**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q/A**

 

[X]**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

For the quarterly period ended

September 30, 2012

 

or

 

 [  ] **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

Commission File Number: 001-10253

 

**TCF FINANCIAL CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                    | ** ** | **41-1591444**                       |
|---------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer Identification No.) |
| incorporation or organization)  |       |                                 |

 

**200 Lake Street East, Mail Code EX0-03-A,**

**Wayzata, Minnesota 55391-1693**

(Address and Zip Code of principal executive offices)

 

**(952) 745-2760**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]                                                   No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

  Yes [X]                                                  No [  ]

 

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

| Large accelerated filer | [X]             |                                            | Accelerated   filer         | [   ] |
|-------------------------|-----------------|-------------------------------------------------|-----------------------------|-----------------|
| Non-accelerated filer   | [   ] | (Do   not check if a smaller reporting company) | Smaller   reporting company | [   ] |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]                                               No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

|                         |   | Outstanding at        |
|------------------------------|--------|-----------------------|
| Class                   |   | October 26, 2012 |
| Common Stock, $.01 par value |   | 163,335,368 shares    |

 

 

EXPLANATORY NOTE

This Amended Quarterly Report on Form 10-Q/A is being filed for the purpose of correcting certain dollar amounts included in the Contractual Obligations and Commitments table located on page 55 and percentages of interest received on consumer real estate troubled debt restructurings, included in Loan Modifications – Consumer Real Estate discussion located on page 48, presented in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  These changes do not impact the financial condition and results of operations reported in the Quarterly Report on Form 10-Q filed on October 30, 2012 (the “Quarterly Report”).

 

This Amendment should be read in conjunction and as if filed concurrently with the Quarterly Report.  This amendment speaks as of the original filing date of the Quarterly Report and except as expressly set forth in this Explanatory Note, this Amendment does not modify or update disclosures contained in the Quarterly Report and does not reflect events occurring after the filing of the Quarterly Report.

 

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Part I — FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial

Condition and Results of Operations

OVERVIEW

 

TCF Financial Corporation (“TCF” or the “Company”), a Delaware corporation, is a bank holding company based in Wayzata, Minnesota. Its principal subsidiary, TCF National Bank (“TCF Bank”), is headquartered in South Dakota. TCF had 429 banking offices in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota (TCF’s primary banking markets) at September 30, 2012.

 

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the needs of all consumers. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week 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 or no interest-cost deposits. TCF’s growth strategies have included the development of new products and services, new branch expansion and acquisitions. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives.

 

TCF’s core businesses include Lending and Funding. Lending includes retail lending, commercial banking, leasing and equipment finance, inventory finance and auto finance. Funding includes branch banking and treasury services. Treasury services includes the Company’s investment and borrowing portfolios and management of capital, debt and market risks, including interest rate and liquidity risks.

 

TCF’s lending strategy is to originate high credit quality, primarily secured, loans and leases. TCF’s retail lending operation offers fixed- and variable-rate loans and lines of credit secured by residential real estate properties. Commercial loans are generally made on properties or to customers located within TCF’s primary banking markets. The leasing and equipment finance businesses consist of TCF Equipment Finance, Inc., which delivers equipment finance solutions to businesses in select markets, and Winthrop Resources Corporation (“Winthrop”), which primarily leases technology and data processing equipment. TCF’s leasing and equipment finance businesses have equipment installations in all 50 states and, to a limited extent, in foreign countries. TCF Inventory Finance, Inc. originates commercial variable-rate loans to businesses in the United States, Canada and Latin America which are secured by equipment under a floorplan arrangement and supported by repurchase agreements from original equipment manufacturers. In November 2011, TCF entered into the auto finance business with its acquisition of Gateway One Lending & Finance, LLC (“Gateway One”). Gateway One currently originates loans on new and used autos in 40 states, and services loans nationwide.

 

Net interest income, the difference between interest income earned on loans and leases, securities available for sale, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 66.8% of TCF’s total revenue, excluding gains on securities, for the nine months ended September 30, 2012. 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 an Asset/Liability Management Committee and through related interest-rate risk monitoring and management policies. See Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk, for further information.

 

Non-interest income is a significant source of revenue for TCF and an important factor in TCF’s results of operations. Increasing fee and service charge revenue has been challenging as a result of economic conditions, changing customer behavior and the impact of the implementation of new regulation. Providing a wide range of retail banking services is an integral component of TCF’s business philosophy and a major strategy for generating additional non-interest income. Key drivers of non-interest income are the fee structure, number of deposit accounts and related transaction activity.

 

The following portions of Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

 

(“Management’s Discussion and Analysis”) focus in more detail on the results of operations for the three and nine months ended September 30, 2012 and 2011, and on information about TCF’s balance sheet, loan and lease portfolio, liquidity, funding resources, capital and other matters.

 

 

RESULTS OF OPERATIONS

 

Performance Summary

 

TCF recorded net income of $9.3 million and a net loss of $242 million for the third quarter and first nine months of 2012, respectively, compared with net income of $32.3 million and $93 million for the same periods in 2011. TCF’s net loss for the first nine months of 2012 included a net, after tax charge of $295.8 million, or $1.87 per common share, related to the repositioning of TCF’s balance sheet completed in the first quarter of 2012.  Net income for the third quarter and first nine months of 2012 included a net after-tax charge of $20.6 million, or 13 cents per common share, related to the implementation of clarifying regulatory guidance requiring loans subject to a borrower’s discharge from personal liability following Chapter 7 bankruptcy, to be reported as non-accrual loans, and written down to the estimated collateral value, regardless of delinquency status.  Of these loans, 93 percent were less than 60 days past due on their payments as of September 30, 2012. TCF’s diluted earnings per common share was 6 cents for third quarter of 2012, and a loss of $1.52 for first nine months of 2012 compared with earnings per common share of 20 cents and 60 cents for the same periods in 2011.

 

On March 13, 2012, TCF announced the repositioning of its balance sheet by prepaying $3.6 billion of long-term debt and selling $1.9 billion of mortgage-backed securities, which it anticipated would increase net interest margin and reduce interest rate risk going forward.  TCF’s current asset growth strategy and the outlook of the interest rate environment made it prudent for TCF to develop and execute a comprehensive balance sheet repositioning transaction.  A reliance on longer term, fixed-rate debt was appropriate for TCF’s previous strategy of growth in real estate assets with longer durations, such as residential and commercial real estate loans and mortgage-backed securities.  Given TCF’s current strategic focus on growth in nationally-oriented lending businesses with shorter loan durations and/or variable interest rates, a more flexible funding structure is expected to significantly increase TCF’s ability to maximize net interest income and net interest margin going forward.

 

TCF’s long-term, fixed-rate debt was originated at market rates prior to the 2008 economic crisis.  At the time of the balance sheet repositioning, the interest rates on these borrowings were significantly above current market rates.  In addition, in late January 2012, the Federal Reserve forecasted interest rates to remain at historically low levels through at least 2014.  As a result, this action better positioned TCF for the current interest rate outlook while reducing interest rate risk tied to longer duration, fixed-rate mortgage-backed securities.

 

Return on average assets was .30% and negative  1.73% for the third quarter and first nine months of 2012, respectively, compared with  .71% and  .69% for the same periods in 2011. Return on average common equity was  2.36% and negative  19.50% for the third quarter and first nine months of 2012, respectively, compared with  7.12% and  7.33% for the same periods in 2011.

 

Operating Segment Results

 

The financial results of TCF’s operating segments are located in Note 17 of the Notes to Consolidated Financial Statements included in Part 1, Item 1. Financial Statements.

 

Lending reported a net loss of $11.7 million and net income of $6.9 million for the third quarter and first nine months of 2012, respectively, compared with net income of $6.6 million and $29.6 million for the same periods in 2011.  Lending net interest income for the third quarter and first nine months of 2012 was $133 million and $384.8 million, respectively, compared with $118.6 million and $353.1 million for the same 2011 periods. The increase in net interest income for both periods was primarily due to loan growth in the inventory finance and auto finance portfolios.

 

Lending’s provision for credit losses totaled $95.3 million and $198 million for the third quarter and first nine months of 2012, respectively, compared with $51.2 million and $140.4 million for the same 2011 periods. The increase in provision

 

37

 

from the third quarter and the first nine months of 2011 was primarily due to the implementation of clarifying regulatory guidance requiring loans subject to a borrowers discharge from personal liability following chapter 7 bankruptcy, to be reported as non-accrual loans and written down to the estimated collateral value regardless of delinquency status. See Results of Operations – Provision for Credit Losses in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion.

 

Lending non-interest income totaled $37.7 million and $100.2 million for the third quarter and first nine months of 2012, respectively, compared with $24.4 million and $77.7 million for the same 2011 periods.  The increase for both periods was primarily due to gains on sales of auto finance loans and increased auto loan servicing income.  Lending non-interest expense totaled $91.2 million and $268.9 million for the third quarter and first nine months of 2012, respectively, compared with $79.6 million and $238.6 million for the same 2011 periods.  The increase from the third quarter and first nine months of 2011 was primarily due to the newly acquired auto finance business as well as increased headcount related to achieving staffing levels to support the Bombardier Recreational Products, Inc. (“BRP”) program in Inventory Finance.

 

Funding reported net income of $31 million and a net loss of $249.7 million  for the third quarter and first nine months of 2012, respectively, compared with net income of $26.3 million and $64.7 million for the same periods in 2011. The net loss for the first nine months of 2012 was due to the balance sheet repositioning completed in the first quarter of 2012. Funding net interest income totaled $68.2 million and $196.1 million for the third quarter and first nine months of 2012, respectively, compared with $58.1 million and $174.7 million for the same periods in 2011.

 

Funding non-interest income totaled $74.6 million and $277.1 million for the third quarter and first nine months of 2012, respectively, compared with $97.6 million and $281.6 million for the same periods in 2011. The decrease from third quarter of 2011 was primarily due to lower transaction volume related to a lower account base driven by our deposit product fee structure changes.  The decrease from first nine months of 2011 resulted from the decline in fee revenue due to deposit product fee structure changes offset by a gain on the sales of mortgage backed securities.  Non-interest expense totaled $92.7 million and $865.1 million for the third quarter and first nine months of 2012, respectively, compared with $112.3 million and $349.2 million for the same periods in 2011. The decrease from third quarter of 2011 was primarily due to decreased deposit account premiums associated with the reintroduction of the free checking product. The increase from the first nine months of 2011 was primarily due to the loss on termination of debt in the first quarter of 2012 in connection with the balance sheet repositioning.

 

Consolidated Net Interest Income

 

Net interest income for the third quarter of 2012 increased $24.5 million, or 13.9%, compared with the third quarter of 2011.  This increase was primarily due to higher average balances of inventory finance loans and auto finance loans during the third quarter of 2012 as a result of the newly acquired auto finance business and BRP program and the lower cost of deposits.  Offsetting the increase were lower yields on leasing and equipment finance loans and leases and consumer and commercial real estate as the portfolios rebalance to the current rate environment.  Net interest income for the third quarter of 2012 increased $2.3 million, or 1.2%, compared with the second quarter of 2012. The increase in net interest income from the second quarter of 2012 was primarily due to a higher average balance of auto finance loans.  This was partially offset by a lower average balance of inventory finance loans. Additionally interest expense decreased due to the redemption of $115 million of Trust Preferred securities partially offset by the $110 million issuance of subordinated debt plus one additional day in the third quarter of 2012 versus second quarter of 2012, and higher deposit expenses due to product mix primarily in certificates of deposit. Net interest income for the first nine months of 2012 totaled $579 million, up $52.7 million, or 10%, from $526.3 million from the same period in 2011. This increase was primarily due to the balance sheet repositioning completed in the first quarter of 2012, which resulted in a $86.3 million reduction to the cost of borrowings, partially offset by a $29.9 million reduction of interest income on mortgage-backed securities.  Additionally, higher average balances of inventory finance and auto finance loans and lower average cost of deposits were offset by decreased income from consumer and commercial real estate loans due to a change in the consumer real estate portfolio mix and lower average balances of commercial real estate loans.

 

Net interest margin in the third quarter of 2012 was 4.85%, compared with 3.96% in the third quarter of 2011. This increase was primarily due to a lower average cost of borrowings due to the effects of the balance sheet repositioning completed in March 2012, which increased net interest margin by 92 basis points, as well as increases related to the auto finance and inventory finance portfolios.  These increases were partially offset by a decrease in yields in the consumer,

 

38

 

commercial, and leasing and equipment finance portfolios as a result of the lower interest rate environment. Net interest margin decreased by 1 basis point in the third quarter from 4.86% in second quarter of 2012. Net interest margin for the first nine months of 2012 was 4.61%, compared with 4.01% from the same 2011 period.See Consolidated Financial Condition Analysis – Borrowings and Liquidity in this Management’s Discussion and Analysis for further discussion.

