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Section 1: 10-K (10-K)

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2012

or

o 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

 

41-1591444

(State or other jurisdiction of
incorporation or organization)

 

(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)

 

(Name of each exchange on which registered)

Common Stock (par value $.01 per share)

 

New York Stock Exchange

Depositary Shares, each representing a 1/1000th interest in a share of 7.50% Series A Non-Cumulative Perpetual Preferred Stock

 

New York Stock Exchange

6.45% Series B Non-Cumulative Perpetual Preferred Stock

 

New York Stock Exchange

Warrants (expiring November 14, 2018)

 

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  x    No  o

 

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  o    No  x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

 

Accelerated filer   o

 

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company 

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes  o    No  x

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter as reported by the New York Stock Exchange, was $1,679,746,532.

 

As of February 15, 2013, there were 163,699,081 shares outstanding of the registrant’s common stock, par value $.01 per share, its only outstanding class of common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE

Specific portions of the Registrant’s definitive Proxy Statement for the 2013 Annual Meeting of Stockholders to be held on April 24, 2013 are incorporated by reference into Part III hereof.

 

 

 


 

Table of Contents

 

 

Description

Page

Part I

 

 

Item 1.

Business

1

Item 1A.

Risk Factors

7

Item 1B.

Unresolved Staff Comments

13

Item 2.

Properties

13

Item 3.

Legal Proceedings

13

Item 4.

Mine Safety Disclosures

14

 

 

 

Part II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

15

Item 6.

Selected Financial Data

18

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 8.

Financial Statements and Supplementary Data

53

 

Report of Independent Registered Public Accounting Firm

53

 

Consolidated Financial Statements

54

 

Notes to Consolidated Financial Statements

59

 

Other Financial Data

102

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

103

Item 9A.

Controls and Procedures

103

 

Management’s Report on Internal Control Over Financial Reporting

104

 

Report of Independent Registered Public Accounting Firm

105

Item 9B.

Other Information

106

 

 

 

Part III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

106

Item 11.

Executive Compensation

106

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

107

Item 13.

Certain Relationships and Related Transactions, and Director Independence

107

Item 14.

Principal Accountant Fees and Services

107

 

 

 

Part IV

 

 

Item 15.

Exhibits and Financial Statement Schedules

108

Signatures

 

109

Index to Exhibits

 

110


 

Part I

 

Item 1. Business

 

General

 

TCF Financial Corporation (“TCF” or the “Company”), a Delaware Corporation incorporated on April 28, 1987, is a national bank holding company based in Wayzata, Minnesota. Its principal subsidiary is TCF National Bank (“TCF Bank”), which is headquartered in Sioux Falls, South Dakota. TCF Bank operates bank branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota (TCF’s primary banking markets). TCF delivers retail banking products in over 30 states and commercial banking products in markets served by TCF Bank.  TCF also conducts commercial leasing and equipment finance business in all 50 states and, to a limited extent, in foreign countries, commercial inventory finance in the U.S. and Canada and, to a limited extent, in other foreign countries and indirect auto finance business in over 40 states.  TCF generated total revenue, defined as net interest income plus non-interest income, of $1.2 billion, $1.1 billion and $1.2 billion in the U.S. during 2012, 2011 and 2010, respectively.  International revenue during the same respective years was $21.3 million, $10.4 million and $4.3 million.

 

At December 31, 2012, TCF had total assets of $18.2 billion and was the 39th largest publicly traded bank holding company in the United States based on total assets as of September 30, 2012. Unless otherwise indicated, references herein to “TCF” include its direct and indirect subsidiaries.  References herein to the “Holding Company” or “TCF Financial” refer to TCF Financial Corporation on an unconsolidated basis.

 

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet specific needs of the largest consumer segments in the market. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week and on most holidays, extensive full-service supermarket branches, automated teller machine (“ATM”) networks and internet, mobile and telephone banking. TCF’s philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low or no interest-cost deposits. TCF’s growth strategies have included the development of new products and services, acquisitions and new branch expansion. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives.

 

TCF’s reportable segments are comprised of Lending, Funding and Support Services. Lending includes retail lending, commercial banking and the national lending businesses. TCF’s national lending businesses include leasing and equipment finance, inventory finance and auto finance. Funding includes branch banking and treasury services. Treasury services includes the Company’s investment and borrowing portfolios and management of capital, debt and market risks, including interest rate and liquidity risks. Support Services includes holding company and corporate functions that provide data processing, bank operations and other professional services to the operating segments. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis”) – Results of Operations – Reportable Segment Results” and Note 24 of Notes to Consolidated Financial Statements for information regarding revenue, income and assets for each of TCF’s reportable segments.

 

Lending

 

TCF’s lending strategy is to originate diversified portfolios of high credit quality, primarily secured, loans and leases.

 

Retail Lending  TCF makes consumer loans for personal, family or household purposes, such as home purchases, debt consolidation, financing of home improvements, autos, vacations and education. TCF’s retail lending origination activity primarily consists of consumer real estate secured lending. It also includes originating loans secured by personal property and, to a limited extent, unsecured personal loans. Consumer loans are made on a fixed-term basis or revolving line of credit. TCF does not have any consumer real estate subprime lending programs nor did it ever originate or purchase from brokers, 2/28 adjustable-rate mortgages (“ARM”) or option ARM loans. During 2012, TCF expanded its junior lien activity through the development of a national lending platform focused on junior lien loans to high credit quality customers.

 

Commercial Real Estate and Business Lending  Commercial real estate loans are loans originated by TCF that are secured by commercial real estate including retail centers, multi-family housing, office buildings and, to a lesser extent, commercial real estate construction loans, mainly to borrowers based in its primary banking markets.

 

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Commercial business loans are loans originated by TCF that are generally secured by various types of business assets including inventory, receivables, equipment or financial instruments. In limited cases, loans may be originated on an unsecured basis. Commercial business loans are used for a variety of purposes including working capital and financing the purchase of equipment. In 2012, TCF developed a capital funding business specializing in secured, asset-backed and cash flow lending to smaller middle-market companies in the United States.

 

TCF concentrates on originating commercial business loans to middle-market companies with borrowing requirements of less than $25 million. Approximately 85% of TCF’s commercial business loans outstanding at December 31, 2012, were to borrowers based in its primary banking markets.

 

Leasing and Equipment Finance  TCF provides a broad range of comprehensive lease and equipment finance products addressing the diverse financing needs of small to large companies. TCF’s leasing and equipment finance businesses, TCF Equipment Finance, Inc. (“TCF Equipment Finance”) and Winthrop Resources Corporation (“Winthrop”), finance equipment in all 50 states and, to a limited extent, in foreign countries. TCF Equipment Finance delivers equipment finance solutions primarily to small and mid-size companies in various industries with significant diversity in the types of underlying equipment. Winthrop focuses on providing customized lease financing to meet the special needs of mid-size and large companies and health care facilities that procure high-tech business essential equipment such as computers, servers, telecommunication and other technology equipment.

 

Inventory Finance  TCF Inventory Finance, Inc. (“Inventory Finance”) originates commercial variable-rate loans which are secured by the underlying floorplan equipment and supported by repurchase agreements from original equipment manufacturers. The operation focuses on establishing relationships with distributors, dealer buying groups and manufacturers, giving TCF access to thousands of independent retailers in the areas of powersports, lawn and garden, recreational vehicle, marine, electronics and appliance, and specialty vehicles. TCF Inventory Finance operates in the United States and Canada and, to a limited extent, in other foreign countries. TCF Inventory Finance’s portfolio outstandings are impacted by seasonal shipment and sales activities as dealers receive inventory shipments in anticipation of the upcoming selling season while carrying current season product. In 2009, TCF Inventory Finance formed a joint venture with The Toro Company (“Toro”) called Red Iron Acceptance, LLC (“Red Iron”). Red Iron provides U.S. distributors and dealers and select Canadian distributors of the Toro® and Exmark® brands with reliable, cost-effective sources of financing. TCF and Toro maintain a 55% and 45% ownership interest, respectively, in Red Iron.

 

Auto Finance  On November 30, 2011, TCF entered the indirect auto lending market through the acquisition of Gateway One Lending & Finance, LLC (“Gateway One”).  Headquartered in Anaheim, California, Gateway One originates and services loans on new and used autos to customers through relationships established with nearly 6,200 franchised and independent dealers in over 40 states. Gateway One’s business strategy is to maintain strong relationships with key personnel at the dealerships. These relationships are a significant driver in generating volume and executing a high-touch underwriting approach to minimize credit losses.

 

Funding

 

Branch Banking  Deposits from consumers and small businesses are a primary source of TCF’s funds for use in lending and for other general business purposes. Deposit inflows and outflows are significantly influenced by economic and competitive conditions, interest rates, market conditions and other factors. Consumer, small business and commercial deposits are attracted from within TCF’s primary banking markets through the offering of a broad selection of deposit products, including free checking accounts, money market accounts, regular savings accounts, certificates of deposit and retirement savings plans. TCF’s marketing strategy emphasizes attracting deposits, primarily in checking accounts, savings accounts and certificates of deposits. Such deposit accounts are a source of low cost funds and provide fee income, including banking fees and service charges.

 

At December 31, 2012, TCF had 428 branches, consisting of 192 traditional branches, 228 supermarket branches and 8 campus branches. TCF operates 194 branches in Illinois, 108 in Minnesota, 53 in Michigan, 36 in Colorado, 25 in Wisconsin, 7 in Arizona, 4 in Indiana and 1 in South Dakota. Of its 228 supermarket branches, TCF had 157 branches in SUPERVALU’s Jewel-Osco® stores at December 31, 2012.  See Item 1A. Risk Factors for additional information regarding the risks related to TCF’s supermarket branch relationships.

 

Campus banking represents an important part of TCF’s branch banking business. TCF has alliances with the University of Minnesota, the University of Michigan, the University of Illinois and two other universities. These alliances include exclusive marketing, naming rights and other agreements. Branches have been opened on many of the college campuses of these universities.

 

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TCF provides multi-purpose campus cards for many of these universities. These cards serve as a school identification card, ATM card, library card, security card, health care card, phone card and stored value card for vending machines or similar uses. As of April 2012, TCF was ranked the 5th largest in number of campus card banking relationships in the United States. At December 31, 2012, there were $284.5 million in campus deposits. TCF has a 25-year naming rights agreement with the University of Minnesota to sponsor its on-campus football stadium, “TCF Bank Stadium®,” which opened in 2009.

