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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
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
June 30, 2016
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 [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 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
July 28, 2016
Common Stock, $.01 par value
171,044,445 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 June 30, 2016
 
At December 31, 2015
 
(Unaudited)
 
 
Assets:
 

 
 

Cash and due from banks
$
667,994

 
$
889,337

Investments
61,644

 
70,537

Securities held to maturity
192,662

 
201,920

Securities available for sale
1,338,638

 
888,885

Loans and leases held for sale
358,806

 
157,625

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
2,409,320

 
2,624,956

Junior lien
2,677,522

 
2,839,316

Total consumer real estate
5,086,842

 
5,464,272

Commercial
3,096,046

 
3,145,832

Leasing and equipment finance
4,120,359

 
4,012,248

Inventory finance
2,334,893

 
2,146,754

Auto finance
2,812,807

 
2,647,596

Other
20,890

 
19,297

Total loans and leases
17,471,837

 
17,435,999

Allowance for loan and lease losses
(158,572
)
 
(156,054
)
Net loans and leases
17,313,265

 
17,279,945

Premises and equipment, net
428,490

 
445,934

Goodwill
225,640

 
225,640

Other assets
482,371

 
529,786

Total assets
$
21,069,510

 
$
20,689,609

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
5,644,518

 
$
5,690,559

Savings
4,676,715

 
4,717,457

Money market
2,534,034

 
2,408,180

Certificates of deposit
4,337,094

 
3,903,793

Total deposits
17,192,361

 
16,719,989

Short-term borrowings
4,695

 
5,381

Long-term borrowings
743,733

 
1,034,557

Total borrowings
748,428

 
1,039,938

Accrued expenses and other liabilities
708,963

 
622,765

Total liabilities
18,649,752

 
18,382,692

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;
 
 
 
171,048,518 and 169,887,030 shares issued, respectively
1,710

 
1,699

Additional paid-in capital
862,226

 
851,836

Retained earnings, subject to certain restrictions
1,311,325

 
1,240,347

Accumulated other comprehensive income (loss)
11,763

 
(15,346
)
Treasury stock at cost, 42,566 shares, and other
(52,166
)
 
(50,860
)
Total TCF Financial Corporation stockholders' equity
2,398,098

 
2,290,916

Non-controlling interest in subsidiaries
21,660

 
16,001

Total equity
2,419,758

 
2,306,917

Total liabilities and equity
$
21,069,510

 
$
20,689,609

 
See accompanying notes to consolidated financial statements.


1


Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(In thousands, except per-share data)
2016
 
2015
 
2016
 
2015
Interest income:
 

 
 

 
 
 
 
Loans and leases
$
214,128

 
$
207,164

 
$
428,933

 
$
413,140

Securities available for sale
6,396

 
3,543

 
11,894

 
6,623

Securities held to maturity
1,116

 
1,384

 
2,435

 
2,789

Investments and other
12,364

 
10,990

 
23,084

 
20,323

Total interest income
234,004

 
223,081

 
466,346

 
442,875

Interest expense:
 

 
 

 
 
 
 
Deposits
15,893

 
11,080

 
30,884

 
22,152

Borrowings
5,127

 
5,972

 
10,820

 
11,274

Total interest expense
21,020

 
17,052

 
41,704

 
33,426

Net interest income
212,984

 
206,029

 
424,642

 
409,449

Provision for credit losses
13,250

 
12,528

 
32,092

 
25,319

Net interest income after provision for credit losses
199,734

 
193,501

 
392,550

 
384,130

Non-interest income:
 

 
 

 
 
 
 
Fees and service charges
34,622

 
36,295

 
67,439

 
70,267

Card revenue
14,083

 
13,902

 
27,446

 
26,803

ATM revenue
5,288

 
5,540

 
10,309

 
10,662

Subtotal
53,993

 
55,737

 
105,194

 
107,732

Gains on sales of auto loans, net
10,143

 
10,756

 
22,063

 
17,021

Gains on sales of consumer real estate loans, net
10,839

 
11,954

 
20,223

 
20,717

Servicing fee income
9,502

 
7,216

 
18,385

 
14,558

Subtotal
30,484

 
29,926

 
60,671

 
52,296

Leasing and equipment finance
31,074

 
26,385

 
59,561

 
48,609

Other
2,405

 
1,460

 
5,248

 
5,587

Fees and other revenue
117,956

 
113,508

 
230,674

 
214,224

Gains (losses) on securities, net

 
(59
)
 
