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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, 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

 

October 29, 2014

Common Stock, $.01 par value

 

167,229,255 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, 2014 and December 31, 2013

1

 

 

Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2014 and 2013

2

 

 

Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended September 30, 2014 and 2013

3

 

 

Consolidated Statements of Equity for the
Nine Months Ended September 30, 2014 and 2013

4

 

 

Consolidated Statements of Cash Flows for the
Nine Months Ended September 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

39

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

61

 

 

Item 4. Controls and Procedures

62

 

 

Part II. Other Information

 

 

 

Items 1 - 6

63

 

 

Signatures

65

 

 

Index to Exhibits

66

 


 

 


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

(Dollars in thousands, except per-share data)

 

At September 30,
2014

 

At December 31,
2013

 

 

 

(Unaudited)

 

 

 

Assets:

 

 

 

 

 

Cash and due from banks

 

$

840,847

 

$

915,076

 

Investments

 

84,478

 

94,326

 

Securities held to maturity

 

215,371

 

19,912

 

Securities available for sale

 

466,130

 

551,064

 

Loans and leases held for sale

 

156,390

 

79,768

 

Loans and leases:

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

First mortgage lien

 

3,444,581

 

3,766,421

 

Junior lien

 

2,526,486

 

2,572,905

 

Total consumer real estate

 

5,971,067

 

6,339,326

 

Commercial

 

3,159,766

 

3,148,352

 

Leasing and equipment finance

 

3,632,793

 

3,428,755

 

Inventory finance

 

1,836,538

 

1,664,377

 

Auto finance

 

1,749,411

 

1,239,386

 

Other

 

24,003

 

26,743

 

Total loans and leases

 

16,373,578

 

15,846,939

 

Allowance for loan and lease losses

 

(222,658

)

(252,230

)

Net loans and leases

 

16,150,920

 

15,594,709

 

Premises and equipment, net

 

436,316

 

437,602

 

Goodwill

 

225,640

 

225,640

 

Other assets

 

446,011

 

461,743

 

Total assets

 

$

19,022,103

 

$

18,379,840

 

Liabilities and Equity:

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

5,075,309

 

$

4,980,451

 

Savings

 

5,385,611

 

6,194,003

 

Money market

 

1,706,206

 

831,910

 

Certificates of deposit

 

3,022,394

 

2,426,412

 

Total deposits

 

15,189,520

 

14,432,776

 

Short-term borrowings

 

3,384

 

4,918

 

Long-term borrowings

 

1,198,297

 

1,483,325

 

Total borrowings

 

1,201,681

 

1,488,243

 

Accrued expenses and other liabilities

 

517,470

 

494,062

 

Total liabilities

 

16,908,671

 

16,415,081

 

Equity:

 

 

 

 

 

Preferred stock, par value $0.01 per share, 30,000,000 shares authorized; 4,006,900 issued

 

263,240

 

263,240

 

Common stock, par value $0.01 per share, 280,000,000 shares authorized; 167,160,721 and 165,164,861 shares issued, respectively

 

1,672

 

1,652

 

Additional paid-in capital

 

809,778

 

779,641

 

Retained earnings, subject to certain restrictions

 

1,088,992

 

977,846

 

Accumulated other comprehensive loss

 

(16,216

)

(27,213

)

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

 

(48,879

)

(42,198

)

Total TCF Financial Corporation stockholders’ equity

 

2,098,587

 

1,952,968

 

Non-controlling interest in subsidiaries

 

14,845

 

11,791

 

Total equity

 

2,113,432

 

1,964,759

 

Total liabilities and equity

 

$

19,022,103

 

$

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
September 30,

 

 

 

Nine Months Ended
September 30,

 

(In thousands, except per-share data)

 

 

2014

 

2013

 

 

 

2014

 

2013

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases

 

 

$

205,604

 

$

203,879

 

 

 

$

614,929

 

$

615,459

 