 

Non-interest income is a significant source of revenue for TCF and an important factor in TCF’s results of operations. Maintaining fee and service charge revenue has been challenging as a result of economic conditions, changing customer behavior and the impact of regulations.  Providing a wide range of branch banking services is an integral component of TCF’s business philosophy and a major strategy for generating additional non-interest income. TCF offers retail checking account customers low-cost, convenient access to funds at local merchants and ATMs through its debit card programs. TCF’s debit card programs are supported by interchange fees charged to retailers. Key drivers of banking fees and service charges are the number of deposit accounts and related transaction activity.

 

TCF’s card revenues have been impacted by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), which regulates debit-card interchange fees. The final rule, which became effective on October 1, 2011, sets a base interchange fee limit of 21 cents, plus a per transaction component of 5 basis points, and a one cent charge if issuers comply with certain fraud protection provisions. The impact of the rule resulted in a decrease in TCF’s card revenue of $43.2 million, or 45%, for the year ended December 31, 2012 compared with the year ended December 31, 2011. See “Item 7. Management’s Discussion and Analysis – Consolidated Income Statement Analysis – Non-Interest Income” for additional information.

 

Treasury Services  Treasury Services’ primary responsibility is management of liquidity, capital, interest rate risk, and portfolio investments and borrowings.  Treasury Services has authority to invest in various types of liquid assets including, but not limited to, United States Department of the Treasury (“U.S. Treasury”) obligations and securities of various federal agencies and U.S. Government sponsored enterprises, deposits of insured banks, bankers’ acceptances and federal funds. Treasury Services also has the authority to enter into wholesale borrowing transactions which may be used to compensate for reductions in deposit inflows or net deposit outflows, or to support lending, leasing and other expansion activities. These borrowings may include Federal Home Loan Bank (“FHLB”) advances, repurchase agreements, federal funds, and other permitted borrowings from credit worthy counterparties.

 

Information concerning TCF’s FHLB advances, repurchase agreements, federal funds and other borrowings is set forth in “Item 7. Management’s Discussion and Analysis – Consolidated Financial Condition Analysis – Borrowings” and in Notes 11 and 12 of Notes to Consolidated Financial Statements.

 

Support Services

 

TCF’s support services business segment consists of the holding company and corporate functions that provide data processing, bank operations and other professional services to the operating segments.

 

Other Information

 

Activities of Subsidiaries of TCF  TCF’s business operations include those conducted by direct and indirect subsidiaries of TCF Financial, all of which are consolidated for purposes of preparing TCF’s consolidated financial statements. TCF Bank’s subsidiaries principally engage in leasing and equipment finance, inventory finance and auto finance activities. See “Item 1. Business – Lending” for more information.

 

Competition  TCF competes with a number of depository institutions and financial service providers and experiences significant competition in attracting and retaining deposits and in lending funds. Direct competition for deposits comes primarily from banks, savings institutions, credit unions and investment banks. Additional significant competition for deposits comes from institutions selling money market mutual funds and corporate and government securities. TCF competes for the origination of loans with banks, mortgage bankers, mortgage brokers, consumer, and commercial finance companies, credit unions, insurance companies and savings institutions. TCF also competes nationwide with other companies and banks in the financing of equipment, inventory and automobiles and leasing of equipment. Expanded use of the Internet has increased competition affecting TCF and its loan, lease and deposit products.

 

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Employees  As of December 31, 2012, TCF had 7,328 employees, including 2,175 part-time employees. TCF provides its employees with comprehensive benefits, some of which are provided on a contributory basis, including medical and dental plans, a 401(k) savings plan with a company matching contribution, life insurance and short- and long-term disability coverage.

 

Regulation

 

The banking industry is subject to extensive regulatory oversight. TCF Financial, as a publicly held bank holding company, and TCF Bank, which has deposits insured by the Federal Deposit Insurance Corporation (“FDIC”), are subject to a number of laws and regulations. Many of these laws and regulations have undergone significant change in recent years. These laws and regulations impose restrictions on activities, minimum capital requirements, lending and deposit restrictions and numerous other requirements. TCF Financial’s primary regulator is the Federal Reserve and TCF Bank’s primary regulator is the Office of the Comptroller of the Currency (“OCC”).

 

Regulatory Capital Requirements  TCF Financial and TCF Bank are subject to regulatory capital requirements of the Federal Reserve and the OCC, respectively, as described below. These regulatory agencies are required by law to take prompt action when institutions are viewed to be unsafe or unsound or do not meet certain minimum capital standards. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) defines five levels of capital condition, the highest of which is “well-capitalized.” It requires that undercapitalized institutions be subjected to various restrictions such as limitations on dividends or other capital distributions, limitations on growth or restrictions on activities. Undercapitalized banks must develop a capital restoration plan and the parent bank holding company is required to guarantee compliance with the plan. TCF and TCF Bank are “well-capitalized” under the FDICIA capital standards.

 

Additionally, the Federal Reserve and the OCC have adopted rules that could permit them to quantify and account for interest-rate risk exposure and market risk from trading activity and to potentially reflect these risks in higher capital requirements. New legislation, additional rulemaking, or changes in regulatory policies may affect future regulatory capital requirements applicable to TCF Financial and TCF Bank.

 

Restrictions on Distributions  TCF Financial’s ability to pay dividends is subject to limitations imposed by the Federal Reserve. In general, Federal Reserve regulatory guidelines require the board of directors of a bank holding company to consider a number of factors when considering the payment of dividends, including the quality and level of current and future earnings.

 

Dividends or other capital distributions from TCF Bank to TCF Financial are an important source of funds to enable TCF Financial to pay dividends on its preferred and common stock, to pay TCF Financial’s obligations, or to meet other cash needs. The ability of TCF Financial and TCF Bank to pay dividends depends on regulatory policies and regulatory capital requirements and may be subject to regulatory approval.

 

In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained profits for the current year combined with its net retained profits for the preceding two calendar years without prior approval of the OCC. TCF Bank’s ability to make future capital distributions will depend on its earnings and ability to meet minimum regulatory capital requirements in effect during current and future periods. These capital adequacy standards may be higher in the future than existing minimum regulatory capital requirements, including the potential effects of any U.S. regulatory rule-making relating to the implementation of the capital and liquidity standards under Basel III, the international regulatory framework for banks. The OCC also has the authority to prohibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice.

 

In addition, income tax considerations may limit the ability of TCF Bank to make dividend payments in excess of its current and accumulated tax earnings and profits. Annual dividend distributions in excess of earnings and profits could result in a tax liability based on the amount of excess earnings distributed and current tax rates.

 

Regulation of TCF and Affiliates and Insider Transactions  TCF Financial is subject to Federal Reserve regulations, examinations and reporting requirements relating to bank holding companies. Subsidiaries of bank holding companies like TCF Bank are subject to certain restrictions in their dealings with holding company affiliates.

 

A holding company must serve as a source of strength for its subsidiary banks, and the Federal Reserve may require a holding company to contribute additional capital to an under-capitalized subsidiary bank. In addition, the OCC may assess TCF Financial if it believes the capital of TCF Bank has become impaired. If TCF Financial were to fail to pay such an assessment within three months, the Board of Directors must cause the sale of TCF Bank’s stock to cover a deficiency in the capital. In the event of a

 

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bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors.

 

Under the Bank Holding Company Act of 1956 (“BHCA”), Federal Reserve approval is required before acquiring more than 5% control, or substantially all of the assets, of another bank, or bank holding company, or merging or consolidating with such a bank or bank holding company. The BHCA also generally prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, or conducting activities permitted by the Federal Reserve as being closely related to the business of banking. Further restrictions or limitations on acquisitions or establishing financial subsidiaries may also be imposed by TCF’s regulators or examiners.

 

Restrictions on Acquisitions and Changes in Control  Under federal law, interstate merger transactions may be approved by federal bank regulators without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle-Neal Interstate Banking and Branching Act of 1994 by adopting a law after the date of enactment of such act, and prior to June 1, 1997, which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches by banks are permitted if the law of the state in which the branches are located permits such acquisitions for a state bank chartered in such state. Interstate mergers and branch acquisitions may also be subject to certain nationwide and statewide insured deposit maximum concentration levels or other limitations. In addition, federal and state laws and regulations contain a number of provisions which impose restrictions on changes in control of financial institutions such as TCF Bank, and which require regulatory approval prior to any such changes in control.

 

Insurance of Accounts  As a result of the FDIC issuing a Final Rule implementing Section 343 of the Dodd-Frank Act in 2010, all non-interest bearing transaction accounts at all FDIC-insured institutions were fully insured through December 31, 2012, regardless of the balance of the account. The unlimited insurance coverage was available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage was separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution. Beginning January 1, 2013, non-interest bearing transaction accounts are not insured separately from a depositor’s other deposit accounts held at an FDIC-insured institution. Instead, non-interest bearing transaction accounts will be added to any of a depositor’s other deposit accounts and the aggregate balance insured up to at least the standard maximum deposit insurance amount of $250 thousand per depositor, at each separately chartered FDIC-insured institution.

 

On April 1, 2011, the FDIC adopted a final rule requiring changes in the FDIC insurance rate calculations for banks over $10 billion in total assets. Prior to the passage of the Dodd-Frank Act, FDIC insurance premiums were assessed as a percentage of insured deposits. Under Section 331 of the Dodd-Frank Act, the assessment base is now defined as average total assets minus average tangible equity. Thus, the new base contains liabilities that were not previously included in the calculation. In addition to risk-based deposit insurance premiums, additional assessments may be imposed by the Financing Corporation, a separate U.S. government agency affiliated with the FDIC, on certain insured deposits to pay for the interest cost of Financing Corporation bonds. The Financing Corporation annual assessment rate for 2012 was 66 cents for each $100 of deposits. Financing Corporation assessments of $1.1 million, $1.2 million and $1.2 million were paid by TCF Bank in 2012, 2011 and 2010, respectively.

 

The Dodd-Frank Act gave the FDIC much greater discretion to manage the Deposit Insurance Fund (“DIF”).  Among other things, The Dodd-Frank Act: (1) raised the minimum designated reserve ratio (“DRR”) from 1.15% to 1.35% and removed the upper limit on the DRR; (2) requires the DIF to reach 1.35% by September 30, 2020; (3) requires that in setting assessments the FDIC offset the effect of the DRR reaching 1.35% by September 30, 2020, rather than 1.15% by the end of 2016, on insured depository institutions with total consolidated assets of less than $10 billion; (4) eliminated the requirement that the FDIC pay dividends from the fund when the DRR is between 1.35% and 1.5%; and (5) continued the FDIC’s authority to declare dividends when the DRR at the end of a calendar year is at least 1.5%.  On December 15, 2010, the FDIC set the DRR at 2.0% and it has not changed since that time.