(116
)
 
(137
)
Total non-interest income
117,956

 
113,449

 
230,558

 
214,087

Non-interest expense:
 

 
 

 
 
 
 
Compensation and employee benefits
118,093

 
116,159

 
242,566

 
231,974

Occupancy and equipment
36,884

 
36,152

 
73,892

 
72,979

FDIC insurance
3,751

 
4,864

 
7,864

 
10,257

Advertising and marketing
5,678

 
5,150

 
11,565

 
11,673

Other
49,987

 
45,887

 
93,335

 
94,020

Subtotal
214,393

 
208,212

 
429,222

 
420,903

Operating lease depreciation
9,842

 
8,582

 
19,415

 
16,316

Foreclosed real estate and repossessed assets, net
3,135

 
6,377

 
7,055

 
12,573

Other credit costs, net
(54
)
 
(62
)
 
(42
)
 
84

Total non-interest expense
227,316

 
223,109

 
455,650

 
449,876

Income before income tax expense
90,374

 
83,841

 
167,458

 
148,341

Income tax expense
29,706

 
28,902

 
56,509

 
51,730

Income after income tax expense
60,668

 
54,939

 
110,949

 
96,611

Income attributable to non-controlling interest
2,974

 
2,684

 
5,209

 
4,555

Net income attributable to TCF Financial Corporation
57,694

 
52,255

 
105,740

 
92,056

Preferred stock dividends
4,847

 
4,847

 
9,694

 
9,694

Net income available to common stockholders
$
52,847

 
$
47,408

 
$
96,046

 
$
82,362

Net income per common share:
 

 
 

 
 
 
 
Basic
$
0.32

 
$
0.29

 
$
0.57

 
$
0.50

Diluted
$
0.31

 
$
0.29

 
$
0.57

 
$
0.50

 
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 June 30,
 
Six Months Ended June 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Net income attributable to TCF Financial Corporation
$
57,694

 
$
52,255

 
$
105,740

 
$
92,056

Other comprehensive income (loss):
 

 
 

 
 

 
 

Securities available for sale:
 

 
 

 
 

 
 

Unrealized gains (losses) arising during the period
21,128

 
(11,140
)
 
40,263

 
(7,001
)
Reclassification of net (gains) losses to net income
749

 
286

 
1,023

 
590

Net investment hedges:
 

 
 

 
 

 
 

Unrealized gains (losses) arising during the period
(338
)
 
(674
)
 
(3,595
)
 
2,914

Foreign currency translation adjustment:
 

 
 

 
 

 
 

Unrealized gains (losses) arising during the period
339

 
617

 
3,748

 
(3,269
)
Recognized postretirement prior service cost:
 

 
 

 
 

 
 

Reclassification of net (gains) losses to net income
(11
)
 
(11
)
 
(23
)
 
(23
)
Income tax (expense) benefit
(8,177
)
 
4,358

 
(14,307
)
 
1,329

Total other comprehensive income (loss)
13,690

 
(6,564
)
 
27,109

 
(5,460
)
Comprehensive income
$
71,384

 
$
45,691

 
$
132,849

 
$
86,596

 
See accompanying notes to consolidated financial statements.

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Table of Contents



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, 2014
4,006,900

167,503,568

$
263,240

$
1,675

$
817,130

$
1,099,914

$
(10,910
)
$
(49,400
)
$
2,121,649

$
13,715

$
2,135,364

Net income





92,056



92,056

4,555

96,611

Other comprehensive income (loss)






(5,460
)

(5,460
)

(5,460
)
Net investment by (distribution to) non-controlling interest









1,241

1,241

Dividends on preferred stock





(9,694
)


(9,694
)

(9,694
)
Dividends on common stock





(16,523
)


(16,523
)

(16,523
)
Grants of restricted stock

722,304


7

(7
)






Common shares purchased by TCF employee benefit plans

915,632


9

14,430




14,439


14,439

Cancellation of shares of restricted stock

(132,937
)

(1
)
(532
)



(533
)

(533
)
Cancellation of common shares for tax withholding

(64,306
)

(1
)
(1,022
)



(1,023
)

(1,023
)
Net amortization of stock compensation




4,743




4,743


4,743

Exercise of stock options

200,000


2

2,568




2,570


2,570

Stock compensation tax (expense) benefit




287




287


287

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




1,158



(1,158
)



Balance, June 30, 2015
4,006,900

169,144,261

$
263,240

$
1,691

$
838,755

$
1,165,753

$
(16,370
)
$
(50,558
)
$
2,202,511

$
19,511

$
2,222,022

 
 
 
 
 
 
 
 
 
 
 
 
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





105,740



105,740

5,209

110,949

Other comprehensive income (loss)






27,109


27,109


27,109

Net investment by (distribution to) non-controlling interest









450

450

Dividends on preferred stock





(9,694
)


(9,694
)

(9,694
)
Dividends on common stock





(25,068
)


(25,068
)

(25,068
)
Grants of restricted stock

838,776


8

(8
)






Common shares purchased by TCF employee benefit plans

511,420


5

5,833




5,838


5,838

Cancellation of shares of restricted stock

(69,150
)

(1
)
(375
)



(376
)

(376
)
Cancellation of common shares for tax withholding

(119,558
)

(1
)
(1,505
)



(1,506
)

(1,506
)
Net amortization of stock compensation




5,526




5,526


5,526

Stock compensation tax (expense) benefit




(387
)



(387
)

(387
)
Change in shares held in trust for deferred compensation plans, at cost




1,306



(1,306
)



Balance, June 30, 2016
4,006,900

171,048,518

$
263,240

$
1,710

$
862,226

$
1,311,325

$
11,763

$
(52,166
)
$
2,398,098

$
21,660

$
2,419,758

See accompanying notes to consolidated financial statements.

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Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(In thousands)
2016
 
2015
Cash flows from operating activities:
 

 
 

Net income attributable to TCF Financial Corporation
$
105,740

 
$
92,056

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

 
 

Provision for credit losses
32,092

 
25,319

Depreciation and amortization
91,851

 
74,816

Proceeds from sales of loans and leases held for sale
579,590

 
412,752

Gains on sales of assets, net
(49,438
)
 
(42,573
)
Net income attributable to non-controlling interest
5,209

 
4,555

Originations of loans held for sale, net of repayments
(598,127
)
 
(451,836
)
Net change in other assets and accrued expenses and other liabilities
125,435

 
52,928

Other, net
(16,317
)
 
(12,087
)
Net cash provided by (used in) operating activities
276,035

 
155,930

Cash flows from investing activities:
 

 
 

Loan originations and purchases, net of principal collected on loans and leases
(875,878
)
 
(1,064,822
)
Purchases of equipment for lease financing
(556,489
)
 
(451,625
)
Proceeds from sales of loans
1,108,589

 
915,865

Proceeds from sales of lease receivables
9,903

 
15,893

Proceeds from sales of lease equipment
7,396

 
3,312

Purchases of securities
(414,157
)
 
(204,007
)
Proceeds from maturities of and principal collected on securities
57,712

 
43,500

Purchases of Federal Home Loan Bank stock
(62,040
)
 
(75,000
)
Redemption of Federal Home Loan Bank stock
70,966

 
82,004

Proceeds from sales of real estate owned
40,514

 
35,998

Purchases of premises and equipment
(13,888
)
 
(20,646
)
Other, net
11,913

 
12,222

Net cash provided by (used in) investing activities
(615,459
)
 
(707,306
)
Cash flows from financing activities:
 

 
 

Net change in deposits
448,111

 
371,216

Net change in short-term borrowings
(909
)
 
2,969

Proceeds from long-term borrowings
2,204,207

 
2,653,143

Payments on long-term borrowings
(2,504,467
)
 
(2,671,061
)
Net investment by (distribution to) non-controlling interest
450

 
1,241

Dividends paid on preferred stock
(9,694
)
 
(9,694
)
Dividends paid on common stock
(25,068
)
 
(16,523
)
Stock compensation tax (expense) benefit
(387
)
 
287

Common shares sold to TCF employee benefit plans
5,838

 
14,439

Exercise of stock options

 
2,570

Net cash provided by (used in) financing activities
118,081

 
348,587

Net change in cash and due from banks
(221,343
)
 
(202,789
)
Cash and due from banks at beginning of period
889,337

 
1,115,250

Cash and due from banks at end of period
$
667,994

 
$
912,461

Supplemental disclosures of cash flow information:
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
40,224

 
$
28,440

Income taxes, net
(21,732
)
 
(2,181
)
Transfer of loans to other assets
49,096

 
51,638

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, 2015, and for the year then ended. All significant intercompany accounts and transactions have been eliminated in consolidation. Accounting policies in effect at December 31, 2015 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, 2016, the Company retrospectively adopted Accounting Standards Update ("ASU") No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which required that debt issuance costs be presented as a direct deduction from debt. Accordingly, the Company reclassified unamortized debt issuance costs of $2.1 million from Other assets to a reduction in Long-term borrowings on the Consolidated Statement of Financial Condition as of December 31, 2015. The adoption of this ASU did not impact results of operations, retained earnings or cash flows.

Effective January 1, 2016, the Company changed its reportable segments to align with the way the Company is now managed. The revised presentation of previously reported segment data has been applied retroactively to all periods presented in these financial statements. The new reportable segments are Consumer Banking, Wholesale Banking and Enterprise Services. Previously, the Company's reportable segments were Lending, Funding and Support Services. The reportable segments follow GAAP as described in Note 1, Summary of Significant Accounting Policies, in Item 8 of TCF's 2015 Annual Report on Form 10-K, except for the accounting for intercompany interest income and interest expense, which are eliminated in consolidation, and presenting net interest income on a fully tax-equivalent basis. See Note 15, Business Segments for a description of the new segments.


6


Table of Contents



Note 2Cash and Due from Banks
 
At June 30, 2016 and December 31, 2015, TCF Bank was required by Federal Reserve regulations to maintain reserves of $101.9 million and $101.6 million, respectively, in cash on hand or at the Federal Reserve Bank.
 
TCF maintains cash balances that are restricted as to their use in accordance with certain contractual agreements primarily related to the sale and servicing of auto loans. 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 $58.0 million and $58.3 million at June 30, 2016 and December 31, 2015, respectively.

TCF had cash held in interest-bearing accounts of $412.2 million and $609.5 million at June 30, 2016 and December 31, 2015, respectively.

Note 3.  Securities Available for Sale and Securities Held to Maturity
 
Securities consisted of the following.
 
At June 30, 2016
 
At December 31, 2015
(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
$
749,858

 
$
15,246

 
$
3

 
$
765,101

 
$
627,521

 
$
655

 
$
6,246

 
$
621,930

Other
25

 

 

 
25

 
34

 

 

 
34

Obligations of states and political subdivisions
549,351

 
24,161

 

 
573,512

 
262,189

 
4,732

 

 
266,921

Total securities available for sale
$
1,299,234

 
$
39,407

 
$
3

 
$
1,338,638

 
$
889,744

 
$
5,387

 
$
6,246

 
$
888,885

Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
188,342

 
$
12,387

 
$
115

 
$
200,614

 
$
197,410

 
$
5,247

 
$
214

 
$
202,443

Other
920

 

 

 
920

 
1,110

 

 

 
1,110

Other securities
3,400

 

 

 
3,400

 
3,400

 

 

 
3,400

Total securities held to maturity
$
192,662

 
$
12,387

 
$
115

 
$
204,934

 
$
201,920

 
$
5,247

 
$
214

 
$
206,953

 
There were no sales of securities available for sale for the second quarter and first six months of 2016 and 2015. At June 30, 2016 and December 31, 2015, mortgage-backed securities with a carrying value of $9.7 million and $17.1 million, respectively, were pledged as collateral to secure certain deposits and borrowings. There were no impairment charges recognized on securities available for sale for the second quarter and first six months of 2016 and 2015. 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.
 
Other securities held to maturity consist of bonds which qualify for investment credit under the Community Reinvestment Act. TCF recorded no and $0.1 million of impairment charges for both the second quarter and first six months of 2016 and 2015, respectively, on held to maturity other mortgage-backed securities. The held to maturity other mortgage-backed securities had a carrying value of $0.9 million and $1.3 million at June 30, 2016 and 2015, respectively.


7


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The following tables show the gross unrealized losses and fair value of securities available for sale and securities held to maturity at June 30, 2016 and December 31, 2015, aggregated by investment category and the length of time the securities were in a continuous loss position.
 
