $14,980,436 865,296 quality Total – – 847 – 360 – 1,207 $6,339,326 $3,148,352 $3,428,755 $1,664,377 $1,239,386 $26,743 $15,846,939 67 Accruing and Non-accrual Loans and Leases The following tables set forth information regarding TCF’s accruing and non-accrual loans and leases. Non-accrual loans and leases are those which management believes have a higher risk of loss. Delinquent balances are determined based on the contractual terms of the loan or lease. (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 Inventory finance Auto finance Other Subtotal Portfolios acquired with deteriorated credit quality Current-59 Days Delinquent and Accruing 60-89 Days 90 Days or Delinquent More Delinquent and Accruing and Accruing Total Accruing Non-accrual Total At December 31, 2014 $ 2,987,992 2,505,640 $13,176 2,091 $ 194 – $ 3,001,362 2,507,731 $137,790 35,481 $ 3,139,152 2,543,212 5,493,632 15,267 194 5,509,093 173,271 5,682,364 2,599,701 532,929 3,132,630 3,728,115 1,874,933 1,907,005 24,144 – – – 2,242 49 2,785 – 16,160,459 20,343 – – – 307 26 1,478 – 2,005 2,599,701 532,929 3,132,630 3,730,664 1,875,008 1,911,268 24,144 24,554 481 25,035 12,670 2,082 3,676 – 2,624,255 533,410 3,157,665 3,743,334 1,877,090 1,914,944 24,144 16,182,807 216,734 16,399,541 2,017 83 5 2,105 – 2,105 Total $16,162,476 $20,426 $2,010 $16,184,912 $216,734 $16,401,646 Current-59 Days Delinquent and Accruing 60-89 Days 90 Days or Delinquent More Delinquent and Accruing and Accruing Total Accruing Non-accrual Total At December 31, 2013 (In thousands) Consumer real estate: First mortgage lien Junior lien $ 3,564,716 2,531,151 Total consumer real estate 6,095,867 Commercial: Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Auto finance Other 2,706,633 399,750 3,106,383 3,404,346 1,661,798 1,236,678 26,323 $19,815 3,532 23,347 886 190 1,076 2,226 29 1,105 9 $1,079 – $ 3,585,610 2,534,683 $180,811 38,222 $ 3,766,421 2,572,905 1,079 6,120,293 219,033 6,339,326 – 354 354 613 21 773 1 2,707,519 400,294 3,107,813 3,407,185 1,661,848 1,238,556 26,333 36,178 4,361 40,539 14,041 2,529 470 410 2,743,697 404,655 3,148,352 3,421,226 1,664,377 1,239,026 26,743 Subtotal 15,531,395 27,792 2,841 15,562,028 277,022 15,839,050 Portfolios acquired with deteriorated credit quality 7,870 14 5 7,889 – 7,889 Total $15,539,265 $27,806 $2,846 $15,569,917 $277,022 $15,846,939 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 non-accrual loans and leases Foregone interest income Year Ended December 31, 2014 $26,584 9,359 $17,225 2013 $33,046 12,149 2012 $39,232 9,401 $20,897 $29,831 68 The following table provides information regarding consumer real estate loans to customers currently involved in ongoing Chapter 7 or Chapter 13 bankruptcy proceedings which have not yet been discharged. (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 At December 31, 2014 2013 $47,731 247 12,284 $60,262 $65,321 682 13,475 $79,478 For the years ended December 31, 2014 and 2013, interest income would have been reduced by approximately $0.4 million and $0.9 million, 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 loans and leases in the 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 TDR. TDR loans consist primarily of consumer real estate and commercial loans. Total TDR loans at December 31, 2014 and 2013 were $298.5 million and $796.5 million, respectively, of which $193.8 million and $632.8 million were accruing at December 31, 2014 and 2013, respectively. TCF held consumer real estate TDR loans of $199.6 million and $641.1 million at December 31, 2014 and 2013, respectively, of which $111.9 million and $506.6 million were accruing at December 31, 2014 and 2013, respectively. TCF also held $91.6 million and $147.1 million of commercial TDR loans at December 31, 2014 and 2013, respectively, of which $80.4 million and $120.9 million were accruing at December 31, 2014 and 2013, respectively. TDR loans for the remaining classes of finance receivables were not material at December 31, 2014 or 2013. TCF sold $405.9 million of consumer real estate TDR loans in a portfolio sale during December 2014. The amount of unfunded commitments to consumer real estate and commercial loans classified as TDRs was $3.9 million and $6.1 million at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, no additional funds were committed to leasing and equipment finance, inventory finance or auto finance loans classified as TDRs. When a loan is modified as a TDR, principal balances are generally not forgiven. Loan modifications to troubled borrowers are not reported as TDR loans in the calendar year 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 restructured agreements. All loans classified as TDR loans are considered to be impaired. In 2014 and 2013, $12.8 million and $17.1 million, respectively, of commercial loans were removed from TDR status as they were restructured at market terms and are performing. The financial effects of TDR loans 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, or foregone interest income. For the year ended December 31, 2014, foregone interest income for consumer real estate first mortgage lien accruing TDR loans and consumer real estate junior lien accruing TDR loans was $16.7 million and $1.2 million, respectively. The average yield for the same period on consumer real estate accruing TDR loans was 3.3%, which compares to the original contractual average rate of 6.8%. For the year ended December 31, 2013, foregone interest income for consumer real estate first mortgage lien accruing TDR loans and consumer real estate junior lien accruing TDR loans was $17.6 million and $1.2 million, respectively. The average yield for the same period on consumer real estate accruing TDR loans was 3.3%, which compares to the original contractual average rate of 6.9%. For the year ended December 31, 2012, foregone interest income for consumer real estate first mortgage lien accruing TDR loans and consumer real estate junior lien accruing TDR loans was $13.9 million and $0.9 million, respectively. The average yield for the same period on consumer real estate accruing TDR loans was 3.7%, which compares to the original contractual average rate of 6.9%. The foregone interest income for the remaining classes of finance receivables was not material for the years ended December 31, 2014, 2013 and 2012. 69 The table below summarizes TDR loans that defaulted during the years ended December 31, 2014 and 2013, which were modified during the respective reporting period or 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 or repossessed and returned assets. (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 Auto finance Other Defaulted TDR loans modified during the applicable period Total loans modified in the applicable period Loan Balance(1) Year Ended December 31, 2014 2013 $ 1,969 1,364 3,333 3,895 127 4,022 – 392 – $ 12,510 2,479 14,989 5,561 – 5,561 268 59 1 $ 7,747 $ 20,878 $177,674 $374,761 Defaulted modified TDR loans as a percent of total loans modified in the applicable period 4.4% 5.6% (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 collateral dependent loans. The allowance on accruing consumer real estate TDR loans was $20.4 million, or 18.2% of the outstanding balance, at December 31, 2014, and $103.3 million, or 20.4% of the outstanding balance, at December 31, 2013. In determining impairment for consumer real estate accruing TDR loans, TCF utilized assumed remaining re-default rates ranging from 4% to 22% in 2014 and 6% to 25% in 2013, depending on modification type and actual experience. At December 31, 2014, 2.4% of accruing consumer real estate TDR loans were more than 60-days delinquent, compared with 1.4% at December 31, 2013. Consumer real estate TDR loans generally remain on accruing status following modification if they are less than 90 days past due and payment in full under the modified terms of the loan is expected based on a current credit evaluation and historical payment performance. Of the non-accrual TDR balance at December 31, 2014, $50.0 million, or 57.0%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed, of which 68.4% were current. Of the non-accrual TDR balance at December 31, 2013, $81.5 million, or 60.6%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed, of which 71.8% were current. 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 for collateral dependent loans, at the fair value of collateral less selling expense. The allowance on accruing commercial TDR loans was $1.4 million, or 1.7% of the outstanding balance, at December 31, 2014, and $6.3 million, or 5.2% of the outstanding balance, at December 31, 2013. No accruing commercial TDR loans were 60 days or more delinquent at December 31, 2014, compared with one commercial TDR loan with $0.9 million outstanding at December 31, 2013. 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. Non-accrual impaired loans, including non-accrual TDR loans, are included in non-accrual loans and leases within the previous tables. Accruing TDR loans have been disclosed by delinquency status within the previous tables of accruing 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. 70 The following table summarizes impaired loans. At December 31, 2014 Unpaid Contractual Balance Related Unpaid Loan Allowance Contractual Balance Recorded Balance 2013 Related Loan Allowance Recorded Balance Total consumer real estate 179,939 157,073 27,567 639,045 593,796 120,830 $114,526 65,413 $101,668 55,405 $18,140 9,427 $553,736 85,309 $521,248 72,548 $107,841 12,989 (In thousands) Impaired loans with an allowance recorded: Consumer real estate: First mortgage lien Junior lien Commercial: Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Auto 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 Commercial: Commercial real estate Commercial business Total commercial Inventory finance Auto finance 58,157 18 58,175 8,257 1,754 3,074 92 54,412 18 54,430 8,257 1,758 2,928 89 3,772 1 3,773 1,457 393 1,184 4 84,851 9,917 94,768 8,238 6,741 373 97 71,785 4,380 76,165 8,238 6,741 308 94 7,594 880 8,474 717 284 95 4 251,291 224,535 34,378 749,262 685,342 130,404 53,606 33,796 87,402 57,809 482 58,291 848 1,484 35,147 7,398 42,545 50,500 480 50,980 851 748 – – – – – – – – – 59,233 26,710 85,943 102,523 5,410 107,933 – 317 43,025 4,306 47,331 79,833 5,412 85,245 – 162 194,193 132,738 – – – – – – – – – Total impaired loans without an allowance recorded 148,025 95,124 Total impaired loans $399,316 $319,659 $34,378 $943,455 $818,080 $130,404 71 The average loan balance of impaired loans and interest income recognized on impaired loans during the years ended December 31, 2014 and 2013 are included within the table below. (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 Inventory finance Auto 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 Commercial: Commercial real estate Commercial business Total commercial Inventory finance Auto finance Year Ended December 31, Average Loan Balance 2014 Interest Income Average Loan Balance Recognized 2013 Interest Income Recognized $311,458 63,977 375,435 63,099 2,199 65,298 8,247 4,249 1,617 92 $14,715 3,492 18,207 2,349 – 2,349 58 97 – 7 $481,292 57,692 538,984 99,177 10,060 109,237 7,954 4,114 154 66 $17,263 3,762 21,025 3,193 70 3,263 174 158 2 6 454,938 20,718 660,509 24,628 39,086 5,852 44,938 65,167 2,946 68,113 426 455 2,321 1,285 3,606 2,973 94 3,067 126 – 92,268 15,236 107,504 101,921 5,674 107,595 – 132 2,305 1,682 3,987 3,165 215 3,380 – – Total impaired loans without an allowance recorded Total impaired loans 113,932 $568,870 6,799 215,231 $27,517 $875,740 7,367 $31,995 Note 7. Premises and Equipment Premises and equipment consisted of the following. (In thousands) Land Office buildings Leasehold improvements Furniture and equipment Subtotal Less: Accumulated depreciation and amortization Total At December 31, 2013 2014 $154,136 $152,418 277,085 276,943 54,069 53,954 294,387 312,628 795,943 359,582 779,677 342,075 $436,361 $437,602 TCF leases certain premises and equipment under operating leases. Net lease expense including utilities and other operating expenses was $34.0 million, $35.4 million and $35.5 million in 2014, 2013 and 2012, respectively. 