 

The Dodd-Frank Act requires that, for at least five years, the FDIC must make available to the public the reserve ratio using both estimated insured deposits and the new assessment base. As of September 30, 2012, the DIF ratio calculated by the FDIC using estimated insured deposits was .35%. The DIF reserve ratio would have been .21% using the new assessment base. In 2012, the

 

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annual insurance premiums on bank deposits insured by the DIF with at least $10 billion in total assets ranged from 2.5 cents to 45 cents per $100 of deposits.

 

Examinations and Regulatory Sanctions  TCF is subject to periodic examination by the Federal Reserve, the OCC, the Consumer Financial Protection Bureau (the “CFPB”) and the FDIC. Bank regulatory authorities may impose a number of restrictions or new requirements on institutions, including, but not limited to, growth limitations, dividend restrictions, increased regulatory capital requirements, increased loan, lease and real estate loss reserve requirements, increased supervisory assessments, activity limitations or other restrictions that could have an adverse effect on such institutions, their holding companies or holders of their debt and equity securities. Certain enforcement actions may not be publicly disclosed by TCF or its regulatory authorities. Various enforcement remedies, including civil money penalties, may be assessed against an institution or an institution’s directors, officers, employees, agents or independent contractors. Under the Bank Secrecy Act of 1970 (the “BSA” or “Bank Secrecy Act”), the OCC is obligated to take enforcement action where it finds a statutory or regulatory violation that would constitute a program violation.

 

In its 2009 examinations of TCF’s compliance with the BSA, the OCC identified instances of non-compliance that constitute a program violation. On July 20, 2010, TCF Bank agreed to the issuance of a Consent Order (the “Order”) by the OCC, TCF Bank’s primary banking regulator, addressing certain matters related to the BSA. The Order required TCF Bank to address deficiencies in TCF Bank’s BSA program identified by the OCC, including review and revision of TCF Bank’s BSA risk assessment, BSA Compliance Program, and Suspicious Activity Report filing procedures and processes. The OCC did not identify any systemic undetected criminal activity or money laundering. TCF Bank was also required to address the performance of appropriate due diligence when an account is opened, and to review transactions since November 2008 for compliance. On January 25, 2013, TCF entered into a settlement agreement with the OCC related to this review.  Pursuant to this agreement, TCF agreed to pay a $10 million civil money penalty. TCF Bank is implementing or has implemented corrective action for each deficiency and expects to satisfy all of the requirements of the Order in a timely fashion.

 

Subsidiaries of TCF Bank may also be subject to state and/or self-regulatory organization licensing, regulation and 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 and by rules of the OCC. Non-traditional bank activities permitted by the Gramm-Leach-Bliley Act of 1999 will subject a bank to additional regulatory limitations or requirements, including a required regulatory capital deduction and application of transactions with affiliates limitations in connection with such activities.

 

Dodd-Frank Wall Street Reform and Consumer Protection Act  Congress enacted the Dodd-Frank Act in July 2010. The Dodd-Frank Act created the CFPB and gave it broad rulemaking authority to administer and carry out the purposes and objectives of the federal consumer financial laws, with respect to all financial institutions that offer financial products and services to consumers. The CFPB is authorized to make rules identifying and prohibiting acts or practices that are unfair, deceptive or abusive in connection with any consumer financial product or service. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets, including TCF Bank.

 

Additionally, the Dodd-Frank Act:

 

· Directed the Federal Reserve to issue rules limiting debit-card interchange fees for larger banks;

 

· Removed, after a three-year phase-in period which began January 1, 2013, trust preferred securities as a permitted component of a bank holding company’s Tier 1 capital;

 

· Eliminated federal preemption for subsidiaries of national banks and federal savings associations;

 

· Provided for new disclosure and other requirements relating to executive compensation and corporate governance, including requiring an advisory vote on executive compensation (“Say on Pay”);

 

· Provided for mortgage reform addressing a customer’s ability to repay, restricted variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable rate loan, and made more loans subject to requirements for higher cost loans, new disclosures and certain other restrictions;

 

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· Permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008; and allowed depository institutions to pay interest on business checking accounts, and

 

· Required publicly-traded bank holding companies with assets of $10 billion or more to establish a risk committee of the Board of Directors responsible for enterprise-wide risk management practices.

 

Taxation

 

Federal Taxation  The statute of limitations applicable to TCF’s consolidated federal income tax returns is closed through 2008.

 

State Taxation  TCF and/or its subsidiaries currently file tax returns in all states which impose corporate income and franchise taxes and local tax returns in certain cities and other taxing jurisdictions. The methods of filing, and the methods for calculating taxable and apportionable income, vary depending upon the laws of the taxing jurisdiction. See “Item 1A. Risk Factors”.

 

See “Item 7. Management’s Discussion and Analysis Consolidated Income Statement Analysis Income Taxes” and Notes 1 and 13 of Notes to Consolidated Financial Statements for additional information regarding TCF’s income taxes.

 

Available Information

 

TCF’s website, http://ir.tcfbank.com, includes free access to Company news releases, investor presentations, conference calls to discuss published financial results, TCF’s Annual Report and periodic filings required by the United States Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after electronic filing of such material with, or furnishing it to, the SEC. TCF’s Compensation/Nominating/Corporate Governance Committee and Audit Committee charters, Corporate Governance Guidelines, Codes of Ethics and changes to Codes of Ethics and information on all of TCF’s securities are also available on this website. Stockholders may request these documents in print free of charge by contacting the Corporate Secretary at TCF Financial Corporation, 200 Lake Street East, Mail Code EX0-03-A, Wayzata, MN 55391-1693.

 

Item 1A. Risk Factors

 

Various risks and uncertainties may affect TCF’s business.  Any of the risks described below or elsewhere in this Annual Report on Form 10-K or TCF’s other SEC filings may have a material impact on TCF’s financial condition or results of operations.

 

TCF’s earnings are significantly affected by general economic and political conditions.

 

TCF’s operations and profitability are impacted by general business and economic conditions in the local markets in which TCF operates, the U.S. generally and abroad.  Economic conditions have a significant impact on the demand for TCF’s products and services, as well as the ability of its customers to repay loans, the value of the collateral securing loans, the stability of its deposit funding sources and sales revenue at the end of contractual lease terms.  A significant decline in general economic conditions caused by inflation, recession, unemployment, changes in securities markets, changes in housing market prices or other factors could impact economic conditions and, in turn, could have a material adverse effect on TCF’s financial condition and results of operations.

 

Additionally, adverse economic conditions may result in a decline in demand for some types of equipment that TCF leases or finances, which could result in a decline in the amount of new equipment being placed in service, as well as declines in equipment values for equipment already in service.  Adverse economic conditions may also hinder TCF from expanding the inventory or auto finance businesses by limiting its ability to attract and retain manufacturers and dealers as expected.  Any such difficulties in TCF’s equipment, inventory and auto finance businesses could have a material adverse effect on its financial condition and results of operations.

 

TCF is subject to interest rate risk.

 

TCF’s earnings and cash flows largely depend upon its net interest income.  Interest rates are highly sensitive to many factors that are beyond TCF’s control, including general economic conditions and policies of various governmental and regulatory agencies, including the Federal Reserve.  Changes in monetary policy, including changes in interest rates, could influence not only the interest TCF receives on loans and other investments and the amount of interest TCF pays on deposits and other borrowings, but such changes could also affect: (i) TCF’s ability to originate loans and obtain deposits; (ii) the fair value of TCF’s financial assets and liabilities; and (iii) the average duration of TCF’s interest-earning assets.  If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, then TCF’s

 

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net interest income and earnings could be adversely affected.  Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.  Although management believes it has implemented effective asset and liability management strategies, any substantial, unexpected and prolonged change in market interest rates could have a material adverse effect on its financial condition and results of operations.

 

An inability to obtain needed liquidity could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF’s liquidity could be limited by an inability to access the capital markets or unforeseen outflows of cash, which could arise due to circumstances outside of its control, such as a general market disruption or an operational problem that affects TCF or third parties.  TCF’s credit rating is important to its liquidity.  A further reduction or anticipated reduction in TCF’s credit ratings could adversely affect the ability of TCF Bank and its subsidiaries to lend and its liquidity and competitive position, increase its borrowing costs, limit its access to the capital markets or trigger unfavorable contractual obligations.  An inability to meet its funding needs on a timely basis could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF Financial relies on dividends from TCF Bank for most of its liquidity.

 

TCF Financial is a separate and distinct legal entity from its banking and other subsidiaries.  A substantial portion of TCF Financial’s liquidity comes from dividends from TCF Bank.  These dividends, which are limited by various federal and state regulations, are the principal source of funds to pay dividends on its preferred and common stock and to meet its other cash needs.  In the event TCF Bank is unable to pay dividends to it, TCF Financial may not be able to pay dividends or other obligations, which would have a material adverse effect on TCF’s financial condition and results of operations.

 

Loss of customer deposits could increase TCF’s funding costs.

 

TCF relies on bank deposits to be a low cost and stable source of funding.  TCF competes with banks and other financial institutions for deposits.  If TCF’s competitors raise the rates they pay on deposits, TCF’s funding costs may increase through either a loss of deposits or an increase in rates paid by TCF to avoid losing deposits.  Increased funding costs could reduce TCF’s net interest margin and net interest income, which could have a material adverse effect on TCF’s financial condition and results of operations.

 

The soundness of other financial institutions could adversely affect TCF.

 

TCF’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.  TCF routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks and other institutional clients.  As a result, defaults by, or even rumors regarding, any financial institutions, or the financial services industry generally, could lead to losses or defaults by TCF or a counterparty.  Many of these transactions expose TCF to credit risk in the event of default of the counterparty or client.  In addition, TCF’s credit risk may be exacerbated when the collateral held by TCF cannot be realized or is liquidated at prices not sufficient to recover the full amount of the financial exposure.  Any such losses could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF relies on its systems and counterparties, and any failures could have a material adverse effect on its financial condition and results of operations.

 

TCF settles funds on behalf of financial institutions, other businesses and consumers and receives funds from payment networks, consumers and other paying agents. TCF’s businesses depend on their ability to process, record and monitor a large number of complex transactions.  If any of TCF’s financial, accounting or other data processing systems fail or if personal information of TCF’s customers or clients were mishandled or misused (whether by employees or counterparties), TCF could suffer regulatory consequences, reputational damage and financial losses, any of which could have a material adverse effect on its financial condition and results of operations.

 

Additionally, TCF may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, for example, computer viruses, electrical or telecommunications outages, natural disasters, terrorist acts or other damage to property or physical assets.  Such disruptions may give rise to loss of services to customers and loss or liability to TCF.  Any system failure could have a material adverse effect on TCF’s financial condition and results of operations.