Securities available for sale

 

 

2,973

 

4,448

 

 

 

8,941

 

13,880

 

Securities held to maturity

 

 

1,445

 

57

 

 

 

3,852

 

183

 

Investments and other

 

 

9,681

 

7,069

 

 

 

26,699

 

19,089

 

Total interest income

 

 

219,703

 

215,453

 

 

 

654,421

 

648,611

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

10,711

 

9,644

 

 

 

27,625

 

28,176

 

Borrowings

 

 

4,812

 

6,182

 

 

 

15,241

 

19,673

 

Total interest expense

 

 

15,523

 

15,826

 

 

 

42,866

 

47,849

 

Net interest income

 

 

204,180

 

199,627

 

 

 

611,555

 

600,762

 

Provision for credit losses

 

 

15,739

 

24,602

 

 

 

40,140

 

95,576

 

Net interest income after provision for credit losses

 

 

188,441

 

175,025

 

 

 

571,415

 

505,186

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

40,255

 

42,457

 

 

 

114,909

 

123,352

 

Card revenue

 

 

12,994

 

13,167

 

 

 

38,493

 

38,854

 

ATM revenue

 

 

5,863

 

5,941

 

 

 

16,976

 

17,274

 

Subtotal

 

 

59,112

 

61,565

 

 

 

170,378

 

179,480

 

Leasing and equipment finance

 

 

24,383

 

28,778

 

 

 

69,432

 

67,591

 

Gains on sales of auto loans, net

 

 

14,863

 

7,140

 

 

 

30,603

 

22,421

 

Gains on sales of consumer real estate loans, net

 

 

8,762

 

4,152

 

 

 

28,619

 

16,347

 

Servicing fee income

 

 

5,880

 

3,619

 

 

 

15,079

 

9,503

 

Other

 

 

3,170

 

986

 

 

 

8,341

 

3,384

 

Fees and other revenue

 

 

116,170

 

106,240

 

 

 

322,452

 

298,726

 

(Losses) gains on securities, net

 

 

(94

)

(80

)

 

 

1,047

 

(80

)

Total non-interest income

 

 

116,076

 

106,160

 

 

 

323,499

 

298,646

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

 

112,393

 

110,833

 

 

 

337,146

 

320,599

 

Occupancy and equipment

 

 

34,121

 

33,253

 

 

 

103,276

 

99,190

 

FDIC insurance

 

 

7,292

 

8,102

 

 

 

22,480

 

24,174

 

Operating lease depreciation

 

 

7,434

 

6,706

 

 

 

20,274

 

18,491

 

Advertising and marketing

 

 

5,336

 

4,593

 

 

 

16,676

 

15,857

 

Deposit account premiums

 

 

320

 

664

 

 

 

1,121

 

1,866

 

Other

 

 

47,888

 

43,730

 

 

 

131,841

 

123,615

 

Subtotal

 

 

214,784

 

207,881

 

 

 

632,814

 

603,792

 

Foreclosed real estate and repossessed assets, net

 

 

5,315

 

4,162

 

 

 

17,126

 

21,884

 

Other credit costs, net

 

 

(411

)

189

 

 

 

79

 

(876

)

Total non-interest expense

 

 

219,688

 

212,232

 

 

 

650,019

 

624,800

 

Income before income tax expense

 

 

84,829

 

68,953

 

 

 

244,895

 

179,032

 

Income tax expense

 

 

30,791

 

24,551

 

 

 

88,755

 

61,554

 

Income after income tax expense

 

 

54,038

 

44,402

 

 

 

156,140

 

117,478

 

Income attributable to non-controlling interest

 

 

1,721

 

1,607

 

 

 

5,941

 

5,805

 

Net income attributable to TCF Financial Corporation

 

 

52,317

 

42,795

 

 

 

150,199

 

111,673

 

Preferred stock dividends

 

 

4,847

 

4,847

 

 

 

14,541

 

14,218

 

Net income available to common stockholders

 

 

$

47,470

 

$

37,948

 

 

 

$

135,658

 

$

97,455

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$

0.29

 

$

0.24

 

 

 

$

0.83

 

$

0.61

 

Diluted

 

 

$

0.29

 

$

0.23

 

 

 

$

0.83

 

$

0.60

 

 

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)

 

2014

 

2013

 

 

 

2014

 

2013

 

Net income attributable to TCF Financial Corporation

 

$

52,317

 

$

42,795

 

 

 

$

150,199

 

$

111,673

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains arising during the period

 

(862

)

850

 

 

 

19,652

 

(47,399

)

Reclassification of net losses (gains) to net income

 

254

 

 

 

 

(375

)

 

Net investment hedge:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) arising during the period

 

1,849

 

(647

)

 

 

1,677

 

764

 

Foreign currency translation adjustment:

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains arising during the period

 

(2,066

)

615

 

 

 

(2,043

)

(980

)

Recognized postretirement prior service cost and transition obligation:

 

 

 

 

 

 

 

 

 

 

 

Net actuarial losses arising during the period

 

(12

)

(11

)

 

 

(35

)

(35

)

Income tax (expense) benefit

 

(464

)

(72

)

 

 

(7,879

)

17,609

 

Total other comprehensive (loss) income

 

(1,301

)

735

 

 

 

10,997

 

(30,041

)

Comprehensive income

 

$

51,016

 

$

43,530

 

 

 

$

161,196

 

$

81,632

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(Unaudited)

 

 

 

 

TCF Financial Corporation

 

 

 

 

 

 

 

 

 

Number of
Shares Issued

 

 

Preferred

 

Common

 

Additional
Paid-in

 

Retained

 

Accumulated
Other
Comprehensive

 

Treasury
Stock

 

 

 

 

Non-
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

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

150,199

 

 

 

150,199

 

 

5,941

 

156,140

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

10,997

 

 

10,997

 

 

 

10,997

 

Net distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,887

)

(2,887

)

Dividends on preferred stock

 

 

 

 

 

 

 

 

(14,541

)

 

 

(14,541

)

 

 

(14,541

)

Dividends on common stock

 

 

 

 

 

 

 

 

(24,512

)

 

 

(24,512

)

 

 

(24,512

)

Grants of restricted stock

 

 

 

1,110,706

 

 

 

11

 

(11

)

 

 

 

 

 

 

 

Common shares purchased by TCF employee benefit plans

 

 

 

1,109,887

 

 

 

11

 

17,791

 

 

 

 

17,802

 

 

 

17,802

 

Cancellation of shares of restricted stock

 

 

 

(70,790

)

 

 

(1

)

(326

)

 

 

 

(327

)

 

 

(327

)

Cancellation of common shares for tax withholding

 

 

 

(200,943

)

 

 

(2

)

(3,260

)

 

 

 

(3,262

)

 

 

(3,262

)

Net amortization of stock compensation

 

 

 

 

 

 

 

7,141

 

 

 

 

7,141

 

 

 

7,141

 

Exercise of stock options

 

 

 

47,000

 

 

 

1

 

739

 

 

 

 

740

 

 

 

740

 

Stock compensation tax benefit

 

 

 

 

 

 

 

1,382

 

 

 

 

1,382

 

 

 

1,382

 

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

 

 

 

 

 

 

 

6,681

 

 

 

(6,681

)

 

 

 

 

Balance, September 30, 2014

 

 

4,006,900

 

167,160,721

 

 

$

263,240

 

$

1,672

 

$

809,778

 

$

1,088,992

 

$

(16,216

)

$

(48,879

)

$

2,098,587

 

 

$

14,845

 

$

2,113,432

 

 

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)

 

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income attributable to TCF Financial Corporation

 

 

$

150,199

 

$

111,673

 

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

 

 

 

 

 

 

Provision for credit losses

 

 

40,140

 

95,576

 

Depreciation and amortization

 

 

95,428

 

85,229

 

Proceeds from sales of loans and leases held for sale

 

 

373,429

 

165,764

 

Gains on sales of assets, net

 

 

(60,784

)

(43,805

)

Net income attributable to non-controlling interest

 

 

5,941

 

5,805

 

Originations of loans held for sale, net of repayments

 

 

(451,304

)

(242,890

)

Net increase in other assets and accrued expenses and other liabilities

 

 

66,434

 

168,126

 

Other, net

 

 

(24,007

)

(29,713

)

Net cash provided by operating activities

 

 

195,476

 

315,765

 

Cash flows from investing activities:

 

 

 

 

 

 

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

 

 

(1,485,383

)

(859,419

)

Purchases of equipment for lease financing

 

 

(654,671

)

(631,545

)

Purchase of inventory finance portfolios

 

 

 

(9,658

)

Proceeds from sales of loans

 

 

1,469,077

 

956,406

 

Proceeds from sales of lease receivables

 

 

22,590

 

30,921

 

Proceeds from sales of securities

 

 

2,813

 

245

 

Purchases of securities

 

 

(136,341

)

(48,034

)

Proceeds from maturities of and principal collected on securities

 

 

42,377

 

80,295

 

Purchases of Federal Home Loan Bank stock

 

 

(71,000

)

(5,789

)

Redemption of Federal Home Loan Bank stock

 

 

80,928

 

25,975

 

Proceeds from sales of real estate owned

 

 

42,935

 

85,135

 

Purchases of premises and equipment

 

 

(32,988

)

(24,479

)

Other, net

 

 

21,248

 

22,430

 

Net cash used in investing activities

 

 

(698,415

)

(377,517

)

Cash flows from financing activities:

 

 

 

 

 

 

Net increase in deposits

 

 

737,299

 

374,244

 

Net (decrease) increase in short-term borrowings

 

 

(1,534

)

5,630

 

Proceeds from long-term borrowings

 

 

1,840,008

 

176,168

 

Payments on long-term borrowings

 

 

(2,075,047

)

(510,367

)

Redemption of subordinated debt

 

 

(50,000

)

(71,020

)

Net distribution to non-controlling interest

 

 

(2,887

)

(5,797

)

Dividends paid on preferred stock

 

 

(14,541

)

(14,218

)

Dividends paid on common stock

 

 

(24,512

)

(24,148

)

Stock compensation tax benefit (expense)

 

 

1,382

 

(475

)

Common shares sold to TCF employee benefit plans

 

 

17,802

 

15,234

 

Other, net

 

 

740

 

 

Net cash provided by (used in) financing activities

 

 

428,710

 

(54,749

)

Net decrease in cash and due from banks

 

 

(74,229

)

(116,501

)

Cash and due from banks at beginning of period

 

 

915,076

 

1,100,347

 

Cash and due from banks at end of period

 

 

$

840,847

 

$

983,846

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid (received) for:

 

 

 

 

 

 

Interest on deposits and borrowings

 

 

$

39,864

 

$

47,292

 

Income taxes, net

 

 

$

89,132

 

$

(31,142

)

Transfer of loans to other assets

 

 

$

65,704

 

$

84,910

 

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 period financial statements to conform to the current period presentation. 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 significant 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 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 (losses) gains on securities, net.

 

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Table of Contents

 

Note 2.  Cash and Due from Banks

 

At September 30, 2014 and December 31, 2013, TCF Bank was required by Federal Reserve regulations to maintain reserves of $86.5 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 $64.8 million and $46.1 million at September 30, 2014 and December 31, 2013, respectively.

 

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

 

Securities consisted of the following.

 

 

 

At September 30, 2014

 

 

 

At December 31, 2013

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars 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

 

$473,821

 

$         462

 

$      8,217

 

$ 466,066

 

$592,283

 

$      1,131

 

$    45,377

 

$548,037

 

Other

 

64

 

 

 

64

 

93

 

 

 

93

 

Other securities

 

 

 

 

 

1,642

 

1,292

 

 

2,934

 

Total securities available for sale

 

$473,885

 

$         462

 

$      8,217

 

$ 466,130

 

$594,018

 

$      2,423

 

$    45,377

 

$551,064

 

Weighted-average yield

 

2.62%

 

 

 

 

 

 

 

2.65%

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$210,410

 

$      2,440

 

$         146

 

$ 212,704

 

$  14,610

 

$           —

 

$           —

 

$  14,610

 

Other securities

 

4,961

 

 

 

4,961

 

5,302

 

 

 

5,302

 

Total securities held to maturity

 

$215,371

 

$      2,440

 

$         146

 

$ 217,665

 

$  19,912

 

$           —

 

$           —

 

$  19,912

 

Weighted-average yield

 

2.65%

 

 

 

 

 

 

 

3.43%

 

 

 

 

 

 

 

 

Gross realized gains of $29.0 thousand and $1.2 million were recognized on sales of securities available for sale during the third quarter and first nine months of 2014, respectively. There were no sales of securities available for sale during the first nine months of 2013. At September 30, 2014 and December 31, 2013, mortgage-backed securities with a carrying value of $15.0 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 nine months of 2014 or 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.

 

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Table of Contents

 

During the first nine 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 September 30, 2014 and December 31, 2013, the unrealized holding loss on the transferred securities retained in accumulated other comprehensive loss totaled $16.3 million and $0.3 million, respectively. These amounts are amortized over the remaining life of the transferred security. Other held to maturity securities consist primarily of non-trading mortgage-backed securities and other bonds which qualify for investment credit under the Community Reinvestment Act. During the first nine months of 2014 and 2013, TCF recorded an impairment charge of $0.1 million on held to maturity securities, which had a carrying value of $5.0 million and $5.6 million at September 30, 2014 and 2013, respectively.

 

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

 

 

 

 

At September 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

 

 

$

79,014

 

$

162

 

$

311,988

 

$

8,055

 

$

391,002

 

$

8,217

 

Total securities available for sale

 

 

$

79,014

 

$

162

 

$

311,988

 

$

8,055

 

$

391,002

 

$

8,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

 

$

11,863

 

$

146

 

$

 

$

 

$

11,863

 

$

146

 

Total securities held to maturity

 

 

$

11,863

 

$

146

 

$

 

$

 

$

11,863

 

$

146

 

 

 

 

 

 

 

 

 

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

 

 

8



Table of Contents

 

The amortized cost, fair value and yield of securities available for sale and securities held to maturity by contractual maturity, at September 30, 2014 and December 31, 2013, are shown below. The remaining contractual principal maturities do not consider possible prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay.

 

 

 

 

At September 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 one year or less

 

 

$

6

 

$

6

 

 

11.63%

 

 

$

 

$

 

 

—%

Due in 1-5 years

 

 

88

 

89

 

 

4.61

 

 

138

 

140

 

 

5.24

Due in 5-10 years

 

 

85,802

 

85,937

 

 

1.93

 

 

24,328

 

24,543

 

 

2.17

Due after 10 years

 

 

387,989

 

380,098

 

 

2.77

 

 

567,910

 

523,447

 

 

2.67

No stated maturity

 

 

 

 

 

 

 

1,642

 

2,934

 

 

Total securities available for sale

 

 

$

473,885

 

$

466,130

 

 

2.62

 

 

$

594,018

 

$

551,064

 

 

2.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

 

$

500

 

$

500

 

 

2.00%

 

 

$

 

$

 

 

—%

Due in 1-5 years

 

 

2,500

 

2,500

 

 

3.08

 

 

3,000

 

3,000

 

 

2.90

Due after 10 years

 

 

212,371

 

214,665

 

 

2.65

 

 

16,912

 

16,912

 

 

3.52

Total securities held to maturity

 

 

$

215,371

 

$

217,665

 

 

2.65

 

 

$

19,912

 

$

19,912

 

 

3.43

 

Note 4.  Loans and Leases

 

Loans and leases consisted of the following.

 

(Dollars in thousands)

 

At September 30, 2014

 

At December 31, 2013

 

 

Percent Change 

Consumer real estate:

 

 

 

 

 

 

 

 

First mortgage lien

 

$

3,444,581

 

$

3,766,421

 

 

(8.5

)%

Junior lien

 

2,526,486

 

2,572,905

 

 

(1.8

)

Total consumer real estate

 

5,971,067

 

6,339,326

 

 

(5.8

)

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

2,452,931

 

2,604,673

 

 

(5.8

)

Construction and development

 

191,306

 

139,024

 

 

37.6

 

Total commercial real estate

 

2,644,237

 

2,743,697

 

 

(3.6

)

Commercial business

 

515,529

 

404,655

 

 

27.4

 

Total commercial

 

3,159,766

 

3,148,352

 

 

0.4

 

Leasing and equipment finance

 

3,632,793

 

3,428,755

 

 

6.0

 

Inventory finance

 

1,836,538

 

1,664,377

 

 

10.3

 

Auto finance

 

1,749,411

 

1,239,386

 

 

41.2

 

Other

 

24,003

 

26,743

 

 

(10.2

)

Total loans and leases (1)

 

$

16,373,578

 

$

15,846,939

 

 

3.3

 

 

(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 $43.7 million and $30.3 million at September 30, 2014 and December 31, 2013, respectively.

 

9


 

 


Table of Contents

 

The consumer real estate junior lien portfolio was comprised of $2.1 billion of home equity lines of credit (“HELOCs”) and $450.4 million of amortizing junior lien mortgage loans at September 30, 2014, compared with $2.1 billion and $505.5 million at December 31, 2013, respectively. At September 30, 2014 and December 31, 2013, $857.2 million and $969.2 million, respectively, of the consumer real estate junior lien HELOCs were interest-only revolving draw loans with no defined amortization period and draw periods of 5 to 40 years and, at September 30, 2014, 18.7% will mature prior to 2021. At September 30, 2014 and December 31, 2013, $1.2 billion and $1.1 billion, respectively, 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 nine months ended September 30, 2014 and 2013, TCF sold $966.3 million and $559.3 million, respectively, of consumer auto loans with servicing retained, received cash of $993.0 million and $544.2 million, respectively, and recognized gains of $31.5 million and $22.4 million, respectively. Related to these sales, TCF retained interest-only strips of $12.1 million and $42.2 million for the nine months ended September 30, 2014 and 2013, respectively. Total interest-only strips related to sales of auto loans totaled $51.6 million and $64.9 million at September 30, 2014 and December 31, 2013, respectively. TCF recorded impairment charges on these interest-only strips of $1.6 million and $5.2 million during the nine months ended September 30, 2014 and 2013, respectively, as a result of higher prepayments than originally assumed. Contractual recourse liabilities related to sales of auto loans totaled $0.7 million and $1.1 million at September 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. In July 2014, TCF transferred consumer auto loans totaling $256.3 million with servicing retained to a trust in a securitization transaction, received cash proceeds of $266.7 million, and recognized gains of $7.4 million from the Company’s inaugural consumer auto loan securitization, which qualified for sale accounting and is included in the amounts above. This trust is considered a variable interest entity due to its limited capitalization and special purpose nature, however it is not consolidated as TCF is not the primary beneficiary because the Company does not have a variable interest in the trust. TCF’s auto loan managed portfolio, which includes portfolio loans, loans held for sale, and loans sold and serviced for others, totaled $3.5 billion and $2.4 billion at September 30, 2014 and December 31, 2013, respectively.

 

During the nine months ended September 30, 2014 and 2013, TCF sold $805.2 million and $560.8 million, respectively, of consumer real estate loans, received cash of $828.6 million and $564.1 million, respectively, and recognized gains of $28.3 million and $16.3 million, respectively. Related to these sales, TCF retained interest-only strips of $9.1 million and $16.4 million for the nine months ended September 30, 2014 and 2013, respectively. Total interest-only strips related to sales of consumer real estate loans totaled $21.9 million and $19.6 million at September 30, 2014 and December 31, 2013, respectively. TCF had no impairment charges on these interest-only strips for the nine months ended September 30, 2014, and recorded impairment charges of $0.5 million on these interest-only strips during the nine months ended September 30, 2013. Contractual recourse liabilities related to sales of consumer real estate loans totaled $0.6 million at September 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 $7.2 billion and $7.0 billion at September 30, 2014 and December 31, 2013, respectively.

 

10



Table of Contents

 

From time to time, TCF sells leasing and equipment finance loans and minimum lease payment receivables to third-party financial institutions at fixed rates. During the nine months ended September 30, 2014 and 2013, TCF sold $40.4 million and $43.4 million, respectively, of loans and minimum lease payment receivables, received cash of $41.4 million and $44.4 million, respectively, and recognized net gains of $0.3 million and net losses of $44.0 thousand, respectively. Related to these sales, TCF established servicing liabilities of $0.7 million and $1.0 million for the nine months ended September 30, 2014 and 2013, respectively. At September 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 September 30, 2014 and 2013, TCF had lease residuals related to sales of outstanding minimum lease payment receivables of $14.9 million and $15.2 million, respectively. TCF’s leasing and equipment finance loan managed portfolio, which includes portfolio loans and leases, loans held for sale, operating leases, and loans sold and serviced for others, totaled $3.9 billion and $3.7 billion at September 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 nine months ended September 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.

 

11



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 September 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of quarter

 

$

161,349

 

$

31,361

 

$

19,184

 

$

9,539

 

$

13,865

 

$

783

 

$

236,081

 

Charge-offs

 

(24,072

)

(262

)

(2,350

)

(548

)

(2,958

)

(2,448

)

(32,638

)

Recoveries

 

1,912

 

406

 

1,157

 

284

 

494

 

1,448

 

5,701

 

Net (charge-offs) recoveries

 

(22,160

)

144

 

(1,193

)

(264

)

(2,464

)

(1,000

)

(26,937

)

Provision for credit losses

 

6,636

 

1,785

 

(391

)

411

 

6,302

 

996

 

15,739

 

Other

 

(700

)

 

 

(130

)

(1,395

)

 

(2,225

)

Balance, end of quarter

 

$

145,125

 

$

33,290

 

$

17,600

 

$

9,556

 

$

16,308

 

$

779

 

$

222,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, 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, end of quarter

 

$

177,970

 

$

46,638

 

$

18,216

 

$

8,547

 

$

9,112

 

$

802

 

$

261,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

176,030

 

$

37,467

 

$

18,733

 

$

8,592

 

$

10,623

 

$

785

 

$

252,230

 

Charge-offs

 

(51,639

)

(5,628

)

(5,760

)

(898

)

(7,682

)

(6,343

)

(77,950

)

Recoveries

 

5,319

 

785

 

2,845

 

661

 

1,109

 

4,523

 

15,242

 

Net charge-offs

 

(46,320

)

(4,843

)

(2,915

)

(237

)

(6,573

)

(1,820

)

(62,708

)

Provision for credit losses

 

17,821

 

737

 

1,782

 

1,336

 

16,650

 

1,814

 

40,140

 

Other

 

(2,406

)

(71

)

 

(135

)

(4,392

)

 

(7,004

)

Balance, end of period

 

$

145,125

 

$

33,290

 

$

17,600

 

$

9,556

 

$

16,308

 

$

779

 

$

222,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, 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