Toggle SGML Header (+)


Section 1: 10-K (10-K)

10-K
Table of Contents



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015 
or
[  ] 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
41-1591444
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
200 Lake Street East
Wayzata, Minnesota 55391-1693
(Address and Zip Code of principal executive offices)
(952) 745-2760
(Registrant's telephone number, including area code)
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 [X]    No [  ]
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 [ ]    No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]    No [  ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes [X]    No [  ]
Indicate by check mark 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. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if smaller reporting company)
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [   ]    No [X]
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 $2,546,966,152.
As of February 22, 2016, there were 170,618,639 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 2016 Annual Meeting of Stockholders to be held on April 27, 2016 are incorporated by reference into Part III hereof.


Table of Contents



TABLE OF CONTENTS
 
Description
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents



Part I

Item 1. Business

General

TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Company"), a Delaware corporation incorporated on April 28, 1987, is a national bank holding company based in Wayzata, Minnesota. References herein to the "Holding Company" or "TCF Financial" refer to TCF Financial Corporation on an unconsolidated basis. Its principal subsidiary, TCF National Bank ("TCF Bank"), 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 44 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 2015, 2014 and 2013. International revenue, primarily from Canada, was $27.3 million, $27.9 million and $25.3 million in 2015, 2014 and 2013, respectively.

TCF had total assets of $20.7 billion as of December 31, 2015 and was the 45th largest publicly traded bank holding company in the United States based on total assets at September 30, 2015.

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 select locations open seven days a week with extended hours 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 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. Funded generally through retail deposit generation, TCF continues to focus on profitable asset growth in its leasing and equipment finance, inventory finance, auto finance and consumer real estate junior lien lending businesses.

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, Business Segments of Notes to Consolidated Financial Statements 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. TCF has two consumer real estate loan sale programs; one that sells nationally originated junior lien loans and the other that originates first mortgage lien loans in our primary banking markets and sells the loans through a correspondent relationship. TCF does not have any consumer real estate subprime lending programs. TCF continues to expand its junior lien lending business through a national lending platform focused on junior lien loans to high credit quality customers.

1


Table of Contents




Commercial Real Estate and Business Lending With an emphasis on secured lending, 99.9% of TCF's total commercial loans were secured either by properties or other business assets at both December 31, 2015 and 2014.

Commercial real estate loans are loans originated by TCF that are secured by commercial real estate, including multi-family housing, warehouse and industrial buildings, office buildings, health care facilities, retail services and commercial real estate construction loans, mainly to borrowers based in its primary banking markets. The commercial real estate portfolio represented 82.4% and 83.1% of TCF's total commercial portfolio at December 31, 2015 and 2014, respectively.

Commercial business loans are loans originated by TCF that are secured by various types of business assets including inventory, receivables, equipment or financial instruments. 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 55% of TCF's commercial business loans outstanding at December 31, 2015 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, construction, golf cart and turf, medical, manufacturing, 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 primarily in the areas of powersports and lawn and garden. 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 Gateway One Lending & Finance, LLC ("Gateway One"), headquartered in Anaheim, California, originates and services loans on new and used autos to customers through relationships established with more than 11,800 franchised and independent dealers in all 50 states. Loans are originated for investment and for sale, including securitizations. 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, 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. TCF provides an online and mobile banking platform to further enhance the customer banking experience.

2


Table of Contents




At December 31, 2015, TCF had 375 branches, consisting of 192 traditional branches, 177 supermarket branches and six campus branches. TCF operates 155 branches in Illinois, 99 in Minnesota, 53 in Michigan, 34 in Colorado, 24 in Wisconsin, seven in Arizona, two in South Dakota and one in Indiana. Of its 177 supermarket branches, TCF had 117 branches in Jewel-Osco® stores at December 31, 2015. TCF will be closing 33 branches located in Jewel-Osco stores in 2016 and in their place installing ATMs that feature advanced transaction capabilities. 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 component of TCF's results of operations. Increasing fee and service charge revenue has been challenging as a result of changing consumer 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. 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 programs are supported by interchange fees charged to retailers.

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 obligations and securities of various federal agencies and U.S. Government sponsored enterprises, obligations of states and political subdivisions, 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, Short-term Borrowings and Note 11, Long-term Borrowings of Notes to Consolidated Financial Statements.