 

Achieving net interest income growth over time depends primarily on TCF’s ability to generate growth in higher-yielding assets and low or no interest-cost deposits.  While interest rates and consumer preferences continue to change over time, TCF is currently asset sensitive as measured by its interest rate gap (the difference between interest-earning assets and interest-bearing liabilities maturing, repricing, or prepaying during the next twelve months).  A positive interest rate gap position exists when the amount of interest-earning assets maturing or re-pricing exceeds the amount of interest-bearing liabilities maturing or re-pricing, including assumed prepayments, within a particular time period.  Since TCF is primarily deposit funded, the degree of the impact on net interest income is somewhat controlled by TCF, but is impacted by how its competitors price comparable products.

 

See Consolidated Financial Condition Analysis – Deposits in this Management’s Discussion and Analysis and Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk for further discussion on TCF’s interest rate risk position.

 

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.

 

39

 

 
|                                                  |       | Three Months Ended September 30, |       |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|
|                                                  |       | 2012                                                 |       | 2011 |   |
|                                                  |       | Average                                              |       |   |   | Yields and |   | Average |   |   |   | Yields and |   |
| (Dollars in thousands)                      |       | Balance                                              |       | Interest |   | Rates (1) |   | Balance |   | Interest |   | Rates (1) |   |
| **Assets:**                                           | ** ** | ** **                                           |       |   |   |   |   |   |   |   |   |   |   |
| Investments   and other                               |       | $                                                    | 479,083    |   | $ | 2,508 |   | 2.09 | % | $ | 958,996 |   | $ | 1,997 |   | .83 | % |
| U.S.   Government sponsored entities:                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed   securities, fixed rate              |       | 710,835                                              |       | 5,605 |   | 3.15 |   | 2,339,862 |   | 22,556 |   | 3.86 |   |
| U.S.   Treasury securities                            |       | -                                                    |       | - |   | - |   | 10,761 |   | 1 |   | .04 |   |
| Other   securities                                    |       | 154                                                  |       | 2 |   | 3.32 |   | 340 |   | 4 |   | 4.68 |   |
| Total   securities available for sale (2)             |       | 710,989                                              |       | 5,607 |   | 3.15 |   | 2,350,963 |   | 22,561 |   | 3.84 |   |
| Loans   and leases held for sale                      |       | 80,549                                               |       | 1,597 |   | 7.89 |   | - |   | - |   | - |   |
| Loans   and leases:                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Consumer   real estate:                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Fixed-rate                                            |       | 4,197,903                                            |       | 62,679 |   | 5.94 |   | 4,592,855 |   | 70,087 |   | 6.06 |   |
| Variable-rate                                         |       | 2,531,351                                            |       | 32,071 |   | 5.04 |   | 2,392,966 |   | 30,845 |   | 5.11 |   |
| Total   consumer real estate                          |       | 6,729,254                                            |       | 94,750 |   | 5.60 |   | 6,985,821 |   | 100,932 |   | 5.73 |   |
| Commercial:                                           |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Fixed-   and adjustable-rate                          |       | 2,682,193                                            |       | 37,565 |   | 5.57 |   | 2,853,117 |   | 41,150 |   | 5.72 |   |
| Variable-rate                                         |       | 855,918                                              |       | 8,116 |   | 3.77 |   | 711,081 |   | 7,759 |   | 4.33 |   |
| Total   commercial                                    |       | 3,538,111                                            |       | 45,681 |   | 5.14 |   | 3,564,198 |   | 48,909 |   | 5.44 |   |
| Leasing   and equipment finance                       |       | 3,164,592                                            |       | 42,152 |   | 5.33 |   | 3,066,208 |   | 46,072 |   | 6.01 |   |
| Inventory   finance                                   |       | 1,440,298                                            |       | 22,395 |   | 6.19 |   | 826,198 |   | 15,151 |   | 7.28 |   |
| Auto   finance                                        |       | 367,271                                              |       | 5,515 |   | 5.97 |   | - |   | - |   | - |   |
| Other                                                 |       | 16,280                                               |       | 320 |   | 7.83 |   | 18,183 |   | 387 |   | 8.44 |   |
| Total   loans and leases (3)                          |       | 15,255,806                                           |       | 210,813 |   | 5.50 |   | 14,460,608 |   | 211,451 |   | 5.81 |   |
| Total   interest-earning assets                       |       | 16,526,427                                           |       | 220,525 |   | 5.32 |   | 17,770,567 |   | 236,009 |   | 5.28 |   |
| Other   assets                                        |       | 1,190,094                                            |       |   |   | - |   | 1,222,700 |   |   |   | - |   |
| Total   assets                                        |       | $                                                    | 17,716,521 |   |   |   | - |   | $ | 18,993,267 |   |   |   | - |   |
| **Liabilities and Equity:**                           | ** ** | ** **                                           |       |   |   |   |   |   |   |   |   |   |   |
| Non-interest   bearing deposits:                      |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Retail                                                |       | $                                                    | 1,275,722  |   |   |   | - |   | $ | 1,396,857 |   |   |   | - |   |
| Small   business                                      |       | 746,511                                              |       |   |   | - |   | 704,272 |   |   |   | - |   |
| Commercial   and custodial                            |       | 324,739                                              |       |   |   | - |   | 294,253 |   |   |   | - |   |
| Total   non-interest bearing deposits                 |       | 2,346,972                                            |       |   |   | - |   | 2,395,382 |   |   |   | - |   |
| Interest-bearing   deposits:                          |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Checking                                              |       | 2,255,561                                            |       | 698 |   | .12 |   | 2,103,184 |   | 1,057 |   | .20 |   |
| Savings                                               |       | 6,153,079                                            |       | 4,720 |   | .31 |   | 5,789,188 |   | 7,912 |   | .54 |   |
| Money   market                                        |       | 848,899                                              |       | 816 |   | .38 |   | 650,598 |   | 692 |   | .42 |   |
| Subtotal                                              |       | 9,257,539                                            |       | 6,234 |   | .27 |   | 8,542,970 |   | 9,661 |   | .45 |   |
| Certificates   of deposit                             |       | 1,953,208                                            |       | 4,523 |   | .92 |   | 1,114,934 |   | 2,222 |   | .79 |   |
| Total   interest-bearing deposits                     |       | 11,210,747                                           |       | 10,757 |   | .38 |   | 9,657,904 |   | 11,883 |   | .49 |   |
| Total   deposits                                      |       | 13,557,719                                           |       | 10,757 |   | .32 |   | 12,053,286 |   | 11,883 |   | .39 |   |
| Borrowings:                                           |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Short-term   borrowings                               |       | 65,531                                               |       | 81 |   | .49 |   | 43,073 |   | 31 |   | .29 |   |
| Long-term   borrowings                                |       | 1,985,094                                            |       | 8,455 |   | 1.70 |   | 4,403,724 |   | 47,465 |   | 4.28 |   |
| Total   borrowings                                    |       | 2,050,625                                            |       | 8,536 |   | 1.66 |   | 4,446,797 |   | 47,496 |   | 4.24 |   |
| Total   interest-bearing liabilities                  |       | 13,261,372                                           |       | 19,293 |   | .58 |   | 14,104,701 |   | 59,379 |   | 1.67 |   |
| Total   deposits and borrowings                       |       | 15,608,344                                           |       | 19,293 |   | .49 |   | 16,500,083 |   | 59,379 |   | 1.43 |   |
| Other   liabilities                                   |       | 343,336                                              |       |   |   | - |   | 672,944 |   |   |   | - |   |
| Total   liabilities                                   |       | 15,951,680                                           |       |   |   | - |   | 17,173,027 |   |   |   | - |   |
| Total   TCF Financial Corp. stockholders’ equity |       | 1,749,951                                            |       |   |   | - |   | 1,813,384 |   |   |   | - |   |
| Non-controlling   interest in subsidiaries            |       | 14,890                                               |       |   |   | - |   | 6,856 |   |   |   | - |   |
| Total   equity                                        |       | 1,764,841                                            |       |   |   |   |   | 1,820,240 |   |   |   |   |   |
| Total   liabilities and equity                        |       | $                                                    | 17,716,521 |   |   |   |   |   | $ | 18,993,267 |   |   |   |   |   |
| Net   interest income and margin                      |       |                                                 | ** ** | **$** | 201,232 |   | 4.85 | % |   | ** ** | **$** | 176,630 |   | 3.96 | % |

(1)  Annualized.

(2)  Average balances and yields of securities available for sale are based upon the historical amortized cost and excludes equity securities.

(3)  Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.

 

40

 
|                                                  |       | Nine Months Ended September 30, |       |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
|                                                  |       | 2012                                                |       | 2011 |   |
|                                                  |       | Average                                             |       |   |   | Yields and |   | Average |   |   |   | Yields and |   |
| (Dollars in thousands)                      |       | Balance                                             |       | Interest |   | Rates (1) |   | Balance |   | Interest |   | Rates (1) |   |
| **Assets:**                                           |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Investments   and other                               |       | $                                                   | 551,653    |   | $ | 7,550 |   | 1.83 | % | $ | 744,934 |   | $ | 5,634 |   | 1.01 | % |
| Mortgage-backed   securities, fixed rate              |       | 1,175,514                                           |       | 30,529 |   | 3.46 |   | 2,136,516 |   | 62,581 |   | 3.91 |   |
| U.S.   Treasury securities                            |       | -                                                   |       | - |   | - |   | 64,414 |   | 34 |   | .07 |   |
| Other   securities                                    |       | 203                                                 |       | 6 |   | 3.92 |   | 360 |   | 14 |   | 5.20 |   |
| Total   securities available for sale (2)             |       | 1,175,717                                           |       | 30,535 |   | 3.46 |   | 2,201,290 |   | 62,629 |   | 3.79 |   |
| Loans   and leases held for sale                      |       | 43,871                                              |       | 2,621 |   | 7.98 |   | - |   | - |   |   |   |
| Loans   and leases:                                   |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Fixed-rate                                            |       | 4,335,073                                           |       | 192,263 |   | 5.92 |   | 4,660,371 |   | 212,508 |   | 6.10 |   |
| Variable-rate                                         |       | 2,453,953                                           |       | 92,341 |   | 5.03 |   | 2,379,947 |   | 91,691 |   | 5.15 |   |
| Total   consumer real estate                          |       | 6,789,026                                           |       | 284,604 |   | 5.60 |   | 7,040,318 |   | 304,199 |   | 5.78 |   |
| Commercial:                                           |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Fixed-   and adjustable-rate                          |       | 2,716,583                                           |       | 113,017 |   | 5.56 |   | 2,880,986 |   | 124,634 |   | 5.78 |   |
| Variable-rate                                         |       | 779,531                                             |       | 23,179 |   | 3.97 |   | 713,898 |   | 23,173 |   | 4.34 |   |
| Total   commercial                                    |       | 3,496,114                                           |       | 136,196 |   | 5.20 |   | 3,594,884 |   | 147,807 |   | 5.50 |   |
| Leasing   and equipment finance                       |       | 3,146,345                                           |       | 129,261 |   | 5.48 |   | 3,084,613 |   | 139,813 |   | 6.04 |   |
| Inventory   finance                                   |       | 1,392,828                                           |       | 64,811 |   | 6.22 |   | 889,709 |   | 47,816 |   | 7.19 |   |
| Auto   finance                                        |       | 226,092                                             |       | 10,933 |   | 6.46 |   | - |   | - |   | - |   |
| Other                                                 |       | 17,166                                              |       | 1,025 |   | 7.97 |   | 19,788 |   | 1,300 |   | 8.78 |   |
| Total   loans and leases (3)                          |       | 15,067,571                                          |       | 626,830 |   | 5.55 |   | 14,629,312 |   | 640,935 |   | 5.85 |   |
| Total   interest-earning assets                       |       | 16,838,812                                          |       | 667,536 |   | 5.29 |   | 17,575,536 |   | 709,198 |   | 5.39 |   |
| Other   assets                                        |       | 1,256,931                                           |       | - |   | - |   | 1,176,606 |   | - |   | - |   |
| Total   assets                                        |       | $                                                   | 18,095,743 |   |   |   |   |   | 18,752,142 |   |   |   |   |   |
| **Liabilities and Equity:**                           |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Non-interest   bearing deposits:                      |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Retail                                                |       | $                                                   | 1,317,448  |   |   |   |   |   | $ | 1,443,033 |   |   |   |   |   |
| Small   business                                      |       | 726,732                                             |       |   |   |   |   | 685,435 |   |   |   |   |   |
| Commercial   and custodial                            |       | 313,240                                             |       |   |   |   |   | 288,202 |   |   |   |   |   |
| Total   non-interest bearing deposits                 |       | 2,357,420                                           |       |   |   |   |   | 2,416,670 |   |   |   |   |   |
| Interest-bearing   deposits:                          |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Checking                                              |       | 2,258,843                                           |       | 2,482 |   | .15 |   | 2,120,083 |   | 3,633 |   | .23 |   |
| Savings                                               |       | 6,022,751                                           |       | 15,323 |   | .34 |   | 5,608,783 |   | 22,688 |   | .54 |   |
| Money   market                                        |       | 753,486                                             |       | 2,144 |   | .38 |   | 657,570 |   | 2,331 |   | .47 |   |
| Subtotal                                              |       | 9,035,080                                           |       | 19,949 |   | .29 |   | 8,386,436 |   | 28,652 |   | .46 |   |
| Certificates   of deposit                             |       | 1,567,258                                           |       | 10,067 |   | .86 |   | 1,100,029 |   | 6,665 |   | .81 |   |
| Total   interest-bearing deposits                     |       | 10,602,338                                          |       | 30,016 |   | .38 |   | 9,486,465 |   | 35,317 |   | .50 |   |
| Total   deposits                                      |       | 12,959,758                                          |       | 30,016 |   | .31 |   | 11,903,135 |   | 35,317 |   | .40 |   |
| Borrowings:                                           |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Short-term   borrowings                               |       | 401,305                                             |       | 945 |   | .31 |   | 53,619 |   | 144 |   | .36 |   |
| Long-term   borrowings                                |       | 2,593,917                                           |       | 55,679 |   | 2.86 |   | 4,538,823 |   | 145,929 |   | 4.30 |   |
| Total   borrowings                                    |       | 2,995,222                                           |       | 56,624 |   | 2.52 |   | 4,592,442 |   | 146,073 |   | 4.25 |   |
| Total   interest-bearing liabilities                  |       | 13,597,560                                          |       | 86,640 |   | .85 |   | 14,078,907 |   | 181,390 |   | 1.72 |   |
| Total   deposits and borrowings                       |       | 15,954,980                                          |       | 86,640 |   | .72 |   | 16,495,577 |   | 181,390 |   | 1.47 |   |
| Other   liabilities                                   |       | 411,114                                             |       | - |   | - |   | 558,119 |   | - |   | - |   |
| Total   liabilities                                   |       | 16,366,094                                          |       | - |   | - |   | 17,053,696 |   | - |   | - |   |
| Total   TCF Financial Corp. stockholders’ equity |       | 1,714,238                                           |       | - |   | - |   | 1,689,695 |   | - |   | - |   |
| Non-controlling   interest in subsidiaries            |       | 15,411                                              |       | - |   | - |   | 8,751 |   | - |   | - |   |
| Total   equity                                        |       | 1,729,649                                           |       |   |   |   |   | 1,698,446 |   |   |   |   |   |
| Total   liabilities and equity                        |       | $                                                   | 18,095,743 |   |   |   |   |   | 18,752,142 |   |   |   |   |   |
| Net   interest income and margin                      | ** ** | ** **                                          | ** ** | **$** | 580,896 |   | 4.61 | % |   | ** ** | **$** | 527,808 |   | 4.01 | % |

