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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
March 31, 2017
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 Commission File No. 001-10253
 
TCF Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware
41-1591444
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
200 Lake Street East
Wayzata, Minnesota 55391-1693
(Address and Zip Code of principal executive offices)
(952) 745-2760
(Registrant's telephone number, including area code)

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 þ                                                   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 þ                                                   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if smaller reporting company)
Smaller reporting company
¨
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨                                                 No þ
 
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
April 28, 2017
Common Stock, $.01 par value
171,230,663 shares


Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
 
INDEX
 
Pages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Table of Contents



Part I - Financial Information
Item 1. Financial Statements
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
At March 31, 2017
 
At December 31, 2016
 
(Unaudited)
 
 
Assets:
 

 
 

Cash and due from banks
$
468,584

 
$
609,603

Investments
81,717

 
74,714

Securities held to maturity
176,236

 
181,314

Securities available for sale
1,475,950

 
1,423,435

Loans and leases held for sale
605,631

 
268,832

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
2,166,691

 
2,292,596

Junior lien
2,494,696

 
2,791,756

Total consumer real estate
4,661,387

 
5,084,352

Commercial
3,376,050

 
3,286,478

Leasing and equipment finance
4,276,008

 
4,336,310

Inventory finance
2,864,248

 
2,470,175

Auto finance
2,780,416

 
2,647,741

Other
16,785

 
18,771

Total loans and leases
17,974,894

 
17,843,827

Allowance for loan and lease losses
(160,166
)
 
(160,269
)
Net loans and leases
17,814,728

 
17,683,558

Premises and equipment, net
423,055

 
418,372

Goodwill
225,640

 
225,640

Other assets
565,027

 
555,858

Total assets
$
21,836,568

 
$
21,441,326

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
6,218,654

 
$
6,009,151

Savings
4,850,742

 
4,719,481

Money market
2,301,643

 
2,421,467

Certificates of deposit
4,094,551

 
4,092,423

Total deposits
17,465,590

 
17,242,522

Short-term borrowings
5,432

 
4,391

Long-term borrowings
1,241,155

 
1,073,181

Total borrowings
1,246,587

 
1,077,572

Accrued expenses and other liabilities
633,728

 
676,587

Total liabilities
19,345,905

 
18,996,681

Equity:
 

 
 

Preferred stock, par value $0.01 per share, 30,000,000 shares authorized;
 
 
 
4,006,900 shares issued
263,240

 
263,240

Common stock, par value $0.01 per share, 280,000,000 shares authorized;
 
 
 
170,983,828 and 171,034,506 shares issued, respectively
1,710

 
1,710

Additional paid-in capital
853,024

 
862,776

Retained earnings, subject to certain restrictions
1,410,418

 
1,382,901

Accumulated other comprehensive income (loss)
(30,695
)
 
(33,725
)
Treasury stock at cost, 42,566 shares, and other
(33,585
)
 
(49,419
)
Total TCF Financial Corporation stockholders' equity
2,464,112

 
2,427,483

Non-controlling interest in subsidiaries
26,551

 
17,162

Total equity
2,490,663

 
2,444,645

Total liabilities and equity
$
21,836,568

 
$
21,441,326

 
See accompanying notes to consolidated financial statements.


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Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
 
Three Months Ended 
 March 31,
(In thousands, except per-share data)
2017
 
2016
Interest income:
 

 
 

Loans and leases
$
219,548

 
$
214,805

Securities available for sale
7,980

 
5,498

Securities held to maturity
1,280

 
1,319

Loans held for sale and other
13,499

 
10,720

Total interest income
242,307

 
232,342

Interest expense:
 

 
 

Deposits
13,715

 
14,991

Borrowings
6,478

 
5,693

Total interest expense
20,193

 
20,684

Net interest income
222,114

 
211,658

Provision for credit losses
12,193

 
18,842

Net interest income after provision for credit losses
209,921

 
192,816

Non-interest income:
 

 
 

Fees and service charges
31,282

 
32,817

Card revenue
13,150

 
13,363

ATM revenue
4,675

 
5,021

Subtotal
49,107

 
51,201

Gains on sales of auto loans, net
2,864

 
11,920

Gains on sales of consumer real estate loans, net
8,891

 
9,384

Servicing fee income
11,651

 
8,883

Subtotal
23,406

 
30,187

Leasing and equipment finance
28,298

 
28,487

Other
2,703

 
2,843

Fees and other revenue
103,514

 
112,718

Gains (losses) on securities, net

 
(116
)
Total non-interest income
103,514

 
112,602

Non-interest expense:
 

 
 

