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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
September 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
October 27, 2016
Common Stock, $.01 par value
170,998,862 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 September 30, 2016
 
At December 31, 2015
 
(Unaudited)
 
 
Assets:
 

 
 

Cash and due from banks
$
656,481

 
$
889,337

Investments
59,707

 
70,537

Securities held to maturity
185,230

 
201,920

Securities available for sale
1,419,821

 
888,885

Loans and leases held for sale
386,673

 
157,625

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
2,313,044

 
2,624,956

Junior lien
2,674,280

 
2,839,316

Total consumer real estate
4,987,324

 
5,464,272

Commercial
3,150,199

 
3,145,832

Leasing and equipment finance
4,236,224

 
4,012,248

Inventory finance
2,261,086

 
2,146,754

Auto finance
2,731,900

 
2,647,596

Other
17,886

 
19,297

Total loans and leases
17,384,619

 
17,435,999

Allowance for loan and lease losses
(155,841
)
 
(156,054
)
Net loans and leases
17,228,778

 
17,279,945

Premises and equipment, net
424,456

 
445,934

Goodwill
225,640

 
225,640

Other assets
497,370

 
529,786

Total assets
$
21,084,156

 
$
20,689,609

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
5,830,057

 
$
5,690,559

Savings
4,670,281

 
4,717,457

Money market
2,450,576

 
2,408,180

Certificates of deposit
4,283,292

 
3,903,793

Total deposits
17,234,206

 
16,719,989

Short-term borrowings
1,514

 
5,381

Long-term borrowings
713,996

 
1,034,557

Total borrowings
715,510

 
1,039,938

Accrued expenses and other liabilities
682,060

 
622,765

Total liabilities
18,631,776

 
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;
 
 
 
170,993,800 and 169,887,030 shares issued, respectively
1,710

 
1,699

Additional paid-in capital
860,487

 
851,836

Retained earnings, subject to certain restrictions
1,350,215

 
1,240,347

Accumulated other comprehensive income (loss)
6,895

 
(15,346
)
Treasury stock at cost, 42,566 shares, and other
(49,093
)
 
(50,860
)
Total TCF Financial Corporation stockholders' equity
2,433,454

 
2,290,916

Non-controlling interest in subsidiaries
18,926

 
16,001

Total equity
2,452,380

 
2,306,917

Total liabilities and equity
$
21,084,156

 
$
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 
 September 30,
 
Nine Months Ended 
 September 30,
(In thousands, except per-share data)
2016
 
2015
 
2016
 
2015
Interest income:
 

 
 

 
 
 
 
Loans and leases
$
210,765

 
$
207,250

 
$
639,698

 
$
620,390

Securities available for sale
7,126

 
4,161

 
19,020

 
10,784

Securities held to maturity
1,049

 
1,361

 
3,484

 
4,150

Investments and other
13,786

 
10,832

 
36,870

 
31,155

Total interest income
232,726

 
223,604

 
699,072

 
666,479

Interest expense:
 

 
 

 
 
 
 
Deposits
15,851

 
12,302

 
46,735

 
34,454

Borrowings
4,857

 
6,032

 
15,677

 
17,306

Total interest expense
20,708

 
18,334

 
62,412

 
51,760

Net interest income
212,018

 
205,270

 
636,660

 
614,719

Provision for credit losses
13,894

 
10,018

 
45,986

 
35,337

Net interest income after provision for credit losses
198,124

 
195,252

 
590,674

 
579,382

Non-interest income:
 

 
 

 
 
 
 
Fees and service charges
35,093

 
36,991

 
102,532

 
107,258

Card revenue
13,747

 
13,803

 
41,193

 
40,606

ATM revenue
5,330

 
5,739

 
15,639

 
16,401

Subtotal
54,170

 
56,533

 
159,364

 
164,265

Gains on sales of auto loans, net
11,624

 
10,423

 
33,687

 
27,444

Gains on sales of consumer real estate loans, net
13,528

 
7,143

 
33,751

 
27,860

Servicing fee income
10,393

 
8,049

 
28,778

 
22,607

Subtotal
35,545

 
25,615

 
96,216

 
77,911

Leasing and equipment finance
28,289

 
27,165

 
87,850

 
75,774

Other
2,270

 
3,070

 
7,518

 
8,657

Fees and other revenue
120,274

 
112,383

 
350,948

 
326,607

Gains (losses) on securities, net
(600
)
 
