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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

September 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
October 30, 2013

Common Stock, $.01 par value

 

164,866,198 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
September 30, 2013 and December 31, 2012

 

1

 

 

 

Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2013 and 2012

 

2

 

 

 

Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended September 30, 2013 and 2012

 

3

 

 

 

Consolidated Statements of Equity for the
Nine Months Ended September 30, 2013 and 2012

 

4

 

 

 

Consolidated Statements of Cash Flows for the
Nine Months Ended September 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

 

35

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

57

 

 

 

Item 4. Controls and Procedures

 

58

 

 

 

Part II. Other Information

 

 

 

 

 

Items 1-6

 

59

 

 

 

Signatures

 

62

 

 

 

Index to Exhibits

 

63

 


 


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At September 30,

 

At December 31,

 

(Dollars in thousands, except per-share data)

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

983,846

 

$

1,100,347

 

Investments

 

101,950

 

120,867

 

Securities available for sale

 

631,677

 

712,091

 

Loans and leases held for sale

 

170,699

 

10,289

 

Loans and leases:

 

 

 

 

 

Consumer real estate

 

6,415,632

 

6,674,501

 

Commercial

 

3,137,088

 

3,405,235

 

Leasing and equipment finance

 

3,286,506

 

3,198,017

 

Inventory finance

 

1,716,542

 

1,567,214

 

Auto finance

 

1,069,053

 

552,833

 

Other

 

26,827

 

27,924

 

Total loans and leases

 

15,651,648

 

15,425,724

 

Allowance for loan and lease losses

 

(261,285

)

(267,128

)

Net loans and leases

 

15,390,363

 

15,158,596

 

Premises and equipment, net

 

437,051

 

440,466

 

Goodwill

 

225,640

 

225,640

 

Other assets

 

428,862

 

457,621

 

Total assets

 

$

18,370,088

 

$

18,225,917

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,911,479

 

$

4,834,632

 

Savings

 

6,263,690

 

6,104,104

 

Money market

 

870,727

 

820,553

 

Certificates of deposit

 

2,379,134

 

2,291,497

 

Total deposits

 

14,425,030

 

14,050,786

 

Short-term borrowings

 

8,249

 

2,619

 

Long-term borrowings

 

1,523,235

 

1,931,196

 

Total borrowings

 

1,531,484

 

1,933,815

 

Accrued expenses and other liabilities

 

472,331

 

364,673

 

Total liabilities

 

16,428,845

 

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; 164,820,917 and 163,428,763 shares issued, respectively

 

1,648

 

1,634

 

Additional paid-in capital

 

771,570

 

750,040

 

Retained earnings, subject to certain restrictions

 

950,777

 

877,445

 

Accumulated other comprehensive (loss) income

 

(17,598

)

12,443

 

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

 

(41,672

)

(41,429

)

Total TCF Financial Corporation stockholders’ equity

 

1,927,965

 

1,863,373

 

Non-controlling interest in subsidiaries

 

13,278

 

13,270

 

Total equity

 

1,941,243

 

1,876,643

 

Total liabilities and equity

 

$

18,370,088

 

$

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
September 30,

 

Nine Months Ended
September 30,

 

(In thousands, except per-share data)

 

2013

 

2012

 

2013

 

2012

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

$

 

203,879

 

$

210,140

$

 

615,459

 

$

624,890

 

Securities available for sale

 

4,448

 

5,607

 

13,880

 

30,535

 

Investments and other

 

7,126

 

4,105

 

19,272

 

10,171

 

Total interest income

 

215,453

 

219,852

 

648,611

 

665,596

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

9,644

 

10,757

 

28,176

 

30,015

 

Borrowings

 

6,182

 

8,536

 

19,673

 

56,625

 

Total interest expense

 

15,826

 

19,293

 

47,849

 

86,640

 

Net interest income

 

199,627

 

200,559

 

600,762

 

578,956

 

Provision for credit losses

 

24,602

 

96,275

 

95,576

 

198,923

 

Net interest income after provision for credit losses

 

175,025

 

104,284

 

505,186

 

380,033

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

42,457

 

43,745

 

123,352

 

133,691

 

Card revenue

 

13,167

 

12,927

 

38,854

 

39,664

 

ATM revenue

 

5,941

 

6,122

 

17,274

 

18,597

 

Subtotal

 

61,565

 

62,794

 

179,480

 

191,952

 

Leasing and equipment finance

 

29,079

 

