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Section 1: 10-K (10-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2014

or

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

For the transition period from                  to                  

Commission File No. 001-10253

TCF Financial Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
  41-1591444
(I.R.S. Employer Identification No.)
200 Lake Street East, Mail Code EX0-03-A,
Wayzata, Minnesota 55391-1693
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: 952-745-2760
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)   (Name of each exchange on which registered)
Common Stock (par value $.01 per share)   New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of 7.50%    
Series A Non-Cumulative Perpetual Preferred Stock   New York Stock Exchange
6.45% Series B Non-Cumulative Perpetual Preferred Stock   New York Stock Exchange
Warrants (expiring November 14, 2018)   New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.        Yes ý        No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.        Yes o        No ý

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 ý        No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes ý        No o

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

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

Large accelerated filer   ý   Accelerated filer   o
Non-accelerated filer   o (Do not check if a smaller reporting company)   Smaller reporting company   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).       Yes o       No ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter as reported by the New York Stock Exchange, was $2,468,333,703.

As of February 17, 2015, there were 167,692,420 shares outstanding of the registrant's common stock, par value $.01 per share, its only outstanding class of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Specific portions of the Registrant's definitive Proxy Statement for the 2015 Annual Meeting of Stockholders to be held on April 22, 2015 are incorporated by reference into Part III hereof.

Table of Contents

 
  Description
  Page

Part I

 

 

 

 
Item 1.   Business   1
Item 1A.   Risk Factors   6
Item 1B.   Unresolved Staff Comments   13
Item 2.   Properties   13
Item 3.   Legal Proceedings   13
Item 4.   Mine Safety Disclosures   13

Part II

 

 

 

 
Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   14
Item 6.   Selected Financial Data   17
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   18
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   48
Item 8.   Financial Statements and Supplementary Data   51
   

Report of Independent Registered Public Accounting Firm

  51
   

Consolidated Financial Statements

  52
   

Notes to Consolidated Financial Statements

  57
   

Other Financial Data

  102
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   103
Item 9A.   Controls and Procedures   103
   

Management's Report on Internal Control Over Financial Reporting

  104
   

Report of Independent Registered Public Accounting Firm

  105
Item 9B.   Other Information   106

Part III

 

 

 

 
Item 10.   Directors, Executive Officers and Corporate Governance   106
Item 11.   Executive Compensation   107
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   107
Item 13.   Certain Relationships and Related Transactions, and Director Independence   107
Item 14.   Principal Accountant Fees and Services   107

Part IV

 

 

 

 
Item 15.   Exhibits and Financial Statement Schedules   108
Signatures   109
Index to Exhibits   110


Part I

Item 1. Business

General

TCF Financial Corporation (together with its subsidiaries, "TCF" or the "Company"), a Delaware corporation incorporated on April 28, 1987, is a national bank holding company based in Wayzata, Minnesota. Its principal subsidiary is TCF National Bank ("TCF Bank"), which is headquartered in Sioux Falls, South Dakota. TCF Bank operates bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana (TCF's primary banking markets). TCF delivers retail banking products in over 40 states and commercial banking products mainly in TCF's primary banking markets. TCF also conducts commercial leasing and equipment finance business in all 50 states and, to a limited extent, in foreign countries; commercial inventory finance business in all 50 states and Canada and, to a limited extent, in other foreign countries and indirect auto finance business in all 50 states. TCF generated total revenue, defined as net interest income plus total non-interest income, of $1.2 billion in the U.S. in each of 2014, 2013 and 2012. International revenue was $27.9 million, $25.3 million and $21.3 million in 2014, 2013 and 2012, respectively.

TCF had total assets of $19.4 billion as of December 31, 2014 and was the 45th largest publicly traded bank holding company in the United States based on total assets at September 30, 2014. References herein to the "Holding Company" or "TCF Financial" refer to TCF Financial Corporation on an unconsolidated basis.

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the specific needs of the largest consumer segments in the market. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week in all markets and on most holidays, extensive full-service supermarket branches, automated teller machine ("ATM") networks and internet, mobile and telephone banking. TCF's philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low interest cost deposits. TCF's growth strategies include organic growth in existing businesses, development of new products and services, new customer acquisition through electronic channels and acquisitions of portfolios or companies. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. TCF continues to focus on asset growth in its leasing and equipment finance, inventory finance and auto finance businesses funded through deposit generation, as well as expanding its junior lien lending business.

TCF's reportable segments are comprised of Lending, Funding and Support Services. Lending includes consumer real estate, commercial real estate and business lending, leasing and equipment finance, inventory finance and auto finance. Funding includes branch banking and treasury services, which includes the Company's investment and borrowing portfolios and management of capital, debt and market risks, including interest rate and liquidity risks. Support Services includes Holding Company and corporate functions that provide data processing, bank operations and other professional services to the operating segments. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management's Discussion and Analysis") – Results of Operations – Reportable Segment Results" and Note 22 of Notes to Consolidated Financial Statements, Business Segments, for information regarding revenue, income and assets for each of TCF's reportable segments.


Lending

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

Consumer Real Estate    TCF makes consumer loans for personal, family or household purposes, such as home purchases, debt consolidation and financing of home improvements. TCF's retail lending origination activity primarily consists of consumer real estate secured lending. It also includes originating loans secured by personal property and, to a very limited extent, unsecured personal loans. Consumer loans are made on a fixed-term basis or as a revolving line of credit. Loans are originated for investment and for sale to third party financial institutions. TCF does not have any consumer real estate subprime lending programs. TCF continues to expand its junior lien lending business through the development of a national lending platform focused on junior lien loans to high credit quality customers.

Commercial Real Estate and Business Lending    Commercial real estate loans are loans originated by TCF that are secured by commercial real estate, including multi-family housing, retail services, office buildings, warehouse and industrial buildings, health care facilities and commercial real estate construction loans, mainly to borrowers based in its primary banking markets.

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Commercial business loans are loans originated by TCF that are secured by various types of business assets including inventory, receivables, equipment or financial instruments. In limited cases, loans may be originated on an unsecured basis. Commercial business loans are used for a variety of purposes, including working capital and financing the purchase of equipment. TCF continues to develop its capital funding business that began in 2012 specializing in secured, asset-backed and cash flow lending to smaller middle-market companies in the U.S. Approximately 67% of TCF's commercial business loans outstanding at December 31, 2014 were to borrowers based in its primary banking markets.

Leasing and Equipment Finance    TCF provides a broad range of comprehensive lease and equipment finance products addressing the diverse financing needs of small to large companies in a growing number of select market segments including specialty vehicles, manufacturing, construction, medical, golf cart and turf, and technology and data processing. TCF's leasing and equipment finance businesses, TCF Equipment Finance, a division of TCF Bank, and Winthrop Resources Corporation ("Winthrop"), finance equipment in all 50 states and, to a limited extent, in foreign countries. TCF Equipment Finance delivers equipment finance solutions primarily to small and mid-size companies in various industries with significant diversity in the types of underlying equipment. Winthrop focuses on providing customized lease financing to meet the special needs of mid-size and large companies and health care facilities that procure high-tech essential business equipment such as computers, servers, telecommunication equipment, medical equipment and other technology equipment.

Inventory Finance    TCF Inventory Finance, Inc. ("TCF Inventory Finance") originates commercial variable-rate loans which are secured by the underlying floorplan equipment and supported by repurchase agreements from original equipment manufacturers. The operation focuses on establishing relationships with distributors, dealer buying groups and manufacturers, giving TCF access to thousands of independent retailers in the areas of powersports, lawn and garden, electronics and appliances, recreational vehicles, marine and specialty vehicles. TCF Inventory Finance operates in all 50 states and Canada and, to a limited extent, in other foreign countries. TCF Inventory Finance's portfolio balances are impacted by seasonal shipments and sales activities as dealers receive inventory shipments in anticipation of the upcoming selling season while carrying current season product. In 2009, TCF Inventory Finance formed a joint venture with The Toro Company ("Toro") called Red Iron Acceptance, LLC ("Red Iron"). Red Iron provides U.S. distributors and dealers and select Canadian distributors of the Toro® and Exmark® brands with reliable, cost-effective sources of financing. TCF maintains a 55% ownership interest in Red Iron, with Toro owning the other 45%.

Auto Finance    On November 30, 2011, TCF entered the indirect auto lending market through the acquisition of Gateway One Lending & Finance, LLC ("Gateway One"). Headquartered in Anaheim, California, Gateway One originates and services loans on new and used autos to customers through relationships established with more than 10,500 franchised and independent dealers in all 50 states. Loans are originated for investment and for sale. Gateway One's business strategy is to maintain strong relationships with key personnel at the dealerships. These relationships are a significant driver in generating volume and executing a high-touch underwriting approach to minimize credit losses.


Funding

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

At December 31, 2014, TCF had 379 branches, consisting of 193 traditional branches, 178 supermarket branches and eight campus branches. TCF operates 158 branches in Illinois, 99 in Minnesota, 53 in Michigan, 35 in Colorado, 24 in Wisconsin, seven in Arizona, two in South Dakota and one in Indiana. Of its 178 supermarket branches, TCF had 118 branches in Jewel-Osco® stores at December 31, 2014. In March 2014, TCF consolidated 37 in-store branches in Illinois and nine in Minnesota as a result of its retail banking system realignment that was announced in December 2013 to support its strategic initiatives. See "Item 1A. Risk Factors" for additional information regarding the risks related to TCF's supermarket branch relationships.

Non-interest income is a significant source of revenue for TCF and an important factor in TCF's results of operations. In recent years, maintaining fee and service charge revenue has been challenging as a result of economic conditions, changing customer behavior and the impact of regulations. Providing a wide range of branch banking services is an integral component of TCF's business philosophy and a major strategy for generating additional non-interest income. TCF offers retail checking account customers low-cost, convenient access to funds at local merchants and ATMs through its debit card programs. TCF's debit card

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programs are supported by interchange fees charged to retailers. Key drivers of banking fees and service charges are the number of deposit accounts and related transaction activity.

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

Information concerning TCF's FHLB advances, repurchase agreements, federal funds and other borrowings is set forth in "Item 7. Management's Discussion and Analysis – Consolidated Financial Condition Analysis – Borrowings" and in Note 10 and Note 11 of Notes to Consolidated Financial Statements, Short-term Borrowings and Long-term Borrowings, respectively.


Support Services

Support Services consists of the Holding Company and corporate functions that provide data processing, bank operations and other professional services to the operating segments.


Other Information

Activities of Subsidiaries of TCF    TCF's business operations include those conducted by direct and indirect subsidiaries of TCF Financial, all of which are consolidated for purposes of preparing TCF's consolidated financial statements. TCF Bank's subsidiaries principally engage in leasing, inventory finance and auto finance activities. See "Lending" above for more information.