(131
)
 
(716
)
 
(268
)
Total non-interest income
119,674

 
112,252

 
350,232

 
326,339

Non-interest expense:
 

 
 

 
 
 
 
Compensation and employee benefits
117,155

 
116,708

 
359,721

 
348,682

Occupancy and equipment
37,938

 
34,159

 
111,830

 
107,138

FDIC insurance
4,082

 
4,832

 
11,946

 
15,089

Advertising and marketing
5,488

 
5,793

 
17,053

 
17,466

Other
49,851

 
45,750

 
143,186

 
139,770

Subtotal
214,514

 
207,242

 
643,736

 
628,145

Operating lease depreciation
10,038

 
9,485

 
29,453

 
25,801

Foreclosed real estate and repossessed assets, net
4,243

 
5,680

 
11,298

 
18,253

Other credit costs, net
83

 
(123
)
 
41

 
(39
)
Total non-interest expense
228,878

 
222,284

 
684,528

 
672,160

Income before income tax expense
88,920

 
85,220

 
256,378

 
233,561

Income tax expense
30,257

 
30,528

 
86,766

 
82,258

Income after income tax expense
58,663

 
54,692

 
169,612

 
151,303

Income attributable to non-controlling interest
2,371

 
2,117

 
7,580

 
6,672

Net income attributable to TCF Financial Corporation
56,292

 
52,575

 
162,032

 
144,631

Preferred stock dividends
4,847

 
4,847

 
14,541

 
14,541

Net income available to common stockholders
$
51,445

 
$
47,728

 
$
147,491

 
$
130,090

Net income per common share:
 

 
 

 
 
 
 
Basic
$
0.31

 
$
0.29

 
$
0.88

 
$
0.79

Diluted
$
0.31

 
$
0.29

 
$
0.88

 
$
0.78

 
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 September 30,
 
Nine Months Ended 
 September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Net income attributable to TCF Financial Corporation
$
56,292

 
$
52,575

 
$
162,032

 
$
144,631

Other comprehensive income (loss):
 

 
 

 
 

 
 

Securities available for sale and interest-only strips:
 

 
 

 
 

 
 

Unrealized gains (losses) arising during the period
(7,624
)
 
9,972

 
32,639

 
2,971

Reclassification of net (gains) losses to net income
425

 
281

 
1,448

 
871

Net investment hedges:
 

 
 

 
 

 
 

Unrealized gains (losses) arising during the period
904

 
2,858

 
(2,691
)
 
5,772

Foreign currency translation adjustment:
 

 
 

 
 

 
 

Unrealized gains (losses) arising during the period
(957
)
 
(3,049
)
 
2,791

 
(6,318
)
Recognized postretirement prior service cost:
 

 
 

 
 

 
 

Reclassification of net (gains) losses to net income
(12
)
 
(12
)
 
(35
)
 
(35
)
Income tax (expense) benefit
2,396

 
(4,947
)
 
(11,911
)
 
(3,618
)
Total other comprehensive income (loss)
(4,868
)
 
5,103

 
22,241

 
(357
)
Comprehensive income
$
51,424

 
$
57,678

 
$
184,273

 
$
144,274

 
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





144,631



144,631

6,672

151,303

Other comprehensive income (loss)






(357
)

(357
)

(357
)
Net investment by (distribution to) non-controlling interest









(1,887
)
(1,887
)
Dividends on preferred stock





(14,541
)


(14,541
)

(14,541
)
Dividends on common stock





(24,825
)


(24,825
)

(24,825
)
Grants of restricted stock

753,054


8

(8
)






Common shares purchased by TCF employee benefit plans

1,219,012


12

19,261




19,273


19,273

Cancellation of shares of restricted stock

(133,822
)

(1
)
(540
)



(541
)

(541
)
Cancellation of common shares for tax withholding

(68,670
)

(1
)
(1,093
)



(1,094
)

(1,094
)
Net amortization of stock compensation




7,520




7,520


7,520

Exercise of stock options

200,000


2

2,568




2,570


2,570

Stock compensation tax (expense) benefit




362




362


362

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




1,043



(1,043
)