Compensation and employee benefits
124,477

 
124,473

Occupancy and equipment
39,600

 
37,008

Other
64,037

 
53,348

Subtotal
228,114

 
214,829

Operating lease depreciation
11,242

 
9,573

Foreclosed real estate and repossessed assets, net
4,549

 
3,920

Other credit costs, net
101

 
12

Total non-interest expense
244,006

 
228,334

Income before income tax expense
69,429

 
77,084

Income tax expense
20,843

 
26,803

Income after income tax expense
48,586

 
50,281

Income attributable to non-controlling interest
2,308

 
2,235

Net income attributable to TCF Financial Corporation
46,278

 
48,046

Preferred stock dividends
4,847

 
4,847

Net income available to common stockholders
$
41,431

 
$
43,199

Earnings per common share:
 

 
 

Basic
$
0.25

 
$
0.26

Diluted
$
0.25

 
$
0.26

 
See accompanying notes to consolidated financial statements.

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Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended March 31,
(In thousands)
2017
 
2016
Net income attributable to TCF Financial Corporation
$
46,278

 
$
48,046

Other comprehensive income (loss), net of tax:
 

 
 

Net unrealized gains (losses) on securities available for sale and interest-only strips
2,769

 
12,037

Net unrealized gains (losses) on net investment hedges
(313
)
 
(2,020
)
Foreign currency translation adjustment
581

 
3,409

Recognized postretirement prior service cost
(7
)
 
(7
)
Total other comprehensive income (loss), net of tax
3,030

 
13,419

Comprehensive income
$
49,308

 
$
61,465

 
See accompanying notes to consolidated financial statements.

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
(Unaudited)
 
TCF Financial Corporation
 
 
 
Number of
Shares Issued
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
and Other
Total
Non-
controlling
Interests
Total
Equity
(Dollars in thousands)
Preferred
Common
Balance, December 31, 2015
4,006,900

169,887,030

$
263,240

$
1,699

$
851,836

$
1,240,347

$
(15,346
)
$
(50,860
)
$
2,290,916

$
16,001

$
2,306,917

Net income





48,046



48,046

2,235

50,281

Other comprehensive income (loss), net of tax






13,419


13,419


13,419

Net investment by (distribution to) non-controlling interest









7,692

7,692

Dividends on preferred stock





(4,847
)


(4,847
)

(4,847
)
Dividends on common stock





(12,515
)


(12,515
)

(12,515
)
Common shares purchased by TCF employee benefit plans

511,420


5

5,833




5,838


5,838

Stock compensation plans, net of tax

248,805


3

2,053




2,056


2,056

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




585



(585
)



Balance, March 31, 2016
4,006,900

170,647,255

$
263,240

$
1,707

$
860,307

$
1,271,031

$
(1,927
)
$
(51,445
)
$
2,342,913

$
25,928

$
2,368,841

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
4,006,900

171,034,506

$
263,240

$
1,710

$
862,776

$
1,382,901

$
(33,725
)
$
(49,419
)
$
2,427,483

$
17,162

$
2,444,645

Change in accounting principle




1,319

(1,319
)





Net income





46,278



46,278

2,308

48,586

Other comprehensive income (loss), net of tax






3,030


3,030


3,030

Net investment by (distribution to) non-controlling interest









7,081

7,081

Dividends on preferred stock





(4,847
)


(4,847
)

(4,847
)
Dividends on common stock





(12,595
)


(12,595
)

(12,595
)
Common shares purchased by TCF employee benefit plans

366,591


4

6,442




6,446


6,446

Stock compensation plans, net of tax

(417,269
)

(4
)
(1,679
)



(1,683
)

(1,683
)
Change in shares held in trust for deferred compensation plans, at cost




(15,834
)


15,834




Balance, March 31, 2017
4,006,900

170,983,828

$
263,240

$
1,710

$
853,024

$
1,410,418

$
(30,695
)
$
(33,585
)
$
2,464,112

$
26,551

$
2,490,663

See accompanying notes to consolidated financial statements.

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
(In thousands)
2017
 
2016
Cash flows from operating activities:
 

 
 

Net income
$
48,586

 
$
50,281

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Provision for credit losses
12,193

 
18,842

Depreciation and amortization
45,465

 
45,979

Provision for deferred income taxes
(12,032
)
 
7,654

Proceeds from sales of loans and leases held for sale
61,287

 
300,610

Originations of loans and leases held for sale, net of repayments
(232,556
)
 
(296,726
)
Gains on sales of assets, net
(14,741
)
 
(24,599
)
Net change in other assets and accrued expenses and other liabilities
(39,398
)
 
42,167

Other, net
(10,967
)
 
(6,507
)
Net cash provided by (used in) operating activities
(142,163
)
 
137,701

Cash flows from investing activities:
 