 

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TCF faces cyber-security and other external risks, including “denial of service,” “hacking” and “identity theft,” that could adversely affect TCF’s reputation and could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF’s computer systems and network infrastructure present security risks, and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft.  For example, in October 2012, a hacker group launched a denial of service attack against a number of large financial services institutions.  Hacking and identity theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving and TCF may not be able to anticipate or prevent all such attacks. While TCF has not experienced a material cyber-security breach, TCF experiences periodic threats to its data and systems, including malware and computer virus attacks, attempted unauthorized access of accounts, and attempts to disrupt our systems.  TCF may incur increasing costs in an effort to minimize these risks, could be held liable for, and could suffer reputational damage as a result of, any security breach or loss.

 

The success of TCF’s supermarket branches depends on the continued long-term success and viability of TCF’s supermarket partners and TCF’s ability to maintain licenses or lease agreements for its supermarket locations.

 

A significant financial decline or change in ownership involving one of TCF’s supermarket partners, including SUPERVALU Inc., which accounts for over 95% of TCF’s supermarket branches, could result in the loss of supermarket branches or could increase costs to operate the supermarket branches.  At December 31, 2012, TCF had 228 supermarket branches.  Supermarket banking continues to play an important role in TCF’s growth, as these branches have been consistent generators of account growth and deposits.  TCF is subject to the risk, among others, that its license or lease for a location or locations will terminate upon the sale or closure of that location or locations by the supermarket partner, especially in light of SUPERVALU’s announcement on January 10, 2013 that it had entered into an agreement to sell several of its supermarket chains, including Jewel-Osco®; in which TCF has 157 branches.  Also, continued difficult economic conditions, or financial or labor difficulties in the supermarket industry, may reduce activity in TCF’s supermarket branches.  As a result, continued economic difficulties for SUPERVALU or any of TCF’s other supermarket partners, or uncertainties relating to the sale of the Jewel-Osco chain, could have a material adverse effect on TCF’s financial condition and results of operations.

 

New lines of business or new products and services may subject TCF to additional risk.

 

From time to time, TCF may implement new lines of business or offer new products and services within existing lines of business.  There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.  In developing and marketing new lines of business and new products or services, TCF may invest significant time and resources.  Initial timetables for the introduction and development of new lines of business and new products or services may not be achieved and price and profitability targets may not prove feasible.  External factors, such as compliance with regulations, competitive alternatives and shifting market preferences may also impact the successful implementation of a new line of business or a new product or service.  Furthermore, any new line of business or new product or service could have a significant impact on the effectiveness of TCF’s system of internal controls.  Failure to successfully manage these risks in the development and implementation of new lines of business and new products or services could have a material adverse effect on TCF’s financial condition and results of operations.

 

Increased competition in the already highly competitive financial services industry could have a material adverse effect on TCF’s financial condition and results of operations.

 

The financial services industry is highly competitive and could become even more competitive as a result of legislative, regulatory and technological changes, as well as continued industry consolidation, which may increase in connection with current economic and market conditions.  TCF competes with other commercial banks, savings and loan associations, mutual savings banks, finance companies, mortgage banking companies, credit unions and investment companies.  In addition, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally only provided by banks.  Some of TCF’s competitors have fewer regulatory constraints or lower cost structures.  Also, the potential need to adapt to industry changes in information technology systems, on which TCF and the financial services industry generally highly depend, could present operational issues and require considerable capital spending.  As a result, any increased competition in the already highly competitive financial services industry could have a material adverse effect on TCF’s financial condition and results of operations.

 

The allowance for loan and lease losses maintained by TCF may not be sufficient.

 

All borrowers have the potential to default, and TCF’s remedies may not fully satisfy the obligations owed to TCF.  TCF maintains an allowance for loan and lease losses, which is a reserve established through a provision for loan and lease losses charged to expense, which represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans and leases.  The level of the allowance for loan and lease losses reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic,

 

9


 

political and regulatory conditions and unidentified losses in the current loan portfolio.  The determination of the appropriate level of the allowance for loan and lease losses involves a high degree of subjectivity and requires management to make significant estimates of current credit risks using qualitative and quantitative factors, each of which is subject to significant change.  Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors may require an increase in the allowance for loan and lease losses.  In addition, bank regulatory agencies periodically review TCF’s allowance for loan and lease losses and may require an increase in the provision for loan and lease losses or the recognition of additional loan charge-offs, based on judgments different than those of management.  An increase in the allowance for loan and lease losses would result in a decrease in net income, and possibly risk-based capital, and could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF is subject to extensive government regulation and supervision.

 

TCF Financial, its subsidiary TCF Bank and certain indirect subsidiaries are subject to extensive federal and state regulation and supervision.  Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not stockholders.  These regulations affect TCF’s lending practices, capital structure, investment practices, dividend policy and growth, among other things.  Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes.  Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of such statutes, regulations or policies, could affect TCF in substantial and unpredictable ways.  Such changes could subject TCF to additional costs, limit the types of financial services and products it may offer or increase the ability of non-banks to offer competing financial services and products, among other things.  Additionally, while TCF has policies and procedures designed to prevent violations of the extensive federal and state regulations it is subject to, there can be no assurance that such violations will not occur, and failure to comply with these statutes, regulations or policies could result in sanctions against TCF by regulatory agencies, civil money penalties and reputational damage, any of which could have a material adverse effect on its financial condition and results of operations.

 

Further, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”), the Bank Secrecy Act and similar laws require financial institutions to develop programs to prevent them from being used for money laundering and terrorist activities.  If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network.  These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new accounts.  Failure to comply with these regulations could result in sanctions and possibly fines.  In the past, several financial institutions have received sanctions and some have incurred large fines for non-compliance.  On January 25, 2013, TCF entered into a settlement agreement with the OCC related to TCF’s past compliance with the Bank Secrecy Act of 1970 (“BSA” or the “Bank Secrecy Act”), pursuant to which TCF agreed to pay a $10 million civil money penalty. Violations of these regulations could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF’s earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

 

The policies of the Federal Reserve impact TCF significantly.  The Federal Reserve regulates the supply of money and credit in the U.S.  Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits, and also affect the value of financial instruments that TCF holds.  Those policies determine to a significant extent the cost of funds for lending and investing.  Changes in those policies are beyond TCF’s control and are difficult to predict.  Federal Reserve policies can also affect TCF’s borrowers, potentially increasing the risk that they may fail to repay their loans.  For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower’s products and services.  This could adversely affect the borrower’s earnings and ability to repay its loan.  As a result, changes to the fiscal and monetary policies by the Federal Reserve could have a material adverse effect on TCF’s financial condition and results of operations.

 

Proposed and future legislative and regulatory initiatives may substantially increase compliance burdens, which could have a material adverse effect on TCF’s financial condition and results of operations.

 

Future legislative and regulatory initiatives cannot be fully or accurately predicted.  Such proposals may impose more stringent standards than currently applicable or anticipated with respect to capital and liquidity requirements for depository institutions.    For example, Congress enacted the Dodd-Frank Act in July 2010.  Uncertainty remains as to many aspects of its ultimate impact, which could have a material adverse effect on the financial services industry as a whole and, specifically, on TCF’s financial condition and results of operations.

 

In addition, the Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”), which has examination and enforcement authority over TCF Bank and its subsidiaries, and gave it broad rulemaking authority to administer and carry out the purposes and objectives of the federal consumer financial laws with respect to all financial institutions that offer financial products and services to consumers.  The CFPB is authorized to make rules identifying and prohibiting acts or practices that are

 

10


 

unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.  The term “abusive” is new and untested, and TCF cannot predict how it will be enforced.

 

Based on the provisions of the Dodd-Frank Act and anticipated implementing regulations, it is highly likely that banks and bank holding companies will be subject to significantly increased regulation and compliance obligations that expose TCF to noncompliance risk and consequences, which could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF’s framework for managing risks may not be effective in mitigating risk and any resulting loss.

 

TCF’s risk management framework seeks to mitigate risk and any resulting loss.  TCF has established processes intended to identify, measure, monitor, report and analyze the types of risk to which TCF is subject, including liquidity, credit, market, interest rate, operational, legal and compliance and reputational risk.  However, as with any risk management framework, there are inherent limitations to TCF’s risk management strategies.  There may exist, or develop in the future, risks that TCF has not appropriately anticipated or identified.  Any future breakdowns in TCF’s risk management framework could have a material adverse effect on its financial condition and results of operations.

 

Failure to keep pace with technological change could adversely affect TCF’s business.

 

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.  TCF’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in its operations.  Many of TCF’s competitors have substantially greater resources to invest in technological improvements.  TCF may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.  Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on TCF’s financial condition and results of operations.

 

Financial institutions depend on the accuracy and completeness of information about customers and counterparties.

 

In deciding whether to extend credit or enter into other transactions, TCF may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information.  TCF may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information.  Reliance on inaccurate or misleading financial statements, credit reports or other financial information could cause TCF to enter into unfavorable transactions, which could have a material adverse effect on TCF’s financial condition and results of operations.

 

Failure to attract and retain key personnel could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF’s success depends to a large extent upon its ability to attract and retain key personnel.  The loss of key personnel could have a material adverse impact on TCF’s business because of their skills, market knowledge, industry experience and the difficulty of promptly finding a qualified replacement.  Additionally, portions of TCF’s business are relationship driven, and many of its key personnel have extensive customer relationships.  Loss of such key personnel to a competitor could result in the loss of some of TCF’s customers.  As a result, a failure to attract and retain key personnel could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF relies on other companies to provide key components of its business infrastructure.

 

Third party vendors provide key components of TCF’s business infrastructure, such as internet connections, network access and transaction and other processing services.  While TCF has selected these third party vendors carefully, it does not control their actions.  Any problems caused by these third parties, including as a result of inadequate or interrupted service, could adversely affect TCF’s ability to deliver products and services to its customers and otherwise to conduct its business.  Replacing these third party vendors could also entail significant delay and expense.

 

TCF’s internal controls may be ineffective.

 

Management regularly reviews and updates TCF’s internal controls, disclosure controls and procedures and corporate governance policies and procedures.  Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.  Any failure or circumvention of TCF’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on its financial condition and results of operations.

 

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Negative publicity could damage TCF’s reputation.

 

Reputation risk, or the risk to earnings and capital from negative public opinion, is inherent in TCF’s business.  Negative public opinion could adversely affect TCF’s ability to keep and attract employees and customers and expose it to adverse legal and regulatory consequences.  Negative public opinion could result from TCF’s actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, disclosure, sharing or inadequate protection of customer information or from actions taken by government regulators and community organizations in response to such conduct.  Because TCF conducts most of its businesses under the “TCF” brand, negative public opinion about one business could affect its other businesses.

 

Acquisitions may disrupt TCF’s business and dilute stockholder value.