Balance, September 30, 2015
4,006,900

169,473,142

$
263,240

$
1,695

$
846,243

$
1,205,179

$
(11,267
)
$
(50,443
)
$
2,254,647

$
18,500

$
2,273,147

 
 
 
 
 
 
 
 
 
 
 
 
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





162,032



162,032

7,580

169,612

Other comprehensive income (loss)






22,241


22,241


22,241

Net investment by (distribution to) non-controlling interest









(4,655
)
(4,655
)
Dividends on preferred stock





(14,541
)


(14,541
)

(14,541
)
Dividends on common stock





(37,623
)


(37,623
)

(37,623
)
Grants of restricted stock

880,017


9

(9
)






Common shares purchased by TCF employee benefit plans

511,420


5

5,833




5,838


5,838

Cancellation of shares of restricted stock

(205,483
)

(2
)
(1,187
)



(1,189
)

(1,189
)
Cancellation of common shares for tax withholding

(129,355
)

(1
)
(1,638
)



(1,639
)

(1,639
)
Net amortization of stock compensation




8,443




8,443


8,443

Exercise of stock options

50,171



(684
)



(684
)

(684
)
Stock compensation tax (expense) benefit




(340
)



(340
)

(340
)
Change in shares held in trust for deferred compensation plans, at cost




(1,767
)


1,767




Balance, September 30, 2016
4,006,900

170,993,800

$
263,240

$
1,710

$
860,487

$
1,350,215

$
6,895

$
(49,093
)
$
2,433,454

$
18,926

$
2,452,380

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)
 
Nine Months Ended September 30,
(In thousands)
2016
 
2015
Cash flows from operating activities:
 

 
 

Net income attributable to TCF Financial Corporation
$
162,032

 
$
144,631

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

 
 

Provision for credit losses
45,986

 
35,337

Depreciation and amortization
135,103

 
111,284

Proceeds from sales of loans and leases held for sale
867,669

 
751,200

Gains on sales of assets, net
(75,660
)
 
(62,256
)
Net income attributable to non-controlling interest
7,580

 
6,672

Originations of loans and leases held for sale, net of repayments
(904,503
)
 
(704,018
)
Net change in other assets and accrued expenses and other liabilities
107,742

 
72,747

Other, net
(21,562
)
 
(22,915
)
Net cash provided by (used in) operating activities
324,387

 
332,682

Cash flows from investing activities:
 

 
 

Loan and lease originations and purchases, net of principal collected on loans and leases
(1,358,906
)
 
(1,529,968
)
Purchases of equipment for lease financing
(840,650
)
 
(752,536
)
Proceeds from sales of loans and lease receivables
1,926,290

 
1,318,995

Proceeds from sales of lease equipment
11,348

 
6,677

Proceeds from sales of securities

 
177

Purchases of securities
(584,524
)
 
(377,432
)
Proceeds from maturities of and principal collected on securities
101,166

 
70,485

Purchases of Federal Home Loan Bank stock
(92,080
)
 
(107,000
)
Redemption of Federal Home Loan Bank stock
102,966

 
116,004

Proceeds from sales of real estate owned
53,045

 
51,017

Purchases of premises and equipment
(22,192
)
 
(38,455
)
Other, net
16,937

 
17,669

Net cash provided by (used in) investing activities
(686,600
)
 
(1,224,367
)
Cash flows from financing activities:
 

 
 

Net change in deposits
514,217

 
599,238

Net change in short-term borrowings
(4,084
)
 
32,298

Proceeds from long-term borrowings
3,241,585

 
3,656,133

Payments on long-term borrowings
(3,570,356
)
 
(3,706,122
)
Net investment by (distribution to) non-controlling interest
(4,655
)
 
(1,887
)
Dividends paid on preferred stock
(14,541
)
 
(14,541
)
Dividends paid on common stock
(37,623
)
 
(24,825
)
Stock compensation tax (expense) benefit
(340
)
 
362

Common shares sold to TCF employee benefit plans
5,838

 
19,273

Exercise of stock options
(684
)
 
2,570

Net cash provided by (used in) financing activities
129,357

 
562,499

Net change in cash and due from banks
(232,856
)
 
(329,186
)
Cash and due from banks at beginning of period
889,337

 
1,115,250

Cash and due from banks at end of period
$
656,481

 
$
786,064

Supplemental disclosures of cash flow information:
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
59,753

 
$
46,881

Income taxes, net
(12,235
)
 
43,119

Transfer of loans to other assets
76,417

 
80,233

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 16, Business Segments for a description of the new segments.