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, 2015, TCF had 6,755 employees, including 1,233 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.


3


Table of Contents



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 various regulatory capital requirements administered by the federal banking agencies 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.

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 Consumer Protection Act of 2010 (the "Dodd-Frank Act") and the Basel III international capital standards. The Final Capital Rules became applicable to TCF on January 1, 2015 with conservation buffers phasing in over the subsequent five years. Among other things, the Final Capital Rules established 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; increased the minimum Tier 1 capital ratio from 4.0% to 6.0% and included a minimum leverage ratio of 4.0%; placed an emphasis on common equity Tier 1 capital and changed the risk weights assigned to certain instruments. Failure to meet these standards would result in limitations on capital distributions as well as executive bonuses. TCF and TCF Bank exceeded the Basel III capital standards as of December 31, 2015. See Note 14Regulatory Capital Requirements of Notes to Consolidated Financial Statements for additional information.

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 earnings for the current year combined with its net retained earnings for the preceding two calendar years without prior approval of the OCC. 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. TCF Bank's ability to make capital distributions in the future may require regulatory approval and may be restricted by its regulatory authorities. TCF Bank's ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. These capital adequacy standards may be higher in the future than existing minimum regulatory capital requirements.
 
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. Annual dividend distributions in excess of earnings 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.
 

4


Table of Contents



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 would be required to 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  Under current law, 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 2015 was 60 cents for each $100 of deposits. Financing Corporation assessments of $1.0 million, $1.0 million and $1.1 million were paid by TCF Bank in 2015, 2014 and 2013, 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: (i) raised the minimum designated reserve ratio ("DRR") from 1.15% to 1.35% and removed the upper limit on the DRR; (ii) requires the DIF to reach 1.35% by September 30, 2020; (iii) 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 $10.0 billion; (iv) eliminated the requirement that the FDIC pay dividends from the fund when the DRR is between 1.35% and 1.5%; and (v) 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, 2015, the DIF ratio calculated by the FDIC using estimated insured deposits was 1.09%. The DIF reserve ratio would have been 0.51% using the new assessment base. In 2015, for banks with at least $10.0 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. TCF's FDIC insurance expense was $20.3 million, $25.1 million and $32.1 million in 2015, 2014 and 2013, respectively.


5


Table of Contents



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. See "Item 1A. Risk Factors."

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.
 
Taxation 

Federal Taxation  TCF's federal income tax returns are open and subject to examination for 2013 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.

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 7. Management's Discussion and Analysis - Consolidated Income Statement Analysis - Income Taxes" and Note 1, Summary of Significant Accounting Policies and Note 12, Income Taxes of Notes to Consolidated Financial Statements 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 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 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.


6


Table of Contents



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 both business and economic conditions generally, as well as those in the local markets in which TCF operates. 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 the values of 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 TCF Financial uses 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.


7


Table of Contents



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 and it is expected that competition for deposits will continue to increase. If TCF's competitors raise the rates they pay on deposits, TCF may experience 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. Losses of deposits may require TCF to address its liquidity needs in ways that increase its funding 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 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.
 

8


Table of Contents



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, many retailers have 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 damage or financial losses which could have a material adverse effect on its financial condition and results of operations.

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, 2015, TCF had 177 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, or that we may not be able to renew branch leases with our supermarket partners on favorable terms, or at all.

Also, 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. Although utilization of these branches may decrease, the nature of these leases with our supermarket partners generally do not allow us to terminate significant numbers of individual branches. Because these leases are generally all renewed together, in the event of a decrease in customer utilization there may be limited opportunities to terminate unprofitable branch leases. Any of the above risks 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. Further, decreased underwriting standards of competitors may result in lower interest rates or loan volumes. 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.


9


Table of Contents



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 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.

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.

Future changes in regulations, regulatory policies, interpretation and enforcement of statutes, regulations or policies could result in reduced revenues, increased compliance burdens, additional costs, limits on the types of financial services and products we may offer or increased competition from non-banks offering competing financial services and products, among other things. 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, 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. 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.