 

TCF regularly evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with banks or other financial institutions.  As a result, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time.  TCF seeks merger or acquisition partners that are culturally similar, have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services.  Acquiring other banks, businesses or branches involves potential adverse impact to TCF’s results of operations and various other risks commonly associated with acquisitions, such as: difficulty in estimating the value of the target company; payment of a premium over book and market values that may dilute TCF’s tangible book value and earnings per share in the short- and long-term; potential exposure to unknown or contingent liabilities of the target company; exposure to potential asset quality issues of the target company; volatility in reported income as goodwill impairment losses could occur irregularly and in varying amounts; difficulty and expense of integrating the operations and personnel of the target company; inability to realize the expected revenue increases, cost savings, increases in geographic or product presence or other projected benefits; potential disruption to TCF’s business; potential diversion of TCF management’s time and attention; potential loss of key employees and customers of TCF or the target company; and potential changes in banking or tax laws or regulations that may affect the target company.

 

Consumers may decide not to use banks to complete their financial transactions.

 

Technology and other changes are allowing consumers to complete financial transactions through alternative methods that historically have involved banks.  For example, consumers can now maintain funds that would have previously been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards.  Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks.  The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.  The loss of these revenue streams and the loss of lower-cost deposits as a source of funds could have a material adverse effect on TCF’s financial condition and results of operations.

 

Changes in accounting policies or in accounting standards could materially affect how TCF reports its financial condition and results of operations.

 

TCF’s accounting policies are fundamental to the 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 and state income tax regulations, which often require interpretation due to their complexity. Changes in income tax regulations or in how the regulations are interpreted could have a material adverse effect on TCF’s results of operations. In the normal course of business, TCF is routinely subject to examinations and challenges from federal and state taxing authorities regarding the amount of taxes due in connection with investments TCF has made and the businesses in which it has engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions, or the allocation of income among

 

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tax jurisdictions. If any such challenges are made and are not resolved in TCF’s favor, they could have a material adverse effect on TCF’s financial condition and results of operations.

 

Additionally, if TCF’s Real Estate Investment Trust (“REIT”) affiliate fails to qualify as a REIT, or if states enact legislation taxing REITs or related entities, TCF’s tax expense would increase. TCF’s REIT and related companies must meet specific provisions of the Internal Revenue Code of 1986, as amended, and state tax laws. Use of REITs is and has been the subject of federal and state audits, litigation with state taxing authorities and tax policy debates by various state legislatures.

 

Significant legal actions could subject TCF to substantial uninsured liabilities.

 

TCF is subject to various claims related to its operations.  These claims and legal actions, including supervisory actions by its regulators, could involve large monetary claims or penalties, as well as significant defense costs.  To protect itself from the cost of these claims, TCF maintains insurance coverage in amounts and with deductibles that it believes are appropriate for its operations.  However, TCF’s insurance coverage only covers certain types of liability, and such insurance may not continue to be available to TCF at a reasonable cost, or at all.  As a result, TCF may be exposed to substantial uninsured liabilities, which could have a material adverse effect on TCF’s financial condition and results of operations.

 

In addition, customers may make claims and take legal action pertaining to the performance by TCF of its fiduciary responsibilities.  Whether customer claims and legal action related to the performance of TCF’s fiduciary responsibilities are founded or unfounded, such claims and legal actions may result in significant financial liability and could adversely affect the market perception of TCF and its products and services, as well as impact customer demand for those products and services.  Any financial liability or reputational damage could have a material adverse effect on TCF’s financial condition and results of operations.

 

TCF is subject to environmental liability risk associated with lending activities.

 

A significant portion of TCF’s loan portfolio is secured by real property.  In the ordinary course of business, TCF may foreclose on and take title to properties securing certain loans.  In doing so, there is a risk that hazardous or toxic substances could be found on these properties.  If hazardous or toxic substances are found, TCF may be liable for remediation costs, as well as for personal injury and property damage.  Environmental laws may require TCF to incur substantial expenses and may materially reduce the affected property’s value or limit TCF’s ability to use or sell the affected property.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase TCF’s exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on TCF’s financial condition and results of operations.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Offices  At December 31, 2012, TCF owned the buildings and land for 144 of its bank branch offices, owned the buildings but leased the land for 23 of its bank branch offices and leased or licensed the remaining 261 bank branch offices, all of which are functional and appropriately maintained and are utilized by both the Lending and Funding reportable segments. Bank branch properties owned by TCF had an aggregate net book value of approximately $274.6 million at December 31, 2012. At December 31, 2012, the aggregate net book value of leasehold improvements associated with leased bank branch office facilities was $17.7 million. In addition to the branch offices, TCF owned and leased other facilities with an aggregate net book value of $62.2 million at December 31, 2012. For more information on premises and equipment, see Note 8 of Notes to Consolidated Financial Statements.

 

Item 3. Legal Proceedings

 

From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations. TCF is, and expects to become, engaged in a number of foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to enforcement action by federal regulators, including the SEC, the Federal Reserve, the OCC and the CFPB. From time to time, borrowers and other customers, employees and former employees, have also brought actions against TCF, in some cases claiming substantial damages. Financial services companies are subject to the risk of class action litigation, and TCF is subject to such actions being brought against it from time to time. Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty, and therefore the ultimate resolution

 

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of a matter and the possible range of loss associated with certain potential outcomes cannot be established. Based on our current understanding of these pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of TCF.  TCF is also subject to regulatory examinations and TCF’s regulatory authorities may impose sanctions on TCF for a failure to maintain regulatory compliance. TCF Bank is currently subject to a Consent Order, dated July 20, 2010, with the OCC relating to identified instances of non-compliance with the Bank Secrecy Act of 1970 (“Bank Secrecy Act”) that constituted a program violation. On January 25, 2013, TCF entered into a settlement agreement with the OCC related to TCF’s past compliance with the Bank Secrecy Act, pursuant to which TCF agreed to pay a $10 million civil money penalty.  TCF Bank is implementing or has implemented corrective action for each deficiency and expects to satisfy all of the requirements of the Consent Order in a timely fashion.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

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Part II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

TCF’s common stock trades on the New York Stock Exchange under the symbol “TCB”. The following table sets forth the high and low prices and dividends declared for TCF’s common stock. The stock prices represent the high and low sale prices for TCF common stock on the New York Stock Exchange Composite Tape, as reported by Bloomberg.

 

As of January 31, 2013, there were 6,619 holders of record of TCF’s common stock.

 

 

High

 

Low

 

Dividends
Declared

 

2012

 

 

 

 

 

 

 

Fourth Quarter

 

$12.49

 

$10.45

 

$.05

 

Third Quarter

 

12.43

 

9.59

 

.05

 

Second Quarter

 

12.53

 

10.43

 

.05

 

First Quarter

 

12.58

 

10.04

 

.05

 

2011

 

 

 

 

 

 

 

Fourth Quarter

 

$11.68

 

$  8.61

 

$.05

 

Third Quarter

 

14.37

 

8.66

 

.05

 

Second Quarter

 

16.04

 

13.37

 

.05

 

First Quarter

 

17.37

 

14.60

 

.05

 

 

The Board of Directors of TCF Financial and TCF Bank have each adopted a Capital Plan and Dividend Policy. The policies define how enterprise risk related to capital will be managed, how the adequacy of capital will be measured and the process by which capital strategy, capital management and preferred and common stock dividend recommendations will be presented to TCF’s Board of Directors. TCF’s management is charged with ensuring that capital strategy actions, including the declaration of preferred and common stock dividends, are prudent, efficient and provide value to TCF’s stockholders, while ensuring that past and prospective earnings retention is consistent with TCF’s capital needs, asset quality, risk profile and overall financial condition. The Board of Directors intends to continue its practice of paying quarterly cash dividends on TCF’s common stock as justified by the financial condition of TCF. The declaration and amount of future dividends will depend on circumstances existing at the time, including TCF’s earnings, level of internally generated common capital excluding earnings, financial condition and capital requirements, the cash available to pay such dividends (derived mainly from dividends and distributions from TCF Bank), as well as regulatory and contractual limitations and such other factors as the Board of Directors may deem relevant. Also, dividends for the current dividend period on all outstanding shares of preferred stock must be declared and paid or declared and a sum sufficient for the payment thereof must be set aside before any dividend may be declared or paid on TCF’s common stock.  In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained profits for that year combined with its net retained profits for the preceding two calendar years without prior approval of the OCC.  Restrictions on the ability of TCF Bank to pay cash dividends or possible diminished earnings of TCF may limit the ability of TCF Financial to pay dividends in the future to holders of its preferred and common stock.  In addition, the ability of TCF Financial and TCF Bank to pay dividends depends on regulatory policies and capital requirements and may be subject to regulatory approval.  See “Item 1. Business – Regulation – Regulatory Capital Requirements”, “Item 1. Business – Regulation – Restrictions on Distributions” and Note 15 of Notes to Consolidated Financial Statements.

 

Total Return Performance

 

The following graph compares the cumulative total stockholder return on TCF common stock over the last five fiscal years with the cumulative total return of the Standard and Poor’s 500 Stock Index, the SNL All Bank and Thrift Index, and a TCF-selected group of peer institutions over the same period (assuming the investment of $100 in each index on December 31, 2007 and reinvestment of all dividends).

 

The TCF Peer Group consists of the publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of September 30, 2012, which is a change in the timing of the determination of the peer group from the Prior TCF Peer Group used in 2011, which measured assets as of December 31.  The TCF Peer Group and Prior TCF Peer Group are shown below for comparison purposes.

 

15


 

TCF Stock Performance Chart

 

 

 

 

Year Ending

 

Index

 

12/31/07

 

12/31/08

 

12/31/09

 

12/31/10

 

12/31/11

 

12/31/12

 

TCF Financial Corporation

 

100.00

 

80.97

 

83.12

 

91.56

 

64.76

 

77.67

 

SNL Bank and Thrift (1)

 

100.00

 

57.51

 

56.74

 

63.34

 

49.25

 

66.14

 

S&P 500 Index

 

100.00

 

63.00

 

79.67

 

91.68

 

93.61

 

108.59

 

TCF Peer Group (2)

 

100.00

 

91.46

 

84.07

 

93.37

 

78.97

 

89.72

 

Prior TCF Peer Group (3)

 

100.00

 

91.34

 

83.98

 

93.33

 

78.80

 

90.16

 

 

(1)     Includes all major exchange (NYSE, NYSE MKT, NASDAQ) banks and thrifts in SNL’s coverage universe (457 companies as of December 31, 2012).

(2)     The TCF Peer Group consists of the publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of September 30, 2012.  The TCF Peer Group includes: Associated Banc-Corp; Astoria Financial Corporation; BancorpSouth, Inc.; Bank of Hawaii Corporation; BankUnited, Inc.; BOK Financial Corporation; Cathay General Bancorp; Central Bancompany, Inc.; City National Corporation; Commerce Bancshares, Inc.; Cullen/Frost Bankers, Inc.; East West Bancorp, Inc.; EverBank Financial Corp; F.N.B. Corporation; First BanCorp.; First Citizens BancShares, Inc.; First Horizon National Corporation; First National of Nebraska, Inc.; First Niagara Financial Group, Inc.; First Republic Bank; FirstMerit Corporation; Flagstar Bancorp, Inc.; Fulton Financial Corporation; Hancock Holding Company; Hudson City Bancorp, Inc.; IBERIABANK Corporation; International Bancshares Corporation; Investors Bancorp, Inc. (MHC); New York Community Bancorp, Inc.; People’s United Financial, Inc.; Popular, Inc.; PrivateBancorp, Inc.; Prosperity Bancshares, Inc.; Signature Bank; Susquehanna Bancshares, Inc.; SVB Financial Group; Synovus Financial Corp.; TFS Financial Corporation (MHC); UMB Financial Corporation; Umpqua Holdings Corporation; Valley National Bancorp; Washington Federal, Inc.; Webster Financial Corporation; and Wintrust Financial Corporation.

(3)     The Prior TCF Peer Group would have consisted of the publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of December 31, 2012.  As compared to the current TCF Peer Group, the Prior TCF Peer Group would have excluded Central Bancompany, Inc., First Citizens BancShares, Inc., First National of Nebraska, Inc., and International Bancshares Corporation due to year-end financial data being unavailable for these institutions and would have included Texas Capital Bancshares, Inc. due to the company’s total assets exceeds $10 billion during the fourth quarter of 2012.

 

16


 

Repurchases of TCF Stock

 

The following table summarizes common stock share repurchase activity for the quarter ended December 31, 2012.

 

Period

 

Total Number
of Shares
Purchased

 

Average
Price Paid
Per Share

 

Total Number of Shares
Purchased as Part of
Publicly Announced Plan

 

Maximum Number of
Shares that May Yet be
Purchased Under the Plan

 

October 1 to October 31, 2012

 

 

 

 

 

 

 

 

 

Share repurchase program (1)

 

 

$       

 

 

5,384,130

 

Employee transactions (2)

 

4,938

 

$11.95

 

N.A.

 

N.A.

 

November 1 to November 30, 2012

 

 

 

 

 

 

 

 

 

Share repurchase program (1)

 

 

$       

 

 

5,384,130

 

Employee transactions (2)

 

 

$       

 

N.A.

 

N.A.

 

December 1 to December 31, 2012

 

 

 

 

 

 

 

 

 

Share repurchase program (1)

 

 

$       

 

 

5,384,130

 

Employee transactions (2)

 

 

$       

 

N.A.

 

N.A.

 

Total

 

 

 

 

 

 

 

 

 

Share repurchase program (1)

 

 

$       

 

 

5,384,130

 

Employee transactions (2)

 

4,938

 

$11.95

 

N.A.

 

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.

 

17


 

Item 6. Selected Financial Data

 

The selected five-year financial summary presented below should be read in conjunction with the Consolidated Financial Statements and related notes.  Historical data is not necessarily indicative of TCF’s future results of operations or financial condition.  See “Item 1A. Risk Factors.”

 

Five Year Financial Summary

Consolidated Income:

 

 

Year Ended December 31,

 

Compound Annual
Growth Rate

 

(Dollars in thousands, except per-share data)

 

2012

 

2011

 

2010

 

2009

 

2008

 

1-Year
2012/2011

 

5-Year
2012/2007

 

Total revenue

 

$ 1,270,442

 

$ 1,144,122

 

$ 1,237,187

 

$ 1,158,861

 

$ 1,092,108

 

11.0

%

3.1

%

Net interest income

 

$    780,019

 

$    699,688

 

$    699,202

 

$    633,006

 

$    593,673

 

11.5

 

7.2

 

Provision for credit losses

 

247,443

 

200,843

 

236,437

 

258,536

 

192,045

 

23.2

 

34.1

 

Fees and other revenue

 

388,191

 

437,171

 

508,862

 

496,468

 

474,061

 

(11.2

)

(4.6

)

Gains on securities, net

 

102,232

 

7,263

 

29,123

 

29,387

 

16,066

 

N.M.

 

50.4

 

Visa share redemption

 

 

 

 

 

8,308

 

N.M.

 

N.M.

 

Non-interest expense

 

811,819

 

764,451

 

756,335

 

756,655

 

718,853

 

6.2

 

4.4

 

Loss on termination of debt

 

550,735

 

 

 

 

 

N.M.

 

N.M.

 

Total non-interest expense

 

1,362,554

 

764,451

 

756,335

 

756,655

 

718,853

 

78.2

 

15.8

 

(Loss) income before income tax (benefit) expense

 

(339,555

)

178,828

 

244,415

 

143,670

 

181,210

 

N.M.

 

(197.7

)

Income tax (benefit) expense

 

(132,858

)

64,441

 

90,171

 

49,811

 

68,096

 

N.M.

 

N.M.

 

Income (loss) attributable to non-controlling interest

 

6,187

 

4,993

 

3,297

 

(410

)

 

23.9

 

N.M.

 

Net (loss) income attributable to TCF Financial Corporation

 

(212,884

)

109,394

 

150,947

 

94,269

 

113,114

 

N.M.

 

(195.2

)

Preferred stock dividends

 

5,606

 

 

 

18,403

 

2,540

 

N.M.

 

N.M.

 

Net (loss) income available to common stockholders

 

$   (218,490

)

$    109,394

 

$    150,947

 

$      75,866

 

$    110,574

 

N.M.

 

(195.7

)

Per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$         (1.37

)

$            .71

 

$          1.08

 

$            .60

 

$            .88

 

N.M.

 

(191.6

)

Diluted earnings

 

$         (1.37

)

$            .71

 

$          1.08

 

$            .60

 

$            .88

 

N.M.

 

(191.6

)

Dividends declared

 

$            .20

 

$            .20

 

$            .20

 

$            .40

 

$          1.00

 

 

(27.1

)

 

Consolidated Financial Condition:

 

 

At December 31,

 

Compound Annual
Growth Rate

 

(Dollars in thousands, except per share data)

 

2012

 

2011

 

2010

 

2009

 

2008

 

1-Year
2012/2011

 

5-Year
2012/2007

 

Loans and leases

 

$ 15,425,724

 

$ 14,150,255

 

$ 14,788,304

 

$ 14,590,744

 

$ 13,345,889

 

9.0

%

4.3

%

Securities available for sale

 

712,091

 

2,324,038

 

1,931,174

 

1,910,476

 

1,966,104

 

(69.4

)

(18.4

)

Total assets

 

18,225,917

 

18,979,388

 

18,465,025

 

17,885,175

 

16,740,357

 

(4.0

)

2.7

 

Checking, savings and money market deposits

 

11,759,289

 

11,136,389

 

10,556,788

 

10,380,814

 

7,647,069

 

5.6

 

9.9

 

Certificates of deposit

 

2,291,497

 

1,065,615

 

1,028,327

 

1,187,505

 

2,596,283

 

115.0

 

.3

 

Total deposits

 

14,050,786

 

12,202,004

 

11,585,115

 

11,568,319

 

10,243,352

 

15.2

 

8.0

 

Borrowings

 

1,933,815

 

4,388,080

 

4,985,611

 

4,755,499

 

4,660,774

 

(55.9

)

(17.2

)

Equity

 

1,863,373

 

1,868,133

 

1,471,663

 

1,175,362

 

1,493,776

 

(.3

)

11.1

 

Book value per common share

 

9.79

 

11.65

 

10.30

 

9.10

 

8.99

 

(16.0

)

2.4

 

 

Financial Ratios:

 

 

At or For the Year Ended December 31,

 

 

 

2012 

 

2011

 

2010

 

2009

 

2008

 

Return on average assets

 

(1.14

)%

.61

%

.85

%

.54

%

.69

%

Return on average common equity

 

(13.33

)

6.32

 

10.67

 

6.57

 

10.03

 

Net interest margin (1)

 

4.65

 

3.99

 

4.15

 

3.87

 

3.91

 

Average total equity to average assets

 

9.66

 

9.24

 

7.83

 

7.20

 

7.04

 

 

(1)     Net interest income divided by average interest-earning assets.

 

Credit Quality Ratios:

 

 

At or For the Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

2009

 

2008

 

Non-accrual loans and leases to total loans and leases

 

2.46

%

2.11

%

2.33

%

2.03

%

1.29

%

Non-accrual loans and leases and other real estate owned to total loans and leases and other real estate owned

 

3.07

 

3.03

 

3.26

 

2.74

 

1.75

 

Allowance for loan and lease losses to total loans and leases

 

1.73

 

1.81

 

1.80

 

1.68

 

1.29

 

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

 

1.54

 

1.45

 

1.47

 

1.34

 

.78

 

 

N.M. Not Meaningful.

 

18

 


 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Table of Contents

Page

Overview

20

Results of Operations

21

Performance Summary

21

Reportable Segment Results

21

Consolidated Income Statement Analysis

22

Net Interest Income

22

Provision for Credit Losses

26

Non-Interest Income

27

Non-Interest Expense

28

Income Taxes

29

Consolidated Financial Condition Analysis

29

Securities Available for Sale

29

Loans and Leases

30

Credit Quality

33

Other Real Estate Owned and Repossessed and Returned Assets

42

Liquidity Management

42

Deposits

43

Borrowings

43

Contractual Obligations and Commitments

44

Capital Resources

45

Critical Accounting Policies

46

Recent Accounting Pronouncements

47

Legislative, Legal and Regulatory Developments

47

Forward-Looking Information

47

 

19


 

Management’s discussion and analysis of the consolidated financial condition and results of operations of TCF Financial Corporation should be read in conjunction with the Consolidated Financial Statements in Item 8 and Selected Financial Data in Item 6.

 

Overview

 

TCF Financial Corporation, a Delaware corporation (“TCF” or the “Company), is a national bank holding company based in Wayzata, Minnesota. Unless otherwise indicated, references herein to “TCF” include its direct and indirect subsidiaries.  Its principal subsidiary, TCF National Bank (“TCF Bank”), is headquartered in South Dakota. At December 31, 2012, TCF had 428 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, Indiana and South Dakota (TCF’s primary banking markets).

 

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the needs of the largest consumer segments in the market. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week and on most holidays, extensive full-service supermarket branches, automated teller machine (“ATM”) networks and internet, mobile and telephone banking. TCF’s philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low or no interest-cost deposits. The Company’s growth strategies include organic growth in existing businesses, the development of new products and services, new branch expansion and acquisitions. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. In 2012, TCF continued to focus on asset growth in its national lending businesses as it focused on making these businesses a more substantial part of its loan and lease portfolio. Additionally, TCF reintroduced free checking, bringing an increase in new account production and a decrease in account attrition.

 

Net interest income, the difference between interest income earned on loans and leases, securities available for sale, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 61.4% and 61.2% of TCF’s total revenue in 2012 and 2011, respectively. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings. TCF manages the risk of changes in interest rates on its net interest income through an Asset/Liability Management Committee and through related interest-rate risk monitoring and management policies. See “Item 1A. Risk Factors” and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” for further discussion.

 

Non-interest income is a significant source of revenue for TCF and an important factor in TCF’s results of operations. Increasing fee and service charge revenue has been challenging as a result of the slowing of the economy, changing customer behavior and the impact of the implementation of new regulations. Providing a wide range of retail banking services is an integral component of TCF’s business philosophy and a major strategy for generating non-interest income. Key drivers of bank fees and service charges are the number of deposit accounts and related transaction activity.

 

In 2011, TCF introduced a new anchor checking account that replaced its free checking product. This new anchor checking account required a monthly maintenance fee if specific requirements were not met by the customer.  After listening to customer feedback, in June 2012, TCF introduced TCF Free CheckingSM to focus on quality customer relationships. TCF Free Checking has no monthly maintenance fee and no minimum balance requirement.

 

TCF continues to be the 15th largest issuer of Visa® consumer debit cards in the United States, based on payment volumes for the three months ended September 30, 2012, as provided by Visa. TCF earns interchange revenue from customer card transactions paid primarily by merchants, not TCF’s customers. In October 2011, Section 1075 (commonly known as the “Durbin Amendment”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) went into effect, which reduced the amount of interchange revenue recognized on transaction activity. For 2012, the Durbin Amendment was in effect for the full year.

 

Over the years, TCF has diversified its revenue sources through the growth of its national lending businesses. These businesses generate a growing portion of fee revenue through leasing revenue, gain on sale of loans and other fees for value added services and products provided.

 

The following portions of Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis”) focus in more detail on the results of operations for 2012, 2011 and 2010 and on information about TCF’s balance sheet, loan and lease portfolio, liquidity, funding resources, capital and other matters.

 

20


 

Results of Operations

 

Performance Summary  TCF reported diluted loss per common share of $1.37 for 2012, compared with diluted earnings per common share of 71 cents for  2011 and $1.08 for 2010. TCF reported a net loss of $218.5 million for the year ended December 31, 2012, compared with net income of $109.4 million and $150.9 million for the years ended December 31, 2011 and 2010, respectively. TCF’s 2012 net loss included a net, after-tax charge of $295.8 million, or $1.87 per common share, related to the repositioning of TCF’s balance sheet completed in the first quarter of 2012.

 

On March 13, 2012, TCF announced the repositioning of its balance sheet by prepaying $3.6 billion of long-term debt and selling $1.9 billion of mortgage-backed securities, which resulted in a $119.9 million reduction to the cost of borrowings, partially offset by a $47.1 million reduction of interest income on lower levels of mortgage-backed securities for 2012. TCF’s long-term, fixed-rate debt was originated at market rates that prevailed prior to the 2008 economic crisis and were significantly above current market rates.  In addition, in late January 2012, the Federal Reserve forecasted interest rates to remain at historically low levels through at least 2014.  As a result, this action better positioned TCF for the current interest rate outlook while reducing interest rate risk.

 

The return on average assets was a negative 1.14% in 2012, compared with positive returns on average assets of .61% in 2011 and .85% in 2010.  The return on common equity was a negative 13.33% in 2012, compared with a positive return of 6.32% in 2011 and 10.67% in 2010.  The effective income tax rate for 2012 was 39.1%, compared with 36% in 2011 and 36.9% in 2010.

 

Reportable Segment Results

 

Lending  TCF’s lending strategy is to originate high credit quality, primarily secured, loans and leases.  The lending portfolio consists of retail lending, commercial banking and the national lending businesses. The national lending businesses are comprised of leasing and equipment finance, inventory finance and auto finance.  Lending’s consistent disciplined portfolio growth generates earning assets and, along with its fee generating capabilities, produces a significant portion of the Company’s revenue. Lending generated net income attributable to common stockholders of $30.9 million for 2012, compared with net income of $31.5 million in 2011.

 

Lending net interest income for 2012 was $524.4 million, up 11.5% from $470.2 million for 2011. This increase was primarily due to an increase in the average balances in the national lending businesses, partially offset by yield compression due to the continued low interest rate environment.

 

Lending provision for credit losses totaled $245.4 million in 2012, up 23.8% from $198.1 million for 2011. The increase was primarily due to the implementation of clarifying regulatory guidance on consumer loans and increased provision in the commercial portfolio as TCF aggressively addressed credit issues.  See Item 7. Management’s Discussion and Analysis – “Consolidated Income Statement Analysis – Provision for Credit Losses” section for further discussion.

 

Lending non-interest income totaled $138.5 million in 2012, up 36.8% from $101.2 million for 2011, primarily due to gains on sales of auto finance and consumer real estate loans. See Item 7. Management’s Discussion and Analysis – “Consolidated Income Statement Analysis – Non-Interest Income” for further discussion.

 

Lending non-interest expense totaled $367.2 million for 2012, up 15.3% from $318.4 million for 2011. The increase was primarily due to the full year impact of the acquisition and ramp-up of the recently acquired auto finance business as well as increased staffing levels to support the new Bombardier Recreational Products, Inc. (“BRP”) program in inventory finance.

 

Funding  TCF’s funding is primarily derived from branch banking, consumer and small business deposits, and treasury investments.  With a renewed focus on quality customer relationships through the introduction of TCF Free Checking, deposits provide a source of low-cost funds and fee income.  Borrowings may be used to offset reductions in deposits or to support expanded lending activities.  Funding reported a net loss of $239.1 million for 2012, compared with net income of $77.5 million in 2011. The net loss in 2012 was due to the balance sheet repositioning completed in the first quarter of 2012.

 

Funding net interest income for 2012 was $258.3 million, up 11.5% from $231.6 million in 2011 primarily related to the reduced costs of borrowings resulting from the balance sheet repositioning, partially offset by a reduction of interest income as a result of lower levels of mortgage backed securities.

 

21


 

Funding non-interest income totaled $338.9 million in 2012, down 6% from $360.6 million in 2011. The decrease was primarily due to lower banking fees and revenues related to changes in our deposit product fee structure and the full year effect of the new regulations limiting interchange fees associated with our debit card transactions.

 

Funding non-interest expense totaled $969.5 million in 2012, up from $463.8 million in 2011. The increase was primarily due to the loss on termination of debt of $550.7 million in the first quarter of 2012 in connection with the balance sheet repositioning.

 

Support Services  TCF’s Support Services segment consists of the holding company and corporate functions that provide data processing, bank operations and other professional services to the operating segments. Support Services reported a net loss attributable to common stockholders of $9.9 million and $4.6 million for 2012 and 2011, respectively.

 

Consolidated Income Statement Analysis

 

Net Interest Income  Net interest income, the difference between interest earned on loans and leases, investments and other interest-earning assets (interest income), and interest paid on deposits and borrowings (interest expense), represented 61.4% of TCF’s total revenue in 2012, 61.2% in 2011 and 56.5% in 2010. Net interest income divided by average interest-earning assets is referred to as the net interest margin, expressed as a percentage. Net interest income and net interest margin are affected by changes in prevailing short- and long-term interest rates, loan and deposit pricing strategies and competitive conditions, the volume and the mix of interest-earning assets and interest-bearing liabilities, the level of non-performing assets, and the impact of modified loans and leases.

 

22


 

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

 

Year Ended

 

 

 

 

 

December 31, 2012

 

December 31, 2011

 

Change

 

 

 

 

 

 

 

Yields

 

 

 

 

 

Yields

 

 

 

 

 

Yields and

 

 

 

Average

 

 

 

and

 

Average

 

 

 

and

 

Average

 

 

 

Rates

 

(Dollars in thousands)

 

Balance

 

Interest

 

Rates

 

Balance

 

Interest

 

Rates

 

Balance

 

Interest

 

(bps)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments and other

 

$    574,422

 

$  10,404

 

1.81

%

$     820,981

 

$   7,836

 

.95

%

$  (246,559

)

$   2,568

 

86

 

U.S. Government sponsored entities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities, fixed rate

 

1,055,868

 

35,143

 

3.33

 

2,198,188

 

85,138

 

3.87

 

(1,142,320

)

(49,995

)

(54

)

U.S. Treasury securities

 

 

 

 

48,178

 

34

 

.07

 

(48,178

)

(34

)

 

(7

)

Other securities

 

180

 

7

 

 

3.70

 

329

 

16

 

 

4.86

 

(149

)

(9

)

 

(116

)

Total securities available for sale (1)

 

1,056,048

 

35,150

 

 

3.33

 

2,246,695

 

85,188

 

 

3.79

 

(1,190,647

)

(50,038

)

 

(46

)

Loans and leases held for sale

 

46,201

 

3,689

 

 

7.98

 

1,215

 

131

 

 

10.78

 

44,986

 

3,558

 

 

(280

)

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

 

4,254,039

 

252,233

 

 

5.93

 

4,627,047

 

281,427

 

 

6.08

 

(373,008

)

(29,194

)

 

(15

)

Variable-rate

 

2,503,473

 

126,158

 

 

5.04

 

2,386,234

 

122,532

 

 

5.13

 

117,239

 

3,626

 

 

(9

)

Total consumer real estate

 

6,757,512

 

378,391

 

 

5.60

 

7,013,281

 

403,959

 

 

5.76

 

(255,769

)

(25,568

)

 

(16

)

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed- and adjustable-rate

 

2,691,004

 

149,793

 

 

5.57

 

2,854,327

 

164,368

 

 

5.76

 

(163,323

)

(14,575

)

 

(19

)

Variable-rate

 

794,214

 

30,653

 

 

3.86

 

710,758

 

30,742

 

 

4.33

 

83,456

 

(89

)

 

(47

)

Total commercial

 

3,485,218

 

180,446

 

 

5.18

 

3,565,085

 

195,110

 

 

5.47

 

(79,867

)

(14,664

)

 

(29

)

Leasing and equipment finance

 

3,155,946

 

170,991

 

 

5.42

 

3,074,207

 

184,575

 

 

6.00

 

81,739

 

(13,584

)

 

(58

)

Inventory finance

 

1,434,643

 

88,934

 

 

6.20

 

856,271

 

61,583

 

 

7.19

 

578,372

 

27,351

 

 

(99

)

Auto finance

 

296,083

 

17,949

 

 

6.06

 

363

 

13

 

 

3.31

 

295,720

 

17,936

 

