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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, 2014

 

or

 

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

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

 

(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.

 

 

Outstanding at

Class

 

July 30, 2014

Common Stock, $.01 par value

 

166,845,251 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, 2014 and December 31, 2013

1

 

 

 

 

Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2014 and 2013

2

 

 

 

 

Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 2014 and 2013

3

 

 

 

 

Consolidated Statements of Equity for the
Six Months Ended June 30, 2014 and 2013

4

 

 

 

 

Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2014 and 2013

5

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

 

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

36

 

 

 

 

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

61

 

 

 

 

Index to Exhibits

62

 



Table of Contents

 

PART I – 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)

 

2014

 

2013

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

881,396

 

$

915,076

 

Investments

 

85,449

 

94,326

 

Securities held to maturity

 

220,801

 

19,912

 

Securities available for sale

 

413,316

 

551,064

 

Loans and leases held for sale

 

314,277

 

79,768

 

Loans and leases:

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

First mortgage lien

 

3,542,324

 

3,766,421

 

Junior lien

 

2,480,763

 

2,572,905

 

Total consumer real estate

 

6,023,087

 

6,339,326

 

Commercial

 

3,093,161

 

3,148,352

 

Leasing and equipment finance

 

3,526,264

 

3,428,755

 

Inventory finance

 

1,880,667

 

1,664,377

 

Auto finance

 

1,502,860

 

1,239,386

 

Other

 

24,486

 

26,743

 

Total loans and leases

 

16,050,525

 

15,846,939

 

Allowance for loan and lease losses

 

(236,081

)

(252,230

)

Net loans and leases

 

15,814,444

 

15,594,709

 

Premises and equipment, net

 

436,558

 

437,602

 

Goodwill

 

225,640

 

225,640

 

Other assets

 

445,896

 

461,743

 

Total assets

 

$

18,837,777

 

$

18,379,840

 

Liabilities and Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

5,120,671

 

$

4,980,451

 

Savings

 

5,685,776

 

6,194,003

 

Money market

 

1,284,213

 

831,910

 

Certificates of deposit

 

2,955,492

 

2,426,412

 

Total deposits

 

15,046,152

 

14,432,776

 

Short-term borrowings

 

8,263

 

4,918

 

Long-term borrowings

 

1,221,537

 

1,483,325

 

Total borrowings

 

1,229,800

 

1,488,243

 

Accrued expenses and other liabilities

 

490,114

 

494,062

 

Total liabilities

 

16,766,066

 

16,415,081

 

Equity:

 

 

 

 

 

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

 

263,240

 

263,240

 

Common stock, par value $.01 per share, 280,000,000 shares authorized; 166,924,026 and 165,164,861 shares issued, respectively

 

1,669

 

1,652

 

Additional paid-in capital

 

806,645

 

779,641

 

Retained earnings, subject to certain restrictions

 

1,049,725

 

977,846

 

Accumulated other comprehensive loss

 

(14,915

)

(27,213

)

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

 

(51,458

)

(42,198

)

Total TCF Financial Corporation stockholders’ equity

 

2,054,906

 

1,952,968

 

Non-controlling interest in subsidiaries

 

16,805

 

11,791

 

Total equity

 

2,071,711

 

1,964,759

 

Total liabilities and equity

 

$

18,837,777

 

$

18,379,840

 

 

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)

 

2014

 

2013

 

2014

 

2013

Interest income:

 

 

 

 

 

 

 

 

Loans and leases

$  

206,788

$  

206,675

$  

409,325

$  

411,580

Securities available for sale

 

2,805

 

4,637

 

5,968

 

9,432

Securities held to maturity

 

1,443

 

62

 

2,407

 

126

Investments and other

 

9,055

 

6,234

 

17,018

 

12,020

Total interest income

 

220,091

 

217,608

 

434,718

 

433,158

Interest expense:

 

 

 

 

 

 

 

 

Deposits

 

8,877

 

8,851

 

16,914

 

18,532

Borrowings

 

5,113

 

6,713

 

10,429

 

13,491

Total interest expense

 

13,990

 

15,564

 

27,343

 

32,023

Net interest income

 

206,101

 

202,044

 

407,375

 