 
At June 30, 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
$
6,323

 
$
3

 
$

 
$

 
$
6,323

 
$
3

Total securities available for sale
$
6,323

 
$
3

 
$

 
$

 
$
6,323

 
$
3

 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
1,404

 
$
21

 
$
1,628

 
$
94

 
$
3,032

 
$
115

Total securities held to maturity
$
1,404

 
$
21

 
$
1,628

 
$
94

 
$
3,032

 
$
115

 
At December 31, 2015
 
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
$
552,127

 
$
6,246

 
$

 
$

 
$
552,127

 
$
6,246

Total securities available for sale
$
552,127

 
$
6,246

 
$

 
$

 
$
552,127

 
$
6,246

 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
12,333

 
$
100

 
$
1,732

 
$
114

 
$
14,065

 
$
214

Total securities held to maturity
$
12,333

 
$
100

 
$
1,732

 
$
114

 
$
14,065

 
$
214



8


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The amortized cost and fair value of securities available for sale and securities held to maturity by final contractual maturity at June 30, 2016 and December 31, 2015 are shown below. The remaining contractual principal maturities do not consider possible prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay.

 
At June 30, 2016
 
At December 31, 2015
(In thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Securities available for sale:
 

 
 

 
 

 
 

Due in one year or less
$
2

 
$
2

 
$
1

 
$
1

Due in 1-5 years
25

 
25

 
38

 
38

Due in 5-10 years
301,413

 
315,465

 
268,638

 
272,511

Due after 10 years
997,794

 
1,023,146

 
621,067

 
616,335

Total securities available for sale
$
1,299,234

 
$
1,338,638

 
$
889,744

 
$
888,885

 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

Due in one year or less
$
100

 
$
100

 
$
100

 
$
100

Due in 1-5 years
1,900

 
1,900

 
1,900

 
1,900

Due in 5-10 years
1,400

 
1,400

 
1,400

 
1,400

Due after 10 years
189,262

 
201,534

 
198,520

 
203,553

Total securities held to maturity
$
192,662

 
$
204,934

 
$
201,920

 
$
206,953


Note 4Loans and Leases

Loans and leases consisted of the following.
(Dollars in thousands)
At June 30, 2016
 
At December 31, 2015
 
Percent Change
Consumer real estate:
 

 
 

 
 

First mortgage lien
$
2,409,320

 
$
2,624,956

 
(8.2
)%
Junior lien
2,677,522

 
2,839,316

 
(5.7
)
Total consumer real estate
5,086,842

 
5,464,272

 
(6.9
)
Commercial:
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

Permanent
2,163,521

 
2,267,218

 
(4.6
)
Construction and development
317,341

 
326,211

 
(2.7
)
Total commercial real estate
2,480,862

 
2,593,429

 
(4.3
)
Commercial business
615,184

 
552,403

 
11.4

Total commercial
3,096,046

 
3,145,832

 
(1.6
)
Leasing and equipment finance
4,120,359

 
4,012,248

 
2.7

Inventory finance
2,334,893

 
2,146,754

 
8.8

Auto finance
2,812,807

 
2,647,596

 
6.2

Other
20,890

 
19,297

 
8.3

Total loans and leases(1)
$
17,471,837

 
$
17,435,999

 
0.2

(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 $67.0 million and $73.7 million at June 30, 2016 and December 31, 2015, respectively.
 
The consumer real estate junior lien portfolio was comprised of $2.4 billion of home equity lines of credit ("HELOCs") and $311.4 million of amortizing consumer real estate junior lien mortgage loans at June 30, 2016, compared with $2.5 billion and $345.3 million at December 31, 2015, respectively. At both June 30, 2016 and December 31, 2015, $1.8 billion of the consumer real estate junior lien HELOCs had a 10-year interest-only draw period and a 20-year amortization repayment period and all were within the 10-year interest-only draw period and will not convert to amortizing loans until 2021 or later. At June 30, 2016 and December 31, 2015, $595.2 million and $664.5 million, respectively, of the consumer real estate junior lien HELOCs were interest-only revolving draw loans with no defined amortization period and original draw periods of 5 to 40 years. As of June 30, 2016, 18.2% of these loans mature prior to 2021.


9


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The following tables summarize the carrying value of consumer real estate loans and consumer auto loans sold with servicing retained, the cash received, interest-only strips received and the recognized net gains for the three and six months ended June 30, 2016 and 2015. No servicing assets or liabilities related to consumer real estate or consumer auto loans were recorded within TCF's Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2016
 
2015
 
2016
 
2015
 
Consumer Real Estate Loans
 
Consumer Auto Loans
 
Consumer Real Estate Loans
 
Consumer Auto Loans
 
Consumer Real Estate Loans
 
Consumer Auto Loans
 
Consumer Real Estate Loans
 
Consumer Auto Loans
Sales proceeds, net(1)
$
351,624

 
$
547,575

 
$
376,615

 
$
450,600

 
$
678,585

 
$
1,001,322

 
$
647,392

 
$
660,787

Recorded investment in loans sold, including accrued interest
(345,926
)
 
(537,724
)
 
(366,402
)
 
(439,365
)
 
(668,427
)
 
(984,089
)
 
(631,675
)
 
(642,871
)
Interest-only strips, initial value
5,252

 
854

 
1,578

 

 
10,913

 
5,695

 
4,237

 

Net gains(2)
$
10,950

 
$
10,705

 
$
11,791

 
$
11,235

 
$
21,071

 
$
22,928

 
$
19,954

 
$
17,916

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

TCF has two consumer real estate loan sale programs; one that sells nationally originated consumer real estate junior lien loans and the other that originates first mortgage lien loans in our primary banking markets and sells the loans through a correspondent relationship. Included in the consumer real estate recognized net gains for the second quarter and first six months of 2016 were $1.8 million and $3.6 million, respectively, on the recorded investments of $82.5 million and $161.6 million, respectively, in first mortgage lien loans sold related to the correspondent lending program, including accrued interest. Included in the consumer real estate recognized net gains for the second quarter and first six months of 2015 were $1.6 million and $3.0 million, respectively, on the recorded investments of $74.5 million and $136.3 million, respectively, in first mortgage lien loans sold related to the correspondent lending program, including accrued interest.

Included in the consumer auto loans sold in the table above are amounts related to the completion of securitizations. During the second quarter of 2016 and 2015, TCF transferred the recorded investment of $414.3 million and $439.4 million, respectively, in consumer auto loans, including accrued interest, with servicing retained, to trusts in securitization transactions, received net sales proceeds of $418.9 million and $450.6 million, respectively, and recognized net gains of $4.5 million and $11.2 million, respectively, which qualified for sale accounting. These trusts are considered variable interest entities due to their limited capitalization and special purpose nature, however TCF does not have a variable interest in the trusts. Therefore, TCF is not the primary beneficiary of the trusts and they are not consolidated. There were no securitizations during the first quarter of 2016 and 2015.

Total interest-only strips and the contractual liabilities related to loan sales are shown below.
(In thousands)
At June 30, 2016
At December 31, 2015
Interest-only strips attributable to:
 
 
Consumer real estate loan sales
$
25,005

$
19,182

Consumer auto loan sales
23,406

25,150

Contractual liabilities attributable to:
 
 
Consumer real estate loan sales
$
665

$
702

Consumer auto loan sales
170

185


TCF recorded $0.6 million of impairment charges on consumer real estate loan interest-only strips for both the second quarter and first six months of 2016, compared with none for the same periods in 2015. TCF recorded $0.0 million of impairment charges on the consumer auto loan interest-only strips for both the second quarter and first six months of 2016, compared with $0.0 million and $0.5 million for the same periods in 2015.
 

10


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TCF's agreements to sell auto and consumer real estate loans typically contain certain representations and warranties regarding the loans sold. These representations and warranties generally relate to, among other things, the ownership of the loan, the validity, priority and perfection of the lien securing the loan, accuracy of information supplied to the buyer, the loan's compliance with the criteria set forth in the agreement, payment delinquency and compliance with applicable laws and regulations. TCF may be required to repurchase loans in the event of an unremedied breach of these representations or warranties. During the six months ended June 30, 2016 and 2015, losses related to repurchases pursuant to such representations and warranties were immaterial. The majority of such repurchases were of consumer auto loans where TCF typically has contractual agreements with the automobile dealerships that originated the loans requiring the dealers to repurchase such contracts from TCF.

Note 5Allowance for Loan and Lease Losses and Credit Quality Information
 
The following tables provide the allowance for loan and lease losses and other related information. TCF's key credit quality indicator is the receivable's payment performance status, defined as accruing or non-accruing.

(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
At or For the Three Months Ended June 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
66,728

 
$
31,547

 
$
19,454

 
$
13,306

 
$
28,535

 
$
504

 
$
160,074

Charge-offs
(4,431
)
 
(636
)
 
(1,640
)
 
(746
)
 
(5,597
)
 
(1,673
)
 
(14,723
)
Recoveries
1,966

 
31

 
482

 
182

 
861

 
1,070

 
4,592

Net (charge-offs) recoveries
(2,465
)
 
(605
)
 
(1,158
)
 
(564
)
 
(4,736
)
 
(603
)
 
(10,131
)
Provision for credit losses
2,536

 
219

 
1,828

 
(673
)
 
8,575

 
765

 
13,250

Other
(2,034
)
 

 

 
15

 
(2,602
)
 

 
(4,621
)
Balance, end of period
$
64,765

 
$
31,161

 
$
20,124

 
$
12,084

 
$
29,772

 
$
666

 
$
158,572

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Three Months Ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
80,292

 
$
32,121

 
$
17,921

 
$
12,409

 
$
20,426

 
$
630

 
$
163,799

Charge-offs
(11,558
)
 
(2,581
)
 
(1,988
)
 
(821
)
 
(4,388
)
 
(1,648
)
 
(22,984
)
Recoveries
1,869

 
967

 
518

 
198

 
728

 
1,226

 
5,506

Net (charge-offs) recoveries
(9,689
)
 
(1,614
)
 
(1,470
)
 
(623
)
 
(3,660
)
 
(422
)
 
(17,478
)
Provision for credit losses
5,061

 
(302
)
 
1,218

 
(951
)
 
7,096

 
406

 
12,528

Other
(977
)
 

 

 
44

 
(1,801
)
 

 
(2,734
)
Balance, end of period
$
74,687

 
$
30,205

 
$
17,669

 
$
10,879

 
$
22,061

 
$
614

 
$
156,115



11


Table of Contents



(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
At or For the Six Months Ended June 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
67,992

 
$
30,185

 
$
19,018

 
$
11,128

 
$
26,486

 
$
1,245

 
$
156,054

Charge-offs
(10,492
)
 
(664
)
 
(3,612
)
 
(1,387
)
 
(11,927
)
 
(3,308
)
 
(31,390
)
Recoveries
3,256

 
250

 
1,163

 
567

 
1,744

 
2,373

 
9,353

Net (charge-offs) recoveries
(7,236
)
 
(414
)
 
(2,449
)
 
(820
)
 
(10,183
)
 
(935
)
 
(22,037
)
Provision for credit losses
7,561

 
1,390

 
3,555

 
1,590

 
17,640

 
356

 
32,092

Other
(3,552
)
 

 

 
186

 
(4,171
)
 

 
(7,537
)
Balance, end of period
$
64,765

 
$
31,161

 
$
20,124

 
$
12,084

 
$
29,772

 
$
666

 
$
158,572

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Six Months Ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
85,361

 
$
31,367

 
$
18,446

 
$
10,020

 
$
18,230

 
$
745

 
$
164,169

Charge-offs
(20,764
)
 
(3,457
)
 
(3,864
)
 
(1,349
)
 
(8,349
)
 
(3,325
)
 
(41,108
)
Recoveries
3,794

 
2,364

 
1,503

 
307

 
1,338

 
2,787

 
12,093

Net (charge-offs) recoveries
(16,970
)
 
(1,093
)
 
(2,361
)
 
(1,042
)
 
(7,011
)
 
(538
)
 
(29,015
)
Provision for credit losses
7,880

 
(69
)
 
1,584

 
2,081

 
13,436

 
407

 
25,319

Other
(1,584
)
 

 

 
(180
)
 
(2,594
)
 

 
(4,358
)
Balance, end of period
$
74,687

 
$
30,205

 
$
17,669

 
$
10,879

 
$
22,061

 
$
614

 
$
156,115


The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology.
 
At June 30, 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
$
37,400

 
$
31,024

 
$
17,493

 
$
12,025

 
$
27,989

 
$
664

 
$
126,595

Individually evaluated for impairment
27,365

 
137

 
2,631

 
59

 
1,783

 
2

 
31,977

Total
$
64,765

 
$
31,161

 
$
20,124

 
$
12,084

 
$
29,772

 
$
666

 
$
158,572

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,874,881

 
$
3,044,714

 
$
4,103,416

 
$
2,334,248

 
$
2,803,147

 
$
20,882

 
$
17,181,288

Individually evaluated for impairment
211,961

 
51,332

 
16,919

 
645

 
9,659

 
8

 
290,524

Loans acquired with deteriorated credit quality

 

 
24

 

 
1

 

 
25

Total
$
5,086,842

 
$
3,096,046

 
$
4,120,359

 
$
2,334,893

 
$
2,812,807

 
$
20,890

 
$
17,471,837