20,498

 

68,413

 

66,572

 

Gains on sales of auto loans

 

7,140

 

7,486

 

22,421

 

15,232

 

Gains on sales of consumer real estate loans

 

4,152

 

4,559

 

16,347

 

4,559

 

Other

 

4,304

 

3,688

 

12,065

 

9,211

 

Fees and other revenue

 

106,240

 

99,025

 

298,726

 

287,526

 

(Losses) gains on securities, net

 

(80

)

13,033

 

(80

)

102,760

 

Total non-interest income

 

106,160

 

112,058

 

298,646

 

390,286

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

110,833

 

98,409

 

320,599

 

292,163

 

Occupancy and equipment

 

33,253

 

33,006

 

99,190

 

97,983

 

FDIC insurance

 

8,102

 

6,899

 

24,174

 

21,754

 

Operating lease depreciation

 

6,706

 

6,325

 

18,491

 

19,473

 

Advertising and marketing

 

4,593

 

4,248

 

15,857

 

12,269

 

Deposit account premiums

 

664

 

485

 

1,866

 

8,146

 

Other

 

43,675

 

36,173

 

123,560

 

110,425

 

Subtotal

 

207,826

 

185,545

 

603,737

 

562,213

 

Loss on termination of debt

 

55

 

-

 

55

 

550,735

 

Foreclosed real estate and repossessed assets, net

 

4,162

 

10,670

 

21,884

 

33,776

 

Other credit costs, net

 

189

 

593

 

(876

)

1,781

 

Total non-interest expense

 

212,232

 

196,808

 

624,800

 

1,148,505

 

Income (loss) before income tax expense (benefit)

 

68,953

 

19,534

 

179,032

 

(378,186

)

Income tax expense (benefit)

 

24,551

 

6,304

 

61,554

 

(143,398

)

Income (loss) after income tax expense (benefit)

 

44,402

 

13,230

 

117,478

 

(234,788

)

Income attributable to non-controlling interest

 

1,607

 

1,536

 

5,805

 

4,881

 

Net income (loss) attributable to TCF Financial Corporation

 

42,795

 

11,694

 

111,673

 

(239,669

)

Preferred stock dividends

 

4,847

 

2,372

 

14,218

 

2,372

 

Net income (loss) available to common stockholders

$

 

37,948

 

$

9,322

$

 

97,455

 

$

(242,041

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

$

 

.24

 

$

.06

$

 

.61

 

$

(1.52

)

Diluted

$

 

.23

 

$

.06

$

 

.60

 

$

(1.52

)

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
September 30,

 

Nine Months Ended
September 30,

 

(In thousands)

 

2013

 

2012

 

2013

 

2012

 

Net income (loss) attributable to TCF Financial Corporation

$

 

42,795

 

$

11,694

 

$111,673

 

$

(239,669

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

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

 

-

 

(12,912

)

-

 

(89,879

)

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

 

850

 

16,283

 

(47,399

)

28,383

 

Foreign currency hedge

 

(647

)

(630

)

764

 

(766

)

Foreign currency translation adjustment

 

615

 

640

 

(980

)

701

 

Recognized postretirement prior service cost and transition obligation

 

(11

)

(7

)

(35

)

(21

)

Income tax (expense) benefit

 

(72

)

(1,010

)

17,609

 

22,823

 

Total other comprehensive income (loss)

 

735

 

2,364

 

(30,041

)

(38,759

)

Comprehensive income (loss)

$

 

43,530

 

$

14,058

 

$81,632

 

$

(278,428

)

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

 

 -

 

 -

 

 -

 

 -

 

 -

 

(239,669

)

 -

 

 -

 

(239,669

)

4,881

 

(234,788

)

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

(38,759

)

 -

 

(38,759

)

 -

 

(38,759

)

Public offering of preferred stock

 

6,900

 

 -

 

166,721

 

 -

 

 -

 

 -

 

 -

 

 -

 

166,721

 

 -

 

166,721

 

Net distribution to non-controlling interest

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

(2,170

)

(2,170

)

Dividends on preferred stock

 

 -

 

 -

 

 -

 

 -

 

 -

 

(2,372

)

 -

 

 -

 

(2,372

)

 -

 

(2,372

)

Dividends on common stock

 

 -

 

 -

 

 -

 

 -

 

 -

 

(23,896

)

 -

 

 -

 

(23,896

)

 -

 

(23,896

)

Grants of restricted stock

 