6


Table of Contents



Note 2Cash and Due from Banks
 
At September 30, 2016 and December 31, 2015, TCF Bank was required by Federal Reserve regulations to maintain reserves of $103.8 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 $51.2 million and $58.3 million at September 30, 2016 and December 31, 2015, respectively.

TCF had cash held in interest-bearing accounts of $398.0 million and $609.5 million at September 30, 2016 and December 31, 2015, respectively.

Note 3.  Securities Available for Sale and Securities Held to Maturity
 
Securities consisted of the following:
 
At September 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
$
791,208

 
$
14,120

 
$
53

 
$
805,275

 
$
627,521

 
$
655

 
$
6,246

 
$
621,930

Other
22

 

 

 
22

 
34

 

 

 
34

Obligations of states and political subdivisions
597,594

 
17,573

 
643

 
614,524

 
262,189

 
4,732

 

 
266,921

Total securities available for sale
$
1,388,824

 
$
31,693

 
$
696

 
$
1,419,821

 
$
889,744

 
$
5,387

 
$
6,246

 
$
888,885

Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
181,558

 
$
12,158

 
$
32

 
$
193,684

 
$
197,410

 
$
5,247

 
$
214

 
$
202,443

Other
872

 

 

 
872

 
1,110

 

 

 
1,110

Other securities
2,800

 

 

 
2,800

 
3,400

 

 

 
3,400

Total securities held to maturity
$
185,230

 
$
12,158

 
$
32

 
$
197,356

 
$
201,920

 
$
5,247

 
$
214

 
$
206,953

 
There were no sales of securities available for sale during the third quarter and first nine months of 2016. During the third quarter and first nine months of 2015, TCF sold $0.2 million of securities available for sale and received cash proceeds of $0.2 million. At September 30, 2016 and December 31, 2015, mortgage-backed securities with a carrying value of $8.5 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 during the third quarter and first nine 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.
 
TCF recorded $0.6 million and $0.7 million of impairment charges for the third quarter and first nine months of 2016, respectively, on securities held to maturity compared with $0.2 million and $0.3 million for the same periods in 2015.

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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 September 30, 2016 and December 31, 2015, aggregated by investment category and the length of time the securities were in a continuous loss position:
 
 
At September 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
$
32,870

 
$
53

 
$

 
$

 
$
32,870

 
$
53

Obligations of states and political subdivisions
74,474

 
643

 

 

 
74,474

 
643

Total securities available for sale
$
107,344

 
$
696

 
$

 
$

 
$
107,344

 
$
696

 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
1,964

 
$
32

 
$

 
$

 
$
1,964

 
$
32

Total securities held to maturity
$
1,964

 
$
32

 
$

 
$

 
$
1,964

 
$
32

 
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



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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 September 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 September 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
$
1

 
$
1

 
$
1

 
$
1

Due in 1-5 years
22

 
22

 
38

 
38

Due in 5-10 years
307,812

 
320,329

 
268,638

 
272,511

Due after 10 years
1,080,989

 
1,099,469

 
621,067

 
616,335

Total securities available for sale
$
1,388,824

 
$
1,419,821

 
$
889,744

 
$
888,885

 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

Due in one year or less
$

 
$

 
$
100

 
$
100

Due in 1-5 years
1,200

 
1,200

 
1,900

 
1,900

Due in 5-10 years
1,600

 
1,600

 
1,400

 
1,400

Due after 10 years
182,430

 
194,556

 
198,520

 
203,553

Total securities held to maturity
$
185,230

 
$
197,356

 
$
201,920

 
$
206,953


Note 4Loans and Leases

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

 
 

 
 

First mortgage lien
$
2,313,044

 
$
2,624,956

 
(11.9
)%
Junior lien
2,674,280

 
2,839,316

 
(5.8
)
Total consumer real estate
4,987,324

 
5,464,272

 
(8.7
)
Commercial:
 

 
 

 
 

Commercial real estate:
 

 
 

 
 