(1)  Annualized.

(2)  Average balances and yields of securities available for sale are based upon the historical amortized cost and excludes equity securities.

(3)  Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.

 

41

 

Provision for Credit Losses

 

The following tables summarize the composition of TCF’s provision for credit losses and percentage of the total provision expense for the three and nine months ended September 30, 2012 and 2011.

 
|                             |   | Three Months Ended |   |   |   |
|----------------------------------|--------|------------------------------|--------|--------|--------|
|                             |   | September 30,           |   | Change |   |
| (Dollars in thousands) |   | 2012                         |   | 2011   |   |           $ |   |             % |   |
| Consumer real estate             |   | $                            | 66,231 |   | 68.8   |  % | $ | 45,551 |   | 87.1 |  % | $ | 20,680 |   | 45.4 |  % |
| Commercial                       |   | 23,604                       |   | 24.5   |   | 3,756 |   | 7.2 |   | 19,848 |   | N.M | . |
| Leasing and equipment finance    |   | 3,402                        |   | 3.5    |   | 1,472 |   | 2.8 |   | 1,930 |   | 131.1 |   |
| Inventory finance                |   | 313                          |   | .3     |   | 258 |   | .5 |   | 55 |   | 21.3 |   |
| Auto finance                     |   | 1,887                        |   | 2.0    |   | - |   | - |   | 1,887 |   | N.M | . |
| Other                            |   | 838                          |   | .9     |   | 1,278 |   | 2.4 |   | (440 | ) | (34.4 | ) |
| Total                            |   | $                            | 96,275 |   | 100.0  |  % | $ | 52,315 |   | 100.0 |  % | $ | 43,960 |   | 84.0 |  % |

 
|                             |   | Nine Months Ended |    |   |   |
|----------------------------------|--------|-----------------------------|---------|--------|--------|
|                             |   | September 30,          |    | Change |   |
| (Dollars in thousands) |   | 2012                        |    | 2011   |   |           $ |   |            % |   |
| Consumer real estate             |   | $                           | 141,428 |   | 71.1   |  % | $ | 120,392 |   | 85.1 |  % | $ | 21,036 |   | 17.5 |  % |
| Commercial                       |   | 37,328                      |    | 18.8   |   | 12,523 |   | 8.8 |   | 24,805 |   | 198.1 |   |
| Leasing and equipment finance    |   | 9,003                       |    | 4.5    |   | 6,049 |   | 4.3 |   | 2,954 |   | 48.8 |   |
| Inventory finance                |   | 5,281                       |    | 2.7    |   | 1,166 |   | .8 |   | 4,115 |   | N.M | . |
| Auto finance                     |   | 4,262                       |    | 2.1    |   | - |   | - |   | 4,262 |   | N.M | . |
| Other                            |   | 1,621                       |    | .8     |   | 1,464 |   | 1.0 |   | 157 |   | 10.7 |   |
| Total                            |   | $                           | 198,923 |   | 100.0  |  % | $ | 141,594 |   | 100.0 |  % | $ | 57,329 |   | 40.5 |  % |
| N.M. Not Meaningful              |   |                        |    |   |   |   |   |   |   |   |   |   |   |

 

TCF recorded provision expense of $96.3 million and $198.9 million in the third quarter and first nine months of 2012, respectively, compared with $ 52.3 million and $141.6 million in the same periods in 2011. The increase from the third quarter and first nine months of 2011 was primarily due to an additional provision totaling $31.5 million related to the implementation of clarifying bankruptcy-related regulatory guidance and increased provision in the commercial portfolio as TCF aggressively addressed credit issues in the third quarter of 2012.

 

Net loan and lease charge-offs for the third quarter and first nine months of 2012 were $104.5 million, or  2.74% (annualized) of average loans and leases, and $188.2 million, or  1.67% (annualized), respectively, compared with $53.4 million, or  1.48% (annualized), and $153.1 million, or  1.39% (annualized), in the same periods of 2011.

 

Consumer real estate net charge-offs for the third quarter and first nine months of 2012 were $74.7 million and $145.2 million, respectively, compared to $43.8 million and $115.8 million for the same 2011 periods.  The increase from both periods was primarily due to additional net charge-offs of $43.9 million related to the implementation of bankruptcy-related regulatory guidance in the third quarter of 2012.  Commercial net charge-offs for the third quarter and first nine months of 2012 were $20.5 million and $30.5 million, respectively, compared to $5 million and $25.5 million for the same 2011 periods.  The increase from both periods was primarily due to increased net charge-offs on a small population of commercial loans, which was driven by a more aggressive workout approach.  Leasing and equipment finance net charge-offs for the third quarter and first nine months of 2012 totaled $7.5 million and $8.8 million, respectively, compared with $2.8 million and $9.1 million for the same periods in 2011. The increase from the third quarter of 2011 was due to increased charge-offs in the Winthrop portfolio related to the third quarter write-off of one large lease exposure.  The decrease in net charge-offs from the first nine months of 2011 was primarily due to decreased net charge-offs in the middle market and small ticket segments, offset by the increased Winthrop charge-offs.

 

The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses.  The determination of the allowance for loan and lease losses and the related provision for credit losses is a critical accounting estimate which involves a number of factors such as historical trends in net charge-offs, delinquencies in the loan and lease portfolio, year of loan or lease origination, value of collateral, general economic conditions and management’s 

 

42

 

assessment of credit risk in the current loan and lease portfolio.  See also Consolidated Financial Condition Analysis – Allowance for Loan and Lease Losses in this Management’s Discussion and Analysis.

 

Consolidated Non-Interest Income

 

Non-interest income is a significant source of revenue for TCF and is an important factor in 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 additional non-interest income. Non-interest income totaled $112.1 million and $390.3 million for the third quarter and first nine months of 2012, respectively, compared with $117.8 million and $346.1 million for the same periods in 2011.

 

*Fees and Service Charges*

 

Fees and service charges totaled $43.7 million and $133.7 million for the third quarter and first nine months of 2012, respectively, compared with $58.5 million and $168.4 million for the same periods in 2011. The decrease in banking fees and revenues from both the third quarter and first nine months of 2011 was primarily due to lower transaction volume, deposit fee structure changes and the reintroduction of free checking products.

 

*Card Revenues*

 

Card revenues totaled $12.9 million and $39.7 million for the third quarter and first nine months of 2012, respectively, compared with $27.7 million and $82.5 million for the same periods in 2011. The decrease in both periods was due to a decrease in the average interchange rate per transaction due to new debit card interchange regulations which took effect on October 1, 2011.

 

TCF is the  12th largest issuer of Visa® small business debit cards and the  14th largest issuer of Visa consumer debit cards in the United States, based on payments volume for the three months ended June 30, 2012, as provided by Visa. TCF earns interchange revenue from customer card transactions paid by merchants, not from TCF’s customers. Card products represented 18.7% of banking fee revenue for both the three and nine months ended September 30, 2012. Visa has significant litigation against it regarding interchange pricing and there is a risk this revenue could be impacted by any settlement or adverse rulings in such litigation.  The continued success of TCF’s debit card program depends significantly on the success and viability of Visa and the continued use by customers and acceptance by merchants of its cards.

 
|                                              |   | Three Months Ended |      |    |    |
|---------------------------------------------------|--------|------------------------------|-----------|---------|---------|
|                                              |   | September 30,           |      | Change  |    |
| (Dollars in thousands)                  |   | 2012                         |      | 2011    |    | Amount |   | % |   |
| Sales volume for the three months ended:          |   |                         |      |    |    |   |   |   |   |
| Off-line (Signature)                              |   | $                            | 1,558,657 |    | $       | 1,681,737 |   | $ | (123,080 | ) | (7.3 | )% |
| On-line (PIN)                                     |   | 291,619                      |      | 235,886 |    | 55,733 |   | 23.6 |   |
| Total                                             |   | $                            | 1,850,276 |    | $       | 1,917,623 |   | $ | (67,347 | ) | (3.5 | ) |
| Average transaction size (in dollars)             |   | $                            | 35        |    | $       | 35 |   | - |   | - |   |
| Average number of transactions per card per month |   | 25.3                         |      | 23.6    |    | 1.7 |   | 7.1 |   |
| Percentage off-line (sales volume)                |   | 84.2                         |  %   | 87.7    |  % |   |   | (346 | )bps |
| Average interchange per transaction (in dollars)  |   | $                            | .22       |    | $       | .48 |   | $ | (0.3 | ) | (53.7 | )% |
| Average interchange rate per transaction          |   | .63                          |  %   | 1.37    |  % |   |   | (74 | )bps |

 

43

 
|                                              |   | Nine Months Ended |      |    |    |
|---------------------------------------------------|--------|-----------------------------|-----------|---------|---------|
|                                              |   | September 30,          |      | Change  |    |
| (Dollars in thousands)                  |   | 2012                        |      | 2011    |    | Amount |   | % |   |
| Sales volume for the nine months ended:           |   |                        |      |    |    |   |   |   |   |
| Off-line (Signature)                              |   | $                           | 4,826,918 |    | $       | 5,035,073 |   | $ | (208,155 | ) | (4.1 | )% |
| On-line (PIN)                                     |   | 853,509                     |      | 718,501 |    | 135,008 |   | 18.8 |   |
| Total                                             |   | $                           | 5,680,427 |    | $       | 5,753,574 |   | $ | (73,147 | ) | (1.3 | ) |
| Average transaction size (in dollars)             |   | $                           | 35        |    | $       | 36 |   | (1 | ) | (2.8 | ) |
| Average number of transactions per card per month |   | 37.7                        |      | 34.8    |    | 2.9 |   | 8.3 |   |
| Percentage off-line (sales volume)                |   | 85.0                        |  %   | 87.5    |  % |   |   | (254 | )bps |
| Average interchange per transaction (in dollars)  |   | $                           | .22       |    | $       | .49 |   | $ | (0.3 | ) | (54.6 | )% |
| Average interchange rate per transaction          |   | .63                         |  %   | 1.36    |  % |   |   | (73 | )bps |

 

*ATM Revenue*

 

ATM revenue was $6.1 million and $18.6 million for the third quarter and first nine months of 2012, respectively, compared with $7.5 million and $21.3 million for the same periods in 2011. The decrease in ATM revenue was primarily due to fewer fee generating transactions and a reduced number of available ATMs.