 -

 

1,784,525

 

 -

 

18

 

(18

)

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

Common shares purchased by TCF
employee benefit plans

 

 -

 

1,367,748

 

 -

 

13

 

15,076

 

 -

 

 -

 

 -

 

15,089

 

 -

 

15,089

 

Cancellation of shares of restricted stock

 

 -

 

(61,912

)

 -

 

 -

 

(201

)

9

 

 -

 

 -

 

(192

)

 -

 

(192

)

Cancellation of common shares for tax
withholding

 

 -

 

(174,786

)

 -

 

(2

)

(1,888

)

 -

 

 -

 

 -

 

(1,890

)

 -

 

(1,890

)

Net amortization of stock compensation

 

 -

 

 -

 

 -

 

 -

 

8,871

 

 -

 

 -

 

 -

 

8,871

 

 -

 

8,871

 

Stock compensation tax expense

 

 -

 

 -

 

 -

 

 -

 

(572

)

 -

 

 -

 

 -

 

(572

)

 -

 

(572

)

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

 

 -

 

 -

 

 -

 

 -

 

10,028

 

 -

 

 -

 

(10,028

)

 -

 

 -

 

 -

 

Balance, September 30, 2012

 

6,900

 

163,281,955

 

$

166,721

 

$

1,633

 

$

746,543

 

$

861,895

 

$

18,067

 

$

(43,395

)

$

1,751,464

 

$

13,205

 

$

1,764,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 -

 

 -

 

 -

 

 -

 

 -

 

111,673

 

 -

 

 -

 

111,673

 

5,805

 

117,478

 

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

(30,041

)

 -

 

(30,041

)

 -

 

(30,041

)

Net distribution to non-controlling interest

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

(5,797

)

(5,797

)

Dividends on preferred stock

 

 -

 

 -

 

 -

 

 -

 

 -

 

(14,218

)

 -

 

 -

 

(14,218

)

 -

 

(14,218

)

Dividends on common stock

 

 -

 

 -

 

 -

 

 -

 

 -

 

(24,148

)

 -

 

 -

 

(24,148

)

 -

 

(24,148

)

Grants of restricted stock

 

 -

 

494,277

 

 -

 

5

 

(6

)

 -

 

 -

 

 -

 

(1

)

 -

 

(1

)

Common shares purchased by TCF
employee benefit plans

 

 -

 

1,070,506

 

 -

 

10

 

15,224

 

 -

 

 -

 

 -

 

15,234

 

 -

 

15,234

 

Cancellation of shares of restricted stock

 

 -

 

(111,873

)

 -

 

 -

 

(274

)

25

 

 -

 

 -

 

(249

)

 -

 

(249

)

Cancellation of common shares for tax
withholding

 

 -

 

(60,756

)

 -

 

(1

)

(870

)

 -

 

 -

 

 -

 

(871

)

 -

 

(871

)

Net amortization of stock compensation

 

 -

 

 -

 

 -

 

 -

 

7,688

 

 -

 

 -

 

 -

 

7,688

 

 -

 

7,688

 

Stock compensation tax expense

 

 -

 

 -

 

 -

 

 -

 

(475

)

 -

 

 -

 

 -

 

(475

)

 -

 

(475

)

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

 

 -

 

 -

 

 -

 

 -

 

243

 

 -

 

 -

 

(243

)

 -

 

 -

 

 -

 

Balance, September 30, 2013

 

4,006,900

 

164,820,917

 

$

263,240

 

$

1,648

 

$

771,570

 

$

950,777

 

$

(17,598

)

$

(41,672

)

$

1,927,965

 

$

13,278

 

$

1,941,243

 

See accompanying notes to consolidated financial statements.

 

4


 


Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss) attributable to TCF Financial Corporation

$

 

111,673

 

$

(239,669

)

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

 

 

 

 

 

Provision for credit losses

 

95,576

 

198,923

 

Depreciation and amortization

 

85,229

 

78,964

 

Proceeds from sales of loans and leases held for sale

 

165,764

 

114,061

 

Originations of loans held for sale, net of repayments

 

(242,890

)

(116,695

)

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

 

168,126

 

(84,669

)

Gains on sales of assets, net

 

(43,805

)

(126,795

)

Loss on termination of debt

 

55

 

550,735

 

Net income attributable to non-controlling interest

 

5,805

 

4,881

 

Other, net

 

(29,768

)

15,428

 

Total adjustments

 

204,092

 

634,833

 

Net cash provided by operating activities

 

315,765

 

395,164

 

Cash flows from investing activities:

 

 

 

 

 

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

 

(859,419

)

(1,274,896

)

Purchases of equipment for lease financing

 

(631,545

)

(541,566

)

Purchase of inventory finance loans

 

(9,658

)

(37,526

)

Proceeds from sales of loans

 

956,406

 

420,404

 

Proceeds from sales of lease receivables

 

30,921

 

55,329

 

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

 

(47,734

)

(455,336

)

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

 

80,295

 

168,540

 

Purchases of Federal Home Loan Bank stock

 

(5,789

)

(146,405

)

Redemption of Federal Home Loan Bank stock

 

25,975

 

181,562

 

Proceeds from sales of real estate owned

 

85,135

 

86,528

 

Purchases of premises and equipment

 

(24,479

)

(34,505

)

Other, net

 

22,375

 

24,156

 

Net cash (used in) provided by investing activities

 

(377,517

)

360,861

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

374,244

 

1,504,419

 

Net increase (decrease) in short-term borrowings

 

5,630

 

(887

)

Proceeds from long-term borrowings

 

176,168

 

1,278,233

 

Payments on long-term borrowings

 

(510,367

)

(4,153,045

)

Net proceeds from public offerings of preferred stock

 

-

 

166,721

 

Proceeds from issuance of subordinated debt

 

-

 

109,888

 

Redemption of subordinated debt

 

(71,020

)

-

 

Redemption of trust preferred securities

 

-

 

(115,010

)

Net distributions to non-controlling interest

 

(5,797

)

(2,170

)

Dividends paid on preferred stock

 

(14,218

)

(2,372

)

Dividends paid on common stock

 

(24,148

)

(23,896

)

Stock compensation tax expense

 

(475

)

(572

)

Common shares sold to TCF employee benefit plans

 

15,234

 

15,089

 

Net cash used in financing activities

 

(54,749

)

(1,223,602

)

Net decrease in cash and due from banks

 

(116,501

)

(467,577

)

Cash and due from banks at beginning of period

 

1,100,347

 

1,389,704

 

Cash and due from banks at end of period

$

 

983,846

 

$

922,127

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid (received) for:

 

 

 

 

 

Interest on deposits and borrowings

$

 

47,292

 

$

91,133

 

Income taxes, net

$

 

(31,142

)

$

14,227

 

Transfer of loans to other assets

$

 

84,910

 

$

104,649

 

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 third 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 third quarter of 2013, TCF modified its consumer real estate portfolio non-accrual policy. Under the new policy, consumer real estate loans are generally placed on non-accrual status once they become 90 days past due (previously 150 days past due) and charged off to the estimated fair value of underlying collateral, less estimated selling costs, no later than 150 days past due. In addition, consumer real estate junior lien loans are now placed on non-accrual status and charged off to the estimated fair value when the junior lien loan is 30 days or more past due and when TCF has evidence the related third-party first mortgage lien is 90 days or more past due or foreclosure action has been initiated.

 

(2) Cash and Due from Banks

 

At September 30, 2013 and December 31, 2012, TCF Bank was required by Federal Reserve regulations to maintain reserves of $83.1 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 as well as cash for collateral on certain borrowings and foreign exchange contracts. TCF maintained restricted cash totaling $52 million and $28.8 million at September 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 September 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

 

$

658,584

 

$

2,647

 

$

32,214

 

$

629,017

 

$

691,570

 

$

21,693

 

$

3,209

 

$

710,054

 

Other

 

98

 

-

 

-

 

98

 

127

 

-

 

-

 

127

 

Other securities

 

1,642

 

986

 

66

 

2,562

 

1,642

 

268

 

-

 

1,910

 

Total

 

$

660,324

 

$

3,633

 

$

32,280

 

$

631,677

 

$

693,339

 

$

21,961

 

$

3,209

 

$

712,091

 

Weighted-average yield

 

2.71

 %

 

 

 

 

 

 

2.70

 %

 

 

 

 

 

 

 

There were no sales of securities available for sale during the first nine months of 2013. Gross realized gains on sales of securities available for sale of $13.2 million and $90.2 million were recognized during the third quarter and first nine months of 2012, respectively. Impairment charges of $206 thousand were recognized during the third quarter and first nine 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.

 

The following table shows the gross unrealized losses and fair value of securities available for sale that are in a loss position at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time the securities were in a continuous loss position.

 

 

 

At September 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

$

 

365,686

 

$

13,368

 

$

162,427

 

$

18,846

 

$

528,113

 

$

32,214

 

Other

 

-

 

-

 

-

 

-

 

-

 

-

 

Other securities

 

590

 

66

 

-

 

-

 

590

 

66

 

Total

$

 

366,276

 

$

13,434

 

$

162,427

 

$

18,846

 

$

528,703

 

$

32,280

 

 

 

 

At December 31, 2012

 

 

 

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

$

 

186,418

 

$

3,209

 

$

-

 

$

-

 

$

186,418

 

$

3,209

 

Other

 

-

 

-

 

-

 

-

 

-

 

-

 

Other securities

 

-

 

-

 

-

 

-

 

-

 

-

 

Total

$

 

186,418

 

$

3,209

 

$

-

 

$

-

 

$

186,418

 

$

3,209

 

 

7



Table of Contents

 

The amortized cost and fair value of securities available for sale by contractual maturity, at September 30, 2013 and December 31, 2012, are shown below. The remaining contractual principal maturities do not consider prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay.

 

 

 

At September 30, 2013

 

At December 31, 2012

(In thousands)

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

Due in 1-5 years

 

$

147

 

$

149

 

$

102

 

$

107

 

Due in 5-10 years

 

13,715

 

13,911

 

114

 

115

 

Due after 10 years

 

644,820

 

615,055

 

691,481

 

709,959

 

No stated maturity

 

1,642

 

2,562

 

1,642

 

1,910

 

Total

 

$

660,324

 

$

631,677

 

$

693,339

 

$

712,091

 

 

(4)  Loans and Leases

 

 

 

At September 30,

 

At December 31,

 

 

Percent

 

(Dollars in thousands)

 

2013

 

2012

 

 

Change

 

Consumer real estate:

 

 

 

 

 

 

 

 

First mortgage lien

 

$

3,862,174

 

$

4,239,524

 

 

(8.9

) %

 

Junior lien

 

2,553,458

 

2,434,977

 

 

4.9

 

 

Total consumer real estate

 

6,415,632

 

6,674,501

 

 

(3.9

)

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Permanent

 

2,589,086

 

2,934,849

 

 

(11.8

)

 

Construction and development

 

198,303

 

146,093

 

 

35.7

 

 

Total commercial real estate

 

2,787,389

 

3,080,942

 

 

(9.5

)

 

Commercial business

 

349,699

 

324,293

 

 

7.8

 

 

Total commercial

 

3,137,088

 

3,405,235

 

 

(7.9

)

 

Leasing and equipment finance: (1)

 

 

 

 

 

 

 

 

 

Equipment finance loans

 

1,441,269

 

1,306,423

 

 

10.3

 

 

Lease financings:

 

 

 

 

 

 

 

 

 

Direct financing leases

 

1,808,993

 

1,905,532

 

 

(5.1

)

 

Sales-type leases

 

58,228

 

24,371

 

 

138.9

 

 

Lease residuals

 

111,027

 

103,207

 

 

7.6

 

 

Unearned income and deferred lease costs

 

(133,011

)

(141,516

)

 

6.0

 

 

Total lease financings

 

1,845,237

 

1,891,594

 

 

(2.5

)

 

Total leasing and equipment finance

 

3,286,506

 

3,198,017

 

 

2.8

 

 

Inventory finance

 

1,716,542

 

1,567,214

 

 

9.5

 

 

Auto finance

 

1,069,053

 

552,833

 

 

93.4

 

 

Other

 

26,827

 

27,924

 

 

(3.9

)

 

Total loans and leases

 

$

15,651,648

 

$

15,425,724

 

 

1.5

   %

 

(1)                       Operating leases of $71.1 million and $82.9 million at September 30, 2013 and December 31, 2012, respectively, are included in other assets in the Consolidated Statements of Financial Condition.

 

At September 30, 2013, the consumer real estate junior lien portfolio was comprised of $2 billion of home equity lines of credit (“HELOCs”) and $522.3 million of amortizing junior lien mortgage loans. At September 30, 2013, $1 billion of the consumer real estate junior lien HELOCs were interest-only revolving draw programs with no defined amortization period and draw periods of 5 to 40 years. At September 30, 2013, $1 billion had a 10-year interest-only draw period and a 20-year amortization repayment period and all were within the 10-year initial draw period, and have not yet converted to amortizing loans.

 

From time to time, TCF sells leasing and equipment finance 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 September 30, 2013 and 2012, TCF sold $9.5 million and $16.8 million, respectively, of loans and minimum lease payment receivables, received cash of $9.6 million and $18.6 million, respectively, and recognized a net loss of $90 thousand and a net gain of $1.6 million, respectively. Related to these sales, TCF had servicing liabilities of $195 thousand and $231 thousand for the three months ended September 30, 2013 and 2012, respectively. During

 

8



Table of Contents

 

the nine months ended September 30, 2013 and 2012, TCF sold $43.4 million and $73.5 million, respectively, of loans and minimum lease payment receivables, received cash of $44.4 million and $76.1 million, respectively, and recognized a net loss of $44 thousand and a net gain of $1.9 million, respectively. Related to these sales, TCF had servicing liabilities of $963 thousand and $688 thousand for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013 and December 31, 2012, TCF had total servicing liabilities related to leasing and equipment finance of $1.6 million and $1.2 million, respectively. At September 30, 2013 and December 31, 2012, TCF had lease residuals related to sales of outstanding minimum lease payments receivable of $15.2 million included in loans and leases and $14.8 million included in other assets, respectively.

 

During the three months ended September 30, 2013 and 2012, TCF sold $182.5 million and $161.1 million, respectively, of consumer auto loans and servicing retained with limited representations and indemnifications, received cash of $177.4 million and $157.6 million, respectively, and recognized net gains of $7.1 million and $7.5 million, respectively. Related to these sales, TCF retained interest-only strips of $13.7 million and $12.6 million for the three months ended September 30, 2013 and 2012, respectively. During the nine months ended September 30, 2013 and 2012, TCF sold $559.3 million and $377.1 million, respectively, of consumer auto loans and servicing retained with limited representations and indemnifications, received cash of $544.2 million and $368.9 million, respectively, and recognized net gains of $22.4 million and $15.2 million, respectively. Related to these sales, TCF retained interest-only strips of $42.2 million and $27.3 million for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013, interest-only strips and contractual recourse liabilities related to sales of auto loans totaled $64.8 million and $1.6 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. TCF recorded impairment charges related to auto finance interest-only strips of $3.4 million and $5.2 million during the three and nine months ended September 30, 2013, respectively, and $286 thousand for both the three and nine months ended September 30, 2012. These impairments were related to higher prepayments than originally assumed. 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 $2.1 billion and $1.3 billion at September 30, 2013 and December 31, 2012, respectively.

 

During the three months ended September 30, 2013 and 2012, TCF sold $142.4 million and $136 million, respectively, of consumer real estate loans, with limited representations and indemnifications, received cash of $142.4 million and $141.4 million, respectively, and recognized net gains of $4.2 million and $4.6 million, respectively. Related to these sales, TCF retained interest-only strips of $4.8 million and $0 for the three months ended September 30, 2013 and 2012, respectively. During the nine months ended September 30, 2013 and 2012, TCF sold $560.8 million and $136 million, respectively, of consumer real estate loans, with limited representations, indemnifications, and limited credit guarantees, received cash of $564.1 million and $141.4 million, respectively, and recognized net gains of $16.3 million and $4.6 million, respectively. Related to these sales, TCF retained interest-only strips of $16.4 million and $0 for the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013, interest-only strips and contractual recourse liabilities related to sales of consumer real estate loans totaled $15.3 million and $563 thousand, respectively. TCF recorded impairment charges related to consumer real estate interest-only strips of $0 and $466 thousand during the three and nine months ended September 30, 2013, respectively, and no impairment charge for the same periods in 2012. 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 September 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 nine months ended September 30, 2013 and 2012, losses related to repurchases pursuant to such representations and warranties were immaterial as the majority of such repurchases were of consumer auto loans where TCF typically has contractual agreements with the automobile dealership that originated the loan requiring the dealer to repurchase such contracts from TCF.

 

9



Table of Contents

 

(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 September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

181,052

 

$

50,072

 

$

17,975

 

$

8,197

 

$

7,509

 

$

794

 

$

265,599

 

Charge-offs

 

(20,452

)

(7,286

)

(1,733

)

(216

)

(1,281

)

(2,550

)

(33,518

)

Recoveries

 

2,208

 

773

 

1,075

 

130

 

159

 

1,557

 

5,902

 

Net charge-offs

 

(18,244

)

(6,513

)

(658

)

(86

)

(1,122

)

(993

)

(27,616

)

Provision for credit losses

 

15,377

 

3,505

 

899

 

390

 

3,430

 

1,001

 

24,602

 

Other

 

(215

)

(426

)

-

 

46

 

(705

)

-

 

(1,300

)

Balance, at end of quarter

 

$

177,970

 

$

46,638

 

$

18,216

 

$

8,547

 

$

9,112

 

$

802

 

$

261,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended September 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

188,087

 

$

50,699

 

$

25,450

 

$

7,072

 

$

1,951

 

$

902

 

$

274,161

 

Charge-offs

 

(76,131

)

(20,813

)

(8,368

)

(602

)

(280

)

(2,520

)

(108,714

)

Recoveries

 

1,460

 

266

 

847

 

158

 

-

 

1,529

 

4,260

 

Net charge-offs

 

(74,671

)

(20,547

)

(7,521

)

(444

)

(280

)

(991

)

(104,454

)

Provision for credit losses

 

66,231

 

23,604

 

3,402

 

313

 

1,887

 

838

 

96,275

 

Other

 

(705

)

-

 

-

 

62

 

(499

)

1

 

(1,141

)

Balance, at end of quarter

 

$

178,942

 

$

53,756

 

$

21,331

 

$

7,003

 

$

3,059

 

$

750

 

$

264,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

At or For the Nine Months Ended September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of period

 

$

182,013

 

$

51,575

 

$

21,037

 

$

7,569

 

$

4,136

 

$

798

 

$

267,128

 

Charge-offs

 

(79,160

)

(18,896

)

(5,021

)

(745

)

(3,154

)

(6,846

)

(113,822

)

Recoveries

 

6,743

 

2,085

 

2,909

 

318

 

431

 

5,022

 

17,508

 

Net charge-offs

 

(72,417

)

(16,811

)

(2,112

)

(427

)

(2,723

)

(1,824

)

(96,314

)

Provision for credit losses

 

71,729

 

12,299

 

(709

)

1,480

 

8,949

 

1,828

 

95,576

 

Other

 

(3,355

)

(425

)

-

 

(75

)

(1,250

)

-

 

(5,105

)

Balance, at end of period

 

$

177,970

 

$

46,638

 

$

18,216

 

$

8,547

 

$

9,112

 

$

802

 

$

261,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Nine Months Ended September 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of period

 

$

183,435

 

$

46,954

 

$

21,173

 

$

2,996

 

$

-

 

$

1,114

 

$

255,672

 

Charge-offs

 

(149,273

)

(31,156

)

(12,811

)

(1,555

)

(364

)

(8,064

)

(203,223

)

Recoveries

 

4,057

 

630

 

3,966

 

243

 

1

 

6,079

 

14,976

 

Net charge-offs

 

(145,216

)

(30,526

)

(8,845

)

(1,312

)

(363

)

(1,985

)

(188,247

)

Provision for credit losses

 

141,428

 

37,328

 

9,003

 

5,281

 

4,262

 

1,621

 

198,923

 

Other

 

(705

)

-

 

-

 

38

 

(840

)

-

 

(1,507

)

Balance, at end of period

 

$

178,942

 

$

53,756

 

$

21,331

 

$

7,003

 

$

3,059

 

$

750

 

$

264,841

 

 

10



Table of Contents

 

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

 

 

 

At September 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

 

$

59,740

 

$

33,737

 

$

16,234

 

$

8,262

 

$

9,080

 

$

802

 

$

127,855

 

Individually evaluated for impairment

 

118,230

 

12,901

 

1,982

 

285

 

32

 

-

 

133,430

 

Total

 

$

177,970

 

$

46,638

 

$

18,216

 

$

8,547

 

$

9,112

 

$

802

 

$

261,285

 

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

5,746,031

 

$

2,931,496

 

$

3,272,688

 

$

1,710,801

 

$

1,068,257

 

$

26,798

 

$

14,756,071

 

Individually evaluated for impairment

 

669,601

 

205,592

 

12,689

 

5,741

 

301

 

29

 

893,953

 

Loans acquired with deteriorated credit quality

 

-

 

-

 

1,129

 

-

 

495

 

-

 

1,624

 

Total

 

$

6,415,632

 

$

3,137,088

 

$

3,286,506

 

$

1,716,542

 

$

1,069,053

 

$

26,827

 

$

15,651,648