For example, on October 29, 2015, TCF received a Notice and Opportunity to Respond and Advise letter ("NORA Letter") from the CFPB notifying TCF that the CFPB’s Office of Enforcement is considering recommending that the CFPB take legal action against TCF related to compliance with laws relating to unfair, deceptive and abusive acts and practices and Regulation E, §1005.17, in connection with TCF’s practices in administering checking account overdraft program "opt-in" requirements. The purpose of a NORA Letter is to ensure that potential subjects of enforcement actions have the opportunity to present their positions to the CFPB before an enforcement action is recommended or commenced and TCF has provided the CFPB with a written statement setting forth the reasons of law and policy why it believes that the CFPB should not take action. TCF is in discussions with the CFPB and is seeking to reach an appropriate resolution of the matter. We are currently unable to predict the ultimate timing or outcome of this matter. There can be no assurance that the CFPB will not utilize its enforcement authority through settlement, administrative proceedings or litigation and seek remediation, disgorgement, penalties, other monetary relief, injunctive relief or changes to TCF’s business practices or operations, which could have a material adverse effect on TCF.


10


Table of Contents



While TCF has policies and procedures designed to prevent violations of laws, regulations and regulatory policies, and to ensure compliance with new or changed laws, regulations and regulatory policies, there can be no assurance that violations will not occur, and failure to comply could result in reputational damage, remediation, disgorgement, penalties, other monetary relief, injunctive relief or changes to TCF's business practices or operations, any of which could have a material adverse effect on its 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.

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 interest rate, credit, 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 may receive 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 expected to be received 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.


11


Table of Contents



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, in 2015, TCF recognized net gains of $72.0 million on the recorded investment of $2.6 billion in consumer real estate and auto loans sold, including accrued interest. This included total consumer auto loan securitization transaction net gains of $25.5 million on $1.1 billion of the recorded investment, including accrued interest.

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 from TCF, or in general, 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, would decrease TCF's capital ratios as a result of the increase of risk weighted assets, 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 did not 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 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.

Management transition and the 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 key personnel, including its ability to attract and retain such 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. On January 1, 2016, several management changes became effective, including Craig R. Dahl assuming the role of Chief Executive Officer, Brian W. Maass assuming the role of Chief Financial Officer, and Thomas F. Jasper assuming the role of Chief Operating Officer. Although each of these positions was filled internally, and there were no executive departures as a result of these changes, any significant leadership change or executive management transition involves inherent risk, and any failure to ensure the effective transfer of knowledge and a smooth transition could hinder our strategic planning, execution and future performance. 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.


12


Table of Contents



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.

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 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.


13


Table of Contents



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 on 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 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 office in Wayzata, Minnesota. Other operations facilities, located in Minnesota, Illinois, California and South Dakota, are either owned or leased. These facilities are predominantly utilized by the Lending and Funding segments. Several facilities in Minnesota are also utilized by the Support Services segment. At December 31, 2015, TCF owned the buildings and land for 147 of its bank branch offices, owned the buildings but leased the land for 26 of its bank branch offices and leased or licensed the remaining 202 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, Premises and Equipment of Notes to Consolidated Financial Statements.


14


Table of Contents



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 regulatory examinations and enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the CFPB, and TCF's regulatory authorities may impose sanctions on TCF for failures related to regulatory compliance. 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. Except as discussed below, based on our current understanding of TCF's 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.

On October 29, 2015, TCF received a NORA Letter from the CFPB notifying TCF that the CFPB’s Office of Enforcement is considering recommending that the CFPB take legal action against TCF related to compliance with laws relating to unfair, deceptive and abusive acts and practices and Regulation E, §1005.17, in connection with TCF’s practices in administering checking account overdraft program "opt-in" requirements. The purpose of a NORA Letter is to ensure that potential subjects of enforcement actions have the opportunity to present their positions to the CFPB before an enforcement action is recommended or commenced and TCF has provided the CFPB with a written statement setting forth the reasons of law and policy why it believes that the CFPB should not take action. TCF is in discussions with the CFPB and is seeking to reach an appropriate resolution of the matter. We are currently unable to predict the ultimate timing or outcome of this matter. There can be no assurance that the CFPB will not utilize its enforcement authority through settlement, administrative proceedings or litigation and seek remediation, disgorgement, penalties, other monetary relief, injunctive relief or changes to TCF’s business practices or operations, which could have a material adverse effect on TCF.

Item 4. Mine Safety Disclosures
 
Not applicable.


15


Table of Contents



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 the dividends declared for TCF's common stock.

As of February 22, 2016, there were 5,945 holders of record of TCF's common stock.
 
High
 
Low
 
Dividends
Declared
2015:
 
 
 
 
 
Fourth Quarter
$
15.94

 
$
13.78

 
$
0.075

Third Quarter
17.07

 
14.35

 
0.05

Second Quarter
17.29

 
14.93

 
0.05

First Quarter
16.31

 
13.78

 
0.05

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


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 Office of the Comptroller of the Currency. 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, Regulatory Capital Requirements of Notes to Consolidated Financial Statements.



16


Table of Contents



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, 2010 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, 2014.

TCF Total Stock Return Performance Chart
u TCF Financial Corporation n SNL Bank and Thrift(1) p S&P 500 Index l TCF Peer Group(2) 
 
Year Ended December 31,
Index
2010
 
2011
 
2012
 
2013
 
2014
 
2015
TCF Financial Corporation
$
100.00

 
$
70.73

 
$
84.82

 
$
115.01

 
$
113.89

 
$
102.66

SNL Bank and Thrift(1)
100.00

 
77.76

 
104.42

 
142.97

 
159.60

 
162.83

S&P 500 Index
100.00

 
102.11

 
118.45

 
156.82

 
178.28

 
180.75

TCF Peer Group(2)
100.00

 
86.26

 
97.43

 
138.54

 
143.09

 
152.75

(1)
Includes all major exchange (NYSE, NYSE MKT, NASDAQ) banks and thrifts in SNL's coverage universe (428 companies as of December 31, 2015).
(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, 2014, including: New York Community Bancorp, Inc.; First Republic Bank; First Niagara Financial Group, Inc.; Hudson City Bancorp, Inc.; SVB Financial Group; People's United Financial, Inc.; Popular, Inc.; City National Corporation; BOK Financial Corporation; East West Bancorp, Inc.; Cullen/Frost Bankers, Inc.; Synovus Financial Corp.; Signature Bank; Associated Banc-Corp; FirstMerit Corporation; First Horizon National Corporation; Commerce Bancshares, Inc.; Umpqua Holdings Corporation; First Citizens BancShares, Inc.; Webster Financial Corporation; Prosperity Bancshares, Inc.; EverBank Financial Corp; Hancock Holding Company; Wintrust Financial Corporation; Susquehanna Bancshares, Inc.; Investors Bancorp, Inc.; BankUnited, Inc.; Fulton Financial Corporation; First National of Nebraska, Inc.; Valley National Bancorp; UMB Financial Corporation; PacWest Bancorp; F.N.B. Corporation; IBERIABANK Corporation; Astoria Financial Corporation; PrivateBancorp, Inc.; Washington Federal, Inc.; Bank of Hawaii Corporation; MB Financial, Inc.; Texas Capital Bancshares, Inc.; BancorpSouth, Inc.; First BanCorp.; Trustmark Corporation; United Bankshares, Inc.; International Bancshares Corporation; TFS Financial Corporation; Cathay General Bancorp; Old National Bancorp; Central Bancompany, Inc.; and Western Alliance Bancorporation.


17


Table of Contents



Repurchases of TCF Stock

The following table summarizes share repurchase activity for the quarter ended December 31, 2015.
Period
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, 2015
 

 
 

 
 

 
 

Share repurchase program(1)

 
$

 

 
5,384,130

Employee transactions(2)
4,761

 
$
15.12

 
N.A.

 
N.A.

November 1 to November 30, 2015
 

 
 

 
 

 
 

Share repurchase program(1)

 
$

 

 
5,384,130

Employee transactions(2)

 
$

 
N.A.

 
N.A.

December 1 to December 31, 2015
 

 
 

 
 

 
 

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)
4,761

 
$
15.12

 
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 granted on or prior to April 22, 2015 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.