 

*Gain on Sales of Auto Loans*

 

During the three months ended September 30, 2012, TCF sold $161.1 million of consumer auto loans with servicing retained and received cash of $157.6 million, resulting in gains of $7.5 million.  During the nine months ended September 30, 2012, TCF sold $377.1 million of consumer auto loans with servicing retained and received cash of $368.9 million, resulting in gains of $15.2 million.

 

*Gains on Sales of Consumer Loans*

 

During the third quarter of 2012, TCF sold $136.7 million of consumer real estate loans without recourse and recognized a $4.6 million gain.

 

*Gain on Securities, Net*

 

During the third quarter of 2012, TCF recognized $13 million related to sales of mortgage backed securities.  Additionally, during the nine months ended September 30, 2012, TCF recognized $90.2 million related to sales of mortgage-backed securities and $13.1 million related to the sale of Visa Class B stock.

 

Consolidated Non-Interest Expense

 

Non-interest expense totaled $196.8 million and $1.1 billion for the third quarter and first nine months of 2012, compared with $188.8 million and $576.9 million for the same 2011 periods.

 

*Compensation and Employee Benefits*

 

Compensation and employee benefits expense totaled $98.4 million and $292.2 million for the third quarter and first nine months of 2012, compared with $87.8 million and $266.2 million for the same 2011 periods.  The increases were primarily due to the expansion of the auto finance business which was acquired in November, 2011, as well as increased staffing levels to support growth in TCF’s inventory finance business.

 

*Advertising and Marketing*

 

Advertising and marketing expense totaled $4.2 million and $12.3 million for the third quarter and first nine months of 2012, compared with $1.1 million and $7.8 million for the same periods in 2011.  The increases were primarily the result of increased spending on media advertising in advance of the reintroduction of the free checking product.

 

44

 

*Deposit Account Premiums*

 

Deposit account premium expense totaled $485 thousand and $8.1 million for the third quarter and first nine months of 2012, compared with $7 million and $16.4 million for the same periods in 2011.  These decreases were attributable to an enhanced strategy to gain higher quality accounts through the reintroduction of free checking products.

 

*Loss on Termination of Debt*

 

In connection with the balance sheet repositioning completed in March 2012, TCF restructured $3.6 billion of long-term borrowings that had a 4.3% weighted average rate at a pre-tax loss of $551 million. TCF also replaced $2.1 billion of 4.4% weighted average fixed-rate, Federal Home Loan Bank advances with a mix of floating and fixed-rate, long- and short-term borrowings with a current weighted average rate of .5%. In addition, TCF terminated $1.5 billion of 4.2% weighted average fixed-rate borrowings under repurchase agreements.

 

*Foreclosed Real Estate and Repossessed Assets, Net*

 

Foreclosed real estate and repossessed assets, net expenses totaled $10.7 million and $33.8 million for the third quarter and first nine months of 2012, compared with $12.4 million and $37.9 million for the same periods in 2011. The decreases were primarily due to fewer consumer real estate properties owned.

 

Income Taxes

 

TCF recorded income tax expense of $6.3 million for the third quarter of 2012, or 32.3% of the income before income tax expense, compared with income tax expense of $19.2 million, or 36.4%, in 2011.  For the first nine months of 2012, income tax benefit totaled $143.4 million, or 37.9% of the loss before income tax expense, compared with income tax expense of $57 million, or 37.1%, in 2011.

 

The determination of current and deferred income taxes is a critical accounting estimate which is based on complex analyses of many factors, including interpretation of income tax laws, the evaluation of uncertain tax positions, differences between the tax and financial reporting basis of assets and liabilities (temporary differences), estimates of amounts due or owed such as the timing of reversal of temporary differences and current financial accounting standards.  Additionally, there can be no assurance that estimates and interpretations used in determining income tax liabilities may not be challenged by taxing authorities.  Actual results could differ significantly from the estimates and tax law interpretations used in determining the current and deferred income tax liabilities.

 

In addition, under generally accepted accounting principles in the United States (“GAAP”), deferred income tax assets and liabilities are recorded at the income tax rates expected to apply to taxable income in the periods in which the deferred income tax assets or liabilities are expected to be realized.  If such rates change, deferred income tax assets and liabilities must be adjusted in the period of change through a charge or credit to the Consolidated Statements of Comprehensive Income.  Also, if current period income tax rates change, the impact on the annual effective income tax rate is applied year-to-date in the period of enactment.

 

45

 

CONSOLIDATED FINANCIAL CONDITION ANALYSIS

 

Loans and Leases

 

The following table sets forth information about loans and leases held in TCF’s portfolio.

 
|                                       |   | At                 |       | At                |   |       |   |
|--------------------------------------------|--------|--------------------|------------|-------------------|--------|------------|--------|
|                                       |   | September 30, |       | December 31, |   | Percentage |   |
| (Dollars in thousands)           |   | 2012               |       | 2011              |   | Change     |   |
| Consumer   real estate:                    |   |               |       |              |   |       |   |
| First   mortgage lien                      |   | $                  | 4,344,701  |              | $      | 4,742,423  |   | (8.4) | % |
| Junior   lien                              |   | 2,303,335          |       | 2,152,868         |   | 7.0        |   |
| Total   consumer real estate               |   | 6,648,036          |       | 6,895,291         |   | (3.6)      |   |
| Commercial:                                |   |               |       |              |   |       |   |
| Commercial   real estate:                  |   |               |       |              |   |       |   |
| Permanent                                  |   | 3,106,738          |       | 3,039,488         |   | 2.2        |   |
| Construction   and development             |   | 130,400            |       | 159,210           |   | (18.1)     |   |
| Total   commercial real estate             |   | 3,237,138          |       | 3,198,698         |   | 1.2        |   |
| Commercial   business                      |   | 274,096            |       | 250,794           |   | 9.3        |   |
| Total   commercial                         |   | 3,511,234          |       | 3,449,492         |   | 1.8        |   |
| Leasing   and equipment finance:(1)        |   |               |       |              |   |       |   |
| Equipment   finance loans                  |   | 1,236,811          |       | 1,110,803         |   | 11.3       |   |
| Lease   financings:                        |   |               |       |              |   |       |   |
| Direct   financing leases                  |   | 1,921,855          |       | 2,039,096         |   | (5.7)      |   |
| Sales-type   leases                        |   | 24,145             |       | 29,219            |   | (17.4)     |   |
| Lease   residuals                          |   | 124,148            |       | 129,100           |   | (3.8)      |   |
| Unearned   income and deferred lease costs |   | (148,982)          |       | (165,959)         |   | 10.2       |   |
| Total   lease financings                   |   | 1,921,166          |       | 2,031,456         |   | (5.4)      |   |
| Total   leasing and equipment finance      |   | 3,157,977          |       | 3,142,259         |   | .5         |   |
| Inventory   finance                        |   | 1,466,269          |       | 624,700           |   | 134.7      |   |
| Auto   finance                             |   | 407,091            |       | 3,628             |   | N.M.       |   |
| Other                                      |   | 27,610             |       | 34,885            |   | (20.9)     |   |
| Total   loans and leases                   |   | $                  | 15,218,217 |              | $      | 14,150,255 |   | 7.5 | % |

N.M. Not Meaningful.

(1) Operating leases of $58 million and $69.6 million at September 30, 2012 and December 31, 2011, respectively, are included in other assets in the Consolidated Statements of Financial Condition.

 

Approximately 70% of the consumer real estate portfolio at September 30, 2012, consisted of closed-end amortizing loans.  TCF’s consumer real estate lines of credit require regular payments of interest and do not require regular payments of principal.  Outstanding balances on consumer real estate lines of credit were $2 billion and $1.8 billion at September 30, 2012 and December 31, 2011, respectively.  The average Fair Isaac Corporation (“FICO”) credit score at loan origination for the retail lending portfolio was 729, at September 30, 2012 and 727 at December 31, 2011. As part of TCF’s credit risk monitoring, TCF obtains updated FICO score information quarterly. The average updated FICO score for the retail lending portfolio was 727 at September 30, 2012, compared with 727 at December 31, 2011.  As of September 30, 2012, 34.3% of the consumer real estate loan balance has been originated since January 1, 2009, with 2012 net charge offs of .3% (annualized).

 

TCF continues to expand its commercial lending activities, generally to borrowers located in its primary markets, with a focus on secured lending.  At September 30, 2012, approximately 92% of TCF’s commercial real estate loans outstanding were secured by real estate located in its primary banking markets.  At September 30, 2012, approximately 99% of TCF’s commercial real estate and commercial business loans were secured either by real estate or other business assets.

 

The leasing and equipment finance backlog of approved transactions was $509 million at September 30, 2012, up from $455 million at December 31, 2011.

 

46

 

Credit Quality

 

*Past Due Loans and Leases*

 

The following tables set forth information regarding TCF’s delinquent loan and lease portfolio. Delinquent balances are determined based on the contractual terms of the loan or lease. See Note 7 of the Notes to Consolidated Financial Statements included in Part I, Item 1. Financial Statements for additional information.

 
|                              |   | At September 30, |    | At December 31, |   |
|-----------------------------------|--------|----------------------------|---------|---------------------------|--------|
| (Dollars in thousands)  |   | 2012                       |    | 2011                      |   |
| Principal   balances:             |   |                       |    |                      |   |
| 60-89   days                      |   | $                          | 42,811  |                      | $      | 45,531 |   |
| 90   days or more                 |   | 56,412                     |    | 72,105                    |   |
| Non-accrual   loans and leases    |   | 421,813                    |    | 298,311                   |   |
| Total                             |   | $                          | 521,036 |                      | $      | 415,947 |   |
|                              |   |                       |    |                      |   |
| Percentage   of loans and leases: |   |                       |    |                      |   |
| 60-89   days                      |   | .3                         | %       | .3                        | %      |
| 90   days or more                 |   | .4                         |    | .5                        |   |
| Non-accrual   loans and leases    |   | 2.8                        |    | 2.1                       |   |
| Total                             |   | 3.5                        | %       | 2.9                       | %      |

 

The following table summarizes TCF’s over 60-day delinquent loan and lease portfolio by loan type.

 
|                                       |   | At September 30, 2012 |   | At December 31, 2011 |   |
|--------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
|                                       |   | Principal                            |   | Percentage of                  |   | Principal |   | Percentage of |   |
| (Dollars in thousands)           |   | Balances                             |   | Portfolio                           |   | Balances |   | Portfolio |   |
| Consumer   real estate:                    |   |                                 |   |                                |   |   |   |   |   |
| First   mortgage lien                      |   | $                                    | 80,153 |                                | 1.93   | % | $ | 87,358 |   | 1.89 | % |
| Junior   lien                              |   | 13,388                               |   | .59                                 |   | 22,277 |   | 1.04 |   |
| Total   consumer real estate               |   | 93,541                               |   | 1.46                                |   | 109,635 |   | 1.63 |   |
| Commercial   real estate                   |   | 2,652                                |   | .09                                 |   | 1,099 |   | .04 |   |
| Commercial   business                      |   | -                                    |   | -                                   |   | 49 |   | .02 |   |
| Total   commercial                         |   | 2,652                                |   | .08                                 |   | 1,148 |   | .03 |   |
| Leasing   and equipment finance:           |   |                                 |   |                                |   |   |   |   |   |
| Middle   market                            |   | 457                                  |   | .03                                 |   | 1,061 |   | .07 |   |
| Small   ticket                             |   | 903                                  |   | .12                                 |   | 2,018 |   | .28 |   |
| Winthrop                                   |   | -                                    |   | .01                                 |   | 235 |   | .07 |   |
| Other                                      |   | 194                                  |   | .08                                 |   | 198 |   | .11 |   |
| Total   leasing and equipment finance      |   | 1,554                                |   | .05                                 |   | 3,512 |   | .13 |   |
| Inventory   finance                        |   | 80                                   |   | .01                                 |   | 160 |   | .03 |   |
| Auto   finance                             |   | 305                                  |   | .08                                 |   | - |   | - |   |
| Other                                      |   | 22                                   |   | .09                                 |   | 41 |   | .12 |   |
| Subtotal   (1)                             |   | 98,154                               |   | .67                                 |   | 114,496 |   | .85 |   |
| Delinquencies   in acquired portfolios (2) |   | 1,069                                |   | .50                                 |   | 3,140 |   | .84 |   |
| Total                                      |   | $                                    | 99,223 |                                | .67    | % | $ | 117,636 |   | .85 | % |

(1)    Excludes delinquencies and non-accrual loans in acquired portfolios as delinquency and non-accrual migration in these portfolios are not expected to result in losses exceeding the credit reserves netted against the loan balances.

 

(2)    Remaining balances of acquired loans and leases were $211.8 million and $371.9 million at September 30, 2012 and December 31, 2011, respectively.

 

47

 

*Loan Modifications-Consumer Real Estate*

 

TCF has several programs designed to assist consumer real estate customers by extending payment dates or reducing customers’ contractual payments (but not a reduction of principal). Under these programs, TCF reduces a customer’s contractual payments for a period of time appropriate for the borrower’s condition. All loan modifications are made on a case-by-case basis.   Loan modifications are not reported as TDRs in the calendar years after modification if the loans were modified at an interest rate equal to or greater than the yields of new loan originations with comparable risk and the loan is performing based on the restructured terms.

 

If TCF has not granted a concession as a result of the modification, the loan is not considered a TDR. Modifications that are not classified as TDRs primarily involve interest rate changes to current market rates for similarly situated borrowers who have access to alternative funds. Loan modifications to borrowers who are not experiencing financial difficulties are not included in the following reporting of loan modifications.

 

Although loans classified as TDRs are considered impaired, TCF was able to receive more than 56.2%* and 54.4%* of the contractual interest due on accruing consumer real estate TDRs for the three and nine months ended September 30, 2012, respectively, by modifying the loan to a qualified customer instead of foreclosing on the property.  Only  7.4% of accruing consumer real estate TDRs were more than 60-days delinquent at September 30, 2012. Approximately 4.7% of the $456.8 million accruing consumer real estate TDRs modified during the 15 months preceding September 30, 2012 defaulted during the three months ended September 30, 2012.

 
|                                 |   | At September, 30 2012 |    | At December, 31 2011   |   |
|--------------------------------------|--------|--------------------------------------|---------|---------------------------------------|--------|
|                                 |   | Loan                                 |    | 60+ Days   Delinquent            |   | Loan |   | 60+ Days   Delinquent |   |
| (Dollars in thousands)     |   | Balance                              |    | As a % of Balance |   | Balance |   | As a % of Balance |   |
| Permanently   modified accruing TDRs |   | $                                    | 386,143 |                                  | 4.86   | % | $ | 198,882 |   | 4.63 | % |
| Temporarily   modified accruing TDRs |   | 70,652                               |    | 17.61                                 |   | 234,196 |   | 9.01 |   |
| Total   accruing TDRs                |   | 456,795                              |    | 7.38                                  |   | 433,078 |   | 7.00 |   |
| Other   loan modifications           |   | 4,266                                |    | 49.40                                 |   | 13,397 |   | 20.66 |   |
| Total   accruing loan modifications  |   | $                                    | 461,061 |                                  | 7.77   | % | $ | 446,475 |   | 7.41 | % |

 

*Loan Modifications-Other*

 

A commercial loan may be modified through a term extension with a reduction of contractual payments or a change in interest rate. Commercial loan modifications which are not classified as TDRs primarily involve loans on which interest rates were modified to current market rates for similarly situated borrowers who have access to alternative funds or on which TCF received additional collateral or loan conditions. Loan modifications to borrowers who are not experiencing financial difficulties are not included in the following reporting of loan modifications.

 

Commercial loans that are 90 or more days past due and not well secured at the time of modification remain on non-accrual status. Regardless of whether contractual principal and interest payments are well-secured at the time of modification, equipment finance loans that are 90 or more days past due remain on non-accrual status. All loans modified when on non-accrual status continue to be reported as non-accrual loans until there is sustained repayment performance for six months. At September 30, 2012, over 53.4% of total commercial TDRs were accruing and TCF was able to recognize all of the contractual interest due on accruing commercial TDRs during the first nine months of 2012. Only 5 of the 86 accruing commercial TDRs that were modified during the 15 months preceding September 30, 2012, totaling $9.4 million, defaulted during the three months ended September 30, 2012.

 

*Updated to correct number originally reported in Quarterly Report filed October 30, 2012.

 

48

 

TCF utilizes a multiple note structure as a workout alternative for certain commercial loans. The multiple note structure restructures a troubled loan into two notes. The first note is established at a size and with market terms, that provide reasonable assurance of payment and performance. The second note is generally not reasonably assured of repayment and is typically charged-off. The second note is still outstanding with the borrower, and should the borrower’s financial position improve, may become recoverable. At September 30, 2012, nine loans with a contractual balance of $31.5 million and a remaining book balance of $22.4 million had been restructured under this workout alternative.

 

For additional information regarding TCF’s loan modifications refer to Note 7 of the Notes to Consolidated Financial Statements included in Part I, Item 1. Financial Statements.

 

The following table summarizes the balance of accruing modified commercial and leasing and equipment finance loans as of September 30, 2012 and December 31, 2011.

 
|                                |   | At September 30, 2012 |    |
|-------------------------------------|--------|--------------------------------------|---------|
|                                |   | Commercial                           |    | Leasing and   Equipment Finance |   |
|                                |   |                                 |    | 60+ Days Delinquent |   |   | 60+ Days Delinquent |
| (Dollars in thousands)    |   | Loan Balance                    |    | as a % of Balance | Loan Balance |   | as a % of Balance |
| TDRs                                |   | $                                    | 120,254 |   | 2.21 | % | $ | 655 |   | - | % |
| Other   loan modifications          |   | 4,410                                |    | - |   | 1,436 |   | - |   |
| Total   accruing loan modifications |   | $                                    | 124,664 |   | 2.13 | % | $ | 2,091 |   | - | % |
|                                |   |                                 |    |   |   |   |   |   |   |
|                                |   |                                 |    |   |   |   |   |   |   |
|                                |   | At December 31, 2011  |    |
|                                |   | Commercial                           |    | Leasing and   Equipment Finance |   |
|                                |   |                                 |    | 60+ Days Delinquent |   |   | 60+ Days Delinquent |
| (Dollars in thousands)    |   | Loan Balance                    |    | as a % of Balance | Loan Balance |   | as a % of Balance |
| TDRs                                |   | $                                    | 98,448  |   | - | % | $ | 776 |   | - | % |
| Other   loan modifications          |   | 13,318                               |    | - |   | 4,829 |   | 2.40 |   |
| Total   accruing loan modifications |   | $                                    | 111,766 |   | - | % | $ | 5,605 |   | 2.07 | % |

 

*Non-accrual Loans and Leases*

 

Non-accrual loans and leases are summarized in the following table.

 
|                                 |   | At                 |    | At                |   |
|--------------------------------------|--------|--------------------|---------|-------------------|--------|
|                                 |   | September 30, |    | December 31, |   |
| (In thousands)                  |   | 2012               |    | 2011              |   |
| Consumer   real estate:              |   |               |    |              |   |
| First   mortgage lien                |   | $                  | 197,649 |              | $      | 129,114 |   |
| Junior   lien                        |   | 35,936             |    | 20,257            |   |
| Total   consumer real estate         |   | 233,585            |    | 149,371           |   |
| Commercial   real estate             |   | 159,090            |    | 104,744           |   |
| Commercial   business                |   | 10,249             |    | 22,775            |   |
| Total   commercial                   |   | 169,339            |    | 127,519           |   |
| Leasing   and equipment finance      |   | 15,812             |    | 20,583            |   |
| Inventory   finance                  |   | 1,120              |    | 823               |   |
| Other                                |   | 1,957              |    | 15                |   |
| Total   non-accrual loans and leases |   | $                  | 421,813 |              | $      | 298,311 |   |

 

 

49

 

At September 30, 2012 and December 31, 2011, non-accrual loans and leases included $275.3 million and $130.9 million, respectively, of loans that were modified and categorized as TDRs.  Non-accrual loans and leases increased $123.5 million, or 41.4%, from December 31, 2011, primarily due to $103.2 million of additional consumer non-accrual loans resulting from the implementation of clarifying bankruptcy-related regulatory guidance in the third quarter of 2012.  Consumer real estate loans are charged-off to their estimated realizable values less estimated selling costs upon entering non-accrual status. Any necessary additional reserves are established for commercial loans, leasing and equipment finance loans and leases and inventory finance loans when reported as non-accrual. Most of TCF’s non-accrual loans and past due loans are secured by real estate.

 

Changes in the amount of non-accrual loans and leases for the three and nine months ended September 30, 2012 are summarized in the following table.

 
|                           |   | At or For the Three Months Ended September 30, 2012 |    |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------|---------|
|                           |   |                                                                                             |    |   |   | Leasing and |   |   |   |   |   |   |   |
|                           |   | Consumer                                                                                         |    |   |   | Equipment |   | Inventory |   |   |   |   |   |
| (In thousands)                 |   | Real Estate                                                                                      |    | Commercial |   | Finance |   | Finance |   | Other |   | Total |   |
| Balance,   beginning of period |   | $                                                                                                | 140,678 |   | $ | 150,215 |   | $ | 29,429 |   | $ | 1,900 |   | $ | 2,204 |   | $ | 324,426 |   |
| Additions                      |   | 161,369                                                                                          |    | 44,354 |   | 3,261 |   | 1,924 |   | 8 |   | 210,916 |   |
| Charge-offs                    |   | (13,553)                                                                                         |    | (20,769 | ) | (14,304 | ) | (385 | ) | (105 | ) | (49,116 | ) |
| Transfers   to other assets    |   | (23,391)                                                                                         |    | (877 | ) | (348 | ) | (16 | ) | - |   | (24,632 | ) |
| Return   to accrual status     |   | (28,416)                                                                                         |    | - |   | (129 | ) | (1,755 | ) | - |   | (30,300 | ) |
| Payments   received            |   | (2,810)                                                                                          |    | (4,049 | ) | (2,088 | ) | (556 | ) | (149 | ) | (9,652 | ) |
| Other,   net                   |   | (292)                                                                                            |    | 465 |   | (9 | ) | 8 |   | (1 | ) | 171 |   |
| Balance,   end of period       |   | $                                                                                                | 233,585 |   | $ | 169,339 |   | $ | 15,812 |   | $ | 1,120 |   | $ | 1,957 |   | $ | 421,813 |   |
|                           |   |                                                                                             |    |   |   |   |   |   |   |   |   |   |   |
|                           |   |                                                                                             |    |   |   |   |   |   |   |   |   |   |   |
|                           |   | At or For the   Nine Months Ended September 30, 2012                                        |    |
|                           |   |                                                                                             |    |   |   | Leasing and |   |   |   |   |   |   |   |
|                           |   | Consumer                                                                                         |    |   |   | Equipment |   | Inventory |   |   |   |   |   |
| (In   thousands)               |   | Real Estate                                                                                      |    | Commercial |   | Finance |   | Finance |   | Other |   | Total |   |
| Balance,   beginning of period |   | $                                                                                                | 149,371 |   | $ | 127,519 |   | $ | 20,583 |   | $ | 823 |   | $ | 15 |   | $ | 298,311 |   |
| Additions                      |   | 279,246                                                                                          |    | 97,395 |   | 24,766 |   | 6,906 |   | 12 |   | 408,325 |   |
| Charge-offs                    |   | (46,655                                                                                          | )       | (30,870 | ) | (17,710 | ) | (604 | ) | (1,188 | ) | (97,027 | ) |
| Transfers   to other assets    |   | (70,979                                                                                          | )       | (9,951 | ) | (2,647 | ) | (769 | ) | (362 | ) | (84,708 | ) |
| Return   to accrual status     |   | (69,404                                                                                          | )       | (26 | ) | (1,134 | ) | (3,179 | ) | - |   | (73,743 | ) |
| Payments   received            |   | (7,604                                                                                           | )       | (12,802 | ) | (8,036 | ) | (2,246 | ) | (427 | ) | (31,115 | ) |
| Other,   net                   |   | (390                                                                                             | )       | (1,926 | ) | (10 | ) | 189 |   | 3,907 |   | 1,770 |   |
| Balance,   end of period       |   | $                                                                                                | 233,585 |   | $ | 169,339 |   | $ | 15,812 |   | $ | 1,120 |   | $ | 1,957 |   | $ | 421,813 |   |

 

50

 

 

Allowance for Loan and Lease Losses

 

The determination of the allowance for loan and lease losses is a critical accounting estimate. TCF’s methodologies for determining and allocating the allowance for loan and lease losses focus on ongoing reviews of larger individual loans and leases, historical net charge-offs, delinquencies in the loan and lease portfolio, the level of impaired and non-accrual assets, values of underlying loan and lease collateral, the overall risk characteristics of the portfolios, changes in character or size of the portfolios, geographic location, year of origination, prevailing economic conditions and other relevant factors. The various factors used in the methodologies are reviewed on a periodic basis.