 
 

Proceeds from maturities of and principal collected on securities
33,361

 
24,603

Purchases of securities
(86,841
)
 
(240,789
)
Redemption of Federal Home Loan Bank stock
78,000

 
34,963

Purchases of Federal Home Loan Bank stock
(85,000
)
 
(36,000
)
Proceeds from sales of loans and leases
611,515

 
493,671

Loan and lease originations and purchases, net of principal collected on loans and leases
(734,954
)
 
(779,800
)
Proceeds from sales of lease equipment
2,242

 
4,265

Purchases of lease equipment
(223,786
)
 
(223,380
)
Proceeds from sales of real estate owned
15,711

 
20,504

Purchases of premises and equipment
(9,597
)
 
(7,661
)
Other, net
7,965

 
5,354

Net cash provided by (used in) investing activities
(391,384
)
 
(704,270
)
Cash flows from financing activities:
 

 
 

Net change in deposits
227,133

 
592,380

Net change in short-term borrowings
990

 
(3,231
)
Proceeds from long-term borrowings
3,610,415

 
1,249,037

Payments on long-term borrowings
(3,442,038
)
 
(1,286,920
)
Net investment by (distribution to) non-controlling interest
7,081

 
7,692

Dividends paid on preferred stock
(4,847
)
 
(4,847
)
Dividends paid on common stock
(12,595
)
 
(12,515
)
Stock compensation tax (expense) benefit

 
(49
)
Common shares sold to TCF employee benefit plans
6,446

 
5,838

Exercise of stock options
(57
)
 

Net cash provided by (used in) financing activities
392,528

 
547,385

Net change in cash and due from banks
(141,019
)
 
(19,184
)
Cash and due from banks at beginning of period
609,603

 
889,337

Cash and due from banks at end of period
$
468,584

 
$
870,153

Supplemental disclosures of cash flow information:
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
18,726

 
$
20,613

Income taxes, net
18,835

 
(37,483
)
Transfer of loans to other assets
22,182

 
26,016

See accompanying notes to consolidated financial statements.

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Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 1. Basis of Presentation
 
TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Company"), a Delaware corporation, is a national bank holding company based in Wayzata, Minnesota. References herein to "TCF Financial" or the "Holding Company" refer to TCF Financial Corporation on an unconsolidated basis. TCF's principal subsidiary, TCF National Bank ("TCF Bank"), is headquartered in Sioux Falls, South Dakota.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore do not include all of the information and notes necessary for complete financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the Company's most recent Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations at December 31, 2016, and for the year then ended. All significant intercompany accounts and transactions have been eliminated in consolidation. Accounting policies in effect at December 31, 2016 remain significantly unchanged and have been followed similarly as in previous periods.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements contain all the significant adjustments, consisting of normal recurring items, considered necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

Effective January 1, 2017, the Company adopted Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. As a result of the adoption, the Company recorded a cumulative effect reduction to the opening balance of retained earnings of $1.3 million and a corresponding increase to additional paid-in capital. This cumulative effect adjustment to retained earnings was related to a policy election to account for forfeitures as they occur, thereby eliminating the need for an estimated forfeiture reserve against future cancellations. The adoption of this ASU on a prospective basis requires that tax benefits related to stock compensation be recorded to income tax expense, instead of to additional paid-in capital. The Company elected the prospective basis regarding the presentation of stock compensation tax (expense) benefit in the Consolidated Statement of Cash Flows as an operating activity, and as a result prior periods were not adjusted.


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Note 2Cash and Due from Banks
 
At March 31, 2017 and December 31, 2016, TCF Bank was required by Federal Reserve regulations to maintain reserves of $110.7 million and $103.7 million, respectively, in cash on hand or at the Federal Reserve Bank.
 
TCF maintains cash balances that are restricted as to their use in accordance with certain contractual agreements primarily related to the sale and servicing of auto finance loans. Cash payments received on loans serviced for third parties are generally held in separate accounts until remitted. TCF may also retain cash balances for collateral on certain borrowings, forward foreign exchange contracts, interest rate contracts and other contracts. TCF maintained restricted cash totaling $52.4 million and $51.3 million at March 31, 2017 and December 31, 2016, respectively.

TCF had cash held in interest-bearing accounts of $218.4 million and $326.5 million at March 31, 2017 and December 31, 2016, respectively.

Note 3.  Securities Available for Sale and Securities Held to Maturity
 
Securities were as follows:
 
At March 31, 2017
 
At December 31, 2016
(In thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
833,058

 
$
448

 
$
17,563

 
$
815,943

 
$
827,722

 
$
423

 
$
17,254

 
$
810,891

Other
14

 

 

 
14

 
18

 

 

 
18

Obligations of states and political subdivisions
671,409

 
2,503

 
13,919

 
659,993

 
628,972

 
394

 
16,840

 
612,526

Total securities available for sale
$
1,504,481

 
$
2,951

 
$
31,482

 
$
1,475,950

 
$
1,456,712

 
$
817

 
$
34,094

 
$
1,423,435

Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
173,436

 
$
3,154

 
$
514

 
$
176,076

 
$
178,514

 
$
3,072

 
$
440

 
$
181,146

Other securities
2,800

 

 

 
2,800

 
2,800

 

 

 
2,800

Total securities held to maturity
$
176,236

 
$
3,154

 
$
514

 
$
178,876

 
$
181,314

 
$
3,072

 
$
440

 
$
183,946

 
There were no sales of securities available for sale or impairment charges recognized during the first quarters of 2017 and 2016. At March 31, 2017 and December 31, 2016, mortgage-backed securities with a carrying value of $9.4 million and $7.5 million, respectively, were pledged as collateral to secure certain deposits and borrowings. Unrealized losses on securities available for sale are due to changes in interest rates. TCF has the ability and intent to hold these investments until a recovery of fair value occurs.
 
TCF recorded no impairment charges on securities held to maturity for the first quarter of 2017 and $0.1 million for the first quarter of 2016.


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Gross unrealized losses and fair value of securities available for sale and securities held to maturity aggregated by investment category and the length of time the securities were in a continuous loss position were as follows:  
 
At March 31, 2017
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
733,539

 
$
17,563

 
$

 
$

 
$
733,539

 
$
17,563

Obligations of states and political subdivisions
437,921

 
13,919

 

 

 
437,921

 
13,919

Total securities available for sale
$
1,171,460

 
$
31,482

 
$

 
$

 
$
1,171,460

 
$
31,482

 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
26,036

 
$
491

 
$
489

 
$
23

 
$
26,525

 
$
514

Total securities held to maturity
$
26,036

 
$
491

 
$
489

 
$
23

 
$
26,525

 
$
514

 
At December 31, 2016
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
732,724

 
$
17,254

 
$

 
$

 
$
732,724

 
$
17,254

Obligations of states and political subdivisions
501,620

 
16,840

 

 

 
501,620

 
16,840

Total securities available for sale
$
1,234,344

 
$
34,094

 
$

 
$

 
$
1,234,344

 
$
34,094

 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
27,090

 
$
440

 
$

 
$

 
$
27,090

 
$
440

Total securities held to maturity
$
27,090

 
$
440

 
$

 
$

 
$
27,090

 
$
440


The amortized cost and fair value of securities available for sale and securities held to maturity by final contractual maturity were as follows. The remaining contractual principal maturities do not consider possible prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay.
 
At March 31, 2017
 
At December 31, 2016
(In thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Securities available for sale:
 

 
 

 
 

 
 

Due in one year or less
$

 
$

 
$
1

 
$
1

Due in 1-5 years
2,404

 
2,440

 
18

 
18

Due in 5-10 years
353,864

 
354,044

 
331,430

 
329,005

Due after 10 years
1,148,213

 
1,119,466

 
1,125,263

 
1,094,411

Total securities available for sale
$
1,504,481

 
$
1,475,950

 
$
1,456,712

 
$
1,423,435

 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

Due in one year or less
$

 
$

 
$

 
$

Due in 1-5 years
1,400

 
1,400

 
1,400

 
1,400

Due in 5-10 years
1,400

 
1,400

 
1,400

 
1,400

Due after 10 years
173,436

 
176,076

 
178,514

 
181,146

Total securities held to maturity
$
176,236

 
$
178,876

 
$
181,314

 
$
183,946


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Table of Contents




Interest income attributable to securities available for sale was as follows:
 
Three Months Ended March 31,
(In thousands)
2017
 
2016
Taxable interest income
$
4,654

 
$
3,818

Tax-exempt interest income
3,326

 
1,680

Total interest income
$
7,980

 
$
5,498


Note 4Loans and Leases

Loans and leases were as follows:
(In thousands)
At March 31, 2017
 
At December 31, 2016
Consumer real estate:
 

 
 

First mortgage lien
$
2,166,691

 
$
2,292,596

Junior lien
2,494,696

 
2,791,756

Total consumer real estate
4,661,387

 
5,084,352

Commercial:
 

 
 

Commercial real estate:
 

 
 

Permanent
2,402,702

 
2,356,287

Construction and development
271,627

 
277,904

Total commercial real estate
2,674,329

 
2,634,191

Commercial business
701,721

 
652,287

Total commercial
3,376,050

 
3,286,478

Leasing and equipment finance
4,276,008

 
4,336,310

Inventory finance
2,864,248

 
2,470,175

Auto finance
2,780,416

 
2,647,741

Other
16,785

 
18,771

Total loans and leases(1)
$
17,974,894

 
$
17,843,827

(1)
Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases, lease residuals, unearned income and unamortized purchase premiums and discounts. The aggregate amount of these loan and lease adjustments was $56.7 million and $54.1 million at March 31, 2017 and December 31, 2016, respectively.
 

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The following table summarizes the net sales proceeds for consumer real estate and auto finance loans sold, the interest-only strips received, the recorded investment in loans sold, including accrued interest, and the net gains. Included in consumer real estate loans sold in the three months ended March 31, 2017 were $49.4 million of non-accrual loans, which were sold servicing released. There were no auto finance securitizations for the three months ended March 31, 2017 and 2016. TCF generally retains servicing on these sold loans. No servicing assets or liabilities related to consumer real estate or auto finance loans were recorded within TCF's Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace.
 
Three Months Ended March 31, 2017
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
Sales proceeds, net(1)
$
388,690

 
$
254,164

Interest-only strips, initial value
1,347

 

Recorded investment in loans sold, including accrued interest
(380,762
)
 
(250,588
)
Net gains(2)
$
9,275

 
$
3,576

 
 
 
 
 
Three Months Ended March 31, 2016
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
Sales proceeds, net(1)
$
326,961

 
$
453,747

Interest-only strips, initial value
5,661

 
4,841

Recorded investment in loans sold, including accrued interest
(322,501
)
 
(446,365
)
Net gains(2)
$
10,121

 
$
12,223

(1) Includes transaction fees and other sales related adjustments.
(2) Excludes subsequent adjustments and valuation adjustments while held for sale.

Total interest-only strips and the contractual liabilities related to loan sales were as follows:
(In thousands)
At March 31, 2017
At December 31, 2016
Interest-only strips attributable to:
 
 
Consumer real estate loan sales
$
25,418

$
27,260

Auto finance loan sales
10,365

12,892

Contractual liabilities attributable to:
 
 
Consumer real estate loan sales
$
986

$
701

Auto finance loan sales
150

168


TCF recorded $579 thousand of impairment charges on the consumer real estate interest-only strips for the three months ended March 31, 2017, compared with none for the same period in 2016. TCF recorded $24 thousand of impairment charges on the auto finance interest-only strips for the three months ended March 31, 2017, compared with $5 thousand for the same period in 2016.
 
TCF's agreements to sell auto and consumer real estate loans typically contain certain representations, warranties and covenants regarding the loans sold or securitized. These representations, warranties and covenants generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer or investor, the loan's compliance with the criteria set forth in the agreement, the manner in which the loans will be serviced, payment delinquency and compliance with applicable laws and regulations. These agreements generally require the repurchase of loans or indemnification in the event TCF breaches these representations, warranties or covenants and such breaches are not cured. In addition, some agreements contain a requirement to repurchase loans as a result of early payoffs by the borrower, early payment default of the borrower, or the failure to obtain valid title. During the three months ended March 31, 2017 and 2016, losses related to repurchases pursuant to such representations, warranties and covenants were immaterial. The majority of such repurchases were of auto finance loans where TCF typically has contractual agreements with the automobile dealerships that originated the loans requiring the dealers to repurchase such contracts from TCF.


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Note 5Allowance for Loan and Lease Losses and Credit Quality Information
 
The rollforwards of the allowance for loan and lease losses were as follows:
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
At or For the Three Months Ended March 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
59,448

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

Charge-offs
(3,452
)
 
(2,732
)
 
(2,046
)
 
(219
)
 
(8,813
)
 
(1,640
)
 
(18,902
)
Recoveries
10,692

 
65

 
614

 
119

 
1,233

 
1,090

 
13,813

Net (charge-offs) recoveries
7,240

 
(2,667
)
 
(1,432
)
 
(100
)
 
(7,580
)
 
(550
)
 
(5,089
)
Provision for credit losses
(8,137
)
 
3,669

 
1,386

 
1,965

 
12,857

 
453

 
12,193

Other
(4,700
)
 

 
(47
)
 
19

 
(2,479
)
 

 
(7,207
)
Balance, end of period
$
53,851

 
$
33,697

 
$
21,257

 
$
15,816

 
$
35,108

 
$
437

 
$
160,166

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Three Months Ended March 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
67,992

 
$
30,185

 
$
19,018

 
$
11,128

 
$
26,486

 
$
1,245

 
$
156,054

Charge-offs
(6,061
)
 
(28
)
 
(1,972
)
 
(641
)
 
(6,330
)
 
(1,635
)
 