Permanent
2,214,685

 
2,267,218

 
(2.3
)
Construction and development
301,363

 
326,211

 
(7.6
)
Total commercial real estate
2,516,048

 
2,593,429

 
(3.0
)
Commercial business
634,151

 
552,403

 
14.8

Total commercial
3,150,199

 
3,145,832

 
0.1

Leasing and equipment finance
4,236,224

 
4,012,248

 
5.6

Inventory finance
2,261,086

 
2,146,754

 
5.3

Auto finance
2,731,900

 
2,647,596

 
3.2

Other
17,886

 
19,297

 
(7.3
)
Total loans and leases(1)
$
17,384,619

 
$
17,435,999

 
(0.3
)
(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 $62.5 million and $73.7 million at September 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 $292.2 million of amortizing consumer real estate junior lien mortgage loans at September 30, 2016, compared with $2.5 billion and $345.3 million at December 31, 2015, respectively. At both September 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 the year 2021 or later. At September 30, 2016 and December 31, 2015, $561.4 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 September 30, 2016, 18.2% of these loans mature prior to the year 2021.


9


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The following table summarizes the carrying value of consumer real estate loans and consumer auto loans sold with servicing retained, cash received, securitization receivable recorded, interest-only strips received and recognized net gains for the three and nine months ended September 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 September 30,
 
Nine Months Ended September 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)
$
450,666

 
$
631,511

 
$
250,994

 
$
452,249

 
$
1,129,251

 
$
1,614,213

 
$
898,387

 
$
1,113,036

Recorded investment in loans sold, including accrued interest
(438,900
)
 
(619,324
)
 
(246,793
)
 
(441,477
)
 
(1,107,327
)
 
(1,603,413
)
 
(878,468
)
 
(1,084,348
)
Securitization receivable

 

 

 

 

 
18,620

 

 

Interest-only strips, initial value
2,513

 

 
2,711

 

 
13,426

 
5,695

 
6,948

 

Net gains(2)
$
14,279

 
$
12,187

 
$
6,912

 
$
10,772

 
$
35,350

 
$
35,115

 
$
26,867

 
$
28,688

(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 third quarter and first nine months of 2016 were $2.1 million and $5.7 million, respectively, on the recorded investments of $95.9 million and $257.5 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 third quarter and first nine months of 2015 were $1.7 million and $4.7 million, respectively, on the recorded investments of $76.7 million and $212.9 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 third quarter and first nine months of 2016, TCF transferred the recorded investment of $519.3 million and $933.6 million, respectively, in consumer auto loans, including accrued interest, with servicing retained, to trusts in securitization transactions, received net sales proceeds of $525.7 million and $926.0 million, respectively, recorded a securitization receivable of $18.6 million in the first nine months of 2016 and recognized net gains of $6.4 million and $11.0 million, respectively, which qualified for sale accounting. During the third quarter and first nine months of 2015, TCF transferred the recorded investment of $441.5 million and $880.8 million, respectively, in consumer auto loans, including accrued interest, with servicing retained, to trusts in securitization transactions, received net sales proceeds of $452.2 million and $902.8 million, respectively, and recognized net gains of $10.8 million and $22.0 million, respectively, which qualified for sale accounting. These trusts are considered variable interest entities due to their limited capitalization and special purpose nature. TCF has concluded it is not the primary beneficiary of the trusts and they are not consolidated.

Total interest-only strips and the contractual liabilities related to loan sales are shown below.
(In thousands)
At September 30, 2016
At December 31, 2015
Interest-only strips attributable to:
 
 
Consumer real estate loan sales
$
27,238

$
19,182

Consumer auto loan sales
15,907

25,150

Contractual liabilities attributable to:
 
 
Consumer real estate loan sales
$
772

$
702

Consumer auto loan sales
173

185


TCF recorded $0.2 million and $0.8 million of impairment charges on consumer real estate loan interest-only strips for the third quarter and first nine months of 2016, respectively, compared with none for the same periods in 2015. TCF recorded $2.3 million of impairment charges on consumer auto loan interest-only strips for both the third quarter and first nine months of 2016, compared with $0.4 million and $0.9 million for the same periods in 2015.

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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 nine months ended September 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 September 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
64,765

 
$
31,161

 
$
20,124

 
$
12,084

 
$
29,772

 
$
666

 
$
158,572

Charge-offs
(4,058
)
 
(4
)
 
(2,513
)
 
(697
)
 
(6,756
)
 
(2,216
)
 
(16,244
)
Recoveries
1,838

 
80

 
671

 
129

 
999

 
1,062

 
4,779

Net (charge-offs) recoveries
(2,220
)
 
76

 
(1,842
)
 
(568
)
 
(5,757
)
 
(1,154
)
 
(11,465
)
Provision for credit losses
1,402

 
411

 
2,367

 
335

 
8,361

 
1,018

 
13,894

Other
(1,855
)
 

 

 
(44
)
 
(3,261
)
 

 
(5,160
)
Balance, end of period
$
62,092

 
$
31,648

 
$
20,649

 
$
11,807

 
$
29,115

 
$
530

 
$
155,841

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Three Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
74,687

 
$
30,205

 
$
17,669

 
$
10,879

 
$
22,061

 
$
614

 
$
156,115

Charge-offs
(6,310
)
 
(487
)
 
(1,583
)
 
(463
)
 
(4,594
)
 
(1,901
)
 
(15,338
)
Recoveries
1,832

 
514

 
702

 
319

 
915

 
1,115

 
5,397

Net (charge-offs) recoveries
(4,478
)
 
27

 
(881
)
 
(144
)
 
(3,679
)
 
(786
)
 
(9,941
)
Provision for credit losses
780

 
(226
)
 
1,389

 
546

 
6,750

 
779

 
10,018

Other
(660
)
 

 

 
(160
)
 
(1,410
)
 

 
(2,230
)
Balance, end of period
$
70,329

 
$
30,006

 
$
18,177

 
$
11,121

 
$
23,722

 
$
607

 
$
153,962


11


Table of Contents



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

 
$
30,185

 
$
19,018

 
$
11,128

 
$
26,486

 
$
1,245

 
$
156,054

Charge-offs
(14,550
)
 
(668
)
 
(6,125
)
 
(2,084
)
 
(18,683
)
 
(5,524
)
 
(47,634
)
Recoveries
5,094

 
330

 
1,834

 
696

 
2,743

 
3,435

 
14,132

Net (charge-offs) recoveries
(9,456
)
 
(338
)
 
(4,291
)
 
(1,388
)
 
(15,940
)
 
(2,089
)
 
(33,502
)
Provision for credit losses
8,963

 
1,801

 
5,922

 
1,925

 
26,001

 
1,374

 
45,986

Other
(5,407
)
 

 

 
142

 
(7,432
)
 

 
(12,697
)
Balance, end of period
$
62,092

 
$
31,648

 
$
20,649

 
$
11,807

 
$
29,115

 
$
530

 
$
155,841

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

 
$
31,367

 
$
18,446

 
$
10,020

 
$
18,230

 
$
745

 
$
164,169

Charge-offs
(27,074
)
 
(3,944
)
 
(5,447
)
 
(1,812
)
 
(12,943
)
 
(5,226
)
 
(56,446
)
Recoveries
5,626

 
2,878

 
2,205

 
626

 
2,253

 
3,902

 
17,490

Net (charge-offs) recoveries
(21,448
)
 
(1,066
)
 
(3,242
)
 
(1,186
)
 
(10,690
)
 
(1,324
)
 
(38,956
)
Provision for credit losses
8,660

 
(295
)
 
2,973

 
2,627

 
20,186

 
1,186

 
35,337

Other
(2,244
)
 

 

 
(340
)
 
(4,004
)
 

 
(6,588
)
Balance, end of period
$
70,329

 
$
30,006

 
$
18,177

 
$
11,121

 
$
23,722

 
$
607

 
$
153,962


The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology:
 
At September 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
$
37,035

 
$
31,516

 
$
18,447

 
$
11,582

 
$
27,723

 
$
528

 
$
126,831

Individually evaluated for impairment
25,057

 
132

 
2,202

 
225

 
1,392

 
2

 
29,010

Total
$
62,092

 
$
31,648

 
$
20,649

 
$
11,807

 
$
29,115

 
$
530

 
$
155,841

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,779,921

 
$
3,101,536

 
$
4,219,280

 
$
2,259,513

 
$
2,722,343

 
$
17,878

 
$
17,100,471

Individually evaluated for impairment
207,403

 
48,663

 
16,924

 
1,573

 
9,556

 
8

 
284,127

Loans acquired with deteriorated credit quality

 

 
20