 

In the third quarter of 2012, TCF refined the methodology for calculating the allowance for loan and lease losses for certain commercial loans.  The updated methodology primarily provided for the use of the underlying loans’ risk ratings in determining the allowance for commercial loans collectively evaluated for loss potential.  The change reduced the commercial allowance for loans and lease loss by $13.3 million at September 30, 2012 and resulted in the collective evaluation of $250 million in commercial loans that were previously evaluated individually.

 

TCF considers the allowance for loan and lease losses of $264.8 million appropriate to cover probable losses incurred in the loan and lease portfolios as of September 30, 2012. However, no assurance can be given that TCF will not, in any particular period, sustain loan and lease losses that are sizable in relation to the amount reserved, or that subsequent evaluations of the loan and lease portfolio, in light of factors then prevailing, including economic conditions, and TCF’s ongoing credit review process or regulatory requirements, will not require significant changes in the balance of the allowance for loan and lease losses. Among other factors, a continued economic slowdown, increasing levels of unemployment and/or a decline in commercial or residential real estate values in TCF’s markets may have an adverse impact on the current adequacy of the allowance for loan and lease losses by increasing credit risk and the risk of potential loss.

 

The total allowance for loan and lease losses is generally available to absorb losses from any segment of the portfolio. The allocation of TCF’s allowance for loan and lease losses disclosed in the following table is subject to change based on changes in the criteria used to evaluate the allowance and is not necessarily indicative of the trend of future losses in any particular portfolio.

 

In conjunction with Note 7 of the Notes to Consolidated Financial Statements included in Part I, Item 1. Financial Statements, the following table includes detailed information regarding TCF’s allowance for loan and lease losses.

 
|                                        |   | At September 30, 2012 |    | At December 31, 2011 |   |
|---------------------------------------------|--------|--------------------------------------|---------|-------------------------------------|--------|
|                                        |   |                                 |    | Total Loans                    |   | Allowance as |   |   |   | Total Loans |   | Allowance as |
| (Dollars in thousands)            |   | Allowance                            |    | and Leases                     |   | a % of   Balance |   | Allowance |   | and Leases |   | a % of   Balance |
| Consumer   real estate:                     |   |                                 |    |                                |   |   |   |   |   |   |   |   |   |
| First   mortgage lien                       |   | $                                    | 114,068 |                                | $      | 4,344,701 |   | 2.63 |  % | $ | 115,740 |   | $ | 4,742,423 |   | 2.44 | % |
| Junior   lien                               |   | 64,874                               |    | 2,303,335                           |   | 2.82 |   | 67,695 |   | 2,152,868 |   | 3.14 |   |
| Consumer   real estate                      |   | 178,942                              |    | 6,648,036                           |   | 2.69 |   | 183,435 |   | 6,895,291 |   | 2.66 |   |
| Commercial                                  |   | 53,756                               |    | 3,511,234                           |   | 1.53 |   | 46,954 |   | 3,449,492 |   | 1.36 |   |
| Leasing   and equipment finance             |   | 21,331                               |    | 3,157,977                           |   | .68 |   | 21,173 |   | 3,142,259 |   | .67 |   |
| Inventory   finance                         |   | 7,003                                |    | 1,466,269                           |   | .48 |   | 2,996 |   | 624,700 |   | .48 |   |
| Auto   finance                              |   | 3,059                                |    | 407,091                             |   | .75 |   | - |   | 3,628 |   | - |   |
| Other                                       |   | 750                                  |    | 27,610                              |   | 2.72 |   | 1,114 |   | 34,885 |   | 3.19 |   |
| Total   allowance for loan and lease losses |   | $                                    | 264,841 |                                | $      | 15,218,217 |   | 1.74 |  % | $ | 255,672 |   | $ | 14,150,255 |   | 1.81 | % |

 

At September 30, 2012, the allowance as a percent of total loans and leases decreased to 1.74% compared with 1.81% at December 31, 2011.  The increase in total loans and leases is due to growth in the auto and inventory finance portfolios.  The increase in the allowance for commercial loans from December 31, 2011 was primarily due to increased provision expense driven by a more aggressive workout approach.  The level of commercial lending allowances is generally volatile due to reserves for specific loans based on individual facts and collateral values as loans migrate to classified commercial loans or to non-accrual.  Charge-offs are taken against such specific reserves.

 

51

 

The following tables set forth additional information regarding net charge-offs:

 
|                            |   | Three Months Ended |    |
|---------------------------------|--------|------------------------------|---------|
|                            |   | September 30, 2012 |    | September 30, 2011 |   |
|                            |   | Net                          |    | Loss |   | Net |   | Loss |   |
| (Dollars   in thousands)        |   | Charge-offs                  |    | Rate (1) |   | Charge-offs |   | Rate (1) |   |
| Consumer   real estate:         |   |                         |    |   |   |   |   |   |   |
| First   mortgage liens          |   | $                            | 40,469  |   | 3.60 |  % | $ | 27,590 |   | 2.29 |  % |
| Junior   liens                  |   | 34,202                       |    | 6.12 |   | 16,247 |   | 2.99 |   |
| Total   consumer real estate    |   | 74,671                       |    | 4.44 |   | 43,837 |   | 2.51 |   |
| Commercial   real estate        |   | 15,777                       |    | 1.93 |   | 3,665 |   | .45 |   |
| Commercial   business           |   | 4,770                        |    | 7.06 |   | 1,375 |   | 1.83 |   |
| Total   commercial              |   | 20,547                       |    | 2.32 |   | 5,040 |   | .57 |   |
| Leasing   and equipment finance |   | 7,521                        |    | .95 |   | 2,783 |   | .36 |   |
| Inventory   finance             |   | 444                          |    | .12 |   | 262 |   | .13 |   |
| Auto   Finance                  |   | 280                          |    | .30 |   | - |   | - |   |
| Other                           |   | 991                          |    | N.M | . | 1,480 |   | N.M | . |
| Total                           |   | $                            | 104,454 |   | 2.74 |  % | $ | 53,402 |   | 1.48 |  % |

 
|                             |   | Nine Months Ended  |    |
|----------------------------------|--------|------------------------------|---------|
|                             |   | September 30, 2012 |    | September 30, 2011 |   |
|                             |   | Net                          |    | Loss |   | Net |   | Loss |   |
| (Dollars in thousands) |   | Charge-offs                  |    | Rate (1) |   | Charge-offs |   | Rate (1) |   |
| Consumer   real estate:          |   |                         |    |   |   |   |   |   |   |
| First   mortgage liens           |   | $                            | 78,365  |   | 2.26 |  % | $ | 71,134 |   | 1.96 |  % |
| Junior   liens                   |   | 66,851                       |    | 4.10 |   | 44,678 |   | 2.70 |   |
| Total   consumer real estate     |   | 145,216                      |    | 2.85 |   | 115,812 |   | 2.19 |   |
| Commercial   real estate         |   | 25,241                       |    | 1.04 |   | 20,236 |   | .82 |   |
| Commercial   business            |   | 5,285                        |    | 2.75 |   | 5,266 |   | 2.30 |   |
| Total   commercial               |   | 30,526                       |    | 1.16 |   | 25,502 |   | .95 |   |
| Leasing   and equipment finance  |   | 8,845                        |    | .37 |   | 9,050 |   | .39 |   |
| Inventory   finance              |   | 1,312                        |    | .13 |   | 798 |   | .12 |   |
| Auto   Finance                   |   | 363                          |    | .21 |   | - |   | - |   |
| Other                            |   | 1,985                        |    | N.M | . | 1,898 |   | N.M | . |
| Total                            |   | $                            | 188,247 |   | 1.67 |  % | $ | 153,060 |   | 1.39 |  % |

(1) Represents the ratio of net charge-offs to average loans and leases, annualized.

N.M. Not Meaningful.

 

Consumer real estate net charge-offs for the third quarter and first nine months of 2012 were $74.7 million and $145.2 million, respectively, compared with $43.8 million and $115.8 million for the same 2011 periods.  The increase from both periods was primarily due to additional net charge-offs of $43.9 million related to the implementation of bankruptcy-related regulatory guidance in the third quarter of 2012.  Commercial net charge-offs for the third quarter and first nine months of 2012 were $20.5 million and $30.5 million, respectively, compared with $5 million and $25.5 million for the same 2011 periods.  The increase from both periods was primarily due to increased net charge-offs on a small population of commercial loans, driven by a more aggressive workout approach.  Leasing and equipment finance net charge-offs for the third quarter and first nine months of 2012 totaled $7.5 million and $8.8 million, respectively, compared with $2.8 million and $9.1 million for the same periods in 2011. The increase from the third quarter of 2011 was due to increased charge-offs in the Winthrop portfolio related to the third quarter write-off of one large lease exposure.  The decrease in net charge-offs from the first nine months of 2011 was primarily due to decreased net charge-offs in the middle market and small ticket segments, partially offset by the increased Winthrop charge-offs.

 

52

 

Other Real Estate Owned and Repossessed and Returned Assets

 

Other real estate owned and repossessed and returned equipment are summarized in the following table.

 
|                                                                      |   | At                 |    | At                |   |
|---------------------------------------------------------------------------|--------|--------------------|---------|-------------------|--------|
|                                                                      |   | September 30, |    | December 31, |   |
| (In thousands)                                                       |   | 2012               |    | 2011              |   |
| Other   real estate owned: (1)                                            |   |               |    |              |   |
| Residential   real estate                                                 |   | $                  | 85,764  |              | $      | 87,792 |   |
| Commercial   real estate                                                  |   | 34,662             |    | 47,106            |   |
| Total   other real estate owned                                           |   | 120,426            |    | 134,898           |   |
| Repossessed   and returned assets                                         |   | 3,739              |    | 4,758             |   |
| Total   other real estate owned and    repossessed and returned equipment |   | $                  | 124,165 |              | $      | 139,656 |   |

(1) Includes properties owned and foreclosed properties subject to redemption.

 

Other real estate owned is recorded at the lower of cost or fair value less estimated costs to sell the property. At September 30, 2012, TCF owned 425 consumer real estate properties that were not subject to redemption, a decrease of 40 from December 31, 2011. The average length of time to sell consumer real estate properties during the third quarter of 2012 was 6.1 months from the date they were no longer subject to customer redemption.

 

The changes in the amount of other real estate owned for the three and nine months ended September 30, 2012, are summarized in the following tables.

 
|                                 |   | At or For the Three Months Ended September 30, 2012 |   |
|--------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|
| (In thousands)                  |   | Consumer                                                                                         |   | Commercial |   | Total |   |
| Balance,   beginning of period       |   | $                                                                                                | 83,176 |   | $ | 42,700 |   | $ | 125,876 |   |
| Transferred   in, net of charge-offs |   | 25,220                                                                                           |   | 877 |   | 26,097 |   |
| Sales                                |   | (20,886                                                                                          | )      | (7,593 | ) | (28,479 | ) |
| Write-downs                          |   | (2,173                                                                                           | )      | (1,320 | ) | (3,493 | ) |
| Other,   net                         |   | 427                                                                                              |   | (2 | ) | 425 |   |
| Balance,   end of period             |   | $                                                                                                | 85,764 |   | $ | 34,662 |   | $ | 120,426 |   |

 
|                                 |   | At or For the Nine Months Ended September 30, 2012 |   |
|--------------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|
| (In thousands)                  |   | Consumer                                                                                        |   | Commercial |   | Total |   |
| Balance,   beginning of period       |   | $                                                                                               | 87,792 |   | $ | 47,106 |   | $ | 134,898 |   |
| Transferred   in, net of charge-offs |   | 76,693                                                                                          |   | 8,767 |   | 85,460 |   |
| Sales                                |   | (72,218                                                                                         | )      | (14,310 | ) | (86,528 | ) |
| Write-downs                          |   | (7,607                                                                                          | )      | (7,390 | ) | (14,997 | ) |
| Other,   net                         |   | 1,104                                                                                           |   | 489 |   | 1,593 |   |
| Balance,   end of period             |   | $                                                                                               | 85,764 |   | $ | 34,662 |   | $ | 120,426 |   |

 

Deposits

 

Checking, savings and money market deposits are an important source of low-cost funds and fee income for TCF. Deposits totaled $13.7 billion at September 30, 2012,  an increase of $1.5 billion, or 12.5%, from December 31, 2011. On June 1, 2012, TCF Bank assumed approximately $778 million of deposits from Prudential Bank & Trust, FSB (“PB&T”). The deposits consist primarily of IRA accounts with certificates of deposit or checking accounts and IRA related brokerage sweep accounts gathered by PB&T through their relationship with Prudential Retirement. The average interest cost of deposits in the third quarter and first nine months of 2012 was .32%, and  .31%, down 7 basis points and 9 basis points, respectively, from the same periods in 2011 and up 1 basis point from second quarter of 2012. Decreases in the average interest cost of deposits from the third quarter and first nine months of 2011 were primarily due to the reintroduction of free checking and special programs for certificates of deposit. TCF’s weighted-average interest rate on deposits, including non-interest bearing deposits, was .33% at September 30, 2012 and .29% December 31, 2011.

 

Borrowings and Liquidity

 

During June 2012, TCF Bank issued $110 million of subordinated notes at a price to investors of 99.086% of par, which will be due on June 8, 2022. The subordinated notes bear interest at a fixed rate of 6.25% until maturity. The notes qualify 

 

53

 

as Tier 2 or supplementary capital for regulatory purposes, subject to certain limitations. TCF Bank is using the proceeds for general corporate purposes.

 

In 2008, TCF Capital I, a statutory trust formed under the laws of the state of Delaware and wholly-owned finance subsidiary of TCF, issued 10.75% preferred junior subordinated notes (the “Trust Preferred Securities”). During June 2012, TCF announced that it had submitted a redemption notice to the property trustee for full redemption of the $115 million of 10.75% Trust Preferred Securities.  The determination to redeem the Trust Preferred Securities followed a notice of proposed rulemaking, approved for publication in the Federal Register by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) on June 7, 2012, which would phase out the Tier 1 capital treatment of the Trust Preferred Securities. TCF determined that the Federal Reserve’s approval for publication of the notice of proposed rulemaking constituted a “capital treatment event” (as defined in the indenture governing the Trust Preferred Securities), which allow TCF to redeem the Trust Preferred Securities.  The Trust Preferred Securities were redeemed on July 30, 2012 at the redemption price of $25 per Trust Preferred Security plus accumulated and unpaid distributions, totaling $115 million. The redemption was funded with a portion of the net proceeds from TCF’s offering of depositary shares, each representing a 1/1,000th interest in a share of TCF’s Series A Non-Cumulative Perpetual Preferred Stock (The “Series A Preferred Stock”) par value $.01 per share, which closed on June 25, 2012.

 

Borrowings totaled $2.1 billion at September 30, 2012, down $2.4 billion from December 31, 2011. The weighted-average rate on borrowings was 1.39% at September 30, 2012, compared with 4.26% at December 31, 2011. Historically, TCF has borrowed primarily from the Federal Home Loan Bank (“FHLB”) of Des Moines, from institutional sources under repurchase agreements and from other sources. At September 30, 2012, TCF had $2.5 billion in unused, secured borrowing capacity at the FHLB of Des Moines.

 

At September 30, 2012, TCF, through its indirect subsidiary TCF Commercial Finance Canada, Inc., had $31.5 million available under a Canadian dollar-denominated line of credit facility. Advances under this credit facility are fully collateralized by pledged securities or cash collateral, and TCF Commercial Finance Canada, Inc. could draw $15.3 million on the unused credit line without additional collateral being pledged.

 

At September 30, 2012, interest-bearing deposits held at the Federal Reserve and unencumbered securities were $1.3 billion, a decrease of $189 million from third quarter of 2011 and a decrease of $117 million from December 31, 2011.

 

See Note 10 of the Notes to Consolidated Financial Statements included in Part 1, Item 1. Financial Statements for additional information regarding TCF’s long-term borrowings.

 

54

 

Contractual Obligations and Commitments

 

TCF has certain obligations and commitments to make future payments under contracts. At September 30, 2012, the aggregate contractual obligations (excluding demand deposits) and commitments are as follows.

 
| (In   thousands)                                                                                                  |   | Payments Due by   Period                      |      |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|
|                                                                                                              |   |                                          |      | Less than |   | 1-3 |   | 3-5 |   | More than |   |
| Contractual   Obligations                                                                                         |   | Total                                         |      | 1 year |   | years |   | years |   | 5 years |   |
| Total   borrowings                                                                                                |   | $                                             | 2,052,517 |   | $ | 431,995 |   | $ | 1,123,279 |   | $ | 385,622 |   | $ | 111,621 |   |
| Time   deposits                                                                                                   |   | 2,073,909                                     |      | 1,364,126 |   | 602,675 |   | 40,518 |   | 66,590 |   |
| Annual   rental commitments under   non-cancelable operating leases                                               |   | 205,493                                       | *         | 26,660 | * | 54,659 | * | 45,937 | * | 78,237 | * |
| Contractual   interest payments(1)                                                                                |   | 157,854                                       | *         | 50,177 | * | 47,506 | * | 24,596 | * | 35,575 | * |
| Campus   marketing agreements                                                                                     |   | 44,921                                        |      | 4,006 |   | 6,852 |   | 5,956 |   | 28,107 |   |
| Construction   contracts and land purchase   commitments for future branch sites                                  |   | 1,977                                         |      | 1,977 |   | - |   | - |   | - |   |
| Total                                                                                                             |   | $                                             | 4,536,671 | * | $ | 1,878,941 | * | $ | 1,834,971 | * | $ | 502,629 | * | $ | 320,130 | * |
|                                                                                                              |   |                                          |      |   |   |   |   |   |   |   |   |
| (In   thousands)                                                                                                  |   | Amount of   Commitment - Expiration by Period |      |
|                                                                                                              |   |                                          |      | Less than |   | 1-3 |   | 3-5 |   | More Than |   |
| Commitments                                                                                                       |   | Total                                         |      | 1 year |   | years |   | years |   | 5 years |   |
| Commitments   to lend:                                                                                            |   |                                          |      |   |   |   |   |   |   |   |   |
| Consumer   real estate and other                                                                                  |   | $                                             | 1,267,484 | * | $ | 56,607 | * | $ | 83,658 | * | $ | 102,819 |   | $ | 1,024,400 | * |
| Commercial                                                                                                        |   | 387,792                                       | *         | 134,549 |   | 96,059 |   | 91,262 | * | 65,922 |   |
| Leasing   and equipment finance                                                                                   |   | 208,306                                       |      | 208,306 |   | - |   | - |   | - |   |
| Total   commitments to lend                                                                                       |   | 1,863,582                                     | *         | 399,462 | * | 179,717 | * | 194,081 | * | 1,090,322 | * |
| Standby letters of credit and guarantees on   industrial revenue bonds                                            |   | 19,250                                        |      | 14,985 |   | 869 |   | 67 |   | 3,329 |   |
| Total                                                                                                             |   | $                                             | 1,882,832 | * | $ | 414,447 | * | $ | 180,586 | * | $ | 194,148 | * | $ | 1,093,651 | * |
| (1)   Includes accrued interest and future contractual interest obligations on   borrowings and deposits.         |   |                                          |      |   |   |
|  *     Updated to correct number originally reported in Quarterly Report   filed October 30, 2012. |   |                                          |      |   |   |

 

Unrecognized tax benefits, projected benefit obligations and demand deposits with indeterminate maturities have been excluded from the contractual obligations presented above.

 

Campus marketing agreements consist of fixed or minimum obligations for exclusive marketing and naming rights with six campuses. TCF is obligated to make various annual payments for these rights in the form of royalties and scholarships through 2029.  TCF also has various renewal options, which may extend the terms of these agreements. Campus marketing agreements are an important element of TCF’s campus banking strategy.

 

Commitments to extend credit are agreements to lend provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral to secure these commitments predominantly consists of residential and commercial real estate. The credit facilities established for inventory finance customers are discretionary credit arrangements which do not obligate TCF to lend.

 

Standby letters of credit and guarantees on industrial revenue bonds are conditional commitments issued by TCF guaranteeing the performance of a customer to a third party. These conditional commitments expire in various years through 2016. Collateral held primarily consists of commercial real estate mortgages. Since the conditions under which TCF is required to fund these commitments may not materialize, the cash requirements are expected to be less than the total outstanding commitments.

 

55

 

Equity

 

Total equity at September 30, 2012 was $1.8 billion, or 9.87% of total assets, compared with $1.9 billion, or 9.9% of total assets, at December 31, 2011. On June 25, 2012, TCF completed the public offering of depositary shares, each representing a 1/1,000th interest in a share of the Series A Preferred Stock.  In connection with the offering, TCF issued 6,900,000 depositary shares, including 900,000 depositary shares issued pursuant to the full exercise of the underwriters’ over-allotment option, at a public offering price of $25 per depositary share.  Net proceeds of the offering to TCF, after deducting underwriting discounts, commissions and estimated offering costs of $5.8 million, were $166.7 million. Dividends are payable on the Series A Preferred Stock when, and if declared by TCF’s Board of Directors on a non-cumulative basis on March 1, June 1, September 1, and December 1 of each year, at a per annum rate of 7.5%. On September 4, 2012, TCF paid $2.4 million in cash dividends on its Series A Preferred Stock.

 

Dividends to common stockholders on a per share basis totaled 5 cents for each of the quarters ended September 30, 2012 and September 30, 2011. TCF’s dividend payout ratio was 85.7% for the quarter ended September 30, 2012. The Company’s primary funding sources for dividends are earnings and dividends received from TCF Bank.

 

At September 30, 2012, TCF had 5.4 million shares remaining in its stock repurchase program authorized by its Board of Directors.

 

Tangible realized common equity at September 30, 2012 was $1.3 billion, or 7.55% of total tangible assets, compared with $1.6 billion, or 8.42% of total tangible assets, at December 31, 2011.  Tangible realized common equity is a non-GAAP measure and represents common equity less goodwill, other intangible assets, accumulated other comprehensive income and non-controlling interest in subsidiaries. Tangible assets represent total assets less goodwill and other intangible assets. Management reviews tangible realized common equity to tangible assets as an ongoing measure and has included this information because of current interest by investors, rating agencies and banking regulators. The methodology for calculating tangible realized common equity may vary between companies.

 

The following table is a reconciliation of the non-GAAP measure of tangible realized common equity to tangible assets to the GAAP measure of total equity to total assets.

 
|                                                                 |   |   | At                 |    |   |   | At                |    |
|----------------------------------------------------------------------|--------|--------|--------------------|---------|--------|--------|-------------------|---------|
|                                                                 |   |   | September 30, |    |   |   | December 31, |    |
| (Dollars   in thousands)                                             |   |   | 2012               |    |   |   | 2011              |    |
| Computation   of total equity to total assets:                       |   |   |               |    |   |   |              |    |
| Total   equity                                                       |   | $      | 1,764,669          |    |   | $      | 1,878,627         |    |
| Total   assets                                                       |   |   | 17,878,393         |    |   |   | 18,979,388        |    |
| Total   equity to total assets                                       |   |   | 9.87               |  % |   |   | 9.90              |  % |
|                                                                 |   |   |               |    |   |   |              |    |
| Computation   of tangible realized common equity to tangible assets: |   |   |               |    |   |   |              |    |
| Total   equity                                                       |   | $      | 1,764,669          |    |   | $      | 1,878,627         |    |
| Less:   Non-controlling interest in subsidiaries                     |   |   | 13,205             |    |   |   | 10,494            |    |
| Total   TCF Financial Corporation stockholders’ equity          |   |   | 1,751,464          |    |   |   | 1,868,133         |    |
| Less:                                                                |   |   |               |    |   |   |              |    |
| Preferred   Stock                                                    |   |   | 166,721            |    |   |   | -                 |    |
| Goodwill                                                             |   |   | 225,640            |    |   |   | 225,640           |    |
| Other   intangibles                                                  |   |   | 9,092              |    |   |   | 7,134             |    |
| Accumulated   other comprehensive income                             |   |   | 18,067             |    |   |   | 56,826            |    |
| Tangible   realized common equity                                    |   | $      | 1,331,944          |    |   | $      | 1,578,533         |    |
|                                                                 |   |   |               |    |   |   |              |    |
| Total   assets                                                       |   | $      | 17,878,393         |    |   | $      | 18,979,388        |    |
| Less:                                                                |   |   |               |    |   |   |              |    |
| Goodwill                                                             |   |   | 225,640            |    |   |   | 225,640           |    |
| Other   intangibles                                                  |   |   | 9,092              |    |   |   | 7,134             |    |
| Tangible   assets                                                    |   | $      | 17,643,661         |    |   | $      | 18,746,614        |    |
|                                                                 |   |   |               |    |   |   |              |    |
| Tangible   realized common equity to tangible assets                 |   |   | 7.55               |  % |   |   | 8.42              |  % |

 

56

 

Total Tier 1 capital at September 30, 2012 was $1.5 billion, or 10.40% of risk-weighted assets, compared with $1.7 billion, or 12.67% of risk-weighted assets at December 31, 2011. Tier 1 common capital at September 30, 2012 was $1.3 billion, or 9.17% of risk-weighted assets, compared with $1.6 billion, or 11.74% of risk-weighted assets at December 31, 2011.

 

In contrast to GAAP-basis measures, the total Tier 1 common risk-based capital ratio excludes the effect of qualifying trust preferred securities, qualifying non-controlling interest in subsidiaries and cumulative perpetual preferred stock. Management reviews the total Tier 1 common risk-based capital ratio as an ongoing measure and has included this information because of current interest by investors, rating agencies and banking regulators. The methodology for calculating total Tier 1 common capital may vary between companies.

 

The following table is a reconciliation of the non-GAAP measure of total Tier 1 common risk-based capital ratio to the GAAP measure of total Tier 1 risk-based capital ratio. 

 
|                                                  |   |   | At                 |    |   |   | At                |    |
|-------------------------------------------------------|--------|--------|--------------------|---------|--------|--------|-------------------|---------|
|                                                  |   |   | September 30, |    |   |   | December 31, |    |
| (In   thousands)                                      |   |   | 2012               |    |   |   | 2011              |    |
| Tier   1 risk-based capital ratio:                    |   |   |               |    |   |   |              |    |
| Total   Tier 1 capital                                |   | $      | 1,515,050          |    |   | $      | 1,706,926         |    |
| Total   risk-weighted assets                          |   |   | 14,562,779         |    |   |   | 13,475,330        |    |
| Total   Tier 1 risk-based capital ratio               |   |   | 10.40              |  % |   |   | 12.67             |  % |
|                                                  |   |   |               |    |   |   |              |    |
| Tier   1 common risk-based capital ratio:             |   |   |               |    |   |   |              |    |
| Total   Tier 1 capital                                |   | $      | 1,515,050          |    |   | $      | 1,706,926         |    |
| Less:                                                 |   |   |               |    |   |   |              |    |
| Preferred   stock                                     |   |   | 166,721            |    |   |   | -                 |    |
| Qualifying   non-controlling interest in subsidiaries |   |   | 13,205             |    |   |   | 10,494            |    |
| Qualifying   trust preferred securities               |   |   | -                  |    |   |   | 115,000           |    |
| Total   Tier 1 common capital                         |   | $      | 1,335,124          |    |   | $      | 1,581,432         |    |
| Total   Tier 1 common risk-based capital ratio        |   |   | 9.17               |  % |   |   | 11.74             |  % |

 

RECENT ACCOUNTING DEVELOPMENTS

 

On December 23, 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12, *Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (Topic 220),*which defers the requirement to present the reclassification amounts from other comprehensive income to net income as a separate component on the income statement.  The remaining requirements of ASU No. 2011-05 were adopted in TCF’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

 

On December 16, 2011, the FASB issued ASU No. 2011-11, *Disclosures about Offsetting Assets and Liabilities (Topic 210)*, which requires companies that have financial and derivative instruments subject to a master netting agreement to disclose the gross amount of the financial assets and liabilities, the amounts that are offset on the balance sheet, the net amounts presented, and the amounts subject to a master netting arrangement that are not offset.  The adoption of this ASU will be required for TCF’s Quarterly Report on Form 10-Q for the first quarter of 2013, with retrospective application, and is not expected to have a material impact on TCF.

 

57

 

 

LEGISLATIVE AND REGULATORY DEVELOPMENTS

 

Federal and state legislation imposes numerous legal and regulatory requirements on financial institutions. Future legislative or regulatory change, or changes in enforcement practices or court rulings, may have a dramatic and potentially adverse impact on TCF and its bank and other subsidiaries.

 

Bank Secrecy Act Consent Order

 

TCF is currently subject to a Consent Order with the OCC relating to its Bank Secrecy Act (“BSA”) compliance. The Consent Order does not call for the payment of a civil money penalty; however, the OCC has issued a written notice to TCF related to TCF’s BSA compliance deficiencies. After the OCC’s review of TCF’s response to the notice, the OCC may impose a penalty related to these findings.

 

Federal Reserve Notice of Proposed Rulemaking

 

On August 30, 2012, the Board of Governors of the Federal Reserve System published in the federal register three related notices of proposed rulemaking (the “Notices”) relating to the implementation of revised capital rules to reflect the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as the Basel III international capital standards. Among other things, if adopted as proposed, the Notices establish a new capital standard consisting of common equity Tier 1 capital; increase the capital ratios required for certain existing capital categories and add a requirement for a capital conservation buffer (failure to meet these standards would result in limitations on capital distributions as well as executive bonuses); and add more conservative standards for including securities in regulatory capital, which would phase-out trust preferred securities as a component of Tier 1 capital commencing January 1, 2013. In addition, the Notice contemplated the deduction of more assets from regulatory capital and revisions to the methodologies for determining risk weighted assets, including applying a more risk-sensitive treatment to residential mortgage exposures and to past due or nonaccrual loans. The Notices provide for various phase-in periods over the next several years. TCF will be subject to many provisions in the Notices, but until final rules are issued TCF cannot predict the actual effect.

 

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT

 

Any statements contained in this Quarterly Report on Form 10-Q regarding the outlook for the Company’s businesses and their respective markets, such as projections of future performance, guidance, statements of the Company’s plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on the Company’s assumptions and beliefs. Such statements may be identified by such words or phrases as “will likely result,” “are expected to,” “will continue,” “outlook,” “will benefit,” “is anticipated,” “estimate,” “project,” “management believes” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, TCF claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.

 

Certain factors could cause the Company’s future results to differ materially from those expressed or implied in any forward-looking statements contained in this Quarterly Report on Form 10-Q.  These factors include the factors discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 under the heading “Risk Factors,” the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive.

 

58

 

Adverse Economic or Business Conditions, Credit and Other Risks.** **Deterioration in general economic and banking industry conditions, including defaults, anticipated defaults or rating agency downgrades of sovereign debt (including debt of the U.S.), or continued high rates of or increases in unemployment in TCF’s primary banking markets; adverse economic, business and competitive developments such as shrinking interest margins, deposit outflows, deposit account attrition or an inability to increase the number of deposit accounts; adverse changes in credit quality and other risks posed by TCF’s loan, lease, investment and securities available for sale portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan and lease losses dictated by new market conditions or regulatory requirements; interest rate risks resulting from fluctuations in prevailing interest rates or other factors that result in a mismatch between yields earned on TCF’s interest-earning assets and the rates paid on its deposits and borrowings; foreign currency exchange risks; counterparty risk, including the risk of defaults by our counterparties or diminished availability of counterparties who satisfy our credit quality requirements; decreases in demand for the types of equipment that TCF leases or finances; limitations on TCF’s ability to attract and retain manufacturers and dealers to expand the inventory finance business.

 

Legislative and Regulatory Requirements.** **New consumer protection and supervisory requirements and regulations, including those resulting from action by the Consumer Financial Protection Bureau and changes in the scope of Federal preemption of state laws that could be applied to national banks; the imposition of requirements with an adverse impact relating to TCF’s lending, loan collection and other business activities as a result of the Dodd-Frank Act, or other legislative or regulatory developments such as mortgage foreclosure moratorium laws or imposition of underwriting or other limitations that impact the ability to use certain variable-rate products; impact of legislative, regulatory or other changes affecting customer account charges and fee income or expense; changes to bankruptcy laws which would result in the loss of all or part of TCF’s security interest due to collateral value declines; deficiencies in TCF’s compliance under the Bank Secrecy Act in past or future periods, which may result in regulatory enforcement action including monetary penalties; increased health care costs resulting from Federal health care reform legislation; adverse regulatory examinations and resulting enforcement actions or other adverse consequences such as increased capital requirements or higher deposit insurance assessments; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to the Bank Secrecy Act and anti-money laundering compliance activity.

 

Earnings/Capital Risks and Constraints, Liquidity Risks.** **Limitations on TCF’s ability to pay dividends or to increase dividends because of financial performance deterioration, regulatory restrictions or limitations; increased deposit insurance premiums, special assessments or other costs related to adverse conditions in the banking industry, the economic impact on banks of the Dodd-Frank Act and other regulatory reform legislation; the impact of financial regulatory reform, including additional capital, leverage, liquidity and risk management requirements or changes in the composition of qualifying regulatory capital (including those resulting from U.S. implementation of Basel III requirements); adverse changes in securities markets directly or indirectly affecting TCF’s ability to sell assets or to fund its operations; diminished unsecured borrowing capacity resulting from TCF credit rating downgrades and unfavorable conditions in the credit markets that restrict or limit various funding sources; costs associated with new regulatory requirements or interpretive guidance relating to liquidity; uncertainties relating to customer opt-in preferences with respect to overdraft fees on point of sale and ATM transactions or the success of TCF’s reintroduction of the Free Checking product which may have an adverse impact on TCF’s fee revenue; uncertainties relating to future retail deposit account changes, including limitations on TCF’s ability to predict customer behavior and the impact on TCF’s fee revenues.

 

Competitive Conditions; Supermarket Branching Risk; Growth Risks.** **Reduced demand for financial services and loan and lease products; adverse developments affecting TCF’s supermarket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches including the announcement on July 11, 2012 by SUPERVALU that it is exploring strategic alternatives; customers completing financial transactions without using a bank; the effect of any negative publicity; slower than anticipated growth in existing or acquired businesses; inability to successfully execute on TCF’s growth strategy through acquisitions or cross-selling opportunities; failure to expand or diversify TCF’s balance sheet through programs or new opportunities; failure to successfully attract and retain new customers; product additions and addition of distribution channels (or entry into new markets) for existing products.

 

59

 

Technological and Operational Matters.** **Technological or operational difficulties, loss or theft of information, third-party service provider or counterparty failures and the possibility that deposit account losses (fraudulent checks, etc.) may increase; failure to keep pace with technological change.

 

Litigation Risks.** **Results of litigation, including class action litigation concerning TCF’s lending, deposit or leasing activities including account servicing processes or fees or charges, or employment practices, and possible increases in indemnification obligations for certain litigation against Visa U.S.A. and potential reductions in card revenues resulting from such litigation or other litigation against Visa.

 

Accounting, Audit, Tax and Insurance Matters.** **Changes in accounting standards or interpretations of existing standards; federal or state monetary, fiscal or tax policies, including adoption of state legislation that would increase state taxes; ineffective internal controls; adverse state or Federal tax assessments or findings in tax audits; lack of or inadequate insurance coverage for claims against TCF; potential for claims and legal action related to TCF’s fiduciary responsibilities.

 

60

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
|   |                                                                                                       | TCF   FINANCIAL CORPORATION |
|--------|------------------------------------------------------------------------------------------------------------|-----------------------------|
|   |                                                                                                       |                        |
|   |                                                                                                       |                        |
|   | /s/ William A.   Cooper                                                                                    |
|   | William A.   Cooper, Chairman   and Chief Executive Officer   (Principal Executive Officer)                |
|   |                                                                                                       |
|   |                                                                                                       |
|   |                                                                                                       |
|   | /s/ Michael S.   Jones                                                                                     |
|   | Michael S.   Jones, Executive Vice President and   Chief Financial Officer   (Principal Financial Officer) |
|   |                                                                                                       |
|   |                                                                                                       |
|   |                                                                                                       |
|   | /s/ Susan D.   Bode                                                                                        |
|   | Susan D. Bode,   Senior Vice President and   Chief Accounting Officer   (Principal Accounting Officer)     |

 

Dated: December 6, 2012

 

66

 

TCF FINANCIAL CORPORATION

 

Part II – OTHER INFORMATION

 

Item 6. Exhibits

 

INDEX TO EXHIBITS

FOR FORM 10-Q

 
| Exhibit   Number |   | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1#            |   | Certification of the Chief   Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of   2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2#            |   | Certification of the   Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley   Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.1#            |   | Certification of the   Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley   Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.2#            |   | Certification of the   Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley   Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 99.1             |   | Form of Consent   Order, dated July 20, 2010, issued by the Comptroller of the Currency in   the matter of TCF National Bank [incorporated by reference to   Exhibit 99.1 to TCF Financial Corporation’s Quarterly Report on   Form 10-Q for the quarterly period ended June 30, 2010]                                                                                                                                                                                                                                                                                                                         |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 99.2             |   | Form of   Stipulation and Consent to the Issuance of a Consent Order dated   July 20, 2010, issued by the Comptroller of the Currency in the matter   of TCF National Bank [incorporated by reference to Exhibit 99.2 to TCF   Financial Corporation’s Quarterly Report on Form 10-Q for the quarterly   period ended June 30, 2010]                                                                                                                                                                                                                                                                           |
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| 101              |   | Financial statements   from the Quarterly Report on Form 10-Q of the Company for the period   ended September 30, 2012, formatted in XBRL: (i) the Consolidated   Statements of Comprehensive Income, (ii) the Consolidated Statements of   Financial Condition, (iii) the Consolidated Statements of Equity,   (iv) the Consolidated Statements of Cash Flows and (v) the Notes to   Consolidated Financial Statements [incorporated by reference to   Exhibit 101 to TCF Financial Corporation’s Quarterly Report on Form 10-Q   for the quarterly period ended September 30, 2012] |

 

#  Filed herewith

 

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