(16,667
)
Recoveries
1,290

 
219

 
681

 
385

 
883

 
1,303

 
4,761

Net (charge-offs) recoveries
(4,771
)
 
191

 
(1,291
)
 
(256
)
 
(5,447
)
 
(332
)
 
(11,906
)
Provision for credit losses
5,025

 
1,171

 
1,727

 
2,263

 
9,065

 
(409
)
 
18,842

Other
(1,518
)
 

 

 
171

 
(1,569
)
 

 
(2,916
)
Balance, end of period
$
66,728

 
$
31,547

 
$
19,454

 
$
13,306

 
$
28,535

 
$
504

 
$
160,074


The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology were as follows:
 
At March 31, 2017
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
Allowance for loan and lease losses:
 

 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
33,472

 
$
32,698

 
$
18,829

 
$
14,789

 
$
34,228

 
$
436

 
$
134,452

Individually evaluated for impairment
20,379

 
999

 
2,428

 
1,027

 
880

 
1

 
25,714

Total
$
53,851

 
$
33,697

 
$
21,257

 
$
15,816

 
$
35,108

 
$
437

 
$
160,166

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,497,659

 
$
3,332,256

 
$
4,258,234

 
$
2,859,086

 
$
2,770,956

 
$
16,780

 
$
17,734,971

Individually evaluated for impairment
163,728

 
43,794

 
17,761

 
5,162

 
9,460

 
5

 
239,910

Loans acquired with deteriorated credit quality

 

 
13

 

 

 

 
13

Total
$
4,661,387

 
$
3,376,050

 
$
4,276,008

 
$
2,864,248

 
$
2,780,416

 
$
16,785

 
$
17,974,894

 
At December 31, 2016
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
 Finance
 
Inventory
 Finance
 
Auto
 Finance
 
Other
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
36,103

 
$
31,430

 
$
19,093

 
$
13,304

 
$
31,106

 
$
533

 
$
131,569

Individually evaluated for impairment
23,345

 
1,265

 
2,257

 
628

 
1,204

 
1

 
28,700

Total
$
59,448

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 
 
 
Collectively evaluated for impairment
$
4,884,653

 
$
3,242,389

 
$
4,320,129

 
$
2,465,041

 
$
2,638,380

 
$
18,765

 
$
17,569,357

Individually evaluated for impairment
199,699

 
44,089

 
16,165

 
5,134

 
9,360

 
6

 
274,453

Loans acquired with deteriorated credit quality

 

 
16

 

 
1

 

 
17

Total
$
5,084,352

 
$
3,286,478

 
$
4,336,310

 
$
2,470,175

 
$
2,647,741

 
$
18,771

 
$
17,843,827


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Accruing and Non-accrual Loans and Leases  TCF's key credit quality indicator is the receivable's payment performance status, defined as accruing or non-accruing. Non-accrual loans and leases are those which management believes have a higher risk of loss. Delinquent balances are determined based on the contractual terms of the loan or lease. TCF's accruing and non-accrual loans and leases were as follows:
 
At March 31, 2017
(In thousands)
Current-59 Days
Delinquent and
Accruing
 
60-89 Days
 Delinquent
 and Accruing
 
90 Days or More
Delinquent and
Accruing
 
Total
 Accruing
 
Non-accrual
 
Total
Consumer real estate:
 

 
 

 
 

 
 

 
 

 
 

First mortgage lien
$
2,083,889

 
$
3,676

 
$
2,185

 
$
2,089,750

 
$
76,941

 
$
2,166,691

Junior lien
2,468,517

 
1,183

 

 
2,469,700

 
24,996

 
2,494,696

Total consumer real estate
4,552,406

 
4,859

 
2,185

 
4,559,450

 
101,937

 
4,661,387

Commercial:
 

 
 

 
 

 
 
 
 

 
 
Commercial real estate
2,664,062

 

 

 
2,664,062

 
10,267

 
2,674,329

Commercial business
699,291

 

 

 
699,291

 
2,430

 
701,721

Total commercial
3,363,353

 

 

 
3,363,353

 
12,697

 
3,376,050

Leasing and equipment finance
4,258,433

 
3,939

 
1,315

 
4,263,687

 
12,274

 
4,275,961

Inventory finance
2,858,986

 
87

 
13

 
2,859,086

 
5,162

 
2,864,248

Auto finance
2,770,028

 
1,942

 
1,536

 
2,773,506

 
6,909

 
2,780,415

Other
16,775

 
2

 
6

 
16,783

 
2

 
16,785

Subtotal
17,819,981

 
10,829

 
5,055

 
17,835,865

 
138,981

 
17,974,846

Portfolios acquired with deteriorated credit quality
48

 

 

 
48

 

 
48

Total
$
17,820,029

 
$
10,829

 
$
5,055

 
$
17,835,913

 
$
138,981

 
$
17,974,894


 
At December 31, 2016
(In thousands)
Current-59 Days
Delinquent and
Accruing
 
60-89 Days
 Delinquent
 and Accruing
 
90 Days or More
Delinquent and
Accruing
 
Total
 Accruing
 
Non-accrual
 
Total
Consumer real estate:
 

 
 

 
 

 
 

 
 

 
 

First mortgage lien
$
2,177,746

 
$
6,581

 
$
2,144

 
$
2,186,471

 
$
106,125

 
$
2,292,596

Junior lien
2,744,006

 
1,404

 

 
2,745,410

 
46,346

 
2,791,756

Total consumer real estate
4,921,752

 
7,985

 
2,144

 
4,931,881

 
152,471

 
5,084,352

Commercial:
 

 
 

 
 

 
 
 
 

 
 
Commercial real estate
2,628,627

 

 

 
2,628,627

 
5,564

 
2,634,191

Commercial business
651,932

 

 

 
651,932

 
355

 
652,287

Total commercial
3,280,559

 

 

 
3,280,559

 
5,919

 
3,286,478

Leasing and equipment finance
4,320,795

 
3,478

 
1,045

 
4,325,318

 
10,880

 
4,336,198

Inventory finance
2,464,986

 
16

 
39

 
2,465,041

 
5,134

 
2,470,175

Auto finance
2,634,600

 
3,785

 
2,317

 
2,640,702

 
7,038

 
2,647,740

Other
18,748

 
14

 
6

 
18,768

 
3

 
18,771

Subtotal
17,641,440

 
15,278

 
5,551

 
17,662,269

 
181,445

 
17,843,714

Portfolios acquired with deteriorated credit quality
113

 

 

 
113

 

 
113

Total
$
17,641,553

 
$
15,278

 
$
5,551

 
$
17,662,382

 
$
181,445

 
$
17,843,827

 
Interest income recognized on loans and leases in non-accrual status and contractual interest that would have been recorded had the loans and leases performed in accordance with their original contractual terms were as follows:
 
Three Months Ended March 31,
(In thousands)
2017
 
2016
Contractual interest due on non-accrual loans and leases
$
4,498

 
$
5,267

Interest income recognized on non-accrual loans and leases
1,056

 
966

Unrecognized interest income
$
3,442

 
$
4,301



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Table of Contents



Consumer real estate loans to customers currently involved in ongoing Chapter 7 or Chapter 13 bankruptcy proceedings which have not yet been discharged, dismissed or completed were as follows: 
(In thousands)
At March 31, 2017
 
At December 31, 2016
Consumer real estate loans to customers in bankruptcy:
 

 
 

0-59 days delinquent and accruing
$
12,492

 
$
13,675

Non-accrual
15,494

 
21,372

Total consumer real estate loans to customers in bankruptcy
$
27,986

 
$
35,047

 
Loan Modifications for Borrowers with Financial Difficulties  Included within loans and leases in the previous tables are certain loans that have been modified in order to maximize collection of loan balances. If, for economic or legal reasons related to the customer's financial difficulties, TCF grants a concession, the modified loan is classified as a troubled debt restructuring ("TDR") loan. All loans classified as TDR loans are considered to be impaired. TDR loans consist primarily of consumer real estate and commercial loans.
 
Total TDR loans at March 31, 2017 and December 31, 2016 were $175.6 million and $207.4 million, respectively, of which $117.4 million and $126.0 million, respectively, were accruing. TCF held consumer real estate TDR loans of $138.1 million and $170.6 million at March 31, 2017 and December 31, 2016, respectively, of which $96.3 million and $98.6 million, respectively, were accruing. TCF also held $22.5 million of commercial TDR loans at both March 31, 2017 and December 31, 2016, of which $13.4 million and $20.3 million, respectively, were accruing. TDR loans for the remaining classes of finance receivables were not material at March 31, 2017 or December 31, 2016.
 
Unfunded commitments to consumer real estate and commercial loans classified as TDRs were $0.5 million and $0.4 million at March 31, 2017 and December 31, 2016, respectively. At March 31, 2017 and December 31, 2016, no additional funds were committed to leasing and equipment finance, inventory finance or auto finance loans classified as TDRs.
 
Unrecognized interest represents the difference between interest income recognized on accruing TDR loans and the contractual interest that would have been recorded under the original contractual terms. For the three months ended March 31, 2017 and 2016, unrecognized interest income for consumer real estate first mortgage lien accruing TDR loans and consumer real estate junior lien accruing TDR loans was $0.5 million and $0.2 million, respectively. The average yield for the three months ended March 31, 2017 on consumer real estate accruing TDR loans was 4.2%, which compares to the original contractual average rate of 6.6%. The average yield for the the three months ended March 31, 2016 on consumer real estate accruing TDR loans was 4.1%, which compares to the original contractual average rate of 6.7%. The unrecognized interest income for the remaining classes of finance receivables was not material for the three months ended March 31, 2017 and 2016.


13


Table of Contents



TCF considers a loan to have defaulted when under the modified terms it becomes 90 or more days delinquent, has been transferred to non-accrual status, has been charged down or has been transferred to other real estate owned or repossessed and returned assets. The following table summarizes the TDR loans that defaulted during the three months ended March 31, 2017 and 2016, which were modified during the respective reporting period or within one year of the beginning of the respective reporting period. The increase in commercial loans that defaulted during the three months ended March 31, 2017 was primarily due to the transfer of three commercial loans to non-accrual status.
 
Three Months Ended March 31,
(In thousands)
2017
 
2016
Loan balance:(1)
 
 
 
Consumer real estate:
 

 
 

First mortgage lien
$
368

 
$

Junior lien
112

 
44

Total consumer real estate
480

 
44

Commercial:
 
 
 
Commercial real estate
6,681

 

Commercial business
3,353

 

Total commercial
10,034

 

Leasing and equipment finance
407

 

Auto finance
302

 
466

Defaulted TDR loans modified during the applicable period
$
11,223

 
$
510

 
(1)
The loan balances presented are not materially different than the pre-modification loan balances as TCF's loan modifications generally do not forgive principal amounts.

Consumer real estate TDR loans are evaluated separately in TCF's allowance methodology. Impairment is generally based upon the present value of the expected future cash flows discounted at the loan's initial effective interest rate, unless the loans are collateral dependent, in which case loan impairment is based upon the fair value of the collateral less selling expenses. The allowance on accruing consumer real estate TDR loans was $18.8 million, or 19.5% of the outstanding balance, at March 31, 2017, and $19.3 million, or 19.6% of the outstanding balance, at December 31, 2016. In determining impairment for consumer real estate accruing TDR loans, TCF utilized assumed remaining re-default rates ranging from 10% to 33% in both 2017 and 2016, depending on modification type and actual experience. At March 31, 2017, 0.9% of accruing consumer real estate TDR loans were more than 60 days delinquent, compared with 1.5% at December 31, 2016.

Consumer real estate TDR loans generally remain on accruing status following modification if they are less than 90 days past due and payment in full under the modified terms of the loan is expected based on a current credit evaluation and historical payment performance. Of the non-accrual TDR balance at March 31, 2017, $26.2 million, or 62.7%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed by the borrower, of which 70.0% were current. Of the non-accrual TDR balance at December 31, 2016, $47.4 million, or 65.9%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed, of which 82.2% were current. All eligible loans are re-aged to current delinquency status upon modification.

Commercial TDR loans are individually evaluated for impairment based upon the present value of the expected future cash flows discounted at the loan's initial effective interest rate, unless the loans are collateral dependent, in which case impairment is based upon the fair value of collateral less estimated selling costs; however if payment or satisfaction of the loan is dependent on the operation, rather than the sale of the collateral, the impairment does not include selling costs. The allowance on accruing commercial TDR loans was less than $0.1 million, or less than 0.1% of the outstanding balance, at March 31, 2017, and $1.1 million, or 5.6% of the outstanding balance, at December 31, 2016. No accruing commercial TDR loans were 60 days or more delinquent at March 31, 2017 and December 31, 2016.
 

14


Table of Contents



Impaired Loans  TCF considers impaired loans to include non-accrual commercial loans, non-accrual equipment finance loans and non-accrual inventory finance loans, as well as all TDR loans. Non-accrual impaired loans, including non-accrual TDR loans, are included in non-accrual loans and leases within the previous tables. Accruing TDR loans have been disclosed by delinquency status within the previous tables of accruing and non-accrual loans and leases. In the following tables, the loan balance of impaired loans represents the amount recorded within loans and leases on the Consolidated Statements of Financial Condition, whereas the unpaid contractual balance represents the balances legally owed by the borrowers.

Information on impaired loans was as follows:
 
At March 31, 2017
 
At December 31, 2016
(In thousands)
Unpaid
Contractual
Balance
 
Loan
Balance
 
Related
Allowance
Recorded
 
Unpaid
Contractual
Balance
 
Loan
Balance
 
Related
Allowance
Recorded
Impaired loans with an allowance recorded:
 

 
 

 
 

 
 

 
 

 
 

Consumer real estate: