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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
June 30, 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
July 28, 2017
Common Stock, $.01 par value
171,626,998 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, 2017
 
At December 31, 2016
 
(Unaudited)
 
 
Assets:
 

 
 

Cash and due from banks
$
551,463

 
$
609,603

Investments
82,737

 
74,714

Securities held to maturity
171,320

 
181,314

Securities available for sale
1,554,951

 
1,423,435

Loans and leases held for sale
172,583

 
268,832

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
2,070,385

 
2,292,596

Junior lien
2,701,592

 
2,791,756

Total consumer real estate
4,771,977

 
5,084,352

Commercial
3,488,725

 
3,286,478

Leasing and equipment finance
4,333,735

 
4,336,310

Inventory finance
2,509,485

 
2,470,175

Auto finance
3,243,144

 
2,647,741

Other
19,459

 
18,771

Total loans and leases
18,366,525

 
17,843,827

Allowance for loan and lease losses
(165,620
)
 
(160,269
)
Net loans and leases
18,200,905

 
17,683,558

Premises and equipment, net
423,745

 
418,372

Goodwill
227,072

 
225,640

Other assets
669,875

 
555,858

Total assets
$
22,054,651

 
$
21,441,326

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
6,147,423

 
$
6,009,151

Savings
4,823,552

 
4,719,481

Money market
2,128,709

 
2,421,467

Certificates of deposit
4,419,120

 
4,092,423

Total deposits
17,518,804

 
17,242,522

Short-term borrowings
8,534

 
4,391

Long-term borrowings
1,266,748

 
1,073,181

Total borrowings
1,275,282

 
1,077,572

Accrued expenses and other liabilities
710,734

 
676,587

Total liabilities
19,504,820

 
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;
 
 
 
171,532,487 and 171,034,506 shares issued, respectively
1,715

 
1,710

Additional paid-in capital
858,451

 
862,776

Retained earnings, subject to certain restrictions
1,453,355

 
1,382,901

Accumulated other comprehensive income (loss)
(17,503
)
 
(33,725
)
Treasury stock at cost, 42,566 shares, and other
(32,193
)
 
(49,419
)
Total TCF Financial Corporation stockholders' equity
2,527,065

 
2,427,483

Non-controlling interest in subsidiaries
22,766

 
17,162

Total equity
2,549,831

 
2,444,645

Total liabilities and equity
$
22,054,651

 
$
21,441,326

 
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)
2017
 
2016
 
2017
 
2016
Interest income:
 

 
 

 
 
 
 
Loans and leases
$
234,092

 
$
214,128

 
$
453,640

 
$
428,933

Securities available for sale
8,052

 
6,396

 
16,032

 
11,894

Securities held to maturity
1,035

 
1,116

 
2,315

 
2,435

Loans held for sale and other
5,338

 
12,364

 
18,837

 
23,084

Total interest income
248,517

 
234,004

 
490,824

 
466,346

Interest expense:
 

 
 

 
 
 
 
Deposits
14,436

 
15,893

 
28,151

 
30,884

Borrowings
6,920

 
5,127

 
13,398

 
10,820

Total interest expense
21,356

 
21,020

 
41,549

 
41,704

Net interest income
227,161

 
212,984

 
449,275

 
424,642

Provision for credit losses
19,446

 
13,250

 
31,639

 
32,092

Net interest income after provision for credit losses
207,715

 
199,734

 
417,636

 
392,550

Non-interest income:
 

 
 

 
 
 
 
Fees and service charges
32,733

 
34,622

 
64,015

 
67,439

Card revenue
14,154

 
14,083

 
27,304

 
27,446

ATM revenue
5,061

 
5,288

 
9,736

 
10,309

Subtotal
51,948

 
53,993

 
101,055

 
105,194

Gains on sales of auto loans, net
380

 
10,143

 
3,244

 
22,063

Gains on sales of consumer real estate loans, net
8,980

 
10,839

 
17,871

 
20,223

Servicing fee income
10,730

 
9,502

 
22,381

 
18,385

Subtotal
20,090

 
30,484

 
43,496

 
60,671

Leasing and equipment finance
39,830

 
31,074

 
68,128

 
59,561

Other
2,795

 
2,405

 
5,498

 
5,248

Fees and other revenue
114,663

 
117,956

 
218,177

 
230,674

Gains (losses) on securities, net

 

 

 
(116
)
Total non-interest income
114,663

 
117,956

 
218,177

 
230,558

Non-interest expense:
 

 
 

 
 
 
 
Compensation and employee benefits
115,918

 
118,093

 
240,395

 
242,566

Occupancy and equipment
38,965

 
36,884

 
78,565

 
73,892

Other
61,075

 
59,416

 
125,112

 
112,764

Subtotal
215,958

 
214,393

 
444,072

 
429,222

Operating lease depreciation
12,466

 
9,842

 
23,708

 
19,415

Foreclosed real estate and repossessed assets, net
4,639

 
3,135

 
9,188

 
7,055

Other credit costs, net
24

 
(54
)
 
125

 
(42
)
Total non-interest expense
233,087

 
227,316

 
477,093

 
455,650

Income before income tax expense
89,291

 
90,374

 
158,720

 
167,458

Income tax expense
25,794

 
29,706

 
46,637

 
56,509

Income after income tax expense
63,497

 
60,668

 
112,083

 
110,949

Income attributable to non-controlling interest
3,065

 
2,974

 
5,373

 
5,209

Net income attributable to TCF Financial Corporation
60,432

 
57,694

 
106,710

 
105,740

Preferred stock dividends
4,847

 
4,847

 
9,694

 
9,694

Net income available to common stockholders
$
55,585

 
$
52,847

 
$
97,016

 
$
96,046

Earnings per common share:
 

 
 

 
 
 
 
Basic
$
0.33

 
$
0.32

 
$
0.58

 
$
0.57

Diluted
$
0.33

 
$
0.31

 
$
0.58

 
$
0.57

 
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)
2017
 
2016
 
2017
 
2016
Net income attributable to TCF Financial Corporation
$
60,432

 
$
57,694

 
$
106,710

 
$
105,740

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Net unrealized gains (losses) on securities available for sale and interest-only strips
12,341

 
13,568

 
15,110

 
25,605

Net unrealized gains (losses) on net investment hedges
(1,149
)
 
(210
)
 
(1,462
)
 
(2,230
)
Foreign currency translation adjustment
2,007

 
339

 
2,588

 
3,748

Recognized postretirement prior service cost
(7
)
 
(7
)
 
(14
)
 
(14
)
Total other comprehensive income (loss), net of tax
13,192

 
13,690

 
16,222

 
27,109

Comprehensive income
$
73,624

 
$
71,384

 
$
122,932

 
$
132,849

 
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
Interest
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





105,740



105,740

5,209

110,949

Other comprehensive income (loss), net of tax






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
)
Common shares purchased by TCF employee benefit plans

511,420


5

5,833




5,838


5,838

Stock compensation plans, net of tax

650,068


6

3,251




3,257


3,257

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

 
 
 
 
 
 
 
 
 
 
 
 
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





106,710



106,710

5,373

112,083

Other comprehensive income (loss), net of tax






16,222


16,222


16,222

Net investment by (distribution to) non-controlling interest









231

231

Dividends on preferred stock





(9,694
)


(9,694
)

(9,694
)
Dividends on common stock





(25,243
)


(25,243
)

(25,243
)
Common shares purchased by TCF employee benefit plans

752,177


8

12,586




12,594


12,594

Stock compensation plans, net of tax

(254,196
)

(3
)
(1,004
)



(1,007
)

(1,007
)
Change in shares held in trust for deferred compensation plans, at cost




(17,226
)


17,226




Balance, June 30, 2017
4,006,900

171,532,487

$
263,240

$
1,715

$
858,451

$
1,453,355

$
(17,503
)
$
(32,193
)
$
2,527,065

$
22,766

$
2,549,831

See accompanying notes to consolidated financial statements.

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(In thousands)
2017
 
2016
Cash flows from operating activities:
 

 
 

Net income
$
112,083

 
$
110,949

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

 
 

Provision for credit losses
31,639

 
32,092

Depreciation and amortization
94,919

 
91,851

Provision for deferred income taxes
4,567

 
15,059

Proceeds from sales of loans and leases held for sale
120,929

 
579,590

Originations of loans and leases held for sale, net of repayments
(289,094
)
 
(598,127
)
Gains on sales of assets, net
(26,112
)
 
(49,438
)
Net change in other assets and accrued expenses and other liabilities
(80,440
)
 
110,376

Other, net
(22,909
)
 
(16,317
)
Net cash provided by (used in) operating activities
(54,418
)
 
276,035

Cash flows from investing activities:
 

 
 

Proceeds from maturities of and principal collected on securities
66,774

 
57,712

Purchases of securities
(153,131
)
 
(414,157
)
Redemption of Federal Home Loan Bank stock
137,001

 
70,966

Purchases of Federal Home Loan Bank stock
(145,000
)
 
(62,040
)
Proceeds from sales of loans and leases
891,838

 
1,118,492

Loan and lease originations and purchases, net of principal collected on loans and leases
(754,427
)
 
(875,878
)
Acquisition of Equipment Financing & Leasing Corporation, net of cash acquired
(8,120
)
 

Proceeds from sales of lease equipment
3,959

 
7,396

Purchases of lease equipment
(508,624
)
 
(556,489
)
Proceeds from sales of real estate owned
28,205

 
40,514

Purchases of premises and equipment
(21,863
)
 
(13,888
)
Other, net
14,528

 
11,913

Net cash provided by (used in) investing activities
(448,860
)
 
(615,459
)
Cash flows from financing activities:
 

 
 

Net change in deposits
272,729

 
448,111

Net change in short-term borrowings
3,966

 
(909
)
Proceeds from long-term borrowings
5,799,831

 
2,204,207

Payments on long-term borrowings
(5,609,219
)
 
(2,504,467
)
Net investment by (distribution to) non-controlling interest
231

 
450

Dividends paid on preferred stock
(9,694
)
 
(9,694
)
Dividends paid on common stock
(25,243
)
 
(25,068
)
Stock compensation tax (expense) benefit

 
(387
)
Common shares sold to TCF employee benefit plans
12,594

 
5,838

Exercise of stock options
(57
)
 

Net cash provided by (used in) financing activities
445,138

 
118,081

Net change in cash and due from banks
(58,140
)
 
(221,343
)
Cash and due from banks at beginning of period
609,603

 
889,337

Cash and due from banks at end of period
$
551,463

 
$
667,994

Supplemental disclosures of cash flow information:
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
38,715

 
$
40,224

Income taxes, net
51,010

 
(21,732
)
Transfer of loans and leases to other assets
47,935

 
49,096

Transfer of loans and leases from held for investment to held for sale, net
628,438

 
1,298,685

See accompanying notes to consolidated financial statements.

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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.

During the second quarter of 2017, the Company adopted Accounting Standards Update ("ASU") No. 2017-08: Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which clarifies the premium amortization period on purchased callable debt securities should be to the earliest call date, rather than the contractual maturity date. The adoption of this ASU was on a modified retrospective basis and required any adjustments as a result of the adoption during an interim period to be reflected as of January 1, 2017. The adoption of this ASU did not impact results of operations, retained earnings or cash flows.

Effective January 1, 2017, the Company adopted 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 June 30, 2017 and December 31, 2016, TCF Bank was required by Federal Reserve regulations to maintain reserves of $103.2 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 $49.0 million and $51.3 million at June 30, 2017 and December 31, 2016, respectively.

TCF had cash held in interest-bearing accounts of $267.8 million and $326.5 million at June 30, 2017 and December 31, 2016, respectively.

Note 3.  Securities Available for Sale and Securities Held to Maturity
 
Securities were as follows:
 
At June 30, 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
$
838,701

 
$
685

 
$
12,246

 
$
827,140

 
$
827,722

 
$
423

 
$
17,254

 
$
810,891

Other
11

 

 

 
11

 
18

 

 

 
18

Obligations of states and political subdivisions
726,141

 
8,473

 
6,814

 
727,800

 
628,972

 
394

 
16,840

 
612,526

Total securities available for sale
$
1,564,853

 
$
9,158

 
$
19,060

 
$
1,554,951

 
$
1,456,712

 
$
817

 
$
34,094

 
$
1,423,435

Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
168,520

 
$
4,610

 
$
344

 
$
172,786

 
$
178,514

 
$
3,072

 
$
440

 
$
181,146

Other securities
2,800

 

 

 
2,800

 
2,800

 

 

 
2,800

Total securities held to maturity
$
171,320

 
$
4,610

 
$
344

 
$
175,586

 
$
181,314

 
$
3,072

 
$
440

 
$
183,946

 
There were no sales of securities available for sale or impairment charges recognized during the second quarter and first six months of 2017 and 2016, respectively. At June 30, 2017 and December 31, 2016, mortgage-backed securities with a carrying value of $8.8 million and $7.5 million, respectively, were pledged as collateral to secure certain deposits and borrowings. Unrealized losses on securities available for sale were 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 second quarter and first six months of 2017 and for the second quarter of 2016 and $0.1 million for the first six months 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 June 30, 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
$
706,691