18


Table of Contents



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)
2015
 
2014
 
2013
 
2012
 
2011
Consolidated Income:
 
 
 
 
 
 
 
 
 
Net interest income
$
820,388

 
$
815,629

 
$
802,624

 
$
780,019

 
$
699,688

Fees and other revenue
442,295

 
432,240

 
403,094

 
388,191

 
437,171

Gains (losses) on securities, net
(297
)
 
1,027

 
964

 
102,232

 
7,263

Total revenue
1,262,386

 
1,248,896

 
1,206,682

 
1,270,442

 
1,144,122

Provision for credit losses
52,944

 
95,737

 
118,368

 
247,443

 
200,843

Non-interest expense
894,747

 
871,777

 
845,269

 
811,819

 
764,451

Loss on termination of debt

 

 

 
550,735

 

Income (loss) before income tax expense (benefit)
314,695

 
281,382

 
243,045

 
(339,555
)
 
178,828

Income tax expense (benefit)
108,872

 
99,766

 
84,345

 
(132,858
)
 
64,441

Income attributable to non-controlling interest
8,700

 
7,429

 
7,032

 
6,187

 
4,993

Net income (loss) attributable to TCF Financial Corporation
197,123

 
174,187

 
151,668

 
(212,884
)
 
109,394

Preferred stock dividends
19,388

 
19,388

 
19,065

 
5,606

 

Net income (loss) available to common stockholders
$
177,735

 
$
154,799

 
$
132,603

 
$
(218,490
)
 
$
109,394

Net income (loss) per common share:
 
 
 
 
 
 
 
 
 
Basic
$
1.07

 
$
0.95

 
$
0.82

 
$
(1.37
)
 
$
0.71

Diluted
$
1.07

 
$
0.94

 
$
0.82

 
$
(1.37
)
 
$
0.71

Dividends declared
$
0.225

 
$
0.20

 
$
0.20

 
$
0.20

 
$
0.20

Consolidated Financial Condition:
 
 
 
 
 
 
 
 
 
Loans and leases
$
17,435,999

 
$
16,401,646

 
$
15,846,939

 
$
15,425,724

 
$
14,150,255

Total assets
20,691,704

 
19,394,611

 
18,379,840

 
18,225,917

 
18,979,388

Deposits
16,719,989

 
15,449,882

 
14,432,776

 
14,050,786

 
12,202,004

Borrowings
1,042,033

 
1,236,490

 
1,488,243

 
1,933,815

 
4,388,080

Total equity
2,306,917

 
2,135,364

 
1,964,759

 
1,876,643

 
1,878,627

Book value per common share
11.94

 
11.10

 
10.23

 
9.79

 
11.65

Financial Ratios:
 
 
 
 
 
 
 
 
 
Return on average assets
1.03
%
 
0.96
%
 
0.87
%
 
(1.14
)%
 
0.61
%
Return on average common equity
9.19

 
8.71

 
8.12

 
(13.33
)
 
6.32

Net interest margin(1)
4.42

 
4.61

 
4.68

 
4.65

 
3.99

Average total equity to average assets
11.15

 
10.89

 
10.46

 
9.66

 
9.24

Dividend payout ratio
21.03

 
21.28

 
24.30

 
(14.60
)
 
28.10

Credit Quality Ratios:
 
 
 
 
 
 
 
 
 
Non-accrual loans and leases as a percentage of total loans and leases
1.15
%
 
1.32
%
 
1.75
%
 
2.46
 %
 
2.11
%
Non-accrual loans and leases and other real estate owned as a percentage of total loans and leases and other real estate owned
1.43

 
1.71

 
2.17

 
3.07

 
3.03

Allowance for loan and lease losses as a percentage of total loans and leases
0.90

 
1.00

 
1.59

 
1.73

 
1.81

Net charge-offs as a percentage of average loans and leases
0.30

 
0.49

 
0.81

 
1.54

 
1.45

(1)
Net interest income divided by average interest-earning assets.


19


Table of Contents



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

Table of Contents
Description
Page

 

20


Table of Contents



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 (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Company"), a Delaware corporation, is a national bank holding company based in Wayzata, Minnesota. References herein to "TCF Financial" refer to TCF Financial Corporation on an unconsolidated basis. Its principal subsidiary, TCF National Bank ("TCF Bank"), is headquartered in Sioux Falls, South Dakota. At December 31, 2015, TCF had 375 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 select locations open seven days a week with extended hours 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 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. Funded generally through retail deposit generation, TCF continues to focus on profitable asset growth in its leasing and equipment finance, inventory finance, auto finance and consumer real estate junior lien lending businesses.

Net interest income, the difference between interest income earned on loans and leases, securities, investments and other interest-earning assets (interest income) and interest paid on deposits and borrowings (interest expense), represented 65.0% of TCF's total revenue for 2015, compared with 65.3% and 66.5% for 2014 and 2013, 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. 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 and manage credit concentration risk, the Company continues to sell or securitize loans, primarily in auto finance and consumer real estate, which result in gains on sales as well as increased 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 2015, 2014, and 2013 and on information about TCF's balance sheet, loan and lease portfolio, liquidity, funding resources, capital and other matters.


21


Table of Contents



Results of Operations

Performance Summary TCF reported diluted earnings per common share of $1.07 for 2015, compared with 94 cents and 82 cents for 2014 and 2013, respectively. TCF reported net income of $197.1 million for 2015, compared with $174.2 million and $151.7 million for 2014 and 2013, respectively.

Return on average assets was 1.03% for 2015, compared with 0.96% and 0.87% for 2014 and 2013, respectively. Return on average common equity was 9.19% for 2015, compared with 8.71% and 8.12% for 2014 and 2013, respectively.

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 $207.5 million for 2015, compared with $173.9 million and $136.2 million for 2014 and 2013, respectively.

Lending net interest income totaled $620.0 million for 2015, an increase of 4.7% from $592.4 million for 2014, which increased 4.2% from $568.3 million for 2013. The increases in both periods were primarily driven by higher average loan and lease balances in the auto finance, leasing and equipment finance and inventory finance businesses. These increases were partially offset by margin reduction resulting from the competitive, low interest rate environment.

Lending provision for credit losses totaled $50.5 million for 2015, a decrease of 45.5% from $92.8 million for 2014, which decreased 19.6% from $115.4 million for 2013. The decrease in 2015 was primarily driven by the sale of consumer real estate troubled debt restructuring ("TDR") loans in the fourth quarter of 2014 ("the TDR loan sale") and improved credit quality in the consumer real estate portfolio, partially offset by an increase in provision for credit losses in the auto finance portfolio due to growth and maturation of the portfolio. The decrease in 2014 was primarily due to a decrease in net charge-offs in the consumer real estate and commercial portfolios, partially offset by additional provision expense related to the TDR loan sale and an increase in provision for credit losses in the auto finance portfolio due to growth and maturation of the portfolio. See "Consolidated Income Statement Analysis - Provision for Credit Losses" in this Management's Discussion and Analysis for further discussion.

Lending non-interest income totaled $227.0 million for 2015, an increase of 7.5% from $211.2 million for 2014, which increased 25.4% from $168.4 million for 2013. The increase in 2015 was primarily due to (i) an increase in leasing and equipment finance income related to higher operating lease revenue, (ii) an increase in servicing fee income due to the cumulative effect of an increase in the portfolio of consumer real estate and auto loans sold with servicing retained by TCF and (iii) an increase in net gains on sales of consumer real estate loans, partially offset by a decrease in net gains on sales of auto loans. The increase in 2014 was primarily due to increases in net gains on sales of auto loans and consumer real estate loans, along with increased servicing fee income. Average loans and leases serviced for others was $3.9 billion in 2015, compared with $2.9 billion and $1.7 billion in 2014 and 2013, respectively. See "Consolidated Income Statement Analysis - Non-interest Income" in this Management's Discussion and Analysis for further discussion.

Lending non-interest expense totaled $462.8 million for 2015, an increase of 8.3% from $427.5 million for 2014, which increased 6.5% from $401.4 million for 2013. The increase in 2015 was primarily due to increased staff levels to support the growth of auto finance and further build out of the risk management function and increased operating lease depreciation resulting from increased leasing and equipment finance income. 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.


22


Table of Contents



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 loss available to common stockholders of $13.2 million for 2015, compared with net income available to common stockholders of $5.4 million and $17.3 million for 2014 and 2013, respectively.

Funding net interest income totaled $204.9 million for 2015, a decrease of 9.5% from $226.3 million for 2014, which decreased 4.6% from $237.3 million for 2013. The decrease in 2015 was primarily due to higher interest rates paid on certificates of deposit and money market accounts as a result of special campaigns to fund loan and lease growth. 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.

Funding non-interest income totaled $213.3 million for 2015, a decrease of 3.3% from $220.6 million for 2014, which decreased 6.2% from $235.2 million for 2013. The decrease in 2015 was primarily due to a reduction in fees and service charges due to consumer behavior changes, including customers maintaining higher average checking account balances, partially offset by increased card revenue due to increased transaction volume. The decrease in 2014 was primarily due to a reduction in fees and service charges due to consumer behavior changes, including customers maintaining higher average checking account balances.

Funding non-interest expense totaled $436.2 million for 2015, which remained consistent with $435.2 million for 2014, which decreased 1.6% from $442.5 million for 2013. 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.

Consolidated Income Statement Analysis

Net Interest Income  Net interest income represented 65.0% of TCF's total revenue for 2015, compared with 65.3% and 66.5% for 2014 and 2013, respectively. 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 (i) changes in prevailing short- and long-term interest rates, (ii) loan and deposit pricing strategies and competitive conditions, (iii) the volume and the mix of interest-earning assets and both non-interest bearing deposits and interest-bearing liabilities, (iv) the level of non-accrual loans and leases and other real estate owned and (v) the impact of modified loans and leases.


23


Table of Contents



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,
 
 
 
 
 
 
 
2015
 
2014
 
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
$
520,577

 
$
12,294

 
2.36
%
 
$
586,803

 
$
15,390

 
2.62
%
 
$
(66,226
)
 
$
(3,096
)
 
(26
)
Securities held to maturity
207,140

 
5,486

 
2.65

 
197,943

 
5,281

 
2.67

 
9,197

 
205

 
(2
)
Securities available for sale:(1)
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Taxable
564,205

 
13,930

 
2.47

 
447,016

 
11,994

 
2.68

 
117,189

 
1,936

 
(21
)
Tax-exempt(2)
80,894

 
2,643

 
3.27

 

 

 

 
80,894

 
2,643

 
327

Loans and leases held for sale
286,295

 
25,766

 
9.00

 
259,186

 
21,128

 
8.15

 
27,109

 
4,638

 
85

Loans and leases:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 


Consumer real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 


Fixed-rate
2,710,512

 
157,428

 
5.81

 
3,359,670

 
190,973

 
5.68

 
(649,158
)
 
(33,545
)
 
13

Variable-rate
2,911,689

 
149,770

 
5.14

 
2,788,882

 
143,431

 
5.14

 
122,807

 
6,339

 

Total consumer real estate
5,622,201

 
307,198

 
5.46

 
6,148,552

 
334,404

 
5.44

 
(526,351
)
 
(27,206
)
 
2

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 


Fixed-rate
1,173,039

 
59,037

 
5.03

 
1,469,579

 
73,752

 
5.02

 
(296,540
)
 
(14,715
)
 
1

Variable- and adjustable-rate
1,961,389

 
76,677

 
3.91

 
1,665,788

 
66,450

 
3.99

 
295,601

 
10,227

 
(8
)
Total commercial
3,134,428

 
135,714

 
4.33

 
3,135,367

 
140,202

 
4.47

 
(939
)
 
(4,488
)
 
(14
)
Leasing and equipment finance
3,804,015

 
175,565

 
4.62

 
3,531,256

 
166,974

 
4.73

 
272,759

 
8,591

 
(11
)
Inventory finance
2,154,357

 
122,799

 
5.70

 
1,888,080

 
112,603

 
5.96

 
266,277

 
10,196

 
(26
)
Auto finance
2,278,617

 
94,463

 
4.15

 
1,567,904

 
68,595

 
4.37

 
710,713

 
25,868

 
(22
)
Other
10,303

 
712

 
6.91

 
12,071

 
931

 
7.71

 
(1,768
)
 
(219
)
 
(80
)
Total loans and leases
17,003,921

 
836,451

 
4.92

 
16,283,230

 
823,709

 
5.06

 
720,691

 
12,742

 
(14
)
Total interest-earning assets
18,663,032

 
896,570

 
4.80

 
17,774,178

 
877,502

 
4.94

 
888,854

 
19,068

 
(14
)
Other assets(4)
1,228,651

 
 
 
 
 
1,124,226

 
 
 
 
 
104,425

 


 


Total assets
$
19,891,683

 
 
 
 
 
$
18,898,404

 
 
 
 
 
$
993,279

 


 


Liabilities and Equity:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Non-interest bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Retail
$
1,658,951

 
 
 
 
 
$
1,546,453

 
 
 
 
 
$
112,498

 


 


Small business
838,758

 
 
 
 
 
806,649

 
 
 
 
 
32,109

 


 


Commercial and custodial
507,446

 
 
 
 
 
413,893

 
 
 
 
 
93,553

 


 


Total non-interest bearing deposits
3,005,155

 
 
 
 
 
2,766,995

 
 
 
 
 
238,160

 


 


Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Checking
2,396,334

 
547

 
0.02

 
2,328,402

 
921

 
0.04

 
67,932

 
(374
)
 
(2
)
Savings
4,938,303

 
3,005

 
0.06

 
5,693,751

 
8,343

 
0.15

 
(755,448
)
 
(5,338
)
 
(9
)
Money market
2,265,121

 
14,237

 
0.63

 
1,312,483

 
7,032

 
0.54

 
952,638

 
7,205

 
9

Certificates of deposit
3,340,341

 
30,437

 
0.91

 
2,840,922

 
22,089

 
0.78

 
499,419

 
8,348

 
13

Total interest-bearing deposits
12,940,099

 
48,226

 
0.37

 
12,175,558

 
38,385

 
0.32

 
764,541

 
9,841

 
5

Total deposits
15,945,254

 
48,226

 
0.30

 
14,942,553

 
38,385

 
0.26

 
1,002,701

 
9,841

 
4

Borrowings:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Short-term borrowings
18,822

 
53

 
0.28

 
83,673

 
261

 
0.31

 
(64,851
)
 
(208
)
 
(3
)
Long-term borrowings
1,121,181

 
23,263

 
2.07

 
1,311,176

 
19,954

 
1.52

 
(189,995
)
 
3,309

 
55

Total borrowings
1,140,003

 
23,316

 
2.05

 
1,394,849

 
20,215

 
1.45

 
(254,846
)
 
3,101

 
60

Total interest-bearing liabilities
14,080,102

 
71,542

 
0.51

 
13,570,407

 
58,600

 
0.43

 
509,695

 
12,942

 
8

Total deposits and borrowings
17,085,257

 
71,542

 
0.42

 
16,337,402

 
58,600

 
0.36

 
747,855

 
12,942

 
6

Other liabilities
589,222

 
 
 
 
 
502,560

 
 
 
 
 
86,662

 


 
 
Total liabilities
17,674,479

 
 
 
 
 
16,839,962

 
 
 
 
 
834,517

 


 
 
Total TCF Financial Corp. stockholders' equity
2,197,690

 
 
 
 
 
2,041,428

 
 
 
 
 
156,262

 


 
 
Non-controlling interest in subsidiaries
19,514

 
 
 
 
 
17,014

 
 
 
 
 
2,500

 


 
 
Total equity
2,217,204

 
 
 
 
 
2,058,442

 
 
 
 
 
158,762

 


 
 
Total liabilities and equity
$
19,891,683

 
 
 
 
 
$
18,898,404

 
 
 
 
 
$
993,279

 


 
 
Net interest income and margin
 
 
$
825,028

 
4.42

 
 
 
$
818,902

 
4.61

 


 
$
6,126

 
(19
)
(1)
Average balances and yields of securities available for sale are based upon historical amortized cost and exclude equity securities.
(2)
The yield on tax-exempt securities available for sale is computed on a tax-equivalent basis using a statutory federal income tax rate of 35% for all periods presented.
(3)
Average balances of loans and leases include non-accrual loans and leases and are presented net of unearned income.
(4)
Includes leased equipment and related initial direct costs under operating leases of $104.1 million and $84.9 million in 2015 and 2014, respectively.

24


Table of Contents



 
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)
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Taxable
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:(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
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

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 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 lease equipment and related initial direct costs under operating leases of $84.9 million and $74.5 million in 2014 and 2013, respectively.

25


Table of Contents



The following table presents the components of the changes in net interest income by volume and rate.
 
Year Ended
 
December 31, 2015
 
December 31, 2014
 
Versus Same Period in 2014
 
Versus Same Period in 2013
 
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
$
(1,645
)
 
$
(1,451
)
 
$
(3,096
)
 
$
(4,046
)
 
$
4,395

 
$
349

Securities held to maturity
245

 
(40
)
 
205

 
5,134

 
(130
)
 
5,004

Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Taxable
2,952

 
(1,016
)
 
1,936

 
(5,431
)
 
(649
)
 
(6,080
)
Tax-exempt
2,643

 

 
2,643

 

 

 

Loans and leases held for sale
2,325

 
2,313

 
4,638

 
8,388

 
1,093

 
9,481

Loans and leases: