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Section 1: 10-Q (10-Q)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

June 30, 2013

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-10253

 

TCF FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

41-1591444

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

200 Lake Street East, Mail Code EX0-03-A,

Wayzata, Minnesota 55391-1693

(Address and Zip Code of principal executive offices)

 

(952) 745-2760

(Registrant’s telephone number, including area code)

 

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 [  ]

 

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 [  ]

 

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 the 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                  [   ]

Non-accelerated filer   [   ]  (Do not check if a smaller reporting company)

Smaller reporting company [   ]

 

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

 

Yes [   ]

 

 

No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at
July 23, 2013

Common Stock, $.01 par value

 

164,503,422 shares

 



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

Part I. Financial Information

 

Pages

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition at
June 30, 2013 and December 31, 2012

 

1

 

 

 

Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2013 and 2012

 

2

 

 

 

Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 2013 and 2012

 

3

 

 

 

Consolidated Statements of Equity for the
Six Months Ended June 30, 2013 and 2012

 

4

 

 

 

Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2013 and 2012

 

5

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

34

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

54

 

 

 

Item 4. Controls and Procedures

 

55

 

 

 

Part II. Other Information

 

 

 

 

 

Items 1-6

 

56

 

 

 

Signatures

 

58

 

 

 

Index to Exhibits

 

59

 



Table of Contents

 

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At June 30,

 

At December 31,

(Dollars in thousands, except per-share data)

 

2013

 

2012

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

1,132,436

 

$

1,100,347

 

Investments

 

118,918

 

120,867

 

Securities available for sale

 

620,260

 

712,091

 

Loans and leases held for sale

 

104,933

 

10,289

 

Loans and leases:

 

 

 

 

 

Consumer real estate

 

6,356,426

 

6,674,501

 

Commercial

 

3,350,334

 

3,405,235

 

Leasing and equipment finance

 

3,251,703

 

3,198,017

 

Inventory finance

 

1,713,528

 

1,567,214

 

Auto finance

 

882,202

 

552,833

 

Other

 

25,099

 

27,924

 

Total loans and leases

 

15,579,292

 

15,425,724

 

Allowance for loan and lease losses

 

(265,599

)

(267,128

)

Net loans and leases

 

15,313,693

 

15,158,596

 

Premises and equipment, net

 

439,048

 

440,466

 

Goodwill

 

225,640

 

225,640

 

Other assets

 

444,679

 

457,621

 

Total assets

 

$

18,399,607

 

$

18,225,917

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,931,189

 

$

4,834,632

 

Savings

 

6,101,642

 

6,104,104

 

Money market

 

810,249

 

820,553

 

Certificates of deposit

 

2,442,504

 

2,291,497

 

Total deposits

 

14,285,584

 

14,050,786

 

Short-term borrowings

 

3,030

 

2,619

 

Long-term borrowings

 

1,787,728

 

1,931,196

 

Total borrowings

 

1,790,758

 

1,933,815

 

Accrued expenses and other liabilities

 

417,084

 

364,673

 

Total liabilities

 

16,493,426

 

16,349,274

 

Equity:

 

 

 

 

 

Preferred stock, par value $.01 per share, 30,000,000 shares authorized; and 4,006,900 shares issued

 

263,240

 

263,240

 

Common stock, par value $.01 per share, 280,000,000 shares authorized; 164,453,669 and 163,428,763 shares issued, respectively

 

1,645

 

1,634

 

Additional paid-in capital

 

763,349

 

750,040

 

Retained earnings, subject to certain restrictions

 

920,894

 

877,445

 

Accumulated other comprehensive (loss) income

 

(18,333

)

12,443

 

Treasury stock at cost, 42,566 shares, and other

 

(41,276

)

(41,429

)

Total TCF Financial Corporation stockholders’ equity

 

1,889,519

 

1,863,373

 

Non-controlling interest in subsidiaries

 

16,662

 

13,270

 

Total equity

 

1,906,181

 

1,876,643

 

Total liabilities and equity

 

$

18,399,607

 

$

18,225,917

 

See accompanying notes to consolidated financial statements.

 

1



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In thousands, except per-share data)

 

2013

 

2012

 

2013

 

2012

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

$

206,675

$

208,766

$

411,580

$

414,750

 

Securities available for sale

 

4,637

 

5,816

 

9,432

 

24,928

 

Investments and other

 

6,296

 

3,633

 

12,146

 

6,066

 

Total interest income

 

217,608

 

218,215

 

433,158

 

445,744

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

8,851

 

10,197

 

18,532

 

19,258

 

Borrowings

 

6,713

 

9,794

 

13,491

 

48,089

 

Total interest expense

 

15,564

 

19,991

 

32,023

 

67,347

 

Net interest income

 

202,044

 

198,224

 

401,135

 

378,397

 

Provision for credit losses

 

32,591

 

54,106

 

70,974

 

102,648

 

Net interest income after provision for credit losses

 

169,453

 

144,118

 

330,161

 

275,749

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

41,572

 

48,090

 

80,895

 

89,946

 

Card revenue

 

13,270

 

13,530

 

25,687

 

26,737

 

ATM revenue

 

5,828

 

6,276

 

11,333

 

12,475

 

Subtotal

 

60,670

 

67,896

 

117,915

 

129,158

 

Leasing and equipment finance

 

22,874

 

23,207

 

39,334

 

46,074

 

Gains on sales of auto loans

 

8,135

 

5,496

 

15,281

 

7,746

 

Gain on sales of consumer real estate loans

 

4,069

 

-

 

12,195

 

-

 

Other

 

4,035

 

3,168

 

7,761

 

5,523

 

Fees and other revenue

 

99,783

 

99,767

 

192,486

 

188,501

 

Gains on securities, net

 

-

 

13,116

 

-

 

89,727

 

Total non-interest income

 

99,783

 

112,883

 

192,486

 

278,228

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

105,537

 

97,787

 

209,766

 

193,754

 

Occupancy and equipment

 

33,062

 

32,731

 

65,937

 

64,977

 

FDIC insurance

 

8,362

 

8,469

 

16,072

 

14,855

 

Operating lease depreciation

 

6,150

 

6,417

 

11,785

 

13,148

 

Advertising and marketing

 

5,532

 

5,404

 

11,264

 

8,021

 

Deposit account premiums

 

600

 

1,690

 

1,202

 

7,661

 

Other

 

41,946

 

36,956

 

79,885

 

74,252

 

Subtotal

 

201,189

 

189,454

 

395,911

 

376,668

 

Loss on termination of debt

 

-

 

-

 

-

 

550,735

 

Foreclosed real estate and repossessed assets, net

 

7,555

 

12,059

 

17,722

 

23,106

 

Other credit costs, net

 

(228

)

1,476

 

(1,065

)

1,188

 

Total non-interest expense

 

208,516

 

202,989

 

412,568

 

951,697

 

Income (loss) before income tax expense (benefit)

 

60,720

 

54,012

 

110,079

 

(397,720

)

Income tax expense (benefit)

 

19,444

 

20,542

 

37,003

 

(149,702

)

Income (loss) after income tax expense (benefit)

 

41,276

 

33,470

 

73,076

 

(248,018

)

Income attributable to non-controlling interest

 

2,372

 

1,939

 

4,198

 

3,345

 

Net income (loss) attributable to TCF Financial Corporation

 

38,904

 

31,531

 

68,878

 

(251,363

)

Preferred stock dividends

 

4,847

 

-

 

9,371

 

-

 

Net income (loss) available to common stockholders

$

34,057

$

31,531

$

59,507

$

(251,363

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

$

.21

$

.20

$

.37

$

(1.58

)

Diluted

$

.21

$

.20

$

.37

$

(1.58

)

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

(In thousands)

 

2013

 

2012

 

2013

 

2012

 

Net income (loss) attributable to TCF Financial Corporation

$

38,904

$

31,531

$

68,878

$

(251,363

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Reclassification adjustment for securities gains included in net income (loss) attributable to TCF Financial Corporation

 

-

 

-

 

-

 

(76,967

)

Unrealized holding (losses) gains arising during the period on securities available for sale

 

(34,420

)

19,868

 

(48,249

)

12,100

 

Foreign currency hedge

 

874

 

268

 

1,411

 

(136

)

Foreign currency translation adjustment

 

(973

)

(324

)

(1,595

)

61

 

Recognized postretirement prior service cost

 

 

 

 

 

 

 

 

 

and transition obligation

 

(12

)

(7

)

(24

)

(14

)

Income tax benefit (expense)

 

12,662

 

(7,375

)

17,681

 

23,833

 

Total other comprehensive (loss) income

 

(21,869

)

12,430

 

(30,776

)

(41,123

)

Comprehensive income (loss)

$

17,035

$

43,961

$

38,102

$

(292,486

)

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(Unaudited)

 

 

 

 

TCF Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

Non-

 

 

 

 

 

Shares Issued

 

Preferred

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

controlling

 

Total

 

(Dollars in thousands)

 

Preferred

 

Common

 

Stock

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

and Other

 

Total

 

Interests

 

Equity

 

Balance, December 31, 2011

 

-

 

160,366,380

 

$

-

 

$

1,604

 

$

715,247

 

$

1,127,823

 

$

56,826

 

$

(33,367

)

$

1,868,133

 

$

10,494

 

$

1,878,627

 

Net loss attributable to TCF Financial Corporation

 

-

 

-

 

-

 

-

 

-

 

(251,363

)

-

 

-

 

(251,363

)

3,345

 

(248,018

)

Other comprehensive loss

 

-

 

-

 

-

 

-

 

-

 

-

 

(41,123

)

-

 

(41,123

)

-

 

(41,123

)

Public offering of preferred stock

 

6,900

 

-

 

166,721

 

-

 

-

 

-

 

-

 

-

 

166,721

 

-

 

166,721

 

Net investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,098

 

1,098

 

Dividends on common stock

 

-

 

-

 

-

 

-

 

-

 

(15,905

)

-

 

-

 

(15,905

)

-

 

(15,905

)

Grants of restricted stock

 

-

 

1,654,525

 

-

 

17

 

(17

)

-

 

-

 

-

 

-

 

-

 

-

 

Common shares purchased by TCF employee benefit plans

 

-

 

960,076

 

-

 

9

 

10,632

 

-

 

-

 

-

 

10,641

 

-

 

10,641

 

Cancellation of shares of restricted stock

 

-

 

(31,432

)

-

 

-

 

(72

)

5

 

-

 

-

 

(67

)

-

 

(67

)

Cancellation of common shares for tax withholding

 

-

 

(158,894

)

-

 

(2

)

(1,707

)

-

 

-

 

-

 

(1,709

)

-

 

(1,709

)

Amortization of stock compensation

 

-

 

-

 

-

 

-

 

5,862

 

-

 

-

 

-

 

5,862

 

-

 

5,862

 

Stock compensation tax expense

 

-

 

-

 

-

 

-

 

(219

)

-

 

-

 

-

 

(219

)

-

 

(219

)

Change in shares held in trust for deferred compensation plans, at cost

 

-

 

-

 

-

 

-

 

8,711

 

-

 

-

 

(8,711

)

-

 

-

 

-

 

Balance, June 30, 2012

 

6,900

 

162,790,655

 

$

166,721

 

$

1,628

 

$

738,437

 

$

860,560

 

$

15,703

 

$

(42,078

)

$

1,740,971

 

$

14,937

 

$

1,755,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2012

 

4,006,900

 

163,428,763

 

$

263,240

 

$

1,634

 

$

750,040

 

$

877,445

 

$

12,443

 

$

(41,429

)

$

1,863,373

 

$

13,270

 

$

1,876,643

 

Net income attributable to TCF Financial Corporation

 

-

 

-

 

-

 

-

 

-

 

68,878

 

-

 

-

 

68,878

 

4,198

 

73,076

 

Other comprehensive loss

 

-

 

-

 

-

 

-

 

-

 

-

 

(30,776

)

-

 

(30,776

)

-

 

(30,776

)

Net distribution to non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(806

)

(806

)

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

-

 

(9,371

)

-

 

-

 

(9,371

)

-

 

(9,371

)

Dividends on common stock

 

-

 

-

 

-

 

-

 

-

 

(16,083

)

-

 

-

 

(16,083

)

-

 

(16,083

)

Grants of restricted stock

 

-

 

458,277

 

-

 

5

 

(5

)

-

 

-

 

-

 

-

 

-

 

-

 

Common shares purchased by TCF employee benefit plans

 

-

 

729,368

 

-

 

7

 

10,196

 

-

 

-

 

-

 

10,203

 

-

 

10,203

 

Cancellation of shares of restricted stock

 

-

 

(104,223

)

-

 

-

 

(256

)

25

 

-

 

-

 

(231

)

-

 

(231

)

Cancellation of common shares for tax withholding

 

-

 

(58,516

)

-

 

(1

)

(838

)

-

 

-

 

-

 

(839

)

-

 

(839

)

Amortization of stock compensation

 

-

 

-

 

-

 

-

 

4,860

 

-

 

-

 

-

 

4,860

 

-

 

4,860

 

Stock compensation tax expense

 

-

 

-

 

-

 

-

 

(495

)

-

 

-

 

-

 

(495

)

-

 

(495

)

Change in shares held in trust for deferred compensation plans, at cost

 

-

 

-

 

-

 

-

 

(153

)

-

 

-

 

153

 

-

 

-

 

-

 

Balance, June 30, 2013

 

4,006,900

 

164,453,669

 

$

263,240

 

$

1,645

 

$

763,349

 

$

920,894

 

$

(18,333

)

$

(41,276

)

$

1,889,519

 

$

16,662

 

$

1,906,181

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2013

 

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss) attributable to TCF Financial Corporation

$

68,878

 

$

(251,363

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Provision for credit losses

 

70,974

 

 

102,648

 

Depreciation and amortization

 

54,983

 

 

38,425

 

Proceeds from sales of loans and leases held for sale

 

112,671

 

 

47,164

 

Originations of loans held for sale, net of repayments

 

(138,163

)

 

(55,278

)

Net increase (decrease) in other assets and accrued expenses and other liabilities

 

69,911

 

 

(91,310

)

Gains on sales of assets, net

 

(29,155

)

 

(100,656

)

Loss on termination of debt

 

-

 

 

550,735

 

Net income attributable to non-controlling interest

 

4,198

 

 

3,345

 

Other, net

 

7,559

 

 

11,488

 

Total adjustments

 

152,978

 

 

506,561

 

Net cash provided by operating activities

 

221,856

 

 

255,198

 

Cash flows from investing activities:

 

 

 

 

 

 

Loan originations and purchases, net of principal collected on loans and leases

 

(641,671

)

 

(995,598

)

Purchases of equipment for lease financing

 

(430,463

)

 

(467,809

)

Purchase of inventory finance loans

 

(9,658

)

 

(37,527

)

Proceeds from sales of loans

 

685,793

 

 

172,090

 

Proceeds from sales of lease receivables

 

25,039

 

 

52,085

 

Proceeds from sales of securities available for sale

 

-

 

 

1,901,460

 

Proceeds from sales of other securities

 

-

 

 

13,116

 

Purchases of securities available for sale

 

(15,998

)

 

(455,336

)

Proceeds from maturities of and principal collected on securities available for sale

 

59,305

 

 

132,471

 

Purchases of Federal Home Loan Bank stock

 

(5,785

)

 

(141,509

)

Redemption of Federal Home Loan Bank stock

 

8,908

 

 

181,561

 

Proceeds from sales of real estate owned

 

59,902

 

 

57,412

 

Purchases of premises and equipment

 

(17,377

)

 

(26,928

)

Other, net

 

14,147

 

 

11,638

 

Net cash (used in) provided by investing activities

 

(267,858

)

 

397,126

 

Cash flows from financing activities:

 

 

 

 

 

 

Net increase in deposits

 

234,798

 

 

1,487,306

 

Net increase in short-term borrowings

 

411

 

 

957

 

Proceeds from long-term borrowings

 

171,600

 

 

1,169,294

 

Payments on long-term borrowings

 

(241,146

)

 

(3,996,664

)

Net proceeds from public offerings of preferred stock

 

-

 

 

166,721

 

Redemption of trust preferred securities

 

(71,020

)

 

-

 

Net (distributions to) investment by non-controlling interest

 

(806

)

 

1,098

 

Dividends paid on preferred stock

 

(9,371

)

 

-

 

Dividends paid on common stock

 

(16,083

)

 

(15,905

)

Stock compensation tax expense

 

(495

)

 

(219

)

Common shares sold to TCF employee benefit plans

 

10,203

 

 

10,641

 

Net cash provided by (used in) financing activities

 

78,091

 

 

(1,176,771

)

Net increase (decrease) in cash and due from banks

 

32,089

 

 

(524,447

)

Cash and due from banks at beginning of period

 

1,100,347

 

 

1,389,704

 

Cash and due from banks at end of period

$

1,132,436

 

$

865,257

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid (received) for:

 

 

 

 

 

 

Interest on deposits and borrowings

$

32,118

 

$

72,183

 

Income taxes, net

$

(32,322

)

$

14,579

 

Transfer of loans to other assets

$

56,215

 

$

80,574

 

See accompanying notes to consolidated financial statements.

 

5



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

(1) Basis of Presentation

 

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.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the information and notes necessary for complete financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”). The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the Company’s most recent Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations at December 31, 2012, and for the year then ended. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior financial statements to conform to the current period presentation. For Consolidated Statements of Cash Flow purposes, cash and cash equivalents include cash and due from banks. Any policies in effect at December 31, 2012 remain unchanged and will be followed similarly as in previous periods, with the exception of the Company’s non-accrual policy which was amended during the second quarter of 2013, as noted below.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring items, considered necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

 

Significant Accounting Policy Update

 

In the second quarter of 2013, TCF enhanced its monitoring of credit performance within the consumer real estate junior lien portfolio by utilizing recently obtained, more reliable credit data regarding third-party consumer real estate first mortgage lien loans. Accordingly, the non-accrual policy was updated to align the timing of placing junior lien loans on non-accrual status to more closely coincide with the timing of the identification of credit issues related to the third-party consumer real estate first mortgage lien loans. Junior lien loans are now placed on non-accrual status when TCF has evidence the related third-party first mortgage lien is 120 days or more past due or foreclosure action has been initiated and the junior lien loan is 30 or more days past due.

 

(2) Cash and Due from Banks

 

At June 30, 2013 and December 31, 2012, TCF Bank was required by Federal Reserve regulations to maintain reserves of $87.4 million and $79.7 million, respectively, in cash on hand or at the Federal Reserve.

 

TCF maintains cash balances that are restricted as to their use in accordance with certain contractual agreements primarily related to the sale and servicing of auto loans and consumer real estate loans. Cash payments received on loans serviced for third parties are held in separate accounts until remitted. TCF also retains cash balances for potential loss recourse on certain sold auto loans. Restricted cash totaling $43.9 million and $28.8 million was included within cash and due from banks at June 30, 2013 and December 31, 2012, respectively.

 

6



Table of Contents

 

(3)  Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At June 30, 2013

 

At December 31, 2012

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

648,011

 

$

2,119

 

$

32,572

 

$

617,558

 

$

691,570

 

$

21,693

 

$

3,209

 

$

710,054

Other

 

104

 

-

 

-

 

104

 

127

 

-

 

-

 

127

Other securities

 

1,642

 

1,022

 

66

 

2,598

 

1,642

 

268

 

-

 

1,910

Total

 

649,757

 

$

3,141

 

$

32,638

 

$

620,260

 

$

693,339

 

$

21,961

 

$

3,209

 

$

712,091

Weighted-average yield

 

2.69

%

 

 

 

 

 

 

2.70

%

 

 

 

 

 

 

There were no sales of securities available for sale during the first six months of 2013. Gross realized gains on sales of securities available for sale of $77 million were recognized during the first six months of 2012.

 

Unrealized losses on securities available for sale are due to lower values for equity securities or changes in interest rates. TCF has the ability and intent to hold these investments until a recovery of fair value occurs.

 

TCF held no securities available for sale at December 31, 2012 that were in a net unrealized loss position. The following table shows the gross unrealized losses and fair value of securities available for sale that were in net unrealized loss positions at June 30, 2013, aggregated by investment category and length of time the securities were in a net loss position.

 

 

 

At June 30, 2013

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

544,305

 

$

32,572

 

$

-

 

$

-

 

$

544,305

 

$

32,572

 

Total

 

544,305

 

$

32,572

 

$

-

 

$

-

 

$

544,305

 

$

32,572

 

 

 

 

At June 30, 2013

(In thousands)

 

Amortized Cost

 

Fair Value

Due in one year or less

 

$

-

 

$

-

Due in 1-5 years

 

127

 

130

Due in 5-10 years

 

48

 

49

Due after 10 years

 

647,940

 

617,483

No stated maturity

 

1,642

 

2,598

Total

 

$

649,757

 

$

620,260

 

7



Table of Contents

 

(4)  Loans and Leases

 

 

 

At June 30,

 

At December 31,

 

Percent

 

(Dollars in thousands)

 

2013

 

2012

 

Change

 

Consumer real estate:

 

 

 

 

 

 

 

First mortgage lien

$

3,982,481

$

4,239,524

 

(6.1

) %

Junior lien

 

2,373,945

 

2,434,977

 

(2.5

)

Total consumer real estate

 

6,356,426

 

6,674,501

 

(4.8

)

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

2,852,875

 

2,934,849

 

(2.8

)

Construction and development

 

180,366

 

146,093

 

23.5

 

Total commercial real estate

 

3,033,241

 

3,080,942

 

(1.5

)

Commercial business

 

317,093

 

324,293

 

(2.2

)

Total commercial

 

3,350,334

 

3,405,235

 

(1.6

)

Leasing and equipment finance: (1)

 

 

 

 

 

 

 

Equipment finance loans

 

1,397,489

 

1,306,423

 

7.0

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases

 

1,838,272

 

1,905,532

 

(3.5

)

Sales-type leases

 

34,177

 

24,371

 

40.2

 

Lease residuals

 

116,447

 

103,207

 

12.8

 

Unearned income and deferred lease costs

 

(134,682)

 

(141,516)

 

4.8

 

Total lease financings

 

1,854,214

 

1,891,594

 

(2.0

)

Total leasing and equipment finance

 

3,251,703

 

3,198,017

 

1.7

 

Inventory finance

 

1,713,528

 

1,567,214

 

9.3

 

Auto finance

 

882,202

 

552,833

 

59.6

 

Other

 

25,099

 

27,924

 

(10.1

)

Total loans and leases

$

15,579,292

$

15,425,724

 

1.0

  %

 

(1) Operating leases of $71.5 million and $82.9 million at June 30, 2013 and December 31, 2012, respectively, are included in other assets in the Consolidated Statements of Financial Condition.

 

At June 30, 2013, the consumer real estate junior lien portfolio was comprised of $2.1 billion of home equity lines of credit (“HELOCs”) and $303 million of amortizing junior lien mortgage loans. At June 30, 2013, $1.3 billion of the HELOCs were interest-only revolving draw programs with no defined amortization period and draw periods of 5 to 40 years. At June 30, 2013, $796.9 million had a 10-year interest-only draw period and a 20-year amortization repayment period and all are within the 10-year initial draw period, and as such, none of the HELOCs have converted to amortizing loans.

 

From time to time, TCF sells leasing and equipment financing loans and minimum lease payments to third-party financial institutions at fixed rates. For those transactions which achieve sale treatment, the related loan and lease cash flow stream is derecognized. During the three months ended June 30, 2013 and 2012, TCF sold $22.9 million and $23.9 million, respectively, of loans and minimum lease payment receivables, received cash of $23.6 million and $24 million respectively, and recognized net gains of $148 thousand and a net loss of $419 thousand, respectively. Related to these sales, TCF had servicing liabilities of $529 thousand and $457 thousand for the three months ended June 30, 2013, and 2012, respectively. During the six months ended June 30, 2013 and 2012, TCF sold $34 million and $56.6 million, respectively, of loans and minimum lease payment receivables, received cash of $34.8 million and $57.5 million, respectively, and recognized net gains of $46 thousand and $389 thousand, respectively. Related to these sales, TCF had servicing liabilities of $768 thousand and $457 thousand for the six months ended June 30, 2013, and 2012, respectively. At June 30, 2013 and 2012, TCF had servicing liabilities related to leasing and equipment financing of $1.6 million and $442 thousand, respectively. At June 30, 2013 and December 31, 2012, TCF had lease residuals related to all historical sales of minimum lease payments receivable of $16.4 million included in loans and leases and $14.8 million included in other assets, respectively.

 

During the three months ended June 30, 2013 and 2012, TCF sold $196.9 million and $144.1 million, respectively, of consumer auto loans with servicing retained and received cash of $191.9 million and $141.1 million, respectively, resulting in gains of $8.1 million and $5.5 million, respectively. Related to these sales, TCF retained interest-only strips of $14.9 million and $10.1 million for the three months ended June 30, 2013 and 2012, respectively. During the six months ended June 30, 2013 and 2012, TCF

 

8



Table of Contents

 

sold $376.7 million and $216.1 million, respectively, of consumer auto loans with servicing retained and received cash of $366.8 million and $211.3 million, respectively, resulting in gains of $15.3 million and $7.7 million, respectively. Related to these sales, TCF retained interest-only strips of $28.5 million and $14.7 million for the six months ended June 30, 2013 and 2012, respectively. At June 30, 2013, interest-only strips and contractual recourse liabilities related to sales of auto loans totaled $61.8 million and $2 million, respectively. At December 31, 2012, interest-only strips and contractual recourse liabilities related to sales of auto loans totaled $46.7 million and $3.6 million, respectively. No servicing assets or liabilities related to consumer auto loans were recorded within TCF’s Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities. TCF’s auto loan managed portfolio, which includes portfolio loans, loans held for sale, and loans sold and serviced for others, totaled $1.8 billion and $1.3 billion at June 30, 2013 and December 31, 2012, respectively.

 

During the three months ended June 30, 2013, TCF sold $139.2 million of consumer real estate loans, with limited representations, indemnifications and limited credit guarantees and received cash of $142.5 million, while recognizing a net gain of $4.1 million. Related to the sale of these loans, TCF retained interest-only strips of $2 million. During the six months ended June 30, 2013, TCF sold $418.4 million of consumer real estate loans, with limited representations, indemnifications and limited credit guarantees and received cash of $421.8 million, while recognizing a net gain of $12.2 million. Related to the sale of these loans, TCF retained interest-only strips of $11.6 million. There were no consumer real estate loan sales during the six months ended June 30, 2012. At June 30, 2013, interest-only strips and contractual recourse liabilities related to sales of consumer real estate loans totaled $11.6 million and $563 thousand, respectively. No servicing assets or liabilities related to consumer real estate loans were recorded within TCF’s Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities. TCF’s consumer real estate loan managed portfolio, which includes portfolio loans, loans held for sale, and loans sold and serviced for others, totaled $6.9 billion and $6.7 billion at June 30, 2013 and December 31, 2012, respectively.

 

TCF’s agreements to sell consumer real estate and auto loans typically contain certain representations and warranties regarding the loans sold. These representations and warranties generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer, the loan’s compliance with the criteria set forth in the agreement, payment delinquency, and compliance with applicable laws and regulations. TCF may be required to repurchase loans in the event of an unremedied breach of these representations or warranties. During the six months ended June 30, 2013 and 2012, losses related to repurchases pursuant to such representations and warranties were immaterial as the majority of representations and warranties relate to auto finance where TCF typically has contractual agreements with automobile dealerships to provide reimbursement in the event of an unremedied breach.

 

(5) Allowance for Loan and Lease Losses and Credit Quality Information

 

The following tables provide the allowance for loan and lease losses. TCF’s key credit quality indicator is the receivable’s payment performance status, defined as accruing or non-accruing.

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

At or For the Three Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

182,687

 

$

48,556

 

$

17,541

 

$

8,788

 

$

5,390

 

$

634

 

$

263,596

 

Charge-offs

 

(25,828

)

(3,359

)

(1,225

)

(112

)

(933

)

(2,151

)

(33,608

)

Recoveries

 

2,102

 

910

 

981

 

126

 

168

 

1,627

 

5,914

 

Net charge-offs

 

(23,726

)

(2,449

)

(244

)

14

 

(765

)

(524

)

(27,694

)

Provision for credit losses

 

24,393

 

3,965

 

678

 

(535

)

3,405

 

685

 

32,591

 

Other

 

(2,302

)

-

 

-

 

(70

)

(521

)

(1

)

(2,894

)

Balance, at end of quarter

 

$

181,052

 

$

50,072

 

$

17,975

 

$

8,197

 

$

7,509

 

$

794

 

$

265,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

183,825

 

$

50,444

 

$

21,537

 

$

7,556

 

$

1,019

 

$

912

 

$

265,293

 

Charge-offs

 

(35,980

)

(8,693

)

(2,667

)

(283

)

(82

)

(2,128

)

(49,833

)

Recoveries

 

1,124

 

238

 

1,494

 

58

 

1

 

2,059

 

4,974

 

Net charge-offs

 

(34,856

)

(8,455

)

(1,173

)

(225

)

(81

)

(69

)

(44,859

)

Provision for credit losses

 

39,118

 

8,710

 

5,086

 

(223

)

1,356

 

59

 

54,106

 

Other

 

-

 

-

 

-

 

(36

)

(343

)

-

 

(379

)

Balance, at end of quarter

 

$

188,087

 

$

50,699

 

$

25,450

 

$

7,072

 

$

1,951

 

$

902

 

$

274,161

 

 

9



Table of Contents

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

At or For the Six Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of period

 

$

182,013

 

$

51,575

 

$

21,037

 

$

7,569

 

$

4,136

 

$

798

 

$

267,128

 

Charge-offs

 

(58,708

)

(11,610

)

(3,288

)

(529

)

(1,873

)

(4,296

)

(80,304

)

Recoveries

 

4,535

 

1,312

 

1,834

 

188

 

272

 

3,465

 

11,606

 

Net charge-offs

 

(54,173

)

(10,298

)

(1,454

)

(341

)

(1,601

)

(831

)

(68,698

)

Provision for credit losses

 

56,350

 

8,795

 

(1,608

)

1,090

 

5,519

 

828

 

70,974

 

Other

 

(3,138

)

-

 

-

 

(121

)

(545

)

(1

)

(3,805

)

Balance, at end of period

 

$

181,052

 

$

50,072

 

$

17,975

 

$

8,197

 

$

7,509

 

$

794

 

$

265,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Six Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of period

 

$

183,435

 

$

46,954

 

$

21,173

 

$

2,996

 

$

-

 

$

1,114

 

$

255,672

 

Charge-offs

 

(73,142

)

(10,343

)

(4,443

)

(953

)

(84

)

(5,544

)

(94,509

)

Recoveries

 

2,597

 

364

 

3,119

 

85

 

1

 

4,550

 

10,716

 

Net charge-offs

 

(70,545

)

(9,979

)

(1,324

)

(868

)

(83

)

(994

)

(83,793

)

Provision for credit losses

 

75,197

 

13,724

 

5,601

 

4,968

 

2,376

 

782

 

102,648

 

Other

 

-

 

-

 

-

 

(24

)

(342

)

-

 

(366

)

Balance, at end of period

 

$

188,087

 

$

50,699

 

$

25,450

 

$

7,072

 

$

1,951

 

$

902

 

$

274,161

 

 

The following tables provide other information regarding the allowance for loan and lease losses and balances by type of allowance methodology.

 

 

 

At June 30, 2013

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

64,594

 

$

35,962

 

$

16,063

 

$

7,990

 

$

7,491

 

$

794

 

$

132,894

Individually evaluated for impairment

 

116,458

 

14,110

 

1,912

 

207

 

18

 

-

 

132,705

Total

 

$

181,052

 

$

50,072

 

$

17,975

 

$

8,197

 

$

7,509

 

$

794

 

$

265,599

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

5,687,957

 

$

3,095,412

 

$

3,237,927

 

$

1,711,595

 

$

881,325

 

$

25,066

 

$

14,639,282

Individually evaluated for impairment

 

668,469

 

254,922

 

12,171

 

1,933

 

184

 

33

 

937,712

Loans acquired with deteriorated credit quality

 

-

 

-

 

1,605

 

-

 

693

 

-

 

2,298

Total

 

$

6,356,426

 

$

3,350,334

 

$

3,251,703

 

$

1,713,528

 

$

882,202

 

$

25,099

 

$

15,579,292

 

 

 

At December 31, 2012

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

181,139

 

$

37,210

 

$

20,337

 

$

7,339

 

$

4,136

 

$

798

 

$

250,959

Individually evaluated for impairment

 

874

 

14,365

 

700

 

230

 

-

 

-

 

16,169

Total

 

$

182,013

 

$

51,575

 

$

21,037

 

$

7,569

 

$

4,136

 

$

798

 

$

267,128

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

6,669,424

 

$

3,133,011

 

$

3,187,393

 

$

1,565,727

 

$

551,456

 

$

27,924

 

$

15,134,935

Individually evaluated for impairment

 

5,077

 

272,224

 

7,754

 

1,487

 

101

 

-

 

286,643

Loans acquired with deteriorated credit quality

 

-

 

-

 

2,870

 

-

 

1,276

 

-

 

4,146

Total

 

$

6,674,501

 

$

3,405,235

 

$

3,198,017

 

$

1,567,214

 

$

552,833

 

$

27,924

 

$

15,425,724

 

10


 

 


Table of Contents

 

Accruing and Non-accrual Loans and Leases  The following tables set forth information regarding TCF’s accruing and non-accrual loans and leases. Non-accrual loans and leases are those which management believes have a higher risk of loss than accruing loans and leases. Delinquent balances are determined based on the contractual terms of the loan or lease. TCF’s key credit quality indicator is the receivable’s payment performance status as accruing or non-accruing.

 

 

 

At June 30, 2013

(In thousands)

 

Current-59 Days
Delinquent and
Accruing

 

60-89 Days
Delinquent
and Accruing

 

90 Days or More
Delinquent and
Accruing

 

Total Accruing

 

Non-Accrual

 

Total

Consumer real estate:

 

 

 

 

 

 

 

 

 

 

 

 

First mortgage lien

 

$

3,783,019

 

$

22,761

 

$

44,115

 

$

3,849,895

 

$

132,586

 

$

3,982,481

Junior lien

 

2,335,179

 

3,706

 

4,316

 

2,343,201

 

30,744

 

2,373,945

Total consumer real estate

 

6,118,198

 

26,467

 

48,431

 

6,193,096

 

163,330

 

6,356,426

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

2,935,765

 

1,325

 

-

 

2,937,090

 

96,151

 

3,033,241

Commercial business

 

310,787

 

-

 

354

 

311,141

 

5,952

 

317,093

Total commercial

 

3,246,552

 

1,325

 

354

 

3,248,231

 

102,103

 

3,350,334

Leasing and equipment finance:

 

 

 

 

 

 

 

 

 

 

 

 

Middle market

 

1,778,569

 

713

 

1

 

1,779,283

 

6,088

 

1,785,371

Small ticket