 

275

 

Other

 

16,549

 

1,332

 

 

8.05

 

19,324

 

1,702

 

 

8.81

 

(2,775

)

(370

)

 

(76

)

Total loans and leases (2)

 

15,145,951

 

838,043

 

 

5.53

 

14,528,531

 

846,942

 

 

5.83

 

617,420

 

(8,899

)

 

(30

)

Total interest-earning assets

 

16,822,622

 

887,286

 

 

5.27

 

17,597,422

 

940,097

 

 

5.34

 

(774,800

)

(52,811

)

 

(7

)

Other assets(3)

 

1,233,042

 

 

 

 

 

 

 

1,194,550

 

 

 

 

 

 

 

38,492

 

 

 

 

 

 

 

Total assets

 

$18,055,664

 

 

 

 

 

 

 

$18,791,972

 

 

 

 

 

 

 

$  (736,308

)

 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$  1,311,561

 

 

 

 

 

 

$  1,414,659

 

 

 

 

 

 

$  (103,098

)

 

 

 

 

 

Small business

 

738,949

 

 

 

 

 

 

698,903

 

 

 

 

 

 

40,046

 

 

 

 

 

 

Commercial and custodial

 

317,432

 

 

 

 

 

 

 

291,986

 

 

 

 

 

 

 

25,446

 

 

 

 

 

 

 

Total non-interest bearing deposits

 

2,367,942

 

 

 

 

 

 

 

2,405,548

 

 

 

 

 

 

 

(37,606

)

 

 

 

 

 

 

Interest-bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

 

2,256,237

 

3,105

 

 

.14

 

2,114,098

 

4,451

 

 

.21

 

142,139

 

(1,346

)

 

(7

)

Savings

 

6,037,939

 

19,834

 

 

.33

 

5,671,889

 

28,942

 

 

.51

 

366,050

 

(9,108

)

 

(18

)

Money market

 

770,104

 

2,859

 

 

.37

 

658,693

 

2,951

 

 

.45

 

111,411

 

(92

)

 

(8

)

Subtotal

 

9,064,280

 

25,798

 

 

.28

 

8,444,680

 

36,344

 

 

.43

 

619,600

 

(10,546

)

 

(15

)

Certificates of deposit

 

1,727,859

 

15,189

 

 

.88

 

1,103,231

 

8,764

 

 

.79

 

624,628

 

6,425

 

 

9

 

Total interest-bearing deposits

 

10,792,139

 

40,987

 

 

.38

 

9,547,911

 

45,108

 

 

.47

 

1,244,228

 

(4,121

)

 

(9

)

Total deposits

 

13,160,081

 

40,987

 

 

.31

 

11,953,459

 

45,108

 

 

.38

 

1,206,622

 

(4,121

)

 

(7

)

Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

312,417

 

937

 

 

.30

 

49,442

 

171

 

 

.35

 

262,975

 

766

 

 

(5

)

Long-term borrowings

 

2,426,655

 

62,680

 

 

2.58

 

4,500,564

 

192,984

 

 

4.29

 

(2,073,909

)

(130,304

)

 

(171

)

Total borrowings

 

2,739,072

 

63,617

 

 

2.32

 

4,550,006

 

193,155

 

 

4.24

 

(1,810,934

)

(129,538

)

 

(192

)

Total interest-bearing liabilities

 

13,531,211

 

104,604

 

 

.77

 

14,097,917

 

238,263

 

 

1.69

 

(566,706

)

(133,659

)

 

(92

)

Total deposits and borrowings

 

15,899,153

 

104,604

 

 

.66

 

16,503,465

 

238,263

 

 

1.44

 

(604,312

)

(133,659

)

 

(78

)

Other liabilities

 

412,170

 

 

 

 

 

 

 

551,206

 

 

 

 

 

 

 

(139,036

)

 

 

 

 

 

 

Total liabilities

 

16,311,323

 

 

 

 

 

 

 

17,054,671

 

 

 

 

 

 

 

(743,348

)

 

 

 

 

 

 

Total TCF Financial Corp. stockholders’ equity

 

1,729,537

 

 

 

 

 

 

 

1,729,660

 

 

 

 

 

 

(123

)

 

 

 

 

 

Non-controlling interest in subsidiaries

 

14,804

 

 

 

 

 

 

 

7,641

 

 

 

 

 

 

 

7,163

 

 

 

 

 

 

 

Total equity

 

1,744,341

 

 

 

 

 

 

 

1,737,301

 

 

 

 

 

 

 

7,040

 

 

 

 

 

 

 

Total liabilities and equity

 

$18,055,664

 

 

 

 

 

 

 

$18,791,972

 

 

 

 

 

 

 

$  (736,308

)

 

 

 

 

 

 

Net interest income and margin

 

 

 

 

$782,682

 

 

4.65

%

 

 

$701,834

 

 

3.99

%

 

 

$  80,848

 

 

66

 

 

(1)  Average balances and yields of securities available for sale are based upon the historical amortized cost and exclude equity securities.

(2)  Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.

(3)  Includes operating leases.

 

23

 

 


 

 

 

Year Ended

 

Year Ended

 

 

 

 

 

December 31, 2011

 

December 31, 2010

 

Change

 

(Dollars in thousands)

 

Average
Balance

 

 

Interest

 

 

Yields
and
Rates

 

Average
Balance

 

 

Interest

 

 

Yields
and
Rates

 

Average
Balance

 

 

Interest

 

 

Yields
and
Rates
(bps)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments and other

 

$     820,981

 

 

$    7,836

 

 

.95

%

$     337,279

 

 

$    5,509

 

 

1.63

%

$483,702

 

 

$  2,327

 

 

(68

)

U.S. Government sponsored entities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities, fixed rate

 

2,198,188

 

 

85,138

 

 

3.87

 

1,817,413

 

 

80,332

 

 

4.42

 

380,775

 

 

4,806

 

 

(55

)

U.S. Treasury securities

 

48,178

 

 

34

 

 

.07

 

71,233

 

 

93

 

 

.13

 

(23,055

)

 

(59

)

 

(6

)

Other securities

 

329

 

 

16

 

 

4.86

 

454

 

 

20

 

 

4.41

 

(125

)

 

(4

)

 

45

 

Total securities available for sale (1)

 

2,246,695

 

 

85,188

 

 

3.79

 

1,889,100

 

 

80,445

 

 

4.26

 

357,595

 

 

4,743

 

 

(47

)

Loans and leases held for sale

 

1,215

 

 

131

 

 

10.78

 

 

 

 

 

 

1,215

 

 

131

 

 

1,078

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

 

4,627,047

 

 

281,427

 

 

6.08

 

5,082,487

 

 

313,573

 

 

6.17

 

(455,440

)

 

(32,146

)

 

(9

)

Variable-rate

 

2,386,234

 

 

122,532

 

 

5.13

 

2,148,171

 

 

116,436

 

 

5.42

 

238,063

 

 

6,096

 

 

(29

)

Total consumer real estate

 

7,013,281

 

 

403,959

 

 

5.76

 

7,230,658

 

 

430,009

 

 

5.95

 

(217,377

)

 

(26,050

)

 

(19

)

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed- and adjustable-rate

 

2,854,327

 

 

164,368

 

 

5.76

 

2,956,699

 

 

176,018

 

 

5.95

 

(102,372

)

 

(11,650

)

 

(19

)

Variable-rate

 

710,758

 

 

30,742

 

 

4.33

 

730,325

 

 

30,604

 

 

4.19

 

(19,567

)

 

138

 

 

14

 

Total commercial

 

3,565,085

 

 

195,110

 

 

5.47

 

3,687,024

 

 

206,622

 

 

5.60

 

(121,939

)

 

(11,512

)

 

(13

)

Leasing and equipment finance

 

3,074,207

 

 

184,575

 

 

6.00

 

3,056,006

 

 

196,570

 

 

6.43

 

18,201

 

 

(11,995

)

 

(43

)

Inventory finance

 

856,271

 

 

61,583

 

 

7.19

 

677,214

 

 

49,881

 

 

7.37

 

179,057

 

 

11,702

 

 

(18

)

Auto finance

 

363

 

 

13

 

 

3.31

 

 

 

 

 

 

363

 

 

13

 

 

331

 

Other

 

19,324

 

 

1,702

 

 

8.81

 

26,576

 

 

2,303

 

 

8.67

 

(7,252

)

 

(601

)

 

14

 

Total loans and leases (2)

 

14,528,531

 

 

846,942

 

 

5.83

 

14,677,478

 

 

885,385

 

 

6.03

 

(148,947

)

 

(38,443

)

 

(20

)

Total interest-earning assets

 

17,597,422

 

 

940,097

 

 

5.34

 

16,903,857

 

 

971,339

 

 

5.75

 

693,565

 

 

(31,242

)

 

(41

)

Other assets(3)

 

1,194,550

 

 

 

 

 

 

 

1,286,683

 

 

 

 

 

 

 

(92,133

)

 

 

 

 

 

 

Total assets

 

$18,791,972

 

 

 

 

 

 

 

$18,190,540

 

 

 

 

 

 

 

$601,432

 

 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$  1,414,659

 

 

 

 

 

 

 

$  1,429,436

 

 

 

 

 

 

 

$ (14,777

)

 

 

 

 

 

 

Small business

 

698,903

 

 

 

 

 

 

 

641,412

 

 

 

 

 

 

 

57,491

 

 

 

 

 

 

 

Commercial and custodial

 

291,986

 

 

 

 

 

 

 

284,750

 

 

 

 

 

 

 

7,236

 

 

 

 

 

 

 

Total non-interest bearing deposits

 

2,405,548

 

 

 

 

 

 

 

2,355,598

 

 

 

 

 

 

 

49,950

 

 

 

 

 

 

 

Interest-bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

 

2,114,098

 

 

4,451

 

 

.21

 

2,071,990

 

 

6,466

 

 

.31

 

42,108

 

 

(2,015

)

 

(10

)

Savings

 

5,671,889

 

 

28,942

 

 

.51

 

5,410,681

 

 

40,023

 

 

.74

 

261,208

 

 

(11,081

)

 

(23

)

Money market

 

658,693

 

 

2,951

 

 

.45

 

656,691

 

 

4,532

 

 

.69

 

2,002

 

 

(1,581

)

 

(24

)

Subtotal

 

8,444,680

 

 

36,344

 

 

.43

 

8,139,362

 

 

51,021

 

 

.63

 

305,318

 

 

(14,677

)

 

(20

)

Certificates of deposit

 

1,103,231

 

 

8,764

 

 

.79

 

1,054,179

 

 

10,208

 

 

.97

 

49,052

 

 

(1,444

)

 

(18

)

Total interest-bearing deposits

 

9,547,911

 

 

45,108