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

Employees    As of December 31, 2014, TCF had 7,023 employees, including 1,622 part-time employees. TCF provides its employees with comprehensive benefits, some of which are provided on a contributory basis, including medical and dental plans, a 401(k) savings plan with a company matching contribution, life insurance and short- and long-term disability coverage.


Regulation

TCF Financial, as a publicly held bank holding company, and TCF Bank, which has deposits insured by the Federal Deposit Insurance Corporation ("FDIC"), are subject to extensive regulation. Among other things, TCF Financial and TCF Bank are subject to minimum capital requirements, lending and deposit restrictions and numerous other requirements. TCF Financial's primary regulator is the Federal Reserve and TCF Bank's primary regulator is the Office of the Comptroller of the Currency ("OCC"). TCF's consumer products are also regulated by the Consumer Financial Protection Bureau ("CFPB").

Regulatory Capital Requirements    TCF Financial and TCF Bank are subject to regulatory capital requirements of the Federal Reserve and the OCC, respectively, as described below. These regulatory agencies are required by law to take prompt action when institutions are viewed as engaging in unsafe or unsound practices or do not meet certain minimum capital standards. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") defines five levels of capital condition, the highest of which is "well-capitalized." It requires that undercapitalized institutions be subjected to various restrictions such as limitations on dividends or other capital distributions, limitations on growth or restrictions on activities. Undercapitalized banks must develop a capital restoration plan and the parent bank holding company is required to guarantee compliance with the plan. TCF and TCF Bank were "well-capitalized" under the FDICIA capital standards as of December 31, 2014.

In July 2013, the Board of Governors of the Federal Reserve System, the OCC and FDIC approved final rules (the "Final Capital Rules") implementing revised capital requirements to reflect the requirements of the Dodd-Frank Wall Street Reform and

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Consumer Protection Act of 2010 (the "Dodd-Frank Act") and the Basel III international capital standards. Among other things, the Final Capital Rules establish a new capital ratio of common equity Tier 1 capital of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets; increase the minimum ratio of Tier 1 capital ratio from 4% to 6% and include a minimum leverage ratio of 4%; place an emphasis on common equity Tier 1 capital and change the risk weights assigned to certain instruments. Failure to meet these standards would result in limitations on capital distributions as well as executive bonuses. The Final Capital Rules became applicable to TCF on January 1, 2015 with conservation buffers phasing in over the subsequent five years.

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

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

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

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

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

A holding company must serve as a source of strength for its subsidiary banks, and the Federal Reserve may require a holding company to contribute additional capital to an undercapitalized subsidiary bank. In addition, the OCC may assess TCF Financial if it believes the capital of TCF Bank has become impaired. If TCF Financial were to fail to pay such an assessment within three months, the Board of Directors must cause the sale of TCF Bank's stock to cover a deficiency in the capital. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors.

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

Restrictions on Acquisitions and Changes in Control    Under federal and state law, merger and branch acquisition transactions may be subject to certain restrictions, including certain nationwide and statewide insured deposit maximum concentration levels or other limitations. In addition, federal and state laws and regulations contain a number of provisions which impose restrictions on changes in control of financial institutions such as TCF Bank, and which require regulatory approval prior to any such changes in control.

Insurance of Accounts    As of January 1, 2013, the aggregate balance of a depositor's deposit accounts are insured up to at least the standard maximum deposit insurance amount of $250 thousand at each separately chartered FDIC-insured institution.

Under Section 331 of the Dodd-Frank Act, the FDIC insurance assessment base is defined as average total assets minus tangible equity. In addition to risk-based deposit insurance premiums, additional assessments may be imposed by the Financing Corporation, a separate U.S. government agency affiliated with the FDIC, on certain insured deposits to pay for the interest cost of Financing Corporation bonds. The Financing Corporation assessment rate for 2014 was 62 cents for each $100 of deposits.

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Financing Corporation assessments of $1.0 million, $1.1 million and $1.1 million were paid by TCF Bank in 2014, 2013 and 2012, respectively.

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

The Dodd-Frank Act requires that, for at least five years, the FDIC must make available to the public the reserve ratio using both estimated insured deposits and the new assessment base. As of September 30, 2014, the DIF ratio calculated by the FDIC using estimated insured deposits was 0.89%. The DIF reserve ratio would have been 0.41% using the new assessment base. In 2014, for banks with at least $10 billion in total assets, the annual insurance premiums on bank deposits insured by the DIF ranged from 2.5 cents to 45 cents per $100 of deposits.

Examinations and Regulatory Sanctions    TCF is subject to periodic examination by the Federal Reserve, the OCC, the CFPB and the FDIC. Bank regulatory authorities may impose a number of restrictions or new requirements on institutions, including, but not limited to, growth limitations, dividend restrictions, increased regulatory capital requirements, increased loan and lease loss reserve requirements, increased supervisory assessments, activity limitations or other restrictions that could have an adverse effect on such institutions, their holding companies or holders of their debt and equity securities. Various enforcement remedies, including civil money penalties, may be assessed against an institution or an institution's directors, officers, employees, agents or independent contractors. Certain enforcement actions may not be publicly disclosed by TCF or its regulatory authorities. Subsidiaries of TCF Bank are also subject to state and/or self-regulatory organization licensing, regulation and examination requirements in connection with certain activities.

National Bank Investment Limitations    Permissible investments by national banks are limited by the National Bank Act of 1864, as amended, and by rules of the OCC. Non-traditional bank activities permitted by the Gramm-Leach-Bliley Act of 1999 will subject a bank to additional regulatory limitations or requirements, including a required regulatory capital deduction and application of transactions with affiliates limitations in connection with such activities.

Dodd-Frank Wall Street Reform and Consumer Protection Act    Congress enacted the Dodd-Frank Act in July 2010. The Dodd-Frank Act created the CFPB and gave it broad authority to administer and carry out the purposes and objectives of the federal consumer financial laws with respect to all consumer financial products and services. Among other things, the Dodd-Frank Act: (i) directed the Federal Reserve to issue rules limiting debit-card interchange fees for larger banks, (ii) eliminated federal preemption for subsidiaries of national banks and federal savings associations, and (iii) required larger banks to conduct annual stress tests and report results.


Taxation

Federal Taxation    TCF's federal income tax returns are open and subject to examination for 2012 and later tax return years.

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

Foreign Taxation    TCF and/or its subsidiaries currently file tax returns in Canada and certain Canadian provinces which impose corporate income taxes. The methods of filing and the methods for calculating taxable and apportionable income vary depending upon the laws of the taxing jurisdiction. See "Item 1A. Risk Factors."

See "Item 7. Management's Discussion and Analysis – Consolidated Income Statement Analysis – Income Taxes" and Note 1 and Note 12 of Notes to Consolidated Financial Statements, Summary of Significant Accounting Policies and Income Taxes, respectively, for additional information regarding TCF's income taxes.


Available Information

TCF's website, www.tcfbank.com, includes free access to Company news releases, investor presentations, conference calls to discuss published financial results, TCF's Annual Report, and periodic filings required by the United States Securities and Exchange Commission ("SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on

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Form 8-K, proxy statements, and amendments to those reports, as soon as reasonably practicable after electronic filing of such material with, or furnishing it to, the SEC. TCF's Compensation, Nominating, and Corporate Governance Committee and Audit Committee charters, Corporate Governance Guidelines, Codes of Ethics and changes to Codes of Ethics and information on all of TCF's securities are also available on this website. Stockholders may request these documents in print free of charge by contacting the Corporate Secretary at TCF Financial Corporation, 200 Lake Street East, Mail Code EX0-01-G, Wayzata, MN 55391-1693.


Item 1A. Risk Factors

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

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

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

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

TCF is subject to interest rate risk.

TCF's earnings and cash flows largely depend upon its net interest income. Interest rates are highly sensitive to many factors that are beyond TCF's control, including general economic conditions and policies of various governmental and regulatory agencies, including the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest TCF receives on loans and other investments and the amount of interest TCF pays on deposits and other borrowings, but such changes could also affect: (i) TCF's ability to originate loans and attract or retain deposits; (ii) the fair value of TCF's financial assets and liabilities; and (iii) the average duration of TCF's interest-earning assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, then TCF's net interest income and earnings could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Although management believes it has implemented effective asset and liability management strategies, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on its financial condition and results of operations.

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

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

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

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

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Competition for growth in deposits and evolving payment system developments could increase TCF's funding costs.

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

The soundness of other financial institutions could adversely affect TCF.

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

TCF relies on its systems and counterparties, including reliance on other companies for the provision of key components of its business infrastructure, and any failures could have a material adverse effect on its financial condition and results of operations.

TCF settles funds on behalf of financial institutions, other businesses and consumers and receives funds from payment networks, consumers and other paying agents. TCF's businesses depend on their ability to process, record and monitor a large number of complex transactions. Third party vendors provide key components of TCF's business infrastructure, such as internet connections, network access and transaction and other processing services. While TCF has selected these third party vendors carefully, it does not control their actions. Any problems caused by these third parties, including inadequate or interrupted service, could adversely affect TCF's ability to process, record or monitor transactions, or to deliver products and services to its customers and otherwise to conduct its business. Replacing these third party vendors could also entail significant delay and expense. If any of TCF's financial, accounting or other data processing systems fail or if personal information of TCF's customers or clients were mishandled or misused (whether by employees or counterparties), TCF could suffer regulatory consequences, reputational damage and financial losses, any of which could have a material adverse effect on its financial condition and results of operations.

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

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

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

In addition, there have been increasingly sophisticated and large-scale efforts on the part of third parties to breach data security with respect to financial transactions, including by intercepting account information at locations where customers make purchases, as well as through the use of social engineering schemes such as "phishing." For example, large retailers such as Target Corporation, Home Depot, SUPERVALU Inc. and Neiman Marcus Group LTD LLC reported data breaches resulting in the loss of customer information. In the event that third parties are able to misappropriate financial information of TCF's customers, even if such breaches take place due to weaknesses in other parties' internal data security procedures, TCF could suffer reputational or financial losses which could have a material adverse effect on its financial condition and results of operations.

7

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

A significant financial decline or change in ownership involving one of TCF's supermarket partners, including SUPERVALU Inc. or Jewel-Osco, could result in the loss of supermarket branches or could increase costs to operate the supermarket branches. At December 31, 2014, TCF had 178 supermarket branches. Supermarket banking continues to play an important role in TCF's deposit account strategy. TCF is subject to the risk, among others, that its license or lease for a location or locations will terminate upon the sale or closure of that location or locations by the supermarket partner. Also, continued difficult economic conditions, financial or labor difficulties in the supermarket industry, or a decrease in customer utilization of traditional bank branches may reduce activity in TCF's supermarket branches. Any of these could have a material adverse effect on TCF's financial condition and results of operations.

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

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

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

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

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

TCF's remedies may not fully satisfy the obligations owed to TCF upon default by a borrower. TCF maintains an allowance for loan and lease losses, which is a reserve established through a provision for loan and lease losses charged to expense, which represents management's best estimate of probable credit losses that will be incurred within the existing portfolio of loans and leases. The level of the allowance for loan and lease losses reflects management's continuing evaluation of industry concentrations, specific credit risks, loan and lease loss experience, current loan and lease portfolio quality, present economic, political and regulatory conditions and unidentified losses in the current loan and lease portfolio. The determination of the appropriate level of the allowance for loan and lease losses involves a high degree of subjectivity and requires management to make significant estimates of current credit risks using qualitative and quantitative factors, each of which is subject to significant change. Changes in economic conditions affecting borrowers, new information regarding existing loans and leases, identification of additional problem loans and leases and other factors may require an increase in the allowance for loan and lease losses. In addition, bank regulatory agencies periodically review TCF's allowance for loan and lease losses and may require an increase in the provision for loan and lease losses or the recognition of additional loan and lease charge-offs, based on judgments different than those of management. An increase in the allowance for loan and lease losses would result in a decrease in net income, and possibly risk-based capital, and could have a material adverse effect on TCF's financial condition and results of operations.

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TCF is subject to extensive government regulation and supervision.

TCF Financial, its subsidiary TCF Bank and certain indirect subsidiaries are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect bank customers, depositors' funds, federal deposit insurance funds and the banking system as a whole, not stockholders. These regulations affect TCF's revenues, lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Many new banking rules are issued with limited interpretive guidance. Changes to statutes, regulations or regulatory policies, including changes in interpretation or enforcement of such statutes, regulations or policies, could affect TCF in substantial and unpredictable ways. In recent years there has been an increase in the frequency of enforcement actions brought by regulatory agencies, such as the CFPB, dealing with matters such as indirect auto lending, fair lending, account fees, loan servicing and other products and services provided to customers. Changes in regulations, regulatory policies and enforcement activity could subject TCF to reduced revenues, additional costs, limits on the types of financial services and products it may offer or increased competition from non-banks offering competing financial services and products, among other things. While TCF has policies and procedures designed to prevent violations of the extensive federal and state regulations it is subject to, there can be no assurance that such violations will not occur, and failure to comply with these statutes, regulations or policies could result in sanctions against TCF by regulatory agencies, civil money penalties and reputational damage, any of which could have a material adverse effect on its financial condition and results of operations.

Further, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "Patriot Act"), the Bank Secrecy Act and similar laws require financial institutions to develop programs to prevent them from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury's Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new accounts. Failure to comply with these regulations could result in sanctions and possibly fines. Several financial institutions, including TCF, have received sanctions and some have incurred large fines for non-compliance. Violations of these regulations could have a material adverse effect on TCF's financial condition and results of operations.

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

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

Legislative and regulatory initiatives have substantially increased compliance burdens in recent years, which could have a material adverse effect on TCF's financial condition and results of operations.

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

The CFPB has examination and enforcement authority over TCF Bank and its subsidiaries, and broad rulemaking authority to administer and carry out the purposes and objectives of the federal consumer financial laws with respect to all financial institutions that offer financial products and services to consumers. The CFPB is authorized to make rules identifying and prohibiting acts or practices that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. Uncertainties remain concerning how the term "abusive" will be enforced.

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It is highly likely that banks and bank holding companies will continue to be subject to significantly increased regulation and compliance obligations that expose TCF to risk and consequences of noncompliance, which could have a material adverse effect on TCF's financial condition and results of operations.

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

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

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

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

The Company may be subject to certain risks related to originating and selling loans.

When loans are sold or securitized, it is customary to make representations and warranties to the purchaser or investors about the loans and the manner in which they were originated. These agreements generally require the repurchase or substitution of loans in the event TCF breaches any of these representations or warranties. In addition, there may be a requirement to repurchase loans as a result of borrower fraud or in the event of early payment default of the borrower on a loan. TCF has not received a significant number of repurchase and indemnity demands from purchasers, and such demands have typically resulted from borrower fraud and early payment default of the borrower on loans. A material increase in repurchase and indemnity demands could have a material adverse effect on TCF's financial condition and results of operations.

TCF retains interest-only strips in connection with certain of its loan sales. The interest-only strip is recorded at fair value at the time of sale, which represents the present value of future cash flows generated by the loans to be retained by TCF. The value of these interest-only strips may be affected by factors such as changes in the behavior patterns of customers (including defaults and prepayments), changes in the strength of the economy and developments in the interest rate markets; therefore, actual performance may differ from TCF's expectations. The impact of such factors could have a material adverse effect on the value of these interest-only strips and on TCF's financial condition and results of operations.

In addition, TCF relies on the sale and securitization of loans to generate earnings and manage its liquidity and capital levels, as well as geographical and product diversity in its loan portfolio. For example, TCF sold $2.7 billion of loans from its auto and consumer real estate businesses for a pre-tax gain of $78.8 million in 2014 including its inaugural consumer auto loan securitization of $256.3 million of loans during the third quarter of 2014 for a pre-tax gain of $7.4 million. Disruptions in the financial markets, changes to regulations that reduce the attractiveness of such loans to purchasers of the loans, or a decrease in the willingness of purchasers to purchase loans in general, or from TCF, could require TCF to decrease its lending activities or retain a greater portion of the loans it originates. Although retaining, rather than selling, loans would generate additional interest income, it would result in a decrease in the gains recognized on the sale of loans, could result in decreased liquidity, and could result in increased credit risk as TCF's loan portfolio increased in size from loans it originated but had otherwise planned to sell. As a result, any of these developments could have a material adverse effect on TCF's financial condition and results of operations.

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

In deciding whether to extend credit or enter into other transactions, TCF may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. TCF may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial

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information could cause TCF to enter into unfavorable transactions, which could have a material adverse effect on TCF's financial condition and results of operations.

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

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

TCF's internal controls may be ineffective.

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

Negative publicity could damage TCF's reputation.

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

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

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

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

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

11

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

TCF's accounting policies are fundamental to the understanding of its financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of TCF's assets or liabilities and results of operations. Some of TCF's accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because materially different amounts would be reported if different estimates or assumptions were used. If such estimates or assumptions underlying the financial statements are incorrect, TCF could experience material losses. From time to time the Financial Accounting Standards Board ("FASB") and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of TCF's financial statements. These changes are beyond TCF's control, can be difficult to predict and could materially impact how TCF reports its financial condition and results of operations. Additionally, TCF could be required to apply a new or revised standard retrospectively, resulting in it restating prior period financial statements in material amounts.

TCF is subject to examinations and challenges by tax authorities.

TCF is subject to federal, state, and foreign income tax regulations, which often require interpretation due to their complexity. Changes in income tax regulations or in how the regulations are interpreted could have a material adverse effect on TCF's results of operations. In the normal course of business, TCF is routinely subject to examinations and challenges from taxing authorities, regarding its tax positions. Taxing authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. These challenges may result in adjustments to the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in TCF's favor, they could have a material adverse effect on TCF's financial condition and results of operations.

Significant legal actions could subject TCF to substantial uninsured liabilities.

TCF can be subject to claims and legal actions related to its operations. These claims and legal actions, including supervisory or enforcement actions by TCF's regulators and other government authorities or private litigation, could result in large monetary awards or penalties, as well as significant defense costs. While TCF maintains insurance coverage in amounts and with deductibles that it believes are appropriate for its operations, such insurance does not cover all types of liability, and may not continue to be available to TCF at a reasonable cost, or at all. As a result, TCF may be exposed to substantial uninsured liabilities, which could have a material adverse effect on TCF's financial condition and results of operations.

In addition, customers may make claims and take legal action pertaining to TCF's sale or servicing of its loan, lease and deposit products. Whether or not such claims and legal action have merit, they may result in significant financial liability and could adversely affect the market perception of TCF and its products and services, as well as impact customer demand for those products and services. Any financial liability or reputational damage could have a material adverse effect on TCF's financial condition and results of operations.

In particular, the financial services industry has increasingly been targeted by lawsuits alleging infringement of patent rights, often from patent holding companies seeking to monetize patents they have purchased or otherwise obtained. Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted and costly litigation which may be time consuming and disruptive to TCF's operations and management. If the Company is found to infringe one or more patents or other intellectual property rights, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting the Company from utilizing certain technologies.

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

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

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remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on TCF's financial condition and results of operations.


Item 1B. Unresolved Staff Comments

None.


Item 2. Properties

Offices    TCF owns its headquarters offices in Wayzata, Minnesota. Other operations facilities, located in Minnesota, Illinois, California, and South Dakota, are either owned or leased. These facilities are utilized by the Lending segment and all but the location in California are utilized by the Funding segment. The facility in Minnesota is also utilized by the Support Services segment. At December 31, 2014, TCF owned the buildings and land for 147 of its bank branch offices, owned the buildings but leased the land for 27 of its bank branch offices and leased or licensed the remaining 205 bank branch offices, all of which are functional and appropriately maintained and are utilized by both the Lending and Funding segments. These branch offices are located in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana. For more information on premises and equipment, see Note 7 of Notes to Consolidated Financial Statements, Premises and Equipment.


Item 3. Legal Proceedings

From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the CFPB. From time to time, borrowers and other customers, and employees and former employees, have also brought actions against TCF, in some cases claiming substantial damages. TCF and other financial services companies are subject to the risk of class action litigation. Litigation is often unpredictable and the actual results of litigation cannot be determined, and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established. Based on our current understanding of these pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of TCF. TCF is also subject to regulatory examinations, and TCF's regulatory authorities may impose sanctions on TCF for failures related to regulatory compliance.


Item 4. Mine Safety Disclosures

Not applicable.

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Part II

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

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

As of February 17, 2015, there were 5,913 holders of record of TCF's common stock.

    High     Low     Dividends
Declared
   

2014:

                     

Fourth Quarter

    $16.12     $13.95     $0.05    

Third Quarter

    16.95     15.12     0.05    

Second Quarter

    17.30     15.01     0.05    

First Quarter

    17.39     15.31     0.05    

2013:

   
 
   
 
   
 
 
 

Fourth Quarter

    $16.46     $14.29     $0.05    

Third Quarter

    16.68     13.69     0.05    

Second Quarter

    15.32     13.49     0.05    

First Quarter

    15.04     12.39     0.05    

The Board of Directors of TCF Financial and TCF Bank have each adopted a Capital Planning Policy and Dividend Policy. The policies define how enterprise risk related to capital will be managed, how the adequacy of capital will be measured and the process by which capital strategy, capital management and preferred and common stock dividend recommendations will be presented to TCF's Board of Directors. TCF's management is charged with ensuring that capital strategy actions, including the declaration of preferred and common stock dividends, are prudent, efficient and provide value to TCF's stockholders, while ensuring that past and prospective earnings retention is consistent with TCF's capital needs, asset quality, risk profile and overall financial condition. The Board of Directors intends to continue its practice of paying quarterly cash dividends on TCF's common stock as justified by the financial condition of TCF. The declaration and amount of future dividends will depend on circumstances existing at the time, including TCF's earnings, level of internally generated common capital excluding earnings, financial condition and capital requirements, the cash available to pay such dividends (derived mainly from dividends and distributions from TCF Bank), as well as regulatory and contractual limitations and such other factors as the Board of Directors may deem relevant. Also, dividends for the current dividend period on all outstanding shares of preferred stock must be declared and paid or declared and a sum sufficient for the payment thereof must be set aside before any dividend may be declared or paid on TCF's common stock. In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained profits for that year combined with its net retained profits for the preceding two calendar years without prior approval of the OCC. Restrictions on the ability of TCF Bank to pay cash dividends or possible diminished earnings of TCF may limit the ability of TCF Financial to pay dividends in the future to holders of its preferred and common stock. In addition, the ability of TCF Financial and TCF Bank to pay dividends depends on regulatory policies and capital requirements and may be subject to regulatory approval. See "Item 1. Business – Regulation – Regulatory Capital Requirements", "Item 1. Business – Regulation – Restrictions on Distributions" and Note 14 of Notes to Consolidated Financial Statements, Regulatory Capital Requirements.

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Total Return Performance

The following chart compares the cumulative total stockholder return on TCF common stock over the last five fiscal years with the cumulative total return of the Standard and Poor's ("S&P") 500 Stock Index, the SNL U.S. Bank and Thrift Index and a TCF-selected group of peer institutions (assuming the investment of $100 in each index on December 31, 2009 and reinvestment of all dividends). The TCF Peer Group consists of the publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of September 30, 2013.


TCF Total Stock Return Performance Chart

GRAPHIC

 
  Year Ended December 31,
Index
  2009
  2010
  2011
  2012
  2013
  2014
   

TCF Financial Corporation

  $ 100.00   $ 110.16   $ 77.91   $ 93.44   $ 126.68   $ 125.46    

SNL Bank and Thrift(1)

    100.00     111.64     86.81     116.57     159.61     178.18    

S&P 500 Index

    100.00     115.06     117.49     136.30     180.44     205.14    

TCF Peer Group(2)

    100.00     111.38     94.98     108.02     151.86     155.65    
(1)
Includes all major exchange (NYSE, NYSE MKT, NASDAQ) banks and thrifts in SNL's coverage universe (445 companies as of December 31, 2014).
(2)
The TCF Peer Group consists of publicly-traded banks and thrifts with total assets ranging from $10 billion to $50 billion as of September 30, 2013, including: New York Community Bancorp, Inc.; First Republic Bank; Hudson City Bancorp, Inc.; First Niagara Financial Group, Inc.; Popular, Inc.; People's United Financial, Inc.; City National Corporation; BOK Financial Corporation; Synovus Financial Corp.; East West Bancorp, Inc.; First Horizon National Corporation; FirstMerit Corporation; SVB Financial Group; Associated Banc-Corp; Cullen/Frost Bankers, Inc.; Commerce Bancshares, Inc.; First Citizens BancShares, Inc.; Signature Bank; Webster Financial Corporation; Hancock Holding Company; Susquehanna Bancshares, Inc.; Wintrust Financial Corporation; EverBank Financial Corp; Fulton Financial Corporation; UMB Financial Corporation; Prosperity Bancshares, Inc.; Astoria Financial Corporation; First National of Nebraska, Inc.; Valley National Bancorp; BankUnited, Inc.; PrivateBancorp, Inc.; Bank of Hawaii Corporation; Investors Bancorp, Inc.; IBERIABANK Corporation; Washington Federal, Inc.; BancorpSouth, Inc.; F.N.B. Corporation; First BanCorp.; International Bancshares Corporation; Flagstar Bancorp, Inc.; Trustmark Corporation; Umpqua Holdings Corporation; TFS Financial Corporation; Cathay General Bancorp; Texas Capital Bancshares, Inc.; and Central Bancompany, Inc.

15


Repurchases of TCF Stock

The following table summarizes share repurchase activity for the quarter ended December 31, 2014.

    Total
Number of Shares
Purchased
    Average
Price Paid
Per Share
    Total
Number of Shares
Purchased as
Part of Publicly
Announced Plan
    Maximum
Number of Shares
that May Yet
be Purchased
Under the Plan
   

October 1 to October 31, 2014:

Share repurchase program(1)

      $         5,384,130    

Employee transactions(2)

    4,603     15.43     N.A.     N.A.    

November 1 to November 30, 2014:

                           

Share repurchase program(1)

                5,384,130    

Employee transactions(2)

            N.A.     N.A.    

December 1 to December 31, 2014:

                           

Share repurchase program(1)

                5,384,130    

Employee transactions(2)

            N.A.     N.A.    

Total:

                           

Share repurchase program(1)

      $         5,384,130    

Employee transactions(2)

    4,603     15.43     N.A.     N.A.    

N.A. Not Applicable.

   
(1)
The current share repurchase authorization was approved by the Board of Directors on April 14, 2007 and was announced in a press release dated April 16, 2007. The authorization was for a repurchase of up to an additional 5% of TCF's common stock outstanding at the time of the authorization, or 6.5 million shares. TCF has not repurchased shares since October 2007. Future repurchases will be based upon capital levels, growth expectations and market opportunities and may be subject to regulatory approval. The ability to repurchase shares in the future may be adversely affected by new legislation or regulations or by changes in regulatory policies. This authorization does not have an expiration date.
(2)
Represents restricted stock withheld pursuant to the terms of awards under the TCF Financial Incentive Stock Program to offset tax withholding obligations that occur upon vesting and release of restricted stock. The TCF Financial Incentive Stock Program provides that the value of shares withheld shall be the average of the high and low prices of common stock of TCF Financial Corporation on the date the relevant transaction occurs.

16


Item 6. Selected Financial Data

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

Five Year Financial Summary

    At or For the Year Ended December 31,
     

(Dollars in thousands, except per-share data)

    2014     2013     2012     2011     2010    
 

Consolidated Income:

                                 

Net interest income

  $ 815,629   $ 802,624   $ 780,019   $ 699,688   $ 699,202    

Fees and other revenue

    432,240     403,094     388,191     437,171     508,862    

Gains (losses) on securities, net

    1,027     964     102,232     7,263     29,123    

Total revenue

    1,248,896     1,206,682     1,270,442     1,144,122     1,237,187    

Provision for credit losses

    95,737     118,368     247,443     200,843     236,437    

Non-interest expense

    871,777     845,269     811,819     764,451     756,335    

Loss on termination of debt

            550,735            

Income (loss) before income tax expense (benefit)

    281,382     243,045     (339,555 )   178,828     244,415    

Income tax expense (benefit)

    99,766     84,345     (132,858 )   64,441     90,171    

Income attributable to non-controlling interest

    7,429     7,032     6,187     4,993     3,297    

Net income (loss) attributable to TCF Financial Corporation

    174,187     151,668     (212,884 )   109,394     150,947    

Preferred stock dividends

    19,388     19,065     5,606            

Net income (loss) available to common stockholders

  $ 154,799   $ 132,603   $ (218,490 ) $ 109,394   $ 150,947    

Per common share:

                                 

Basic earnings (loss)

  $ 0.95   $ 0.82   $ (1.37 ) $ 0.71   $ 1.08    

Diluted earnings (loss)

  $ 0.94   $ 0.82   $ (1.37 ) $ 0.71   $ 1.08    

Dividends declared

  $ 0.20   $ 0.20   $ 0.20   $ 0.20   $ 0.20    

Consolidated Financial Condition:

                                 

Loans and leases

  $ 16,401,646   $ 15,846,939   $ 15,425,724   $ 14,150,255   $ 14,788,304    

Total assets

    19,394,611     18,379,840     18,225,917     18,979,388     18,465,025    

Deposits

    15,449,882     14,432,776     14,050,786     12,202,004     11,585,115    

Borrowings

    1,236,490     1,488,243     1,933,815     4,388,080     4,985,611    

Total equity

    2,135,364     1,964,759     1,876,643     1,878,627     1,471,663    

Book value per common share

    11.10     10.23     9.79     11.65     10.30    

Financial Ratios:

                                 

Return on average assets

    0.96 %   0.87 %   (1.14 )%   0.61 %   0.85 %  

Return on average common equity

    8.71     8.12     (13.33 )   6.32     10.67    

Net interest margin(1)

    4.61     4.68     4.65     3.99     4.15    

Average total equity to average assets

    10.89     10.46     9.66     9.24     7.83    

Dividend payout ratio

    21.28     24.30     (14.60 )   28.10     18.52    

Credit Quality Ratios:

                                 

Non-accrual loans and leases to total loans and leases

    1.32 %   1.75 %   2.46 %   2.11 %   2.33 %  

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

    1.71     2.17     3.07     3.03     3.26    

Allowance for loan and lease losses to total loans and leases

    1.00     1.59     1.73     1.81     1.80    

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

    0.49     0.81     1.54     1.45     1.47    
(1)
Net interest income divided by average interest-earning assets.

17


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

Table of Contents

Description
  Page

Overview

  19

Results of Operations

  19

Performance Summary

  19

Reportable Segment Results

  20

Consolidated Income Statement Analysis

  21

Net Interest Income

  21

Provision for Credit Losses

  25

Non-Interest Income

  26

Non-Interest Expense

  27

Income Taxes

  28

Consolidated Financial Condition Analysis

  28

Securities Held to Maturity and Securities Available for Sale

  28

Loans and Leases

  29

Credit Quality

  32

Other Real Estate Owned and Repossessed and Returned Assets

  40

Liquidity Management

  40

Deposits

  41

Borrowings

  41

Contractual Obligations and Commitments

  42

Capital Management

  42

Critical Accounting Policies

  44

Recent Accounting Developments

  44

Legislative and Regulatory Developments

  46

Forward-Looking Information

  46

18

Management's discussion and analysis of the consolidated financial condition and results of operations of TCF Financial Corporation should be read in conjunction with "Part I, Item 1A. Risk Factors," "Item 6. Selected Financial Data" and "Item 8. Consolidated Financial Statements."


Overview

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. References herein to "TCF Financial" refer to TCF Financial Corporation on an unconsolidated basis. At December 31, 2014, TCF had 379 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana (TCF's primary banking markets).

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the specific needs of the largest consumer segments in the market. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week in all markets and on most holidays, extensive full-service supermarket branches, automated teller machine ("ATM") networks and internet, mobile and telephone banking. TCF's philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low interest cost deposits. TCF's growth strategies include organic growth in existing businesses, development of new products and services, new customer acquisition through electronic channels and acquisitions of portfolios or companies. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. TCF continues to focus on asset growth in its leasing and equipment finance, inventory finance and auto finance businesses funded through deposit generation, as well as expanding its junior lien lending business.

Net interest income, the difference between interest income earned on loans and leases, securities, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 65.3%, 66.5% and 61.4% of TCF's total revenue in 2014, 2013 and 2012, respectively. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings. TCF manages the risk of changes in interest rates on its net interest income through a management Asset & Liability Committee and through related interest-rate risk monitoring and management policies. See "Part I, Item 1A. Risk Factors" and "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" for further discussion.

Non-interest income is a significant source of revenue for TCF and an important component of TCF's results of operations. Increasing fee and service charge revenue has been challenging as a result of changing customer behavior and the impact of changes in regulations. Providing a wide range of retail banking services is an integral component of TCF's business philosophy and a major strategy for generating non-interest income. Key drivers of bank fees and service charges are the number of deposit accounts and related transaction activity. In addition, as an effort to diversify TCF's non-interest income sources, the Company continues to increase loan sales, primarily in auto finance and consumer real estate, to generate gains on sales as well as increase servicing fee income through the growth of loans sold with servicing retained by TCF.

The following portions of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management's Discussion and Analysis") focus in more detail on the results of operations for 2014, 2013 and 2012 and on information about TCF's balance sheet, loan and lease portfolio, liquidity, funding resources, capital and other matters.


Results of Operations

Performance Summary    TCF reported diluted earnings per common share of 94 cents for 2014, compared with diluted earnings per common share of 82 cents for 2013 and diluted loss per common share of $1.37 for 2012. TCF reported net income of $174.2 million for 2014, compared with net income of $151.7 million for 2013 and a net loss of $212.9 million for 2012. TCF's 2012 net loss included a non-recurring after-tax charge of $295.8 million, or $1.87 per common share, related to the repositioning of TCF's balance sheet completed in the first quarter of 2012.

Return on average assets was 0.96% for 2014, compared with 0.87% for 2013 and a negative return of 1.14% for 2012. Return on average common equity was 8.71% for 2014, compared with 8.12% for 2013 and a negative return of 13.33% for 2012. The negative returns on average assets and average common equity for 2012 were due to the balance sheet repositioning discussed above.

19

Reportable Segment Results

Lending    TCF's lending strategy is primarily to originate high credit quality secured loans and leases for investment and for sale. The lending portfolio consists of consumer real estate, commercial real estate and business lending, leasing and equipment finance, inventory finance and auto finance. Lending's disciplined portfolio growth generates earning assets and, along with its fee generating capabilities, produces a significant portion of the Company's revenue and net income. Lending generated net income available to common stockholders of $174.7 million for 2014, compared with $136.2 million and $30.9 million for 2013 and 2012, respectively.

Lending net interest income totaled $592.4 million for 2014, an increase of 4.2% from $568.3 million for 2013, which increased 8.4% from $524.4 million for 2012. The increase in 2014 was primarily driven by higher average loan and lease balances in the auto finance, leasing and equipment finance and inventory finance businesses. This was partially offset by margin reduction resulting from the competitive low interest rate environment and reduced interest income due to lower consumer real estate loan average balances resulting from continued run-off of the first mortgage lien portfolio, as well as a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable rate loans due to marketplace demand.The increase in 2013 was primarily due to higher average balances driven by continued growth in the auto finance and inventory finance businesses, partially offset by downward pressure on yields across the lending businesses due to the low-interest rate environment.

Lending provision for credit losses totaled $92.8 million for 2014, a decrease of 19.6% from $115.4 million for 2013, which decreased 53.0% from $245.4 million for 2012. The decrease in provision expense in 2014 was primarily due to decreased net charge-offs in the consumer real estate and commercial portfolios. This decrease was partially offset by additional provision expense related to the sale of consumer real estate troubled debt restructuring ("TDR") loans and an increase in provision for credit losses in the auto finance portfolio due to growth coupled with maturation of prior years' originations. The decrease in net charge-offs in the consumer real estate portfolio is primarily due to the improving economy, as incidents of default decrease and home values increase. The decrease in net charge-offs in the commercial portfolio is primarily due to improved credit quality and continued efforts to actively work out problem loans. The decrease in 2013 was primarily due to a decrease in net charge-offs in the consumer real estate portfolio resulting from improved home values and a reduction in incidents of default, decreased net charge-offs in the commercial portfolio due to improved credit quality and continued efforts to actively work out problem loans and the impact of clarifying bankruptcy-related regulatory guidance related to consumer loans adopted in 2012. See "Consolidated Income Statement Analysis – Provision for Credit Losses" in this Management's Discussion and Analysis for further discussion.

Lending non-interest income totaled $211.2 million for 2014, an increase of 25.4% from $168.4 million for 2013, which increased 21.6% from $138.5 million for 2012. The increases were primarily due to increases in gains on sales of auto loans and consumer real estate loans, along with increased servicing fee income due to an increase in loans serviced for others. Total loans and leases serviced for others was $3.4 billion as of December 31, 2014, compared to $2.0 billion and $1.0 billion as of December 31, 2013 and 2012, respectively. See "Consolidated Income Statement Analysis – Non-Interest Income" in this Management's Discussion and Analysis for further discussion.

Lending non-interest expense totaled $426.3 million for 2014, an increase of 6.2% from $401.3 million for 2013, which increased 9.3% from $367.2 million for 2012. The increase in 2014 was primarily due to increased staff levels to support the continued growth of the auto finance business and expenses related to higher commissions and performance incentives based on production results, partially offset by a decrease in foreclosed real estate and repossessed assets expense, net due to increased gains on the sales of foreclosed properties and lower write-downs on existing foreclosed properties due to improved property values. The increase in 2013 was primarily due to increased staff levels to support the growth of the auto finance business and expenses related to higher commissions based on production results and performance incentives, partially offset by reduced expenses related to fewer foreclosed consumer properties and a reduction in write-downs in balances of existing foreclosed real estate properties as a result of improved real estate values.

Funding    TCF's funding is primarily derived from branch banking and wholesale borrowings, with a focus on building and maintaining quality customer relationships. Deposits are generated from consumers and small businesses providing a source of low cost funds and fee income. Borrowings may be used to offset reductions in deposits or to support lending activities. Funding reported net income available to common stockholders of $6.1 million for 2014, compared with net income available to common stockholders of $17.3 million and a net loss available to common stockholders of $239.3 million for 2013 and 2012, respectively.

Funding net interest income totaled $226.3 million for 2014, a decrease of 4.6% from $237.3 million for 2013, which decreased 8.1% from $258.3 million for 2012. The decrease in 2014 was primarily due to a reduction in interest income as a result of lower balances of mortgage-backed securities, partially offset by the reduced cost of borrowings. The decrease in 2013 was primarily due to a reduction in interest income as a result of lower balances of mortgage-backed securities.

20

Funding non-interest income totaled $220.6 million for 2014, a decrease of 6.2% from $235.2 million for 2013, which decreased 30.6% from $338.9 million for 2012. The decrease in 2014 was primarily due to a reduction in fees and service charges due to customer behavior changes and higher average checking account balances per customer. The decrease in 2013 was primarily due to higher gains on sales of securities during 2012 related to the balance sheet repositioning, lower transaction activity and higher average checking account balances per customer, partially offset by a larger account base.

Funding non-interest expense totaled $434.1 million for 2014, a decrease of 1.9% from $442.6 million for 2013, which decreased 54.4% from $969.8 million for 2012. The decrease in 2014 was primarily due to the branch realignment which resulted in a pre-tax charge of $8.9 million in the fourth quarter of 2013. The decrease in 2013 was primarily due to the loss on termination of debt in connection with the balance sheet repositioning completed in the first quarter of 2012.


Consolidated Income Statement Analysis

Net Interest Income    Net interest income, the difference between interest earned on loans and leases, investments and other interest-earning assets (interest income) and interest paid on deposits and borrowings (interest expense), represented 65.3% of TCF's total revenue for 2014, compared with 66.5% for 2013 and 61.4% for 2012. Net interest income divided by average interest-earning assets is referred to as the net interest margin, expressed as a percentage. Net interest income and net interest margin are affected by changes in prevailing short- and long-term interest rates, loan and deposit pricing strategies and competitive conditions, the volume and the mix of interest-earning assets and both non-interest bearing deposits and interest-bearing liabilities, the level of non-accrual loans and leases and other real estate owned and the impact of modified loans and leases.

21

The following tables summarize TCF's average balances, interest, dividends and yields and rates on major categories of TCF's interest-earning assets and interest-bearing liabilities on a fully tax-equivalent basis.

                                                         
 
  Year Ended December 31,
   
   
   
   
      2014     2013     Change    
     

(Dollars in thousands)

    Average
Balance
    Interest     Yields
and
Rates
    Average
Balance
    Interest     Yields
and
Rates
    Average
Balance
    Interest     Yields and
Rates
(bps)
   
 

Assets:

                                                         

Investments and other

  $ 586,803   $ 15,390     2.62 % $ 768,180   $ 15,041     1.96 % $ (181,377 ) $ 349     66    

Securities held to maturity

    197,943     5,281     2.67     6,737     277     4.11     191,206     5,004     (144 )  

Securities available for sale(1)

    447,016     11,994     2.68     648,630     18,074     2.79     (201,614 )   (6,080 )   (11 )  

Loans and leases held for sale

    259,186     21,128     8.15     155,337     11,647     7.50     103,849     9,481     65    

Loans and leases:

                                                         

Consumer real estate:

                                                         

Fixed-rate

    3,359,670     190,973     5.68     3,746,029     217,891     5.82     (386,359 )   (26,918 )   (14 )  

Variable-rate

    2,788,882     143,431     5.14     2,703,921     138,192     5.11     84,961     5,239     3    
                               

Total consumer real estate

    6,148,552     334,404     5.44     6,449,950     356,083     5.52     (301,398 )   (21,679 )   (8 )  
                               

Commercial:

                                                         

Fixed-rate

    1,469,579     73,752     5.02     1,771,959     93,760     5.29     (302,380 )   (20,008 )   (27 )  

Variable- and adjustable-rate

    1,665,788     66,450     3.99     1,490,787     61,752     4.14     175,001     4,698     (15 )  
                               

Total commercial

    3,135,367     140,202     4.47     3,262,746     155,512     4.77     (127,379 )   (15,310 )   (30 )  
                               

Leasing and equipment finance

    3,531,256     166,974     4.73     3,260,425     162,035     4.97     270,831     4,939     (24 )  

Inventory finance

    1,888,080     112,603     5.96     1,723,253     103,844     6.03     164,827     8,759     (7 )  

Auto finance

    1,567,904     68,595     4.37     907,571     43,921     4.84     660,333     24,674     (47 )  

Other

    12,071     931     7.71     13,088     1,060     8.10     (1,017 )   (129 )   (39 )  
                               

Total loans and leases(2)

    16,283,230     823,709     5.06     15,617,033     822,455     5.27     666,197     1,254     (21 )  
                               

Total interest-earning assets

    17,774,178     877,502     4.94     17,195,917     867,494     5.04     578,261     10,008     (10 )  
                               

Other assets(3)

    1,124,226                 1,092,681                 31,545                
                                                 

Total assets

  $ 18,898,404               $ 18,288,598               $ 609,806                
                                                 

Liabilities and Equity:

                                                         

Non-interest bearing deposits:

                                                         

Retail

  $ 1,546,453               $ 1,442,356               $ 104,097                

Small business

    806,649                 771,827                 34,822                

Commercial and custodial

    413,893                 345,713                 68,180                
                                                 

Total non-interest bearing deposits

    2,766,995                 2,559,896                 207,099                
                                                 

Interest-bearing deposits:

                                                         

Checking

    2,328,402     921     0.04     2,313,794     1,485     0.06     14,608     (564 )   (2 )  

Savings

    5,693,751     8,343     0.15     6,147,030     12,437     0.20     (453,279 )   (4,094 )   (5 )  

Money market

    1,312,483     7,032     0.54     818,814     2,391     0.29     493,669     4,641     25    
                               

Subtotal

    9,334,636     16,296     0.17     9,279,638     16,313     0.18     54,998     (17 )   (1 )  

Certificates of deposit

    2,840,922     22,089     0.78     2,369,992     20,291     0.86     470,930     1,798     (8 )  
                               

Total interest-bearing deposits

    12,175,558     38,385     0.32     11,649,630     36,604     0.31     525,928     1,781     1    
                               

Total deposits

    14,942,553     38,385     0.26     14,209,526     36,604     0.26     733,027     1,781        
                               

Borrowings:

                                                         

Short-term borrowings

    83,673     261     0.31     7,685     46     0.60     75,988     215     (29 )  

Long-term borrowings

    1,311,176     19,954     1.52     1,724,002     25,266     1.46     (412,826 )   (5,312 )   6    
                               

Total borrowings

    1,394,849     20,215     1.45     1,731,687     25,312     1.46     (336,838 )   (5,097 )   (1 )  
                               

Total interest-bearing liabilities

    13,570,407     58,600     0.43     13,381,317     61,916     0.46     189,090     (3,316 )   (3 )  
                               

Total deposits and borrowings

    16,337,402     58,600     0.36     15,941,213     61,916     0.39     396,189     (3,316 )   (3 )  
                               

Other liabilities

    502,560                 434,763                 67,797                
                                                 

Total liabilities

    16,839,962                 16,375,976                 463,986                
                                                 

Total TCF Financial Corp. stockholders' equity

    2,041,428                 1,896,131                 145,297                

Non-controlling interest in subsidiaries

    17,014                 16,491                 523                
                                                 

Total equity

    2,058,442                 1,912,622                 145,820                
                                                 

Total liabilities and equity

  $ 18,898,404               $ 18,288,598               $ 609,806                
                                                 

Net interest income and margin

        $ 818,902     4.61         $ 805,578     4.68         $ 13,324     (7 )  
(1)
Average balances and yields of securities available for sale are based upon the historical amortized cost and exclude equity securities.
(2)
Average balances of loans and leases include non-accrual loans and leases and are presented net of unearned income.
(3)
Includes operating leases.

22

                                                         
 
  Year Ended December 31,
   
   
   
   
      2013     2012     Change    
     

(Dollars in thousands)

    Average
Balance
    Interest     Yields
and
Rates
    Average
Balance
    Interest     Yields
and
Rates
    Average
Balance
    Interest     Yields and
Rates
(bps)
   
 

Assets:

                                                         

Investments and other

  $ 768,180   $ 15,041     1.96 % $ 567,907   $ 10,123     1.78 % $ 200,273   $ 4,918     18    

Securities held to maturity

    6,737     277     4.11     6,515     281     4.31     222     (4 )   (20 )  

Securities available for sale(1)

    648,630     18,074     2.79     1,056,048     35,150     3.33     (407,418 )   (17,076 )   (54 )  

Loans and leases held for sale

    155,337     11,647     7.50     46,201     3,689     7.98     109,136     7,958     (48 )  

Loans and leases:

                                                         

Consumer real estate:

                                                         

Fixed-rate

    3,746,029     217,891     5.82     4,254,039     252,233     5.93     (508,010 )   (34,342 )   (11 )  

Variable-rate

    2,703,921     138,192     5.11     2,503,473     126,158     5.04     200,448     12,034     7    
                               

Total consumer real estate

    6,449,950     356,083     5.52     6,757,512     378,391     5.60     (307,562 )   (22,308 )   (8 )  
                               

Commercial:

                                                         

Fixed-rate

    1,771,959     93,760     5.29     1,975,669     109,588     5.55     (203,710 )   (15,828 )   (26 )  

Variable- and adjustable-rate

    1,490,787     61,752     4.14     1,509,549     70,858     4.69     (18,762 )   (9,106 )   (55 )  
                               

Total commercial

    3,262,746     155,512     4.77     3,485,218     180,446     5.18     (222,472 )   (24,934 )   (41 )  
                               

Leasing and equipment finance

    3,260,425     162,035     4.97     3,155,946     170,991     5.42     104,479     (8,956 )   (45 )  

Inventory finance

    1,723,253     103,844     6.03     1,434,643     88,934     6.20     288,610     14,910     (17 )  

Auto finance

    907,571     43,921     4.84     296,083     17,949     6.06     611,488     25,972     (122 )  

Other

    13,088     1,060     8.10     16,549     1,332     8.05     (3,461 )   (272 )   5    
                               

Total loans and leases(2)

    15,617,033     822,455     5.27     15,145,951     838,043     5.53     471,082     (15,588 )   (26 )  
                               

Total interest-earning assets

    17,195,917     867,494     5.04     16,822,622     887,286     5.27     373,295     (19,792 )   (23 )  
                               

Other assets(3)

    1,092,681                 1,233,042                 (140,361 )              
                                                 

Total assets

  $ 18,288,598               $ 18,055,664               $ 232,934                
                                                 

Liabilities and Equity:

                                                         

Non-interest bearing deposits:

                                                         

Retail

  $ 1,442,356               $ 1,311,561               $ 130,795                

Small business

    771,827                 738,949                 32,878                

Commercial and custodial

    345,713                 317,432                 28,281                
                                                 

Total non-interest bearing deposits

    2,559,896                 2,367,942                 191,954                
                                                 

Interest-bearing deposits:

                                                         

Checking

    2,313,794     1,485     0.06     2,256,237     3,105     0.14     57,557     (1,620 )   (8 )  

Savings

    6,147,030     12,437     0.20     6,037,939     19,834     0.33     109,091     (7,397 )   (13 )  

Money market

    818,814     2,391     0.29     770,104     2,859     0.37     48,710     (468 )   (8 )  
                               

Subtotal

    9,279,638     16,313     0.18     9,064,280     25,798     0.28     215,358     (9,485 )   (10 )  

Certificates of deposit

    2,369,992     20,291     0.86     1,727,859     15,189     0.88     642,133     5,102     (2 )  
                               

Total interest-bearing deposits

    11,649,630     36,604     0.31     10,792,139     40,987     0.38     857,491     (4,383 )   (7 )  
                               

Total deposits

    14,209,526     36,604     0.26     13,160,081     40,987     0.31     1,049,445     (4,383 )   (5 )  
                               

Borrowings:

                                                         

Short-term borrowings

    7,685     46     0.60     312,417     937     0.30     (304,732 )   (891 )   30    

Long-term borrowings

    1,724,002     25,266     1.46     2,426,655     62,680     2.58     (702,653 )   (37,414 )   (112 )  
                               

Total borrowings

    1,731,687     25,312     1.46     2,739,072     63,617     2.32     (1,007,385 )   (38,305 )   (86 )  
                               

Total interest-bearing liabilities

    13,381,317     61,916     0.46     13,531,211     104,604     0.77     (149,894 )   (42,688 )   (31 )  
                               

Total deposits and borrowings

    15,941,213     61,916     0.39     15,899,153     104,604     0.66     42,060     (42,688 )   (27 )  
                               

Other liabilities

    434,763                 412,170                 22,593                
                                                 

Total liabilities

    16,375,976                 16,311,323                 64,653                
                                                 

Total TCF Financial Corp. stockholders' equity

    1,896,131                 1,729,537                 166,594                

Non-controlling interest in subsidiaries

    16,491                 14,804                 1,687                
                                                 

Total equity

    1,912,622                 1,744,341                 168,281                
                                                 

Total liabilities and equity

  $ 18,288,598               $ 18,055,664               $ 232,934                
                                                 

Net interest income and margin

        $ 805,578     4.68         $ 782,682     4.65         $ 22,896     3    
(1)
Average balances and yields of securities available for sale are based upon the historical amortized cost and exclude equity securities.
(2)
Average balances of loans and leases include non-accrual loans and leases and are presented net of unearned income.
(3)
Includes operating leases.

23

The following table presents the components of the changes in net interest income by volume and rate.

    Year Ended
     

    December 31, 2014
Versus Same Period in 2013
    December 31, 2013
Versus Same Period in 2012
   
     

    Increase (Decrease) Due to     Increase (Decrease) Due to    
     

(In thousands)

    Volume(1)     Rate(1)     Total     Volume(1)     Rate(1)     Total    
 

Interest income:

                                       

Investments and other

  $ (4,046 ) $ 4,395   $ 349   $ 3,854   $ 1,064   $ 4,918    

Securities held to maturity

    5,134     (130 )   5,004     9     (13 )   (4 )  

Securities available for sale

    (5,431 )   (649 )   (6,080 )   (12,008 )   (5,068 )   (17,076 )  

Loans and leases held for sale

    8,388     1,093     9,481     8,227     (269 )   7,958    

Loans and leases:

                                       

Consumer real estate:

                                       

Fixed-rate

    (22,055 )   (4,863 )   (26,918 )   (29,117 )   (5,225 )   (34,342 )  

Variable-rate

    4,365     874     5,239     10,545     1,489     12,034    

Total consumer real estate

    (16,452 )   (5,227 )   (21,679 )   (16,296 )   (6,012 )   (22,308 )  

Commercial:

                                       

Fixed-rate

    (15,365 )   (4,643 )   (20,008 )   (10,762 )   (5,066 )   (15,828 )  

Variable- and adjustable-rate

    7,045     (2,347 )   4,698     (855 )   (8,251 )   (9,106 )  

Total commercial

    (5,926 )   (9,384 )   (15,310 )   (10,921 )   (14,013 )   (24,934 )  

Leasing and equipment finance

    13,047     (8,108 )   4,939     5,527     (14,483 )   (8,956 )  

Inventory finance

    9,839     (1,080 )   8,759     17,703     (2,793 )   14,910    

Auto finance

    29,246     (4,572 )   24,674     30,367     (4,395 )   25,972    

Other

    (79 )   (50 )   (129 )   (277 )   5     (272 )  

Total loans and leases

    34,365     (33,111 )   1,254     26,280     (41,868 )   (15,588 )  

Total interest income

    28,790     (18,782 )   10,008     20,023     (39,815 )   (19,792 )  

Interest expense:

                                       

Checking

    10     (574 )   (564 )   78     (1,698 )   (1,620 )  

Savings

    (865 )   (3,229 )   (4,094 )   354     (7,751 )   (7,397 )  

Money market

    1,946     2,695     4,641     174     (642 )   (468 )  

Certificates of deposit

    3,779     (1,981 )   1,798     5,538     (436 )   5,102    

Borrowings:

                                       

Short-term borrowings

    248     (33 )   215     (1,368 )   477     (891 )  

Long-term borrowings

    (6,265 )   953     (5,312 )   (14,988 )   (22,426 )   (37,414 )  

Total borrowings

    (4,901 )   (196 )   (5,097 )   (19,062 )   (19,243 )   (38,305 )  

Total interest expense

    861     (4,177 )   (3,316 )   (1,143 )   (41,545 )   (42,688 )  

Net interest income

  $ 26,802   $ (13,478 ) $ 13,324   $ 18,806   $ 4,090   $ 22,896    
(1)
Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate. Changes due to volume and rate are calculated independently for each line item presented.

Net interest income, including the impact of tax-equivalent adjustments of $3.3 million, was $818.9 million for 2014, an increase of 1.7% from $805.6 million for 2013, which was up 2.9% from $782.7 million for 2012. The increase in 2014 was primarily driven by higher average loan and lease balances in the auto finance, leasing and equipment finance and inventory finance businesses and reduced cost of borrowings, partially offset by margin reduction resulting from the competitive low interest rate environment and growth in the auto finance business which has a lower yield when compared to the other TCF asset classes, as well as reduced interest income due to lower consumer real estate loan average balances resulting from continued run-off of the first mortgage lien portfolio and ongoing loan sales, as well as a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable rate loans due to marketplace demand. The increase in net interest income in 2013 was primarily driven by higher average loan and lease balances in the auto finance and inventory finance businesses as well as the balance sheet repositioning in 2012 which resulted in a reduction to the cost of borrowings, partially offset by a reduction of interest income on lower balances of mortgage-backed securities. The increase in 2013 was partially offset by downward pressure on yields across the lending businesses in this low interest rate environment, lower average balances of commercial fixed-rate loans due to run-off exceeding originations, and lower average balances of consumer real estate loans driven by run-off in the first mortgage real estate business and ongoing loan sales of junior lien consumer mortgages.

24

Net interest margin was 4.61%, 4.68% and 4.65% for 2014, 2013 and 2012, respectively. The decrease in 2014 was primarily due to continued margin reduction resulting from the ongoing competitive low interest rate environment and growth in the auto finance business, which has a lower yield compared to the other TCF asset classes. The increase in 2013 was primarily due to the balance sheet repositioning in 2012, partially offset by downward pressure on origination yields in the lending businesses due to the low interest rate environment, and a shift in commercial real estate from higher yielding fixed-rate loans to lower yielding variable-rate loans due to marketplace demand.

Provision for Credit Losses    The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses, which is a critical accounting estimate. TCF's methodologies for determining and allocating the allowance for loan and lease losses and the related provision for credit losses focus on historical trends in net charge-offs, delinquencies in the loan and lease portfolio, value of collateral, general economic conditions and management's assessment of credit risk in the current loan and lease portfolio.

The following table summarizes the composition of TCF's provision for credit losses for the years ended December 31, 2014, 2013, and 2012.

    Year Ended December 31,     Change    
     

(Dollars in thousands)

    2014     2013     2012     2014/2013     2013/2012    
 

Consumer real estate

  $ 63,973     66.8 % $ 87,100     73.6 % $ 178,496     72.1 % $ (23,127 )   (26.6 )% $ (91,396 )   (51.2 )%  

Commercial

    (259 )   (0.3 )   12,515     10.6     43,498     17.6     (12,774 )   N.M .   (30,983 )   (71.2 )  

Leasing and equipment finance

    3,324     3.5     1,005     0.8     10,054     4.1     2,319     N.M .   (9,049 )   (90.0 )  

Inventory finance

    2,498     2.6     1,949     1.6     6,060     2.4     549     28.2     (4,111 )   (67.8 )  

Auto finance

    23,742     24.8     13,215     11.2     6,726     2.7     10,527     79.7     6,489     96.5    

Other

    2,459     2.6     2,584     2.2     2,609     1.1     (125 )   (4.8 )   (25 )   (1.0 )  
                     

Total

  $ 95,737     100.0 % $ 118,368     100.0 % $ 247,443     100.0 % $ (22,631 )   (19.1 ) $ (129,075 )   (52.2 )  

N.M. Not Meaningful.

   

TCF provided $95.7 million for credit losses for 2014, compared with $118.4 million for 2013 and $247.4 million for 2012. The decrease in provision expense in 2014 was primarily due to a decrease in net charge-offs in the consumer real estate and commercial portfolios. This decrease was partially offset by additional provision expense related to the sale of consumer real estate TDR loans and an increase in provision for credit losses in the auto finance portfolio due to growth coupled with maturation of prior years' originations. The decrease in net charge-offs in the consumer real estate portfolio is primarily due to the improving economy, as incidents of default decrease and home values increase. The decrease in net charge-offs in the commercial portfolio is primarily due to improved credit quality and continued efforts to actively work out problem loans. The decrease in provision expense in 2013 was primarily due to decreased net charge-offs in the consumer real estate portfolio due to improved home values and a reduction in incidents of default, decreased net charge-offs in the commercial portfolio due to improved credit quality and continued efforts to actively work out problem loans and the impact of clarifying bankruptcy-related regulatory guidance related to consumer loans adopted in 2012.

Net loan and lease charge-offs were $79.3 million for 2014, or 0.49% of average loans and leases, compared with $126.4 million, or 0.81% of average loans and leases, for 2013 and $233.8 million, or 1.54% of average loans and leases, for 2012. The decrease in 2014 was primarily due to a decrease in net charge-offs in the consumer real estate and commercial portfolios. The decrease in net charge-offs in the consumer real estate portfolio is primarily due to the improving economy, as incidents of default decrease and home values increase. The decrease in net charge-offs in the commercial portfolio is primarily due to improved credit quality and continued efforts to actively work out problem loans. The decrease in 2013 was primarily due to improved credit quality in the consumer real estate portfolio as home values improved and incidents of default declined, as well as improved credit quality in the commercial portfolio and continued efforts to actively work out problem loans, and the impact of the clarifying bankruptcy-related regulatory guidance adopted in 2012.

For additional information, see "Consolidated Financial Condition Analysis – Credit Quality" in this Management's Discussion and Analysis.

25

Non-Interest Income    Non-interest income is a significant source of revenue for TCF, representing 34.7%, 33.5% and 38.6% of total revenue for 2014, 2013 and 2012, respectively, and is an important factor in TCF's results of operations. Total fees and other revenue were $432.2 million for 2014, compared with $403.1 million and $388.2 million for 2013 and 2012, respectively. The following table summarizes the components of non-interest income.

    Year Ended December 31,     Compound Annual
Growth Rate
   
     

(Dollars in thousands)

    2014     2013     2012     2011     2010     1-Year
2014/2013
    5-Year
2014/2009
   
 

Fees and service charges

  $ 154,386   $ 166,606   $ 177,953   $ 219,363   $ 273,181     (7.3 )%   (11.7 )%  

Card revenue

    51,323     51,920     52,638     96,147     111,067     (1.1 )   (13.3 )  

ATM revenue

    22,225     22,656     24,181     27,927     29,836     (1.9 )   (6.1 )  

Subtotal

    227,934     241,182     254,772     343,437     414,084     (5.5 )   (11.6 )  

Gains on sales of auto loans, net

    43,565     29,699     22,101     1,133         46.7     N.M .  

Gains on sales of consumer real estate loans, net

    34,794     21,692     5,413             60.4     N.M .  

Servicing fee income

    21,444     13,406     7,759     970         60.0     N.M .  

Subtotal

    99,803     64,797     35,273     2,103         54.0     N.M .  

Leasing and equipment finance

    93,799     90,919     92,172     89,167     89,194     3.2     6.3    

Other

    10,704     6,196     5,974     2,464     5,584     72.8     15.4    

Fees and other revenue

    432,240     403,094     388,191     437,171     508,862     7.2     (2.7 )  

Gains (losses) on securities, net

    1,027     964     102,232     7,263     29,123     6.5     (48.9 )  

Total non-interest income

  $ 433,267   $ 404,058   $ 490,423   $ 444,434   $ 537,985     7.2     (3.8 )  

Total non-interest income as a percentage of total revenue

    34.7%     33.5%     38.6%     38.8%     43.5%                

N.M. Not Meaningful.

   

Fees and Service Charges    Fees and service charges totaled $154.4 million for 2014, compared with $166.6 million and $178.0 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to customer behavior changes and higher average checking account balances per customer. The decrease in 2013 was primarily due to lower transaction activity and higher average checking account balances per customer, partially offset by a larger account base.

Card Revenue    Card revenue, primarily interchange fees, totaled $51.3 million for 2014, compared with $51.9 million and $52.6 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to fewer checking accounts with debit cards. The decrease in 2013 was primarily due to lower card transaction volume.

TCF is the 17th largest issuer of Visa® consumer debit cards and the 13th largest issuer of Visa small business debit cards in the United States, based on payment volume for the three months ended September 30, 2014, as provided by Visa. TCF earns interchange revenue from customer card transactions paid primarily by merchants, not TCF's customers. Card revenue represented 22.5%, 21.5% and 20.7% of banking fee revenue for 2014, 2013 and 2012, respectively.

Gains on Sales of Auto Loans, Net    TCF sold $1.3 billion of auto loans and recognized a gain of $44.7 million for 2014, compared to sales of $795.3 million and $536.7 million of auto loans with recognized gains of $29.7 million and $22.1 million for 2013 and 2012, respectively. The increases in sales were primarily due to the continued growth of the auto finance business as TCF continues to sell a percentage of its originations each quarter. Included in 2014 is $256.3 million of loans sold related to the execution of the Company's inaugural auto loan securitization, which took place in July 2014, and resulted in a net gain of $7.4 million.

Gains on Sales of Consumer Real Estate Loans, Net    TCF sold $1.4 billion of consumer real estate loans and recognized a gain of $34.1 million for 2014, compared to sales of $763.1 million and $161.8 million of consumer real estate loans with recognized gains of $21.7 million and $5.4 million for 2013 and 2012, respectively. Included in 2014 was $405.9 million related to the portfolio sale of consumer real estate TDR loans, which resulted in a net loss of $4.8 million.

26

Servicing Fee Income    Servicing fee income totaled $21.4 million for 2014, compared with $13.4 million and $7.8 million for 2013 and 2012, respectively. The increases were primarily due to an increase in the portfolio of consumer real estate and auto loans sold with servicing retained by TCF. Total loans and leases serviced for others was $3.4 billion as of December 31, 2014, compared to $2.0 billion and $1.0 billion as of December 31, 2013 and 2012, respectively.

Leasing and Equipment Finance    Leasing and equipment finance income totaled $93.8 million for 2014, compared with $90.9 million and $92.2 million for 2013 and 2012, respectively. The increase in 2014 and the decrease in 2013 were primarily due to customer-driven events impacting sales-type lease revenue.

Gains (Losses) on Securities, Net    Gains (losses) on securities, net totaled $1.0 million for 2014, compared with $1.0 million and $102.2 million for 2013 and 2012, respectively. The gains in 2012 included $90.2 million related to sales of mortgage-backed securities (including a pre-tax net gain of $77.0 million as a result of the balance sheet repositioning) and a pre-tax net gain of $13.1 million as a result of the sale of Visa Class B stock.

Non-Interest Expense    Total non-interest expense was $871.8 million for 2014, compared with $845.3 million and $1.4 billion for 2013 and 2012, respectively. Non-interest expense increased $26.5 million, or 3.1%, in 2014 and decreased $517.3 million, or 38.0%, in 2013. The following table presents the components of non-interest expense.

    Year Ended December 31,     Compound Annual
Growth Rate
   
     

(Dollars in thousands)

    2014     2013     2012     2011     2010     1-Year
2014/2013
    5-Year
2014/2009
   
 

Compensation and employee benefits

  $ 452,942   $ 429,188   $ 393,841   $ 348,792   $ 346,072     5.5 %   5.5 %  

Occupancy and equipment

    139,023     134,694     130,792     126,437     126,551     3.2     1.9    

FDIC insurance

    25,123     32,066     30,425     28,747     23,584     (21.7 )   5.6    

Operating lease depreciation

    27,152     24,500     25,378     30,007     37,106     10.8     4.0    

Advertising and marketing

    22,943     21,477     25,241     32,925     30,366     6.8     (13.7 )  

Other

    179,904     167,777     163,897     145,489     146,253     7.2     4.7    

Subtotal

    847,087     809,702     769,574     712,397     709,932     4.6     3.8    

Loss on termination of debt

            550,735                 N.M .  

Branch realignment

        8,869                 (100.0 )   N.M .  

Foreclosed real estate and repossessed assets, net

    24,567     27,950     41,358     49,238     40,385     (12.1 )   (5.1 )  

Other credit costs, net

    123     (1,252 )   887     2,816     6,018     N.M.     (60.1 )  

Total non-interest expense

  $ 871,777   $ 845,269   $ 1,362,554   $ 764,451   $ 756,335     3.1     2.9    

N.M. Not Meaningful.

   

Compensation and Employee Benefits    Compensation and employee benefits expense totaled $452.9 million for 2014, compared with $429.2 million and $393.8 million for 2013 and 2012, respectively. The increase in 2014 was primarily due to increased staff levels to support the growth and needs of auto finance and risk management, higher commissions based on production results and an increase in the annual pension plan valuation adjustment. The increase in 2013 was primarily due to increased staff levels to support the growth of auto finance and expenses related to higher commissions based on production results and performance incentives.

FDIC Insurance    FDIC premium expense totaled $25.1 million for 2014, compared with $32.1 million and $30.4 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to a lower assessment rate due to overall improving credit metrics inclusive of the portfolio sale of consumer real estate TDR loans and a non-recurring assessment rate catch-up. The increase in 2013 was primarily due to a higher overall assessment base.

Other Non-Interest Expense    Other non-interest expense totaled $179.9 million for 2014, compared with $167.8 million and $163.9 million for 2013 and 2012, respectively. The increase in 2014 was primarily due to increased loan and lease processing expense due to increases in loan originations. The increase in 2013 was primarily due to an increase in regulatory compliance costs and increased loan and lease processing expense in the consumer real estate and auto finance businesses.

Loss on Termination of Debt    In the first quarter of 2012, TCF restructured $3.6 billion of long-term borrowings at a pre-tax loss of $550.7 million.

Branch Realignment    TCF executed a realignment of its retail banking system to support its strategic initiatives which resulted in a pre-tax charge of $8.9 million in the fourth quarter of 2013. The consolidation of 37 branches in Illinois and nine branches in Minnesota occurred in the first quarter of 2014.

27

Foreclosed Real Estate and Repossessed Assets, Net    Foreclosed real estate and repossessed assets expense, net totaled $24.6 million for 2014, compared with $28.0 million and $41.4 million for 2013 and 2012, respectively. The decrease in 2014 was primarily due to increased gains on the sales of foreclosed properties and lower write-downs on existing foreclosed properties as a result of improved property values as well as fewer consumer real estate owned properties. The decrease in 2013 was primarily due to reduced expenses related to fewer foreclosed consumer properties primarily driven by a portfolio sale of real estate owned properties during the first quarter of 2013, a decrease in additions to foreclosed consumer properties and lower write-downs to existing foreclosed real estate properties as a result of improved real estate property values.

Income Taxes    Income tax expense represented 35.5% of income before income tax expense in 2014, compared with 34.7% in 2013 and income tax benefit of 39.1% of loss before income tax benefit in 2012. The higher effective income tax rate for 2014 compared with 2013 was primarily due to proportionately smaller foreign tax effects. The higher effective income tax rate for 2012 was primarily due to the pre-tax loss which resulted from the 2012 balance sheet repositioning.


Consolidated Financial Condition Analysis

Securities Held to Maturity and Securities Available for Sale    TCF's securities held to maturity and securities available for sale portfolios primarily consist of fixed-rate mortgage-backed securities issued by the Federal National Mortgage Association. Securities held to maturity were $214.5 million, or 1.1% of total assets, at December 31, 2014, compared to $19.9 million, or 0.1% of total assets, at December 31, 2013. Securities available for sale were $463.3 million, or 2.4% of total assets, at December 31, 2014, compared to $551.1 million, or 3.0% of total assets, at December 31, 2013. Net unrealized pre-tax gains on securities available for sale totaled $1.7 million at December 31, 2014, compared with net unrealized pre-tax losses of $43.0 million at December 31, 2013. TCF may, from time to time, sell securities and utilize the proceeds to reduce borrowings, fund growth in loans and leases or for other corporate purposes. During 2014 and 2013, TCF transferred $191.7 million and $9.3 million, respectively, in available for sale mortgage-backed securities to held to maturity, reflecting TCF's intent to hold those securities to maturity.

28

Loans and Leases    The following tables set forth information about loans and leases held in TCF's portfolio.

    At December 31,     Compound Annual
Growth Rate
   
     

(Dollars in thousands)

    2014     2013     2012     2011     2010     1-Year
2014/2013
    5-Year
2014/2009
   
 

Consumer real estate:

                                             

First mortgage lien

  $ 3,139,152   $ 3,766,421   $ 4,239,524   $ 4,742,423   $ 4,893,887     (16.7 )%   (8.7 )%  

Junior lien

    2,543,212     2,572,905     2,434,977     2,152,868     2,262,194     (1.2 )   1.9    

Total consumer real estate

    5,682,364     6,339,326     6,674,501     6,895,291     7,156,081     (10.4 )   (4.8 )  

Commercial:

                                             

Commercial real estate

    2,624,255     2,743,697     3,080,942     3,198,698     3,328,216     (4.4 )   (4.3 )  

Commercial business

    533,410     404,655     324,293     250,794     317,987     31.8     3.5    

Total commercial

    3,157,665     3,148,352     3,405,235     3,449,492     3,646,203     0.3     (3.2 )  

Leasing and equipment finance

    3,745,322     3,428,755     3,198,017     3,142,259     3,154,478     9.2     4.0    

Inventory finance

    1,877,090     1,664,377     1,567,214     624,700     792,354     12.8     32.0    

Auto finance

    1,915,061     1,239,386     552,833     3,628         54.5     N.M .  

Other

    24,144     26,743     27,924     34,885     39,188     (9.7 )   (14.0 )  

Total loans and leases

  $ 16,401,646   $ 15,846,939   $ 15,425,724   $ 14,150,255   $ 14,788,304     3.5     2.4    

N.M. Not Meaningful.


    At December 31, 2014

(In thousands)

    Consumer
Real Estate
    Commercial     Leasing and
Equipment
Finance
    Inventory
Finance
    Auto
Finance
    Other     Total    

Geographic Distribution:

                                             

Minnesota

  $ 1,903,494   $ 814,248   $ 98,591   $ 62,701   $ 36,238   $ 10,060   $ 2,925,332    

Illinois

    1,429,226     566,342     130,125     44,688     90,138     5,320     2,265,839    

California

    651,447     33,304     523,361     57,918     344,778     27     1,610,835    

Michigan

    556,214     493,184     140,164     64,465     36,643     2,750     1,293,420    

Wisconsin

    315,832     535,355     62,004     54,676     18,012     1,122     987,001    

Colorado

    399,811     167,813     64,395     21,538     38,803     4,369     696,729    

Texas

    3     30,451     365,944     132,481     122,487     4     651,370    

Canada

            1,053     525,891             526,944    

Florida

    16,827     47,182     167,658     71,334     103,357     54     406,412    

New York

    7,662         200,206     55,080     80,473     34     343,455    

Ohio

    5,239     70,707     133,495     52,066     39,414         300,921    

Pennsylvania

    15,377         153,500     54,632     76,644     9     300,162