72 At December 31, 2014, the total future minimum rental payments for operating leases of premises and equipment are as follows. (In thousands) 2015 2016 2017 2018 2019 Thereafter Total $ 26,894 29,592 28,201 26,355 15,199 67,030 $193,271 Note 8. Goodwill and Other Intangible Assets Goodwill and other intangible assets consisted of the following. (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 Gross Amount $ 3,049 2,730 4,590 300 $ 10,669 $141,245 84,395 $225,640 At December 31, 2014 Accumulated Amortization Net Amount Gross Amount 2013 Accumulated Amortization Net Amount $1,502 1,377 2,849 300 $ 1,547 1,353 1,741 – $ 3,049 2,730 4,590 300 $1,105 996 1,942 300 $ 1,944 1,734 2,648 – $6,028 $ 4,641 $ 10,669 $4,343 $ 6,326 $141,245 84,395 $141,245 84,395 $225,640 $225,640 $141,245 84,395 $225,640 Amortization expense for intangible assets of $1.7 million, $2.3 million and $1.5 million were recognized in 2014, 2013 and 2012, respectively. Amortization expense for intangible assets is estimated to be $1.6 million for 2015, $1.4 million for 2016, $0.5 million for 2017, $0.4 million for 2018 and $0.3 million for 2019. There was no impairment of goodwill or the intangible assets in 2014, 2013 or 2012. Note 9. Deposits Deposits consisted of the following. (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, 2014 2013 Weighted- Average Rate Amount % of Total Weighted- Average Rate Amount % of Total –% $ 2,832,526 2,362,717 0.04 18.3% 15.3 –% $ 2,642,600 2,337,851 0.06 18.3% 16.2 0.02 0.15 0.54 0.13 0.78 0.26 5,195,243 5,212,320 1,993,130 12,400,693 3,049,189 33.6 33.7 13.0 80.3 19.7 $15,449,882 100.0% 0.03 0.20 0.29 0.14 0.86 0.26 4,980,451 6,194,003 831,910 12,006,364 2,426,412 34.5 42.9 5.8 83.2 16.8 $14,432,776 100.0% 73 Certificates of deposit had the following remaining maturities at December 31, 2014. (In thousands) Maturity: 0-3 months 4-6 months 7-12 months 13-24 months Over 24 months Total Denominations $100 Thousand or Greater Denominations Less Than $100 Thousand Total $ 250,200 150,195 345,161 505,991 75,609 $ 348,379 244,631 491,403 587,088 50,532 $ 598,579 394,826 836,564 1,093,079 126,141 $1,327,156 $1,722,033 $3,049,189 Note 10. Short-term Borrowings Selected information for short-term borrowings (borrowings with an original maturity of less than one year) consisted of the following. (Dollars in thousands) Period end balance: At December 31, 2014 2013 Amount Rate Amount Rate Securities sold under repurchase agreements $ 4,425 0.10% $ 4,918 0.10% Total $ 4,425 0.10 $ 4,918 0.10 Average daily balances for the period ended: Federal Home Loan Bank advances Federal funds purchased Securities sold under repurchase agreements Line of Credit – TCF Commercial Finance Canada, Inc. Total Maximum month-end balances for the period ended: Federal Home Loan Bank advances Securities sold under repurchase agreements Line of Credit – TCF Commercial Finance Canada, Inc. N.A. Not Applicable. $ 74,385 375 5,956 2,957 0.26% $ 0.40 0.18 1.88 14 660 5,713 1,298 0.34% 0.34 0.18 2.57 $ 83,673 0.31 $ 7,685 0.60 $250,000 4,425 11,751 N.A. N.A. N.A. $ – 7,071 9,587 N.A. N.A. N.A. At December 31, 2014, the securities sold under short-term repurchase agreements were related to TCF Bank’s Repurchase Investment Sweep Agreement product and were collateralized by mortgage-backed securities having a fair value of $6.8 million. 74 Note 11. Long-term Borrowings Long-term borrowings consisted of the following. At December 31, 2014 2013 (Dollars in thousands) Federal Home Loan Bank advances Subtotal Subordinated bank notes Subtotal Discounted lease rentals Subtotal Other long-term Subtotal Total long-term borrowings Stated Maturity 2014 2015 2016 2017 2015 2016 2022 2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 $ Amount – 125,000 547,000 275,000 947,000 – 74,930 109,194 184,124 – 32,904 27,539 20,580 9,032 2,589 160 83 92,887 – 2,670 2,642 2,742 8,054 $1,232,065 Weighted- Average Rate Amount –% $ 398,000 200,000 497,000 75,000 1,170,000 50,000 74,868 109,113 233,981 26,275 18,866 13,319 8,281 1,689 76 – – 68,506 2,718 2,669 2,705 2,746 10,838 $1,483,325 0.38 0.75 0.25 0.56 – 5.59 6.37 6.05 – 3.84 3.83 3.82 3.92 4.23 4.57 4.57 3.85 – 1.36 1.36 1.36 1.36 1.63 Weighted- Average Rate 0.37% 0.33 0.76 0.21 0.52 1.83 5.59 6.37 5.15 4.06 3.96 3.92 3.69 3.45 3.31 – – 3.94 1.36 1.36 1.36 1.36 1.36 1.41 At December 31, 2014, TCF Bank had pledged loans secured by residential real estate, commercial real estate and FHLB stock with an aggregate carrying value of $5.2 billion as collateral for FHLB advances. At December 31, 2014, $375.0 million of FHLB advances outstanding were prepayable monthly at TCF’s option. On March 17, 2014, TCF Bank redeemed at par $50.0 million of subordinated notes due 2015, since the notes no longer qualified for treatment as Tier 2 or supplementary capital prior to redemption. The $74.9 million of subordinated notes due 2016 have a fixed-rate coupon of 5.5% per annum until maturity. The $109.2 million of subordinated notes due 2022 have a fixed-rate coupon of 6.25% per annum until maturity. At December 31, 2014, all of the subordinated notes qualify as Tier 2 or supplementary capital for regulatory purposes, subject to certain regulatory limitations. 75 Note 12. Income Taxes The following table summarizes applicable income taxes in the Consolidated Statements of Income. (In thousands) Year ended December 31, 2014: Federal State Foreign Total Year ended December 31, 2013: Federal State Foreign Total Year ended December 31, 2012: Federal State Total Current Deferred Total $ 55,062 2,087 5,185 $ 26,308 11,147 (23) $ 81,370 13,234 5,162 $ 62,334 $ 37,432 $ 99,766 $(38,206) 7,686 3,939 $ 107,630 3,941 (645) $ 69,424 11,627 3,294 $(26,581) $ 110,926 $ 84,345 $ 6,646 7,994 $(129,082) (18,416) $(122,436) (10,422) $ 14,640 $(147,498) $(132,858) TCF’s effective income tax rate differed from the statutory federal income tax rate of 35.0% as a result of the following. Federal income tax rate Increase (decrease) resulting from: State income tax, net of federal income tax Non-controlling interest tax effect Tax exempt income Foreign tax effects Deferred tax adjustments Civil money penalty Other, net Year Ended December 31, 2014 35.00% 2013 35.00% 2012 35.00% 3.06 (0.92) (0.76) (0.58) (0.33) – (0.01) 3.11 (1.01) (0.86) (1.13) (0.30) – (0.11) 1.99 0.64 0.55 – 1.40 (1.03) 0.58 Effective income tax rate 35.46% 34.70% 39.13% Beginning in the second quarter of 2013, TCF considered its undistributed foreign earnings to be reinvested indefinitely. As a result, TCF recorded a $1.2 million benefit in 2013 to eliminate U.S. deferred taxes on its undistributed foreign earnings. This assertion is based on management’s determination that cash held in TCF’s foreign jurisdictions is not needed to fund its U.S. operations and that it either has reinvested or has intentions to reinvest these earnings. While management currently intends to indefinitely reinvest all of TCF’s foreign earnings, should circumstances or tax laws change, TCF may need to record additional income tax expense in the period in which such determination or tax law change occurs. As of December 31, 2014 and 2013, TCF has not provided U.S. deferred taxes on $48.1 million and $33.5 million, respectively, of its undistributed foreign earnings. If these undistributed earnings were repatriated to the U.S. or otherwise became subject to U.S. taxation, the potential deferred tax liability would be approximately $4.0 million and $2.7 million, as of December 31, 2014 and 2013, respectively, assuming full utilization of related foreign tax credits. 76 A reconciliation of the changes in unrecognized tax benefits is as follows. (In thousands) Balance, beginning of period 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 period At or For the Year Ended December 31, 2012 2013 2014 $2,377 $4,230 $4,704 449 394 468 1,781 362 8 – (67) (350) (70) (39) – (307) (176) (181) $4,649 $4,704 $4,230 The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.5 million and $1.2 million at December 31, 2014 and 2013, respectively. TCF recognizes interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense. TCF recognized approximately $71 thousand, $110 thousand and $77 thousand in interest and penalties during 2014, 2013 and 2012, respectively. Interest and penalties of approximately $498 thousand and $427 thousand were accrued at December 31, 2014 and 2013, respectively. TCF’s federal income tax returns are open and subject to examination for 2012 and later tax return years. TCF’s various state income tax returns are generally open for the 2010 and later tax return years based on individual state statutes of limitation. TCF’s various foreign income tax returns are open and subject to examination for 2010 and later tax return years. 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 were as follows. (In thousands) Deferred tax assets: Allowance for loan and lease losses Stock compensation and deferred compensation plans Net operating losses and credit carryforwards Valuation allowance Non-accrual interest Securities available for sale Accrued expense Other Total deferred tax assets Deferred tax liabilities: Lease financing Premises and equipment Loan fees and discounts Prepaid expenses Goodwill and other intangibles Other Total deferred tax liabilities Net deferred tax liabilities At December 31, 2014 2013 $ 63,862 34,850 11,649 (5,669) 9,333 5,397 4,892 2,721 127,035 299,621 19,114 14,921 12,479 4,139 8,106 358,380 $ 62,464 29,576 48,692 (8,745) 1,911 16,301 5,203 6,676 162,078 284,767 19,289 17,287 10,526 4,694 7,361 343,924 $231,345 $181,846 The net operating losses and credit carryforwards at December 31, 2014 consist of state net operating losses of $6.0 million that expire in years 2015 through 2034. The valuation allowance at December 31, 2014 and 2013 principally applies to net operating losses and tax credit carryforwards that, in the opinion of management, are more likely than not to expire un-utilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance will reduce income tax expense. 77 Note 13. Equity Restricted Retained Earnings Retained earnings at TCF Bank, at December 31, 2014, included 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 consisted of the following. (In thousands) Treasury stock, at cost Shares held in trust for deferred compensation plans, at cost 2014 At December 31, 2013 $ (1,102) $ (1,102) (41,096) (48,298) Total $(49,400) $(42,198) Repurchases No repurchases of common stock were made in 2014, 2013 or 2012. At December 31, 2014, 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. 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 1/1000th interest in a share of Series A Non-Cumulative Perpetual Preferred Stock, par value $0.01 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 $12.9 million in cash dividends to holders of Series A Preferred Stock during 2014 and 2013, respectively. 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 $0.01 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%. TCF paid $6.5 million and $6.1 million in cash dividends to holders of Series B Preferred stock during 2014 and 2013, respectively. 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 2008, TCF terminated the employee plans 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, 2014, the fair value of the assets in these plans totaled $13.8 million and included $8.6 million invested in TCF common stock, compared with a total fair value of $15.1 million, including $9.4 million invested in TCF common stock at December 31, 2013. 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 $33.2 million and $30.2 million at December 31, 2014 and 2013, respectively. 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 $1.5 million and $0.8 million in 2014 and 2013, 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, 2014, the fair value of the assets in the plan totaled 78 $31.8 million and included $18.3 million invested in TCF common stock, compared with a total fair value of $27.8 million, including $16.4 million invested in TCF common stock at December 31, 2013. 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, 2014, 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(cid:4) and Exmark(cid:4) 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. Note 14. 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 net retained profits for the preceding two calendar years, which was $83.7 million at December 31, 2014, without prior approval of the Office of the Comptroller of the Currency (‘‘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) At December 31, 2014: Tier 1 leverage capital:(2) TCF TCF Bank Tier 1 risk-based capital: TCF TCF Bank Total risk-based capital: TCF TCF Bank At December 31, 2013: 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) Ratio Amount Well-Capitalized Capital Requirement(1) Ratio Amount $1,919,887 1,836,019 10.07% 9.63 $ 762,711 762,746 4.00% 4.00 N.A. $ 953,432 N.A. 5.00% 1,919,887 1,836,019 11.76 11.25 2,209,999 2,126,131 13.54 13.03 652,857 652,785 1,305,714 1,305,569 4.00 4.00 8.00 8.00 979,286 979,177 6.00 6.00 1,632,143 1,631,961 10.00 10.00 $1,763,682 1,675,082 9.71% 9.23 $ 726,242 725,895 4.00% 4.00 N.A. $ 907,368 N.A. 5.00% 1,763,682 1,675,082 11.41 10.84 2,107,981 2,018,959 13.64 13.07 618,228 618,033 1,236,456 1,236,066 4.00 4.00 8.00 8.00 927,342 927,049 6.00 6.00 1,545,571 1,545,082 10.00 10.00 N.A. Not Applicable. (1) The minimum and well-capitalized requirements are determined by the Federal Reserve Board for TCF and by the OCC for TCF Bank pursuant to the Federal Deposit Insurance Corporation 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. 79 Note 15. Stock Compensation The TCF Financial Incentive Stock Program (the ‘‘Program’’) was adopted to enable TCF to attract and retain key personnel. At December 31, 2014, there were 2,754,016 shares reserved for issuance under the Program. At December 31, 2014, there were 1,080,916 shares of performance-based restricted stock outstanding that will vest only if certain return on asset goals, loan volumes and credit quality metrics and service conditions are achieved. Failure to achieve the performance 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 five years. Information about restricted stock is summarized as follows. (Dollars in thousands) 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, 2013 $10,467 14,482 4,034 1.6 2012 $10,934 19,530 4,259 2.1 2014 $ 8,690 22,532 3,424 2.6 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. Valuation and related assumption information for TCF’s stock option plans related to options issued in 2008 is presented below and no stock options were subsequently issued through December 31, 2014. Expected volatility Weighted-average volatility Expected dividend yield Expected term (years) Risk-free interest rate 28.5% 28.5% 3.5% 6.25 - 6.75 2.58% - 2.91% The following table reflects TCF’s restricted stock and stock option transactions under the Program since December 31, 2011. Restricted Stock Stock Options Shares Price Range Weighted- Average Weighted- Average Exercise Price Remaining Contractual Life in Years Outstanding at December 31, 2011 Granted Forfeited/canceled Vested Outstanding at December 31, 2012 Granted Forfeited/canceled Vested Outstanding at December 31, 2013 Granted Exercised Forfeited/canceled Vested Shares Price Range Weighted- Average Grant Date Fair Value 2,284,114 $ 6.16 - $28.64 7.73 - 11.56 1,769,700 7.73 - 28.02 (322,908) 7.57 - 28.64 (518,671) $12.95 9.27 10.13 13.42 3,212,235 493,650 (120,313) (230,277) 6.16 - 25.18 12.47 - 15.17 9.65 - 17.37 9.48 - 25.18 3,355,295 1,120,750 – (108,490) (1,509,061) 6.16 - 15.17 13.84 - 16.02 – 6.80 - 15.79 8.35 - 14.90 – - 11.13 13.55 12.75 16.04 11.09 15.61 – 13.06 11.21 – 2,198,744 $12.85 - $15.75 – (121,640) 15.75 - 15.75 – – - – - – 2,077,104 – 12.85 - 15.75 – (451,104) 15.75 - 15.75 – – - – - – – - 1,626,000 – 12.85 - 15.75 – (47,000) 15.75 - 15.75 – – – - – - – – Outstanding at December 31, 2014 2,858,494 6.16 - 16.02 12.73 1,579,000 12.85 - 15.75 Exercisable at December 31, 2014 N.A. N.A. 1,579,000 12.85 - 15.75 N.A. Not Applicable. 80 5.72 – – – 4.22 – – – 4.36 – – – – 2.98 $14.43 – 15.75 – 14.35 – 15.75 – 13.97 – 15.75 – – 13.91 13.91 Note 16. 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 3.0% 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 ten or more years of service up to a maximum company contribution of 6.0% 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, 2014, the fair value of the assets in the ESPP totaled $244.0 million and included $139.6 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 $9.6 million in 2014, $8.9 million in 2013 and $8.0 million in 2012. 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 eligible 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. 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. 81 The following table sets forth the status of the Pension Plan and the Postretirement Plan. (In thousands) Change in benefit obligation: Benefit obligation, beginning of period Interest cost on projected benefit obligation Actuarial (gain) loss Benefits paid Projected benefit obligation, end of period Change in fair value of plan assets: Fair value of plan assets, beginning of period Actual gain (loss) on plan assets Benefits paid TCF contributions Fair value of plan assets, end of period Pension Plan Postretirement Plan Year Ended December 31, 2014 2013 2014 2013 $41,870 1,587 1,862 (5,829) $45,037 1,292 (2,196) (2,263) $ 5,217 198 (63) (368) $ 6,675 174 (1,241) (391) 39,490 41,870 4,984 5,217 51,018 (511) (5,829) – 53,617 (336) (2,263) – 44,678 51,018 – – (368) 368 – – – (391) 391 – Funded status of plans, end of period $ 5,188 $ 9,148 $(4,984) $(5,217) Amounts recognized in the Consolidated Statements of Financial Condition: Prepaid (accrued) benefit cost, end of period Prior service cost included in accumulated other comprehensive loss $ 5,188 – $ 9,148 – $(4,984) (331) $(5,217) (378) Accumulated other comprehensive loss, before tax – – (331) (378) Total recognized asset (liability) $ 5,188 $ 9,148 $(5,315) $(5,595) The accumulated benefit obligation for the Pension Plan was $39.5 million and $41.9 million at December 31, 2014 and 2013, respectively. TCF’s Pension Plan investment policy states that assets may be invested in direct fixed income securities to include cash, money market mutual funds, U.S. Treasury securities, U.S. Government-sponsored enterprises and indirect fixed income investment securities made in fund form (mutual fund or institutional fund) where the fund invests in fixed income securities in investment grade corporate credits, non-investment grade floating-rate bank loans and non-investment grade bonds. The fair value of Level 1 assets are based upon prices obtained from independent pricing sources for the same assets traded in active markets. The fair value of the collective investment fund and the mortgage-backed securities categorized as Level 2 assets are based on prices obtained from independent pricing sources that are based on observable transactions of similar instruments, but not quoted markets. There were no assets that are valued on a recurring basis as Level 3 assets. The following table presents the balances of TCF’s Pension Plan investments at fair value on a recurring basis. (In thousands) Level 1: U.S. Treasury bills Fixed income mutual funds Money market mutual funds Cash Level 2: Collective investment fund Mortgage-backed securities Total Pension Plan assets held in trust 82 Pension Plan Year Ended December 31, 2014 2013 $ – 22,532 16,088 71 $47,999 – 3,019 – 4,961 1,026 – – $44,678 $51,018 The following table sets forth the changes recognized in accumulated other comprehensive loss that are attributed to the Postretirement Plan. (In thousands) Accumulated other comprehensive loss at the beginning of the year Prior service cost Amortization (recognized in net periodic benefit cost): Prior service credit Total recognized in other comprehensive income (loss) Postretirement Plan Year Ended December 31, 2013 2014 $(424) $(378) – – 2012 $(301) (151) 47 47 46 46 28 (123) Accumulated other comprehensive loss at end of year, before tax $(331) $(378) $(424) The Pension Plan does not have any accumulated other comprehensive 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, 2014 and 2013. The discount rates used to measure the benefit obligation of the Pension Plan and the Postretirement Plan were 3.25% and 4.0% for the years ended December 31, 2014 and 2013, respectively. The following tables set forth the net periodic benefit plan (income) cost included in compensation and employee benefits expense for the Pension Plan and the Postretirement Plan. (In thousands) Interest cost Loss on plan assets Recognized actuarial (gain) loss Net periodic benefit plan (income) cost (In thousands) Interest cost Recognized actuarial (gain) loss Amortization of prior service cost Pension Plan Year Ended December 31, 2013 2014 $ 1,292 $1,587 336 511 (2,196) 1,862 2012 $1,763 277 289 $3,960 $ (568) $2,329 Postretirement Plan Year Ended December 31, 2013 2014 174 $198 (1,241) (63) (46) (47) 2012 $ 293 (721) (28) $ Net periodic benefit plan (income) cost $ 88 $(1,113) $(456) Pension Plan actual return on plan assets, net of administrative expenses was a loss of 1.0% for the year ended December 31, 2014 and a loss of 0.6% for the year ended December 31, 2013. The expected actuarial return on plan assets was a gain of $0.7 million and the actual loss on plan assets was $0.5 million and increased net periodic benefit cost for the year ended December 31, 2014. The expected actuarial return on plan assets was a gain of $0.8 million and the actual loss on plan assets was $0.3 million and increased net periodic benefit cost for the year ended December 31, 2013. 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. Assumptions used to determine estimated net benefit plan cost Discount rate Expected long-term rate of return on plan assets N.A. Not Applicable. Pension Plan Year Ended December 31, 2014 4.00% 1.50 2013 3.00% 1.50 2012 4.00% 1.50 Postretirement Plan Year Ended December 31, 2014 4.00% N.A. 2013 2.75% N.A. 2012 4.00% N.A. Prior service credits of TCF’s Postretirement Plan totaling $46 thousand are included within accumulated other comprehensive loss at December 31, 2014 and are expected to be recognized as components of net periodic benefit cost during 2015. 83 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 3.2%, net of administrative expenses. A 1.0% difference in the expected return on plan assets would result in a $0.4 million change in net periodic pension expense. The discount rate used to determine TCF’s pension and postretirement benefit obligations as of December 31, 2014 and 2013 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 4.0% at December 31, 2013 to 3.25% at December 31, 2014 increased net periodic benefit cost by $1.9 million during 2014. Updated mortality tables at December 31, 2014 and various plan participant census changes decreased the 2014 net periodic benefit cost by $32 thousand. Included within 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, 2014 reduced net periodic benefit cost by $0.6 million. The decrease in the discount rate from 4.0% at December 31, 2013 to 3.25% at December 31, 2014 increased the net periodic benefit cost by $0.3 million. Updated mortality tables at December 31, 2014 and various plan demographic changes increased the net periodic benefit obligation by $0.3 million. For 2014, TCF was eligible to contribute up to $10.9 million to the Pension Plan until the 2014 federal income tax return extension due date under various IRS funding methods. During 2014, TCF made no cash contributions to the Pension Plan. TCF does not expect to be required to contribute to the Pension Plan in 2015. TCF expects to contribute $0.5 million to the Postretirement Plan in 2015. TCF contributed $0.4 million to the Postretirement Plan for the year ended December 31, 2014. TCF currently has no plans to pre-fund the Postretirement Plan in 2015. The following are expected future benefit payments used to determine projected benefit obligations. (In thousands) 2015 2016 2017 2018 2019 2020 - 2024 Pension Plan $ 4,209 3,549 2,881 3,036 3,138 12,284 Postretirement Plan $ 505 486 466 445 424 1,801 The following table presents assumed health care cost trend rates for the Postretirement Plan at December 31, 2014 and 2013. Health care cost trend rate assumed for next year Final health care cost trend rate Year that final health care trend rate is reached 2014 2013 5.8% 6.0% 5.0% 5.0% 2023 2023 Assumed health care cost trend rates have an effect on the amounts reported for the Postretirement Plan. A 1.0% change in assumed health care cost trend rates would have the following effect. (In thousands) Effect on total service and interest cost components Effect on postretirement benefits obligations 1-Percentage-Point Increase Decrease $ (9) (196) $ 9 217 84 Note 17. 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, 2014 2013 $1,314,826 609,618 140,261 $1,274,006 482,777 158,321 2,064,705 14,676 1,915,104 13,364 $2,079,381 $1,928,468 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 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 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 2018. 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 18. Derivative Instruments All derivative instruments are recognized within other assets or other liabilities at fair value within the Consolidated Statements of Financial Condition. 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. A contract that 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. 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 discontinued and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately. 85 Cash Flow Hedges TCF uses certain forward foreign exchange contracts to manage foreign exchange risk. Forward foreign exchange contracts represent agreements to exchange a foreign currency for U.S. dollars at an agreed-upon price and settlement date. Certain of these foreign exchange contracts were designated as cash flow hedges. TCF had no forward foreign exchange contracts designated as cash flow hedges at December 31, 2014 or 2013. Net Investment Hedges Foreign exchange contracts, which include certain forward contracts that settle within 30 days, are used to manage the foreign exchange risk associated with the Company’s net investment in TCF Commercial Finance Canada, Inc., a wholly-owned indirect Canadian subsidiary of TCF Bank. Derivatives Not Designated as Hedges TCF executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that TCF executes with a third party, such that TCF minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are reflected in non-interest income. These contracts have original fixed maturity dates ranging from three to ten years. During the second quarter of 2012, TCF sold its Visa(cid:4) Class B stock. In conjunction with the sale, TCF and the purchaser entered into a derivative transaction whereby TCF may receive or be required to make 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, if any, in the valuation of this swap agreement, which has no determinable maturity date, are reflected in non-interest income. Certain of TCF’s forward foreign exchange contracts are not designated as hedges and are generally settled within 30 days. Changes in the fair value of these foreign exchange contracts are reflected in non-interest expense. TCF enters into interest rate lock commitments in conjunction with certain consumer real estate loans. These interest rate lock commitments are agreements to extend credit under certain specified terms and conditions at fixed rates and have original lock expirations of up to 60 days. They are not designated as hedges and accordingly, changes in the valuation of these commitments are reflected in non-interest income. 86 The following tables summarize TCF’s outstanding derivative instruments as of December 31, 2014 and 2013. See Note 19, Fair Value Disclosures for additional information. (In thousands) Derivative Assets: Net investment hedges Forward foreign exchange contracts not designated as hedges Swap agreements Interest rate lock commitments Total derivative assets Derivative Liabilities: Forward foreign exchange contracts not designated as hedges Swap agreements Total derivative liabilities At December 31, 2014 Notional Amount Gross Amounts Recognized Gross Amounts Offset Net Amount Presented(1) $ 42,165 275,962 101,166 15,124 $ 189,310 114,970 $ 509 2,702 1,798 285 $5,294 $ 177 2,498 $2,675 $ – $ 509 (1,179) – – 1,523 1,798 285 $(1,179) $4,115 $ (29) (2,498) $(2,527) $ 148 – $ 148 (In thousands) Derivative Assets: Forward foreign exchange contracts not designated as hedges Swap agreements Total derivative assets Derivative Liabilities: Net investment hedges Forward foreign exchange contracts not designated as hedges Swap agreements Total derivative liabilities At December 31, 2013 Notional Amount Gross Amounts Recognized Gross Amounts Offset Net Amount Presented(1) $ 98,847 13,500 $ 32,761 363,475 41,358 $ 151 131 $ 282 $ 87 834 1,031 $1,952 $ (151) – $ (151) $ – – (1,031) $(1,031) $ – 131 $131 $ 87 834 – $921 (1) All amounts were offset in the Consolidated Statements of Financial Condition. 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 income: Swap agreements Interest rate lock commitments Non-interest expense: Cash flow hedge Forward foreign exchange contracts not designated as hedges Net realized gain (loss) Consolidated Statements of Comprehensive Income: Other comprehensive income (loss): Net investment hedges Net unrealized gain (loss) Year Ended December 31, 2012 2013 2014 $ (79) 285 $ $ – – – – – 38,752 – 25,170 (6) (7,524) $38,958 $25,170 $(7,530) $ 3,126 $ 1,625 $ (630) $ 3,126 $ 1,625 $ (630) TCF executes all of its foreign exchange contracts in the over-the-counter market with large financial institutions pursuant to International Swaps and Derivatives Association, Inc. 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 87 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. At December 31, 2014, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $124.8 million. In the event TCF is rated less than BB- by Standard and Poor’s, the contracts could be terminated or TCF may be required to provide approximately $2.5 million in additional collateral. There were no forward foreign exchange contracts containing credit risk-related features in a net liability position at December 31, 2014. At December 31, 2014, TCF had posted $5.1 million of cash collateral related to its swap agreements and had received $1.2 million of cash collateral related to its forward foreign exchange contracts. Note 19. Fair Value Disclosures 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 upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Securities available for sale, certain loans and leases held for sale, forward foreign exchange contracts, swap agreements, interest rate lock commitments, forward loan sales commitments and assets and liabilities held in trust for deferred compensation plans are recorded at fair value on a recurring basis. From time to time we may be required to record at fair value other assets on a non-recurring basis, such as certain securities held to maturity, loans, interest-only strips, other real estate owned and repossessed and returned assets. These non-recurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets. The following is a discussion of the fair value hierarchy and the valuation methodologies used for assets and liabilities recorded at fair value on a recurring or non-recurring basis and for estimating fair value of financial instruments not recorded at fair value. 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 includes valuations that are based on prices obtained from independent pricing sources for the same instruments traded in active markets; Level 2, which includes 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. Investments The carrying value of investments in FHLB stock and Federal Reserve Bank stock, categorized as Level 2, approximates fair value based on redemption at par value. Securities Held to Maturity Securities held to maturity consist primarily of securities of U.S. Government sponsored enterprises and federal agencies. The fair value of securities of U.S. Government sponsored enterprises and federal agencies, categorized as Level 2, is estimated using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and comparisons to current market trading activity. The fair value of certain other securities held to maturity, categorized as Level 3, is estimated based on discounted cash flows using current market rates and consideration of credit exposure or other internal pricing methods. There is no observable secondary market for these securities. Securities Available for Sale Securities available for sale consist primarily of securities of U.S. Government sponsored enterprises and federal agencies. The fair value of securities of U.S. Government sponsored enterprises and federal agencies, categorized as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and comparisons to current market trading activity. The fair value of other securities, categorized as Level 1, is determined using quoted prices from the New York Stock Exchange. Loans and Leases Held for Sale Loans and leases held for sale are generally carried at the lower of cost or fair value. The cost of loans held for sale includes the unpaid principal balance, net of deferred loan 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. Certain other loans and leases held for sale are recorded at fair value under the elected fair value option. TCF relies on internal valuation models which utilize quoted investor prices to estimate the fair value of these loans. Loans and leases held for sale are categorized as Level 3. Loans The fair value of loans, categorized as Level 3, is estimated based on discounted expected cash flows and recent sales of similar loans. The discounted cash flows include assumptions for prepayment estimates over each loan’s remaining life, 88 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. TCF also uses pricing data from recent sales of loans with similar risk characteristics as data points to validate the assumptions used in estimating the fair value of certain loans. Loans for which repayment is expected to be provided solely by the value of the underlying collateral, categorized as Level 3 and recorded at fair value on a non-recurring basis, are valued based on the fair value of that collateral less estimated selling costs. Such loans include impaired loans as well as certain delinquent non-accrual consumer real estate and auto finance loans. The fair value of the collateral is determined based on internal estimates and assessments provided by third-party appraisers. Forward Foreign Exchange Contracts TCF’s forward foreign exchange contracts are currency contracts executed in over-the-counter markets and are recorded at fair value 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 fair value of these contracts, categorized as Level 2, is based on observable transactions, but not quoted markets. Swap Agreements TCF executes interest rate swaps with commercial banking customers to facilitate the customer’s risk management strategy. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps TCF executes with a third party, such that TCF minimizes its net risk exposure resulting from such transactions. These derivative instruments are recorded at fair value. The fair value of these swap agreements, categorized as Level 2, is determined using a cash flow model which considers the forward curve, the discount curve and credit valuation adjustments related to counterparty and borrower non-performance risk. TCF also entered into a swap agreement related to the sale of TCF’s Visa Class B stock, categorized as Level 3. The fair value of the Visa 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. Interest Rate Lock Commitments and Forward Loan Sales Commitments TCF’s interest rate lock commitments are derivative instruments which are recorded at fair value. The related forward loan sales commitments to sell the resulting loans held for sale are also carried at fair value under the elected fair value option. TCF relies on internal valuation models to estimate the fair value of these instruments. The valuation models utilize estimated rates of successful loan closings and quoted investor prices. While these models use both Level 2 and 3 inputs, TCF has determined that the majority of the inputs significant in the valuation of these commitments fall within Level 3 and therefore they are categorized as Level 3. Interest-Only Strips The fair value of interest-only strips, categorized as Level 3, represents the present value of future cash flows retained by TCF on certain assets. 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 TCF believes are commensurate with the risks associated with the cash flows and what a market participant would use. These assumptions are inherently subject to volatility and uncertainty and, as a result, the estimated fair value of the interest-only strips may fluctuate significantly from period to period. Other Real Estate Owned and Repossessed and Returned Assets The fair value of other real estate owned is based on independent appraisals, real estate brokers’ price opinions or automated valuation methods, less estimated selling costs. 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 other real estate owned or repossessed and returned assets. Other real estate owned and repossessed and returned assets were written down $14.8 million and $15.6 million, which was included in foreclosed real estate and repossessed assets, net expense for the years ended December 31, 2014 and 2013, respectively. Deposits The fair value of checking, savings and money market deposits, categorized as Level 1, is deemed equal to the amount payable on demand. The fair value of certificates of deposit, categorized as Level 2, 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. Long-term Borrowings The fair value of TCF’s long-term borrowings, categorized as Level 2, is estimated based on observable market prices and discounted cash flows using interest rates for borrowings of similar remaining maturities and characteristics. The fair value of other long-term borrowings, categorized as Level 3, is based on unobservable inputs determined at the time of origination. 89 Assets and Liabilities Held in Trust for Deferred Compensation Plans 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, categorized as Level 1, is based upon prices obtained from independent asset pricing services based on active markets. The fair value of the liabilities equals the fair value of the assets. Financial Instruments with Off-Balance Sheet Risk The fair value of TCF’s commitments to extend credit and standby letters of credit, categorized as Level 2, is 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. 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 Loans and leases held for sale Forward foreign exchange contracts(1) Swap agreements(1) Interest rate lock commitments(1) Forward loan sales commitments Assets held in trust for deferred compensation plans Total assets Forward foreign exchange contracts(1) Swap agreements(1) Forward loan sales commitments Liabilities held in trust for deferred compensation plans Fair Value Measurements at December 31, 2014 Total Level 3 Level 1 Level 2 $ $ $ $ – – – – – – – 18,703 $463,239 – – 3,211 1,798 – – – $18,703 $468,248 $ – – – 18,703 $ 177 1,877 – – – 55 3,308 – – 285 19 – $463,239 55 3,308 3,211 1,798 285 19 18,703 3,667 $490,618 – 621 42 – 663 $ 177 2,498 42 18,703 $ 21,420 Total liabilities $18,703 $ 2,054 $ Non-recurring Fair Value Measurements: Securities held to maturity Loans Interest-only strips Other real estate owned: Consumer Commercial Repossessed and returned assets Total non-recurring fair value measurements $ $ – – – – – – – $ – – – $ 1,516 164,897 41,204 $ 1,516 164,897 41,204 – 4,839 1,563 40,502 8,866 1,425 40,502 13,705 2,988 $ 6,402 $258,410 $264,812 (1) As permitted under GAAP, TCF has elected to net derivative receivables and derivative payables with the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of this table, the derivative receivable and derivative payable balances are presented gross of this netting adjustment. 90 (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(1) Swap agreements(1) Assets held in trust for deferred compensation plans Total assets Forward foreign exchange contracts(1) Swap agreements(1) Liabilities held in trust for deferred compensation plans Total liabilities Non-recurring Fair Value Measurements: Securities held to maturity Loans Interest-only strips Other real estate owned: Consumer Commercial Repossessed and returned assets Total non-recurring fair value measurements Fair Value Measurements at December 31, 2013 Level 1 Level 2 Level 3 Total $ – – 2,934 – – 16,724 $548,037 – – 151 131 – $19,658 $548,319 $ $ – – 16,724 921 132 – $16,724 $ 1,053 $ $ $ $ – 93 – – – – 93 – 899 – 899 $548,037 93 2,934 151 131 16,724 $568,070 $ 921 1,031 16,724 $ 18,676 $ $ – – – – – – – $ – – – $ 1,902 214,183 33,098 $ 1,902 214,183 33,098 – – 1,537 40,355 14,088 730 40,355 14,088 2,267 $ 1,537 $304,356 $305,893 (1) As permitted under GAAP, TCF has elected to net derivative receivables and derivative payables with the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of this table, the derivative receivable and derivative payable balances are presented gross of this netting adjustment. 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 markets or economic conditions, as well as changes to Company valuation models may require the transfer of financial instruments from one fair value level to another. Such transfers, if any, are recorded at the fair values as of the beginning of the quarter in which the transfer occurred. TCF had no transfers in the years ended December 31, 2014 and 2013, and transferred $1.1 million of securities available for sale from Level 3 to Level 1 in the year ended December 31, 2012. 91 The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis. (In thousands) Asset (liability) balance, December 31, 2011 Transfers out of Level 3 Total net losses included in: Net loss Other comprehensive loss Purchases Principal paydowns / settlements Asset (liability) balance, December 31, 2012 Principal paydowns / settlements Asset (liability) balance, December 31, 2013 Total net gains (losses) included in: Net income Sales Purchases / originations Principal paydowns / settlements Securities Loans and Available Leases Held for Sale $ 1,450 (1,098) Swap for Sale Commitments Commitments Agreements – $ – $ – – – – – – $ $ Forward Loan Sales Interest Rate Lock – (100) – (125) 127 (34) 93 – – – (38) – – – – – – – 72 (39,246) 42,482 – – – – – – – – 285 – – – – – – – – – – (23) – – – (150) – (1,434) 357 (1,227) 328 (899) (47) – – 325 Asset (liability) balance, December 31, 2014 $ 55 $ 3,308 $285 $(23) $ (621) Fair Value Option In the third quarter of 2014, TCF initiated a correspondent lending program in which TCF Bank originates consumer mortgage loans and sells them to a wholesale partner. TCF elected the fair value option for these loans. This election facilitates the offsetting of changes in fair values of the loans held for sale and the derivative financial instruments used to economically hedge them. The following table presents the difference between the aggregate fair value and aggregate unpaid principal balance of these loans held for sale as of December 31, 2014. There were no loans held for sale reported under the fair value option as of December 31, 2013. (In thousands) Fair value carrying amount Aggregate unpaid principal amount Fair value carrying amount less aggregate unpaid principal At December 31, 2014 $3,308 3,205 $ 103 Differences between the fair value carrying amount and the aggregate unpaid principal balance include changes in fair value recorded at and subsequent to funding and gains and losses on the related loan commitment prior to funding. No loans recorded under the fair value option were delinquent or on nonaccrual status at December 31, 2014. The net gain from initial measurement of the above loans and subsequent changes in fair value for loans outstanding was $0.9 million for the year ended December 31, 2014, and is included in gains on sales of consumer real estate loans, net. This amount excludes the impact from offsetting hedging arrangements which are also included in gains on sales of consumer real estate loans, net. Disclosures About Fair Value 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, 2014 and 2013, 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 the Company’s financial instruments, the 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. 92 The following tables present the carrying amounts and estimated fair values of the Company’s financial instruments, excluding short-term financial assets and liabilities as their carrying amounts approximate fair value and excluding financial instruments recorded at fair value on a recurring basis. 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. Carrying Amount Estimated Fair Value at December 31, 2014 Level 1 Level 2 Level 3 Total (In thousands) Financial instrument assets: Investments Securities held to maturity Loans and leases held for sale Loans: Consumer real estate Commercial real estate Commercial business Equipment finance Inventory finance Auto finance Other Allowance for loan losses(1) Interest-only strips(2) $ $ 85,492 214,454 132,266 5,682,364 2,624,255 533,410 1,806,808 1,877,090 1,915,061 24,144 (164,169) 69,789 Total financial instrument assets $14,800,964 $ Financial instrument liabilities: Deposits Long-term borrowings $15,449,882 1,232,065 $12,400,693 – $3,063,850 1,246,221 Total financial instrument liabilities $16,681,947 $12,400,693 $4,310,071 – – – – – – – – – – – – – $ $ 85,492 217,418 – $ – 4,916 139,370 85,492 222,334 139,370 – – – – – – – – – 5,836,770 2,575,625 512,083 1,787,271 1,864,786 1,927,384 18,724 – 73,058 5,836,770 2,575,625 512,083 1,787,271 1,864,786 1,927,384 18,724 – 73,058 $ 302,910 $14,739,987 $15,042,897 $ $ $ – 8,054 $15,464,543 1,254,275 8,054 $16,718,818 – – – $ $ 25,885 (47) 25,838 $ 25,885 (47) $ 25,838 $ Financial instruments with off-balance sheet risk:(3) Commitments to extend credit Standby letters of credit Total financial instruments with off-balance sheet risk $ $ 25,885 (47) $ 25,838 $ – – – (1) Expected credit losses are included in the estimated fair values. (2) Carrying amounts are included in other assets. (3) Positive amounts represent assets, negative amounts represent liabilities. 93 Carrying Amount Estimated Fair Value at December 31, 2013 Level 1 Level 2 Level 3 Total (In thousands) Financial instrument assets: Investments Securities held to maturity Loans and leases held for sale Loans: Consumer real estate Commercial real estate Commercial business Equipment finance Inventory finance Auto finance Other Allowance for loan losses(1) Interest-only strips(2) $ $ 94,326 19,912 79,768 6,339,326 2,743,697 404,655 1,546,134 1,664,377 1,239,386 26,743 (252,230) 84,561 – – – – – – – – – – – – – $ $ 94,326 14,610 – $ – 5,302 84,341 94,326 19,912 84,341 – – – – – – – – – 6,279,328 2,673,825 392,947 1,534,905 1,653,345 1,256,357 25,216 – 85,265 6,279,328 2,673,825 392,947 1,534,905 1,653,345 1,256,357 25,216 – 85,265 $ 108,936 $13,990,831 $14,099,767 Total financial instrument assets $13,990,655 $ Financial instrument liabilities: Deposits Long-term borrowings $14,432,776 1,483,325 $12,006,364 – $2,434,946 1,496,017 Total financial instrument liabilities $15,916,101 $12,006,364 $3,930,963 Financial instruments with off-balance sheet risk:(3) Commitments to extend credit Standby letters of credit Total financial instruments with off-balance sheet risk $ $ 29,057 (52) 29,005 $ $ – – – $ 29,057 (52) $ 29,005 $ $ $ $ – 10,838 $14,441,310 1,506,855 10,838 $15,948,165 – – – $ $ 29,057 (52) 29,005 (1) Expected credit losses are included in the estimated fair values. (2) Carrying amounts are included in other assets. (3) Positive amounts represent assets, negative amounts represent liabilities. 94 Note 20. 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 Earnings (Loss) Per Common Share: At or For the Year Ended December 31, 2014 2013 2012 Net income (loss) attributable to TCF Financial Corporation Preferred stock dividends $ 174,187 (19,388) $ 151,668 (19,065) $ Net income (loss) available to common stockholders Earnings allocated to participating securities 154,799 40 132,603 71 (212,884) (5,606) (218,490) 50 Earnings (loss) allocated to common stock $ 154,759 $ 132,532 $ (218,540) Weighted-average shares outstanding Restricted stock 166,542,848 (2,961,413) 164,229,421 (3,213,417) 162,288,902 (3,020,094) Weighted-average common shares outstanding for basic earnings (loss) per common share Basic earnings (loss) per common share Diluted Earnings (Loss) Per Common Share: Earnings (loss) allocated to common stock 163,581,435 161,016,004 159,268,808 $ $ 0.95 154,759 $ $ 0.82 132,532 $ $ (1.37) (218,540) Weighted-average common shares outstanding used in basic earnings (loss) per common share calculation 163,581,435 161,016,004 159,268,808 Net dilutive effect of: Non-participating restricted stock Stock options 250,499 252,892 719,459 191,092 – – Weighted-average common shares outstanding for diluted earnings (loss) per common share 164,084,826 161,926,555 159,268,808 Diluted earnings (loss) per common share $ 0.94 $ 0.82 $ (1.37) 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 2014, 2013 and 2012, there were 4.2 million, 3.8 million and 5.1 million, respectively, of outstanding shares 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. Note 21. Other Expense Other expense consisted of the following. (In thousands) Loan and lease processing Professional fees Card processing and issuance cost Outside processing Telecommunications Travel Other Total other expense $ Year Ended December 31, 2013 2014 $ 13,787 $ 20,294 18,642 18,949 15,868 16,588 13,767 13,288 11,720 11,911 12,810 11,481 81,183 87,393 2012 9,567 13,608 15,586 12,919 11,735 11,740 88,742 $179,904 $167,777 $163,897 95 Note 22. Business Segments Lending, Funding and Support Services have been identified as reportable segments. Lending includes consumer real estate, commercial real estate and business lending, 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. TCF evaluates performance and allocates resources based on each segment’s net income or 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. The following tables set forth certain information for each of TCF’s reportable segments, including a reconciliation of TCF’s consolidated totals. (In thousands) At or For the Year Ended December 31, 2014: 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 Lending Funding Support Services Eliminations and Other(1) Consolidated $ 592,409 92,800 211,166 426,290 102,398 $ 226,327 2,937 220,568 434,141 3,722 $ 166 – 140,779 147,549 (1,932) $ (3,273) – (139,246) (136,203) (4,422) $ 815,629 95,737 433,267 871,777 99,766 182,087 6,095 (4,672) (1,894) 181,616 7,429 – – – – 19,388 – – 7,429 19,388 $ 174,658 $ 6,095 $ (24,060) $ (1,894) $ 154,799 Total assets $16,871,154 $6,488,853 $239,425 $(4,204,821) $19,394,611 Revenues from external customers: Interest income Non-interest income Total At or For the Year Ended December 31, 2013: 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 $ 852,019 211,166 $ 22,210 220,506 $ – 1,595 $ 1,063,185 $ 242,716 $ 1,595 $ 568,286 115,408 168,387 401,326 76,663 143,276 7,032 – $ 237,289 2,960 235,238 442,557 9,750 $ 3 – 136,584 139,864 8 17,260 – – (3,285) – 19,065 $ $ $ – – – $ 874,229 433,267 $ 1,307,496 $ (2,954) – (136,151) (138,478) (2,076) 1,449 – – 802,624 118,368 404,058 845,269 84,345 158,700 7,032 19,065 $ 136,244 $ 17,260 $ (22,350) $ 1,449 $ 132,603 Total assets $16,197,449 $7,862,779 $228,863 $(5,909,251) $18,379,840 Revenues from external customers: Interest income Non-interest income Total $ 840,250 168,387 $ 24,290 235,185 $ 1,008,637 $ 259,475 $ $ – 486 486 $ $ – – – $ 864,540 404,058 $ 1,268,598 (1) Other includes the unallocated portion of pension and other postretirement benefits (expenses) attributable to the annual determination of actuarial gains and losses. 96 (In thousands) At or For the Year Ended December 31, 2012: 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 Lending Funding Support Services Eliminations and Other(1) Consolidated $ 524,358 245,355 138,514 367,172 13,272 37,073 6,187 – $ 258,283 2,088 338,895 969,805 (135,432) $ 41 – 140,784 152,677 (7,790) $ (2,663) – (127,770) (127,100) (2,908) $ (239,283) – – (4,062) – 5,606 (425) – – 780,019 247,443 490,423 1,362,554 (132,858) (206,697) 6,187 5,606 $ 30,886 $ (239,283) $ (9,668) $ (425) $ (218,490) Total assets $15,694,693 $7,249,958 $148,513 $(4,867,247) $18,225,917 Revenues from external customers: Interest income Non-interest income Total $ $ 842,718 138,514 $ 41,905 338,848 $ – 13,061 981,232 $ 380,753 $ 13,061 $ $ – – – $ 884,623 490,423 $ 1,375,046 (1) Other includes the unallocated portion of pension and other postretirement benefits (expenses) attributable to the annual determination of actuarial gains and losses. Note 23. Parent Company Financial Information TCF Financial’s (parent company only) condensed statements of financial condition as of December 31, 2014 and 2013 and the condensed statements of income and cash flows for the years ended December 31, 2014, 2013 and 2012 are as follows. Condensed Statements of Financial Condition (In thousands) Assets: Cash and cash equivalents Investment in bank subsidiary Accounts receivable from bank subsidiary Other assets Total assets Liabilities and Equity: Other liabilities Total liabilities Equity Total liabilities and equity At December 31, 2014 2013 $ 71,781 2,037,781 13,862 12,628 $ 62,775 1,863,563 21,706 19,498 $2,136,052 $1,967,542 $ 14,403 $ 14,574 14,403 14,574 2,121,649 1,952,968 $2,136,052 $1,967,542 97 Condensed Statements of Income (In thousands) Interest income Interest expense Net interest income (expense) Non-interest income: Dividends from TCF Bank Affiliate service fees Other Total 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 Equity (deficit) in undistributed earnings of bank subsidiary Net income (loss) Preferred stock dividends Year Ended December 31, 2013 2014 419 365 – – 2012 355 7,952 $ $ $ 365 419 (7,597) 19,000 22,461 1,178 42,639 21,193 338 3,436 24,967 18,037 52 18,089 156,098 174,187 19,388 – 23,338 407 23,745 22,108 322 3,352 25,782 (1,618) 309 (1,309) 152,977 151,668 19,065 18,000 17,089 12,936 48,025 14,703 298 15,731 30,732 9,696 2,766 12,462 (225,346) (212,884) 5,606 Net income (loss) available to common stockholders $154,799 $132,603 $(218,490) 98 Condensed Statements of Cash Flows (In thousands) Cash flows from operating activities: Year Ended December 31, 2014 2013 2012 Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) $ 174,187 $ 151,668 $(212,884) operating activities: (Equity) deficit in undistributed earnings of bank subsidiary (Gains) on sales of assets, net Other, net Net cash provided by (used in) operating activities Cash flows from investing activities: Capital contributions to bank subsidiary Proceeds from sales of securities available for sale Proceeds from sales of other securities Purchases of premises and equipment Proceeds from sales of premises and equipment Other, net Net cash provided by (used in) investing activities Cash flows from financing activities: Net proceeds from public offerings of preferred stock Dividends paid on preferred stock Dividends paid on common stock Redemption of trust preferred securities Interest paid on trust preferred securities Shares sold to TCF employee benefit plans Stock compensation tax (expense) benefit Exercise of stock options Net cash provided by (used in) financing activities Net change in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period (156,098) (1,177) 16,430 (152,977) (350) 9,962 225,346 (13,116) 9,561 33,342 8,303 8,907 – 2,813 – (260) 91 – 2,644 – (19,388) (32,731) – – 23,083 1,316 740 – – – (148) – 869 (192,000) – 14,550 (6) – – 721 (177,456) – (19,065) (32,227) – – 20,179 (473) – 263,240 (5,606) (31,904) (115,010) (8,757) 19,462 (659) – (26,980) (31,586) 120,766 9,006 62,775 (22,562) 85,337 (47,783) 133,120 $ 71,781 $ 62,775 $ 85,337 TCF Financial’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, 2014, TCF Bank could pay a total of approximately $83.7 million in dividends to TCF without prior regulatory approval. Note 24. Litigation Contingencies From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to enforcement actions brought by federal regulators, including the Securities and Exchange Commission (‘‘SEC’’), the Federal Reserve, the OCC and the Consumer Financial Protection Bureau. From time to time, borrowers and other customers, and employees and former employees, have also brought actions against TCF, in some cases claiming substantial damages. TCF and other financial services companies are subject to the risk of class action litigation. 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 TCF’s 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 failures related to regulatory compliance. 99 Note 25. Accumulated Other Comprehensive Income (Loss) The components of other comprehensive income (loss) and the related tax effects are presented in the tables below. (In thousands) Year Ended December 31, 2014: Securities available for sale: Unrealized gains (losses) arising during the period Reclassification of net (gains) losses to net income Net unrealized gains (losses) Net investment hedges: Unrealized gains (losses) arising during the period Foreign currency translation adjustment:(1) Unrealized gains (losses) arising during the period Recognized postretirement prior service cost: Reclassification of net (gains) losses to net income Before Tax Tax Effect Net of Tax $ 29,071 (76) $(10,932) 29 $ 18,139 (47) 28,995 (10,903) 18,092 3,126 (1,181) 1,945 (3,704) (47) – 17 (3,704) (30) Total other comprehensive income (loss) $ 28,370 $(12,067) $ 16,303 Year Ended December 31, 2013: Securities available for sale: Unrealized gains (losses) arising during the period Reclassification of net (gains) losses to net income Net unrealized gains (losses) Net investment hedges: Unrealized gains (losses) arising during the period Foreign currency translation adjustment:(1) Unrealized gains (losses) arising during the period Recognized postretirement prior service cost: Reclassification of net (gains) losses to net income Total other comprehensive income (loss) Year Ended December 31, 2012: Securities available for sale: Unrealized gains (losses) arising during the period Reclassification of net (gains) losses to net income Net unrealized gains (losses) Net investment hedges: Unrealized gains (losses) arising during the period Foreign currency translation adjustment:(1) Unrealized gains (losses) arising during the period Recognized postretirement prior service cost: Unrealized gains (losses) arising during the period Reclassification of net (gains) losses to net income $(61,177) (860) $ 23,053 324 $(38,124) (536) (62,037) 23,377 (38,660) 1,625 (614) 1,011 (1,979) (46) – 18 (1,979) (28) $(62,437) $ 22,781 $(39,656) $ 19,794 (89,879) $ (7,252) 32,745 $ 12,542 (57,134) (70,085) 25,493 (44,592) (630) 239 (391) 531 151 (28) – (66) 12 531 85 (16) Total other comprehensive income (loss) $(70,061) $ 25,678 $(44,383) (1) Foreign investments are deemed to be permanent in nature and therefore TCF does not provide for taxes on foreign currency translation adjustments. Reclassifications of net gains and net losses to net income related to securities available for sale were recorded in gains (losses) on securities, net in the Consolidated Statements of Income. The tax effect of these reclassifications was recorded in income tax expense (benefit) in the Consolidated Statements of Income. See Note 16, Employee Benefit Plans, for additional information regarding TCF’s recognized postretirement prior service cost. 100 Accumulated other comprehensive income (loss) balances are presented in the tables below. Securities Available for Sale Net Investment Hedges Foreign Currency Translation Adjustment Recognized Postretirement Prior Service Cost Total (In thousands) At or For the Year Ended December 31, 2014: Balance, beginning of period Other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) $(26,983) 18,139 (47) Net other comprehensive income (loss) 18,092 Balance, end of period At or For the Year Ended December 31, 2013: Balance, beginning of period Other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Net other comprehensive income (loss) Balance, end of period At or For the Year Ended December 31, 2012: Balance, beginning of period Other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Net other comprehensive income (loss) $ (8,891) $ 11,677 (38,124) (536) (38,660) $(26,983) $ 56,269 12,542 (57,134) (44,592) $ 591 1,945 – 1,945 $2,536 $ (420) 1,011 – 1,011 $ 591 $ (29) (391) – (391) $(1,056) (3,704) – (3,704) $(4,760) $ 923 (1,979) – (1,979) $(1,056) $ 392 531 – 531 $235 – $(27,213) 16,380 (30) (30) (77) 16,303 $205 $(10,910) $263 – $ 12,443 (39,092) (28) (28) (564) (39,656) $235 $(27,213) $194 85 $ 56,826 12,767 (16) (57,150) 69 (44,383) Balance, end of period $ 11,677 $ (420) $ 923 $263 $ 12,443 101 Other Financial Data The selected quarterly financial data presented below should be read in conjunction with the Consolidated Financial Statements and related notes. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) Three Months Ended (In thousands, except per-share data) Net interest income Provision for credit losses Dec. 31, Sep. 30, 2014 2014 Jun. 30, Mar. 31, Dec. 31, Sep. 30, 2013 2014 2014 2013 Jun. 30, Mar. 31, 2013 2013 $204,074 $204,180 $206,101 $201,274 $201,862 $199,627 $202,044 $199,091 38,383 22,792 14,492 55,597 15,739 32,591 24,602 9,909 Net interest income after provision for credit losses Non-interest income Non-interest expense 148,477 109,768 221,758 188,441 116,076 219,688 196,192 104,016 213,195 186,782 103,407 217,136 179,070 105,412 220,469 175,025 106,160 212,232 169,453 99,783 208,516 160,708 92,703 204,052 Income before income tax expense Income tax expense Income after income tax expense Income attributable to non-controlling interest Preferred stock dividends 36,487 11,011 25,476 1,488 4,847 84,829 30,791 54,038 1,721 4,847 87,013 31,385 55,628 2,503 4,847 73,053 26,579 46,474 1,717 4,847 64,013 22,791 41,222 1,227 4,847 68,953 24,551 44,402 1,607 4,847 60,720 19,444 41,276 2,372 4,847 49,359 17,559 31,800 1,826 4,524 Net income available to common stockholders $ 19,141 $ 47,470 $ 48,278 $ 39,910 $ 35,148 $ 37,948 $ 34,057 $ 25,450 Per common share: Basic earnings Diluted earnings $ $ 0.12 $ 0.12 $ 0.29 $ 0.29 $ 0.30 $ 0.29 $ 0.25 $ 0.24 $ 0.22 $ 0.22 $ 0.24 $ 0.23 $ 0.21 $ 0.21 $ 0.16 0.16 102 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), Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 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, 2014. 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), Chief Financial Officer (Principal Financial Officer) and 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 There were no 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, 2014, that materially affected, or are reasonably likely to materially affect, TCF’s internal control over financial reporting. 103 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, 2014. 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 in May 2013. Based on this assessment, management concluded that TCF’s internal control over financial reporting was effective as of December 31, 2014. 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, 2014. 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. 104 21JUL200414412105 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, 2014, based on criteria established in Internal Control – Integrated Framework (2013) 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 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, 2014, based on criteria established in Internal Control – Integrated Framework (2013) 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, 2014 and 2013, 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, 2014, and our report dated February 23, 2015 expressed an unqualified opinion on those consolidated financial statements. 8OCT201312085186 Minneapolis, Minnesota February 23, 2015 105 Item 9B. Other Information On February 20, 2015, TCF and William A. Cooper, entered into an amendment (the ‘‘Employment Amendment’’) to the Amended and Restated Employment Agreement (the ‘‘Employment Agreement’’) and an amendment (the ‘‘Award Amendment’’) to the Performance Based and Employment Vested Restricted Stock Award Agreement (the ‘‘Award Agreement’’), each entered into with Mr. Cooper on March 10, 2014. Pursuant to the Employment Amendment, Section 4(b) of the Employment Agreement was modified such that in the event Mr. Cooper terminates his employment with TCF for Good Reason based on the failure of the Board to elect him Chairman, Mr. Cooper will not receive any lump sum payment of salary other than accrued and unpaid salary and bonus, if any. Pursuant to the Award Amendment, Section 3(b) of the Award Agreement was modified such that in the event Mr. Cooper terminates his employment for Good Reason (as defined in the Award Agreement), vesting will not be accelerated, but continued employment will no longer be a requirement for vesting. As a result, vesting or forfeiture will be solely based on the achievement of the performance criteria set forth in the Award Agreement. The foregoing descriptions of the Employment Amendment and Award Amendment are qualified in their entirety by reference to their full text, copies of which are attached hereto and are incorporated by reference herein. 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 2015 Annual Meeting of Stockholders to be held on April 22, 2015 (the ‘‘2015 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 2015 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 2015 Proxy and is incorporated herein by reference: Election of Directors – Background of the Nominees; Corporate Governance – Board Committees, Committee Memberships, and Meetings in 2014; 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 Raymond L. Barton, 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. Barton, Mr. Cusick, Ms. Grandstrand, Mr. Johnson, Mr. King, Mr. Opperman and Mr. Zona are independent. Additional information regarding Mr. Barton, Mr. Cusick, Ms. Grandstrand, Mr. Johnson, Mr. King, Mr. Opperman and Mr. Zona, and the other directors is set forth in the section Election of Directors – Background of the Nominees in TCF’s 2015 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 ‘‘About TCF Corporate Governance’’ and then ‘‘Code of Ethics for Senior Financial 106 Management.’’ 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 2015 Proxy and is incorporated herein by reference: Director Compensation; Compensation Discussion and Analysis; Compensation Committee Report; Executive Compensation; and Corporate Governance – Compensation, Nominating, and Corporate Governance Committee – Compensation Committee Interlocks and Insider Participation. 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 2015 Proxy and is incorporated herein by reference: Ownership of TCF Stock; Equity Compensation Plans Approved by Stockholders; and Proposal 2: Approval of TCF Financial 2015 Equity Incentive Plan. 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 2015 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 2015 Proxy and is incorporated herein by reference. 107 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, 2014 and 2013 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2014 Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2014 Consolidated Statements of Equity for each of the years in the three-year period ended December 31, 2014 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2014 Notes to Consolidated Financial Statements Other Financial Data Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm 2. Financial Statement Schedules 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. Exhibits Index to Exhibits Page 17 52 53 54 55 56 57 102 104 105 110 108 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 23, 2015 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 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 Date February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 /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 Director, Vice Chairman and Executive Vice President February 23, 2015 /s/ KAREN L. GRANDSTRAND Director February 23, 2015 Karen L. Grandstrand /s/ THOMAS F. JASPER Thomas F. Jasper /s/ GEORGE G. JOHNSON George G. Johnson /s/ RICHARD H. KING Richard H. King /s/ VANCE K. OPPERMAN Vance K. Opperman /s/ JAMES M. RAMSTAD James M. Ramstad /s/ ROGER J. SIT Roger J. Sit /s/ BARRY N. WINSLOW Barry N. Winslow /s/ RICHARD A. ZONA Richard A. Zona Director, Vice Chairman and Executive Vice President February 23, 2015 Director Director Director Director Director Director Director 109 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 February 23, 2015 Index to Exhibits Exhibit Number 3(a) 3(b) 4(a) 4(b) 4(c) 4(d) 4(e) 4(f) 4(g) 4(h) 10(a)* 10(a)-1* 10(a)-2* 10(a)-3* 10(a)-4* 10(a)-5* 10(a)-6* Description Amended and Restated Certificate of Incorporation of TCF Financial Corporation [incorporated by reference to Exhibit 3(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (No. 13633841)] Amended and Restated Bylaws of TCF Financial Corporation [incorporated by reference to Exhibit 3.1 to TCF Financial Corporation’s Current Report on Form 8-K filed October 25, 2013 (No. 131169769)] 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 (No. 091243195)] 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 (No. 0912431945)] 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 May 29, 2012 (No. 12874917)] 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 (No. 12922780)] 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 (No. 12923856)] 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 (No. 12923856)] 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 (No. 121271334)] Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request. TCF Financial Incentive Stock Program, as amended and restated April 24, 2013 [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation’s Current Report on Form 8-K filed April 30, 2013 (No. 13797581)] Form of the Nonqualified Stock Option Award Agreement as executed by certain executives [incorporated by reference to Exhibit 10(b)-10 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2008 (No. 08551203)] Nonqualified Stock Option Award Agreement as executed by William A. 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 (No. 08995870)] Form of Restricted Stock Award Agreement as executed by certain executives [incorporated by reference to Exhibit 10(b)-14 to TCF Financial Corporation’s Current Report on Form 8-K filed January 23, 2009 (No. 09543236)] Form of Deferred Restricted Stock Award Agreement as executed by certain executives [incorporated by reference to Exhibit 10(b)-16 to TCF Financial Corporation’s Current Report on Form 8-K filed February 18, 2011 (No. 11625311)] Nonqualified Stock Option Award 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 (No. 11782127)] Form of Performance-Based Restricted Stock Award 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 (No. 12537269)] 110 10(a)-7* 10(a)-8* Form of Performance-Based Restricted Stock Award Agreement as executed by certain executives [incorporated by reference to Exhibit 10.3 to TCF Financial Corporation’s Current Report on Form 8-K filed January 20, 2012 (No. 12537269)] Performance-Based Restricted Stock Award Agreement between TCF Financial Corporation and William A. Cooper dated March 10, 2014 [incorporated by reference to Exhibit 10.2 to TCF Financial Corporation’s Current Report on Form 8-K filed March 13, 2014 (No. 14688801)] 10(a)-9*# Amendment No. 1 dated February 20, 2015 to the Performance-Based Restricted Stock Award Agreement between TCF Financial Corporation and William A. Cooper dated March 10, 2014 10(b)* 10(c)* TCF Performance-Based Compensation Policy for Covered Executive Officers, as approved effective January 1, 2013 [incorporated by reference to Exhibit 10.2 to TCF Financial Corporation’s Current Report on Form 8-K filed April 30, 2013 (No. 13797581)] Form of 2014 Management Incentive Plan – Executive, as executed by certain executives [incorporated by reference to Exhibit 10(c)-1 of TCF Financial Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (No. 1469798)] 10(c)-1*# Form of 2015 Management Incentive Plan – Executive, as executed by certain executives 10(d)* 10(d)-1* 10(d)-2* Amended and Restated Employment Agreement with William A. Cooper effective as of March 10, 2014 [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation’s Current Report on Form 8-K filed March 13, 2014 (No. 14688801)] Employment Agreement with Craig R. Dahl effective as of January 1, 2013 [incorporated by reference to Exhibit 10.2 to TCF Financial Corporation’s Current Report on Form 8-K filed February 25, 2013 (No. 13639745)] Employment Agreement with Thomas F. Jasper effective as of January 1, 2013 [incorporated by reference to Exhibit 10.3 to TCF Financial Corporation’s Current Report on Form 8-K filed February 25, 2013 (No. 13639745)] 10(d)-3*# Amendment No. 1 dated February 20, 2015 to the Amended and Restated Employment Agreement with William A. Cooper 10(e)* 10(e)-1* 10(f)* 10(g)* 10(h)* 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 (No. 05552640)] 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 3, 2011 (No. 11802298)] 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 (No. 09618185)] 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 (No. 05552640)] 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 (No. 1584625)]; 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 (No. 1706058)]; 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 (No. 02730799)]; 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 (No. 03830138)] 10(i)* 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 (No. 05552640)] 111 10(j)* 10(k)* 10(k)-1* 10(k)-2* 10(k)-3* 10(l)* 10(l)-1* 10(m)* 10(n)* 10(o)* 10(p)* 12(a)# 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 (No. 1584625)]; 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 (No. 1706058)]; 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 (No. 03830138)] 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 (No. 12986667)] 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 (No. 09543236)] 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 (No. 12986667)] 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 (No. 12986667)] 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 (No. 05552640)] 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 (No. 05552640)]; 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 (No. 101147679)] 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 (No. 1584625)]; 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 (No. 1706058)]; 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 (No. 02568362)]; 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 (No. 02730799)]; and as amended 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 (No. 03830138)] Summary of Non-Employee Director Compensation [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation’s Current Report on Form 8-K filed July 23, 2014 (No. 14988540)] 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 (No. 11625311)] 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 (No. 11625311)] Consolidated Ratios of Earnings to Fixed Charges for years ended December 31, 2014, 2013, 2012, 2011, and 2010 112 12(b)# 21# 23# 31.1# 31.2# 32.1# 32.2# 101# Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends for years ended December 31, 2014, 2013, 2012, 2011, and 2010 Subsidiaries of TCF Financial Corporation (as of December 31, 2014) Consent of KPMG LLP dated February 23, 2015 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 Financial statements from the Annual Report on Form 10-K of the Company for the year ended December 31, 2014, formatted in XBRL: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements * # Executive Contract Filed herein 113 Corporate Information 2014 Annual Report A-1 A-1 Board of Directors William A. Cooper 5 Chairman of the Board and Chief Executive Offi cer Raymond L. Barton 2,5,6,7 Chairman, Great Clips, Inc. Chairman since 1987 Director since 2011 Peter Bell 3,4,6,7 Former Chair, Metropolitan Council Director since 2009 William F. Bieber 1,3,4,5,6,7 Chairman, ATEK Companies, Inc. Director since 1997 Theodore J. Bigos 1,4,6,7 Owner, Bigos Management, Inc. Thomas A. Cusick 2,5,6,7,8 Retired Vice Chairman, TCF Financial Corporation Craig R. Dahl 8 Vice Chairman and Executive Vice President Karen L. Grandstrand 1,2,4,5,6,7 Partner, Fredrikson & Byron P.A. Director since 2008 Director since 1988 Director since 2012 Director since 2010 Thomas F. Jasper Vice Chairman and Executive Vice President Director since 2012 George G. Johnson 2,3,6,7 CPA/Managing Director, George Johnson & Company and George Johnson Consultants Richard H. King 2,6,7,8 Vice President and Chief Operating Offi cer, Technology, Thomson Reuters Director since 1998 Director since 2014 Vance K. Opperman 1,2,4,5,6,7,8,9 President and Chief Executive Offi cer, Key Investment, Inc. Director since 2009 James M. Ramstad 3,6,7 Former United States Congressman Director since 2011 Roger J. Sit 2,6,7 Chief Executive Offi cer and Global Chief Investment Offi cer, Sit Investment Associates Director since 2015 Barry N. Winslow 6 Retired Vice Chairman, TCF Financial Corporation Richard A. Zona 1,2,4,5,6,7 Retired Vice Chairman, U.S. Bancorp Director since 2008 Director since 2011 1 Advisory Committee — TCF Employees Stock Purchase Plan 2 Audit Committee 3 BSA and Compliance Committee 4 Compensation, Nominating and Corporate Governance Committee 5 Executive Committee 6 Finance Committee 7 Risk Committee 8 Technology Committee 9 Lead Director A-2 TCF Financial Corporation and Subsidiaries Senior Offi cers TCF Financial Corporation Chairman of the Board and Chief Executive Offi cer William A. Cooper Vice Chairman and Executive Vice President Craig R. Dahl Vice Chairman and Executive Vice President Thomas F. Jasper Executive Vice President and Chief Financial Offi cer Michael S. Jones Chief Risk Offi cer James M. Costa Chief Credit Offi cer Mark A. Bagley Chief Audit Executive Offi cer Andrew J. Jackson Senior Vice Presidents Susan D. Bode Joseph T. Green Jason E. Korstange Brian W. Maass Tamara K. Schuette Barbara E. Shaw TCF National Bank Lending Vice Chairman and Executive Vice President Craig R. Dahl Vice Chairman and Executive Vice President Thomas F. Jasper Senior Vice President and Director of Talent Management Gloria J. Charley Retail Lending Managing Director Mark W. Rohde Executive Vice Presidents Robert J. Brueggeman Kevin Collier Joseph W. Doyle Claire M. Graupmann Scott L. Lane Matthew R. Wiley Senior Vice Presidents Bradley C. Barthels Patricia A. Buss Todd D. Crisman Rose M. Dickey Michael A. Dill Calvin E. Fuoss Daniel B. Hoffman Monica R. Husnik Matthew D. Krueger Sydney S. Libsack Vicki L. Makowka Jeffery D. Memeti Bjorn J. Peterson Carol B. Schirmers Thomas K. Torossian Katrina Williams Commercial Lending Managing Director James J. Urbanek President, TCF Capital Funding Joseph P. Gaffi gan Executive Vice Presidents Thomas R. Bobak William R. Patterson Guy J. Rau Senior Vice Presidents Jeffrey T. Doering Michael B. Hagen Thomas G. Karle James J. Kuncl David R. Larsen Mark I. Manbeck Russell P. McMinn Douglas A. Ortyn Mark R. Pietrowiak Janelle J. Rietz-Kamenar Michael Roidt Elisabeth A. Rojas Edward J. Ryczek Lisa M. Salazar Patrick P. Skiles TCF Equipment Finance President and Chief Executive Offi cer William S. Henak Executive Vice Presidents Lee A. Anderson Richard J. Chenitz Bradley C. Gunstad Gary A. Peterson Judy I. VanOsdel Senior Vice Presidents Gary W. Anderson Curtis D. Billmeyer Peter C. Darin James J. Filiatrault Thomas A. Greco James A. Groenewold Kyin Ong Lok Richard V. Pawlewicz Robert J. Stark Mark H. Valentine Jeffrey S. Wertz Winthrop Resources Corporation President Paul L. Gendler Senior Vice Presidents Gary W. Anderson Timothy A. Haugen Barbara E. King David F. Larson Abigail R. Nesbitt Jeffrey L. Ripperton Dean J. Stinchfi eld Bradley R. Swenson TCF Inventory Finance, Inc. President and Chief Executive Offi cer Rosario A. Perrelli Executive Vice Presidents Kevin L. Harrington Vincent E. Hillery Peter D. Kelley Christopher Meals Mark J. Wrend Senior Vice Presidents Thomas E. Evans Kevin O’Hara James S. Raymond Thomas L. Sorrentino Larry M. Tagli Dornett Y. Wright TCF Commercial Finance Canada, Inc. President Peter D. Kelley Gateway One Lending & Finance, LLC Chief Executive Offi cer G. Brian MacInnis President David G. MacInnis Chief Operating Offi cer Todd A. Pierson Chief Financial Offi cer Gerald A. Wilkins Chief Information Offi cer Martin F. Crowley Chief Credit Offi cer Charles Tocker Executive Vice President Andrew B. Sturm Senior Vice President Sydney B. Libsack Credit Administration Chief Credit Offi cer Mark A. Bagley Executive Vice President and Chief Lending Offi cer Mark D. Nyquist Senior Vice Presidents Barbara L. Buss Larry M. Czekaj Philip M. Gulan Robert A. Henry Trisha L. Karki Christine M. Van Wassenhove David J. Veurink Funding & Information Technology Vice Chairman and Executive Vice President Craig R. Dahl Vice Chairman and Executive Vice President Thomas F. Jasper Executive Vice Presidents Robert C. Borgstrom Luis J. Campos Timothy G. Doyle Mark W. Gault Michael J. Olson Senior Vice Presidents Beverly L. Burman Delia M. Conrad Kent J. Engler Brent L. Farka Christopher N. Germann Mark A. Goldman Traci R. Mikesell Jennifer K. Rohling Gregory A. Waltz Cathleen L. Wilkins Information Technology Executive Vice President Gregg R. Goudy Senior Vice Presidents Scott D. Dressler Richard J. Nelson Rodger R. Read Finance, Corporate Development & Administration Executive Vice President and Chief Financial Offi cer Michael S. Jones Executive Vice President, Corporate Controller Tamara K. Schuette Executive Vice President and Chief Accounting Offi cer Susan D. Bode Senior Vice President and Director of Talent Management Gloria J. Charley Executive Vice President and Treasurer Brian W. Maass Branch Banking Managing Director of Branch Banking Mark L. Jeter Managing Director of Customer Segments and Alternative Channels Geoffrey C. Thomas Executive Vice President, Corporate Operations Director James C. LaPlante Senior Vice Presidents Rion F. Cornell Brian P. Engels Thomas J. Gottwalt Anton J. Negrini Christy A. Powers Jason S. Sasanfar 2014 Annual Report A-3 Legal Executive Vice President, General Counsel and Secretary Joseph T. Green Executive Vice Presidents Bradley C. Gunstad Brian J. Hurd Senior Vice Presidents Sheri A. Ahl Gary L. Fineman Shelley A. Fitzmaurice Charles P. Hoffman, Jr. Kirk D. Johnson Gloria J. Karsky Jacqueline A. Layton Janella Jane Miller R. Elizabeth Topoluk Human Resources Executive Vice President and Corporate Human Resources Director Barbara E. Shaw Senior Vice Presidents Edward J. Gallagher Viane R. Hoefs Roger T. Sorensen Enterprise Risk Management Chief Risk Offi cer James M. Costa Executive Vice Presidents Douglass B. Hiatt Beatrice E. Lingen David M. Stautz Senior Vice Presidents Rita L. Carroll James C. Cummans James M. Dunne Phil B. Fandek Mark C. Grondahl Donald J. Hawkins Stephen A. Mancini Richard G. McNutt LaDonna C. Resch Timothy H. Rote Laura Santos William A. Sarvela Joseph R. Schneider Risk Control Services Chief Audit Executive Offi cer Andrew J. Jackson A-4 TCF Financial Corporation and Subsidiaries Offi ces (as of December 31, 2014) Stockholder Information Executive Offi ces Michigan 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 Minnesota/South Dakota Traditional Branches Minneapolis/St. Paul Area (43) Greater Minnesota (2) South Dakota (2) Supermarket Branches Minneapolis/St. Paul Area (48) Greater Minnesota (2) Campus Branches Minneapolis/St. Paul Area (2) Greater Minnesota (2) 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 (1) Winthrop Resources Corporation Headquarters 11100 Wayzata Boulevard Suite 800 Minnetonka, MN 55305 (952) 936-0226 Illinois/Wisconsin/Indiana TCF Inventory Finance, Inc. Traditional Branches Chicagoland (37) Milwaukee Area (11) Kenosha/Racine Area (6) Supermarket Branches Chicagoland (118) Milwaukee Area (7) Indiana (1) Campus Branches Chicagoland (2) Greater Illinois (1) Headquarters 1475 East Woodfi eld Road Suite 1100 Schaumburg, IL 60173 (877) 872-8234 Gateway One Lending and Finance, LLC Headquarters 160 North Riverview Drive, Suite 100 Anaheim, CA 92808 (888) 810-8860 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, 2014, TCF had approximately 167.5 million shares of common stock outstanding. Transfer Agent and Registrar Computershare Trust Company, N.A. P.O. Box 30170 College Station, TX 77842-3170 (800) 443-6852 www.computershare.com/investor Direct Stock Purchase and Dividend Reinvestment Plan TCF Financial Corporation 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 Trust Company, N.A. P.O. Box 30170 College Station, TX 77842-3170 (800) 443-6852 www.computershare.com/investor Stockholder Information 2014 Annual Report A-5 Stock Data Year 2014 Close High Low Dividends Paid Per Share Fourth Quarter $15.89 $16.12 $13.95 $0.05 Third Quarter Second Quarter First Quarter 2013 15.53 16.37 16.66 16.95 17.30 17.39 15.12 15.01 15.31 0.05 0.05 0.05 Fourth Quarter $16.25 $16.46 $14.29 $0.05 Third Quarter Second Quarter First Quarter 2012 14.28 14.18 14.96 16.68 15.32 15.04 13.69 13.49 12.39 0.05 0.05 0.05 Fourth Quarter $12.15 $12.49 $10.45 $0.05 Third Quarter Second Quarter First Quarter 2011 11.94 11.48 11.89 12.43 12.53 12.58 9.59 10.43 10.04 0.05 0.05 0.05 Fourth Quarter $10.32 $11.68 $ 8.61 $0.05 Third Quarter Second Quarter First Quarter 2010 9.16 13.80 15.86 14.37 16.04 17.37 8.66 13.37 14.60 0.05 0.05 0.05 Reconciliation of GAAP to Non-GAAP Financial Measures Return on Average Tangible Common Equity1 (Dollars in thousands) At or For the Year Ended December 31, 2013 2014 Net income available to common stockholders $ 154,799 $ 132,603 Other intangibles amortization, net of tax Adjusted net income available to common stockholders 1,062 1,479 $ 155,861 134,082 Average balances: Total equity Less: Non-controlling interest in subsidiaries Total TCF Financial Corporation stockholders’ equity Less: Preferred stock Goodwill Other intangibles $2,058,442 $1,912,622 17,014 16,491 2,041,428 1,896,131 263,240 263,240 225,640 225,640 5,498 7,418 Tangible average common equity $ 1,547,050 $1,399,833 Return on average tangible common equity 10.08% 9.58% Tangible Book Value Per Common Share1 (Dollars in thousands, except per-share data) 2014 2013 At December 31, Fourth Quarter $14.81 $16.63 $12.90 $0.05 Total equity Third Quarter Second Quarter First Quarter 16.19 16.61 15.94 17.66 18.89 16.83 13.87 14.95 13.40 0.05 0.05 0.05 For more historical information on TCF’s stock price and dividend, visit http://ir.tcfbank.com. Less: Non-controlling interest in subsidiaries Total TCF Financial Corporation stockholders’ equity Less: Preferred stock Goodwill Other intangibles $2,135,364 $1,964,759 13,715 11,791 2,121,649 1,952,968 263,240 263,240 225,640 225,640 4,641 6,326 Annual Meeting The Annual Meeting of Stockholders of TCF will be held on Wednesday, April 22, 2015, 4:00 p.m. CDT at the Marriott Minneapolis West, 9960 Wayzata Boulevard, St. Louis Park, Minnesota. Tangible common equity $1,628,128 $ 1,457,762 Common shares outstanding 167,461 165,122 Tangible book value per common share $ 9.72 $ 8.83 1 When evaluating capital adequacy and utilization, management considers fi nancial measures such as Return on Average Tangible Common Equity and Tangible Book Value Per Common Share. These measures are non- GAAP fi nancial 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. A-6 TCF Financial Corporation and Subsidiaries Investor/Analyst Contacts Credit Ratings Jason Korstange Senior Vice President Investor Relations (952) 745-2755 Justin Horstman Assistant Vice President Investor Relations (952) 745-2756 Media Contact Mark Goldman Senior Vice President Corporate Communications (952) 475-7050 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 fi lings. 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 Stock Price Performance (In Dollars) Standard & Poor’s Last Review October 2014 Outlook TCF Financial Corporation: Long-term Counterparty Short-term Counterparty TCF National Bank: Long-term Counterparty Short-term Counterparty Preferred Stock Subordinated Debt Stable BBB- A-3 BBB A-2 BB- BBB- Fitch Ratings Last Review January 2015 Outlook TCF Financial Corporation: Long-term IDR Short-term IDR TCF National Bank: Long-term IDR Short-term IDR Preferred Stock Subordinated Debt Stable BBB- F3 BBB- F3 B BB+ Moody’s Last Review November 2014 Outlook TCF National Bank: Long-term Issuer Long-term Deposits Short-term Deposits Bank Financial Strength Subordinated Debt 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 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 12-14 *Stock split adjusted For more historical information on TCF’s stock price and dividend, visit http://ir.tcfbank.com. Stable Baa1 Baa1 Prime-2 C- Baa2 $1.50 1.25 1.00 0.75 0.50 0.25 0.00 2014 Annual Report A-7 Mission TCF strives to consistently deliver superior performance by providing the essential means to enhance the rhythm of customers’ lives and help them achieve their goals. Unified by the passion to act as an ally of our customers, we lend prudently in diverse, niche segments and fund these assets through core deposits, both generated through a great customer experience within our communities. Vision We will be a sound, well-capitalized, principled bank that gathers core deposits and lends under the fundamental concept of diversification that enables us to consistently achieve superior returns for our employees, customers and stockholders. Values Lead with INTEGRITY Be NIMBLE Build RELATIONSHIPS Be PRUDENT Create OPPORTUNITIES Win as a PASSIONATE team TCF Financial Corporation 200 Lake Street East, Wayzata, MN 55391-1693 tcfbank.com TCFIR9359 

Continue reading text version or see original annual report in PDF format above