 
$
12,246

 
$

 
$

 
$
706,691

 
$
12,246

Obligations of states and political subdivisions
302,930

 
6,198

 
13,008

 
616

 
315,938

 
6,814

Total securities available for sale
$
1,009,621

 
$
18,444

 
$
13,008

 
$
616

 
$
1,022,629

 
$
19,060

 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
25,450

 
$
323

 
$
489

 
$
21

 
$
25,939

 
$
344

Total securities held to maturity
$
25,450

 
$
323

 
$
489

 
$
21

 
$
25,939

 
$
344

 
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 June 30, 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
$
3

 
$
3

 
$
1

 
$
1

Due in 1-5 years
5,591

 
5,714

 
18

 
18

Due in 5-10 years
384,638

 
390,545

 
331,430

 
329,005

Due after 10 years
1,174,621

 
1,158,689

 
1,125,263

 
1,094,411

Total securities available for sale
$
1,564,853

 
$
1,554,951

 
$
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
168,520

 
172,786

 
178,514

 
181,146

Total securities held to maturity
$
171,320

 
$
175,586

 
$
181,314

 
$
183,946


8


Table of Contents




Interest income attributable to securities available for sale was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2017
 
2016
 
2017
 
2016
Taxable interest income
$
4,434

 
$
3,853

 
$
9,088

 
$
7,671

Tax-exempt interest income
3,618

 
2,543

 
6,944

 
4,223

Total interest income
$
8,052

 
$
6,396

 
$
16,032

 
$
11,894


Note 4Loans and Leases

Loans and leases were as follows:
(In thousands)
At June 30, 2017
 
At December 31, 2016
Consumer real estate:
 

 
 

First mortgage lien
$
2,070,385

 
$
2,292,596

Junior lien
2,701,592

 
2,791,756

Total consumer real estate
4,771,977

 
5,084,352

Commercial:
 

 
 

Commercial real estate:
 

 
 

Permanent
2,381,937

 
2,356,287

Construction and development
340,363

 
277,904

Total commercial real estate
2,722,300

 
2,634,191

Commercial business
766,425

 
652,287

Total commercial
3,488,725

 
3,286,478

Leasing and equipment finance
4,333,735

 
4,336,310

Inventory finance
2,509,485

 
2,470,175

Auto finance
3,243,144

 
2,647,741

Other
19,459

 
18,771

Total loans and leases(1)
$
18,366,525

 
$
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 $59.5 million and $54.1 million at June 30, 2017 and December 31, 2016, respectively.
 

9


Table of Contents



The following table summarizes the net sales proceeds for consumer real estate and auto finance loans sold, the securitization receivable recorded, the interest-only strips received, the recorded investment in loans sold, including accrued interest, and the net gains. TCF generally retains servicing on loans sold. Included in consumer real estate loans sold in the six months ended June 30, 2017 were $49.4 million of non-accrual loans, which were sold servicing released in the first quarter of 2017. The auto finance securitizations included in the three and six months ended June 30, 2016 qualify for sale accounting and are executed by transferring the recorded investment to trusts. 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 therefore, they are not consolidated. 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 June 30, 2017
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
283,027

 
$
48,452

 
$

 
$
48,452

Interest-only strips, initial value
569

 

 

 

Recorded investment in loans sold, including accrued interest
(274,706
)
 
(47,993
)
 

 
(47,993
)
Net gains(2)
$
8,890

 
$
459

 
$

 
$
459

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2016
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
351,624

 
$
128,714

 
$
400,241

 
$
528,955

Securitization receivable

 

 
18,620

 
18,620

Interest-only strips, initial value
5,252

 
854

 

 
854

Recorded investment in loans sold, including accrued interest
(345,926
)
 
(123,401
)
 
(414,323
)
 
(537,724
)
Net gains(2)
$
10,950

 
$
6,167

 
$
4,538

 
$
10,705

 
 
 
 
 
 
Six Months Ended June 30, 2017
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
671,717

 
$
302,616

 
$

 
$
302,616

Interest-only strips, initial value
1,916

 

 

 

Recorded investment in loans sold, including accrued interest
(655,468
)
 
(298,581
)
 

 
(298,581
)
Net gains(2)
$
18,165

 
$
4,035

 
$

 
$
4,035

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
678,585

 
$
582,461

 
$
400,241

 
$
982,702

Securitization receivable

 

 
18,620

 
18,620

Interest-only strips, initial value
10,913

 
5,695

 

 
5,695

Recorded investment in loans sold, including accrued interest
(668,427
)
 
(569,766
)
 
(414,323
)
 
(984,089
)
Net gains(2)
$
21,071

 
$
18,390

 
$
4,538

 
$
22,928

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


10


Table of Contents



Total interest-only strips and the contractual liabilities related to loan sales were as follows:
(In thousands)
At June 30, 2017
At December 31, 2016
Interest-only strips attributable to:
 
 
Consumer real estate loan sales
$
24,501

$
27,260

Auto finance loan sales
8,081

12,892

Contractual liabilities attributable to:
 
 
Consumer real estate loan sales
$
818

$
701

Auto finance loan sales

168


TCF recorded $296 thousand and $875 thousand of impairment charges on the consumer real estate interest-only strips for the three and six months ended June 30, 2017, respectively, compared with $623 thousand for each of the same periods in 2016. TCF recorded $141 thousand and $165 thousand of impairment charges on the auto finance interest-only strips for the three and six months ended June 30, 2017, respectively, compared with $3 thousand and $8 thousand for the same periods 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 six months ended June 30, 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.


11


Table of Contents



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 June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
53,851

 
$
33,697

 
$
21,257

 
$
15,816

 
$
35,108

 
$
437

 
$
160,166

Charge-offs
(2,813
)
 
(2,699
)
 
(2,244
)
 
(887
)
 
(8,204
)
 
(1,479
)
 
(18,326
)
Recoveries
1,699

 
194

 
746

 
275

 
1,667

 
831

 
5,412

Net (charge-offs) recoveries
(1,114
)
 
(2,505
)
 
(1,498
)
 
(612
)
 
(6,537
)
 
(648
)
 
(12,914
)
Provision for credit losses
253

 
3,477

 
2,167

 
(3,108
)
 
15,847

 
810

 
19,446

Other
(582
)
 

 
(4
)
 
33

 
(525
)
 

 
(1,078
)
Balance, end of period
$
52,408

 
$
34,669

 
$
21,922

 
$
12,129

 
$
43,893

 
$
599

 
$
165,620

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
(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, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
59,448

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

Charge-offs
(6,265
)
 
(5,431
)
 
(4,290
)
 
(1,106
)
 
(17,017
)
 
(3,119
)
 
(37,228
)
Recoveries
12,391

 
259

 
1,360

 
394

 
2,900

 
1,921

 
19,225

Net (charge-offs) recoveries
6,126

 
(5,172
)
 
(2,930
)
 
(712
)
 
(14,117
)
 
(1,198
)
 
(18,003
)
Provision for credit losses
(7,884
)
 
7,146

 
3,553

 
(1,143
)
 
28,704

 
1,263

 
31,639

Other
(5,282
)
 

 
(51
)
 
52

 
(3,004
)
 

 
(8,285
)
Balance, end of period
$
52,408

 
$
34,669

 
$
21,922

 
$
12,129

 
$
43,893

 
$
599

 
$
165,620

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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



12


Table of Contents



The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology were as follows:
 
At June 30, 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
$
31,923

 
$
34,546

 
$
19,194

 
$
11,806

 
$
43,285

 
$
598

 
$
141,352

Individually evaluated for impairment
20,485

 
123

 
2,728

 
323

 
608

 
1

 
24,268

Total
$
52,408

 
$
34,669

 
$
21,922

 
$
12,129

 
$
43,893

 
$
599

 
$
165,620

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,609,950

 
$
3,451,052

 
$
4,315,718

 
$
2,505,997

 
$
3,233,712

 
$
19,455

 
$
18,135,884

Individually evaluated for impairment
162,027

 
37,673

 
18,006

 
3,488

 
9,432

 
4

 
230,630

Loans acquired with deteriorated credit quality

 

 
11

 

 

 

 
11

Total
$
4,771,977

 
$
3,488,725

 
$
4,333,735

 
$
2,509,485

 
$
3,243,144

 
$
19,459

 
$
18,366,525

 
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