401,135

Provision for credit losses

 

9,909

 

32,591

 

24,401

 

70,974

Net interest income after provision for credit losses

 

196,192

 

169,453

 

382,974

 

330,161

Non-interest income:

 

 

 

 

 

 

 

 

Fees and service charges

 

38,035

 

41,572

 

74,654

 

80,895

Card revenue

 

13,249

 

13,270

 

25,499

 

25,687

ATM revenue

 

5,794

 

5,828

 

11,113

 

11,333

Subtotal

 

57,078

 

60,670

 

111,266

 

117,915

Leasing and equipment finance

 

23,069

 

22,609

 

45,049

 

38,813

Gains on sales of auto loans, net

 

7,270

 

8,135

 

15,740

 

15,281

Gains on sales of consumer real estate loans, net

 

8,151

 

4,069

 

19,857

 

12,195

Servicing fee income

 

4,892

 

3,128

 

9,199

 

5,884

Other

 

2,789

 

1,172

 

5,171

 

2,398

Fees and other revenue

 

103,249

 

99,783

 

206,282

 

192,486

Gains on securities, net

 

767

 

-

 

1,141

 

-

Total non-interest income

 

104,016

 

99,783

 

207,423

 

192,486

Non-interest expense:

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

109,664

 

105,537

 

224,753

 

209,766

Occupancy and equipment

 

34,316

 

33,062

 

69,155

 

65,937

FDIC insurance

 

7,625

 

8,362

 

15,188

 

16,072

Operating lease depreciation

 

6,613

 

6,150

 

12,840

 

11,785

Advertising and marketing

 

5,862

 

5,532

 

11,340

 

11,264

Deposit account premiums

 

383

 

600

 

801

 

1,202

Other

 

42,618

 

41,946

 

83,953

 

79,885

Subtotal

 

207,081

 

201,189

 

418,030

 

395,911

Foreclosed real estate and repossessed assets, net

 

5,743

 

7,555

 

11,811

 

17,722

Other credit costs, net

 

371

 

(228)

 

490

 

(1,065)

Total non-interest expense

 

213,195

 

208,516

 

430,331

 

412,568

Income before income tax expense

 

87,013

 

60,720

 

160,066

 

110,079

Income tax expense

 

31,385

 

19,444

 

57,964

 

37,003

Income after income tax expense

 

55,628

 

41,276

 

102,102

 

73,076

Income attributable to non-controlling interest

 

2,503

 

2,372

 

4,220

 

4,198

Net income attributable to TCF Financial Corporation

 

53,125

 

38,904

 

97,882

 

68,878

Preferred stock dividends

 

4,847

 

4,847

 

9,694

 

9,371

Net income available to common stockholders

$  

48,278

$  

34,057

$  

88,188

$  

59,507

Net income per common share:

 

 

 

 

 

 

 

 

Basic

$  

.30

$  

.21

$  

.54

$  

.37

Diluted

$  

.29

$  

.21

$  

.54

$  

.37

 

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)

 

2014

 

2013

 

2014

 

2013

 

Net income attributable to TCF Financial Corporation

$

53,125

38,904

$

97,882

$  

68,878

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) arising during the period

 

8,648

 

(34,420

)

20,514

 

(48,249

)

Reclassification of net gains to net income

 

(452

)

-

 

(629

)

-

 

Net investment hedges:

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains arising during the period

 

(1,382

)

874

 

(172

)

1,411

 

Foreign currency translation adjustment:

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) arising during the period

 

1,399

 

(973

)

23

 

(1,595

)

Recognized postretirement prior service cost and transition obligation:

 

 

 

 

 

 

 

 

 

Net actuarial losses arising during the period

 

(11

)

(12

)

(23

)

(24

)

Income tax (expense) benefit

 

(2,561

)

12,662

 

(7,415

)

17,681

 

Total other comprehensive income (loss)

 

5,641

 

(21,869

)

12,298

 

(30,776

)

Comprehensive income

$

58,766

17,035

$

110,180

$  

38,102

 

 

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

 

(Loss) Income

 

and Other

 

Total

 

Interests

 

Equity

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)

Net 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2013

 

4,006,900

 

165,164,861

$

263,240

$

1,652

$

779,641

$

977,846

$

(27,213)

 

$(42,198)

$

1,952,968

$

11,791

$

1,964,759

Net income attributable to TCF Financial Corporation

 

-

 

-

 

-

 

-

 

-

 

97,882

 

-

 

-

 

97,882

 

4,220

 

102,102

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

-

 

12,298

 

-

 

12,298

 

-

 

12,298

Net investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

794

 

794

Dividends on preferred stock

 

-

 

-

 

-

 

-

 

-

 

(9,694)

 

-

 

-

 

(9,694)

 

-

 

(9,694)

Dividends on common stock

 

-

 

-

 

-

 

-

 

-

 

(16,309)

 

-

 

-

 

(16,309)

 

-

 

(16,309)

Grants of restricted stock

 

-

 

1,052,898

 

-

 

10

 

(10)

 

-

 

-

 

-

 

-

 

-

 

-

Common shares purchased by TCF employee benefit plans

 

-

 

816,570

 

-

 

8

 

13,100

 

-

 

-

 

-

 

13,108

 

-

 

13,108

Cancellation of shares of restricted stock

 

-

 

(52,020)

 

-

 

-

 

(219)

 

-

 

-

 

-

 

(219)

 

-

 

(219)

Cancellation of common shares for tax withholding

 

-

 

(58,283)

 

-

 

(1)

 

(964)

 

-

 

-

 

-

 

(965)

 

-

 

(965)

Net amortization of stock compensation

 

-

 

-

 

-

 

-

 

5,074

 

-

 

-

 

-

 

5,074

 

-

 

5,074

Stock compensation tax benefit

 

-

 

-

 

-

 

-

 

763

 

-

 

-

 

-

 

763

 

-

 

763

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

 

-

 

-

 

-

 

-

 

9,260

 

-

 

-

 

(9,260)

 

-

 

-

 

-

Balance, June 30, 2014

 

4,006,900

 

166,924,026

$

263,240

$

1,669

$

806,645

$

1,049,725

$

(14,915)

$

(51,458)

$

2,054,906

$

16,805

$

2,071,711

 

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,

 

(In thousands)

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Net income attributable to TCF Financial Corporation

 

$

97,882

 

$

68,878

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for credit losses

 

24,401

 

70,974

 

Depreciation and amortization

 

62,122

 

54,983

 

Proceeds from sales of loans and leases held for sale

 

207,456

 

112,671

 

Gains on sales of assets, net

 

(38,350

)

(29,155

)

Net income attributable to non-controlling interest

 

4,220

 

4,198

 

Originations of loans held for sale, net of repayments

 

(286,182

)

(138,163

)

Net increase in other assets and accrued expenses and other liabilities

 

31,816

 

69,911

 

Other, net

 

(15,764

)

7,559

 

Net cash provided by operating activities

 

87,601

 

221,856

 

Cash flows from investing activities:

 

 

 

 

 

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

 

(897,681

)

(641,671

)

Purchases of equipment for lease financing

 

(441,792

)

(430,463

)

Purchase of inventory finance portfolios

 

-

 

(9,658

)

Proceeds from sales of loans

 

886,715

 

685,041

 

Proceeds from sales of lease receivables

 

10,289

 

25,791

 

Proceeds from sales of securities

 

2,519

 

-

 

Purchases of securities

 

(70,479

)

(15,998

)

Proceeds from maturities of and principal collected on securities

 

25,255

 

59,305

 

Purchases of Federal Home Loan Bank stock

 

(47,000

)

(5,785

)

Redemption of Federal Home Loan Bank stock

 

55,928

 

8,908

 

Proceeds from sales of real estate owned

 

33,524

 

59,902

 

Purchases of premises and equipment

 

(22,864

)

(17,377

)

Other, net

 

13,412

 

14,147

 

Net cash used in investing activities

 

(452,174

)

(267,858

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

600,621

 

234,798

 

Net increase in short-term borrowings

 

3,345

 

411

 

Proceeds from long-term borrowings

 

1,104,999

 

171,600

 

Payments on long-term borrowings

 

(1,316,734

)

(241,146

)

Redemption of subordinated debt

 

(50,000

)

(71,020

)

Net investment by (distribution to) non-controlling interest

 

794

 

(806

)

Dividends paid on preferred stock

 

(9,694

)

(9,371

)

Dividends paid on common stock

 

(16,309

)

(16,083

)

Stock compensation tax benefit (expense)

 

763

 

(495

)

Common shares sold to TCF employee benefit plans

 

13,108

 

10,203

 

Net cash provided by financing activities

 

330,893

 

78,091

 

Net (decrease) increase in cash and due from banks

 

(33,680

)

32,089

 

Cash and due from banks at beginning of period

 

915,076

 

1,100,347

 

Cash and due from banks at end of period

 

$

881,396

 

$

1,132,436

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 Cash paid (received) for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

25,553

 

$

32,118

 

Income taxes, net

 

$

58,640

 

$

(32,322

)

 Transfer of loans to other assets

 

$

42,371

 

$

56,215

 

 Transfer of securities available for sale to securities held to maturity

 

$

191,665

 

$

-

 

 

See accompanying notes to consolidated financial statements.

 

5


 

 

 


Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1.  Basis of Presentation

 

TCF Financial Corporation, a Delaware corporation (“we,” “us,” “our,” “TCF,” or the “Company”), is a national bank holding company based in Wayzata, Minnesota. Unless otherwise indicated, references herein to “TCF” include its direct and indirect subsidiaries. Its principal subsidiary, TCF National Bank (“TCF Bank”), is headquartered in South Dakota.

 

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, 2013, 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, 2013, remain unchanged and will be followed similarly as in previous periods. The Company’s securities held to maturity policy described below became significant in the first quarter of 2014.

 

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.

 

Other Significant Accounting Policies

 

Securities Held to Maturity Securities held to maturity are carried at cost and adjusted for amortization of premiums or accretion of discounts using a level yield method; however, transfers of securities available for sale to securities held to maturity are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of each transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held to maturity investment security. Such amounts are then amortized over the remaining life of the transferred security as an adjustment of the yield on those securities. TCF periodically evaluates securities held to maturity for other than temporary impairment. Declines in value considered other than temporary, if any, would be recorded as non-interest income within gains on securities, net.

 

Note 2.  Cash and Due from Banks

 

At June 30, 2014 and December 31, 2013, TCF Bank was required by Federal Reserve regulations to maintain reserves of $93.8 million and $95.5 million, respectively, in cash on hand or at the Federal Reserve Bank.

 

TCF maintains cash balances that are restricted as to their use in accordance with certain contractual agreements primarily related to the sale and servicing of auto loans and consumer real estate loans. Cash payments received on loans serviced for third parties are held in separate accounts until remitted. TCF also retains cash balances for potential loss recourse on certain sold auto loans as well as cash for collateral on certain borrowings and foreign exchange contracts. TCF maintained restricted cash totaling $67.1 million and $46.1 million at June 30, 2014 and December 31, 2013, respectively.

 

6



Table of Contents

 

Note 3.  Securities Available for Sale and Securities Held to Maturity

 

Securities consisted of the following.

 

 

 

At June 30, 2014

 

At December 31, 2013

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

419,833

 

 $

1,061

 

$

7,903

 

$

412,991

 

$

592,283

 

 $

1,131

 

$

45,377

 

$

548,037

Other

 

81

 

-

 

-

 

81

 

93

 

-

 

-

 

93

Other securities

 

265

 

-

 

21

 

244

 

1,642

 

1,292

 

-

 

2,934

Total securities available for sale

420,179

 

 $

1,061

 

$

7,924

 

$

413,316

 

$

594,018

 

 $

2,423

 

$

45,377

 

$

551,064

Weighted-average yield

 

2.72

 %

 

 

 

 

 

 

2.65

 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

215,677

 

 $

2,926

 

$

68

 

$

218,535

 

$

14,610

 

 $

-

 

$

-

 

$

14,610

Other securities

 

5,124

 

-

 

-

 

5,124

 

5,302

 

-

 

-

 

5,302

Total securities held to maturity

220,801

 

 $

2,926

 

$

68

 

$

223,659

 

$

19,912

 

 $

-

 

$

-

 

$

19,912

Weighted-average yield

 

2.66

 %

 

 

 

 

 

 

3.43

 %

 

 

 

 

 

 

Gross realized gains of $767 thousand and $1.1 million were recognized on sales of securities available for sale during the second quarter and first six months of 2014, respectively. There were no gains on sales of securities available for sale during the first six months of 2013. At June 30, 2014 and December 31, 2013, mortgage-backed securities with a carrying value of $12.4 million and $14.7 million, respectively, were pledged as collateral to secure certain deposits and borrowings. There were no impairment charges recognized on securities available for sale during the first six months of 2014 and 2013.

 

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.

 

During the first six months of 2014, TCF transferred $191.7 million of available for sale mortgage-backed securities to held to maturity, reflecting TCF’s intent and ability to hold these securities to maturity. At June 30, 2014 and December 31, 2013, the unrealized holding loss on the transferred securities retained in accumulated other comprehensive income totaled $16.5 million and $331 thousand, respectively. These amounts are amortized over the remaining life of the transferred security. Other held to maturity securities primarily consist of non-trading mortgage-backed securities and other bonds which qualify for investment credit under the Community Reinvestment Act. There were no impairment charges recognized on held to maturity securities during the first six months of 2014 and 2013.

 

7



Table of Contents

 

The following tables show the gross unrealized losses and fair value of securities available for sale and securities held to maturity that are in a loss position at June 30, 2014 and December 31, 2013, aggregated by investment category and length of time the securities were in a continuous loss position. There were no unrealized gains or losses for securities held to maturity at December 31, 2013.

 

 

 

At June 30, 2014

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

-

 

$

-

 

$

335,995

 

$

7,903

 

$

335,995

 

$

7,903

Other securities

 

244

 

21

 

-

 

-

 

244

 

21

Total securities available for sale

 

$

244

 

$

21

 

$

335,995

 

$

7,903

 

$

336,239

 

$

7,924

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

1,821

 

$

68

 

$

-

 

$

-

 

$

1,821

 

$

68

Total securities held to maturity

 

$

1,821

 

$

68

 

$

-

 

$

-

 

$

1,821

 

$

68

 

 

 

At December 31, 2013

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

353,449

 

$

22,678

 

$

156,472

 

$

22,699

 

$

509,921

 

$

45,377

Total securities available for sale

 

$

353,449

 

$

22,678

 

$

156,472

 

$

22,699

 

$

509,921

 

$

45,377

 

The amortized cost, fair value and yield of securities available for sale and securities held to maturity by contractual maturity, at June 30, 2014 and December 31, 2013, 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 June 30, 2014

 

 

At December 31, 2013

 

(Dollars in thousands)

 

Amortized Cost

 

Fair Value

 

Yield

 

 

Amortized Cost

 

Fair Value

 

Yield

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in 1-5 years

 

$

116

 

$

117

 

4.96

 %

 

$

138

 

$

140

 

5.24

 %

Due in 5-10 years

 

46,622

 

47,320

 

2.00

 

 

24,328

 

24,543

 

2.17

 

Due after 10 years

 

373,176

 

365,635

 

2.81

 

 

567,910

 

523,447

 

2.67

 

No stated maturity

 

265

 

244

 

-

 

 

1,642

 

2,934

 

-

 

Total securities available for sale

 

$

420,179

 

$

413,316

 

2.72

 %

 

$

594,018

 

$

551,064

 

2.65

 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in 1-5 years

 

$

3,000

 

$

3,000

 

2.90

 %

 

$

3,000

 

$

3,000

 

2.90

 %

Due after 10 years

 

217,801

 

220,659

 

2.66

 

 

16,912

 

16,912

 

3.52

 

Total securities held to maturity

 

$

220,801

 

$

223,659

 

2.66

 %

 

$

19,912

 

$

19,912

 

3.43

 %

 

8



Table of Contents

 

Note 4.  Loans and Leases

 

Loans and leases consisted of the following.

 

 

 

At June 30,

 

At December 31,

 

Percent

 

(Dollars in thousands)

 

2014

 

2013

 

Change

 

Consumer real estate:

 

 

 

 

 

 

 

First mortgage lien

 

$

3,542,324

 

$

3,766,421

 

(5.9

) %

Junior lien

 

2,480,763

 

2,572,905

 

(3.6

)

Total consumer real estate

 

6,023,087

 

6,339,326

 

(5.0

)

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

2,476,808

 

2,604,673

 

(4.9

)

Construction and development

 

155,168

 

139,024

 

11.6

 

Total commercial real estate

 

2,631,976

 

2,743,697

 

(4.1

)

Commercial business

 

461,185

 

404,655

 

14.0

 

Total commercial

 

3,093,161

 

3,148,352

 

(1.8

)

Leasing and equipment finance

 

3,526,264

 

3,428,755

 

2.8

 

Inventory finance

 

1,880,667

 

1,664,377

 

13.0

 

Auto finance

 

1,502,860

 

1,239,386

 

21.3

 

Other

 

24,486

 

26,743

 

(8.4

)

Total loans and leases (1)

 

$

16,050,525

 

$

15,846,939

 

1.3

 %

 

(1)

Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income, and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was $37.5 million and $30.3 million at June 30, 2014 and December 31, 2013, respectively.

 

At June 30, 2014 and December 31, 2013, the consumer real estate junior lien portfolio was comprised of $2 billion and $2.1 billion, respectively, of home equity lines of credit (“HELOCs”) and $471.9 million and $505.5 million, respectively, of amortizing junior lien mortgage loans. At June 30, 2014 and December 31, 2013, $896 million and $969.2 million, respectively, 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 and, at June 30, 2014, 18.7% will mature prior to 2021. At both June 30, 2014 and December 31, 2013, $1.1 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 will not convert to amortizing loans until 2021 or later.

 

During the six months ended June 30, 2014 and 2013, TCF sold $481.9 million and $376.7 million, respectively, of consumer auto loans with servicing retained, received cash of $492.1 million and $366.8 million, respectively, and recognized gains of $16.2 million and $15.3 million, respectively. Related to these sales, TCF retained interest-only strips of $8.2 million and $28.5 million for the six months ended June 30, 2014 and 2013, respectively. Interest-only strips related to sales of auto loans totaled $55.6 million and $64.9 million at June 30, 2014 and December 31, 2013, respectively. TCF recorded impairment charges on these interest-only strips of $1.2 million and $1.8 million during the six months ended June 30, 2014 and 2013, respectively, as a result of higher prepayments than originally assumed. Contractual recourse liabilities related to sales of auto loans totaled $819 thousand and $1.1 million at June 30, 2014 and December 31, 2013, respectively. No servicing assets or liabilities related to consumer auto loans were recorded within TCF’s Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace. TCF’s auto loan managed portfolio, which includes portfolio loans, loans held for sale, and loans sold and serviced for others, totaled $3.1 billion and $2.4 billion at June 30, 2014 and December 31, 2013, respectively.

 

9



Table of Contents

 

During the six months ended June 30, 2014 and 2013, TCF sold $571.6 million and $418.4 million, respectively, of consumer real estate loans, received cash of $585.4 million and $421.8 million, respectively, and recognized gains of $19.7 million and $12.2 million, respectively. Related to these sales, TCF retained interest-only strips of $9.1 million and $11.6 million for the six months ended June 30, 2014 and 2013, respectively. Interest-only strips related to sales of consumer real estate loans totaled $24.5 million and $19.6 million at June 30, 2014 and December 31, 2013, respectively. TCF had no impairment charges on these interest-only strips for the six months ended June 30, 2014 and recorded impairment charges of $466 thousand on these interest-only strips during the six months ended June 30, 2013. Contractual recourse liabilities related to sales of consumer real estate loans totaled $563 thousand at both June 30, 2014 and December 31, 2013. No servicing assets or liabilities related to consumer real estate loans were recorded within TCF’s Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace. TCF’s consumer real estate loan managed portfolio, which includes portfolio loans, loans held for sale, and loans sold and serviced for others, totaled $7.1 billion and $7 billion at June 30, 2014 and December 31, 2013, respectively.

 

From time to time, TCF sells leasing and equipment finance loans and minimum lease payments to third-party financial institutions at fixed rates. During the six months ended June 30, 2014 and 2013, TCF sold $24.6 million and $34 million, respectively, of loans and minimum lease payment receivables, received cash of $25 million and $34.8 million, respectively, and recognized net losses of $22 thousand and net gains of $46 thousand, respectively. Related to these sales, TCF established servicing liabilities of $403 thousand and $768 thousand for the six months ended June 30, 2014 and 2013, respectively. At June 30, 2014 and December 31, 2013, TCF had total servicing liabilities related to leasing and equipment finance of $1.6 million and $1.7 million, respectively. At June 30, 2014 and 2013, TCF had lease residuals related to sales of outstanding minimum lease payments receivable of $15.3 million and $16.4 million, respectively. TCF’s leasing and equipment finance loan managed portfolio, which includes portfolio loans, loans held for sale, operating leases, and loans sold and serviced for others, totaled $3.8 billion and $3.7 billion at June 30, 2014 and December 31, 2013, respectively.

 

TCF’s agreements to sell auto and consumer real estate loans typically contain certain representations and warranties regarding the loans sold. These representations and warranties generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer, the loan’s compliance with the criteria set forth in the agreement, payment delinquency, and compliance with applicable laws and regulations. TCF may be required to repurchase loans in the event of an unremedied breach of these representations or warranties. During the six months ended June 30, 2014 and 2013, losses related to repurchases pursuant to such representations and warranties were immaterial. The majority of such repurchases were of consumer auto loans where TCF typically has contractual agreements with the automobile dealership that originated the loan requiring the dealer to repurchase such contracts from TCF.

 

10



Table of Contents

 

Note 5.  Allowance for Loan and Lease Losses and Credit Quality Information

 

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

 

(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, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

169,367

 

$

36,062

 

$

18,623

 

$

10,309

 

$

12,062

 

$

623

 

$

247,046

 

Charge-offs

 

(13,012

)

(3,721

)

(1,875

)

(183

)

(2,191

)

(1,993

)

(22,975

)

Recoveries

 

1,555

 

244

 

902

 

76

 

358

 

1,485

 

4,620

 

Net charge-offs

 

(11,457

)

(3,477

)

(973

)

(107

)

(1,833

)

(508

)

(18,355

)

Provision for credit losses

 

4,106

 

(1,168

)

1,534

 

(752

)

5,521

 

668

 

9,909

 

Other

 

(667

)

(56

)

-

 

89

 

(1,885

)

-

 

(2,519

)

Balance, at end of quarter

 

$

161,349

 

$

31,361

 

$

19,184

 

$

9,539

 

$

13,865

 

$

783

 

$

236,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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) recoveries

 

(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

 

 

(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, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of period

 

$

176,030

 

$

37,467

 

$

18,733

 

$

8,592

 

$

10,623

 

$

785

 

$

252,230

 

Charge-offs

 

(27,567

)

(5,366

)

(3,410

)

(350

)

(4,724

)

(3,895

)

(45,312

)

Recoveries

 

3,407

 

379

 

1,688

 

377

 

615

 

3,075

 

9,541

 

Net (charge-offs) recoveries

 

(24,160

)

(4,987

)

(1,722

)

27

 

(4,109

)

(820

)

(35,771

)

Provision for credit losses

 

11,185

 

(1,048

)

2,173

 

925

 

10,348

 

818

 

24,401

 

Other

 

(1,706

)

(71

)

-

 

(5

)

(2,997

)

-

 

(4,779

)

Balance, at end of period

 

$

161,349

 

$

31,361

 

$

19,184

 

$

9,539

 

$

13,865

 

$

783

 

$

236,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

11



Table of Contents

 

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

 

 

 

At June 30, 2014

(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

 

$

39,858

 

$

26,609

 

$

17,473

 

$

9,251

 

$

13,560

 

$

779

 

$

107,530

Individually evaluated for impairment

 

121,491

 

4,752

 

1,711

 

288

 

305

 

4

 

128,551

Total

 

$

161,349

 

$

31,361

 

$

19,184

 

$

9,539

 

$

13,865

 

$

783

 

$

236,081

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

5,370,454

 

$

2,941,734

 

$

3,508,424

 

$

1,878,254

 

$

1,501,148

 

$

24,400