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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
September 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
October 31, 2017
Common Stock, $.01 par value
171,932,389 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, 2017
 
At December 31, 2016
 
(Unaudited)
 
 
Assets:
 

 
 

Cash and due from banks
$
711,734

 
$
609,603

Investments
87,690

 
74,714

Securities held to maturity
165,315

 
181,314

Securities available for sale
1,598,163

 
1,423,435

Loans and leases held for sale
254,903

 
268,832

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
1,953,199

 
2,292,596

Junior lien
2,977,613

 
2,791,756

Total consumer real estate
4,930,812

 
5,084,352

Commercial
3,489,680

 
3,286,478

Leasing and equipment finance
4,730,931

 
4,336,310

Inventory finance
2,576,077

 
2,470,175

Auto finance
3,240,413

 
2,647,741

Other
20,439

 
18,771

Total loans and leases
18,988,352

 
17,843,827

Allowance for loan and lease losses
(168,244
)
 
(160,269
)
Net loans and leases
18,820,108

 
17,683,558

Premises and equipment, net
425,112

 
418,372

Goodwill
227,798

 
225,640

Other assets
714,215

 
555,858

Total assets
$
23,005,038

 
$
21,441,326

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
6,197,608

 
$
6,009,151

Savings
4,972,529

 
4,719,481

Money market
1,965,291

 
2,421,467

Certificates of deposit
4,972,058

 
4,092,423

Total deposits
18,107,486

 
17,242,522

Short-term borrowings

 
4,391

Long-term borrowings
1,382,588

 
1,073,181

Total borrowings
1,382,588

 
1,077,572

Accrued expenses and other liabilities
918,450

 
676,587

Total liabilities
20,408,524

 
18,996,681

Equity:
 

 
 

Preferred stock, par value $0.01 per share, 30,000,000 shares authorized;
 
 
 
4,007,000 and 4,006,900 shares issued, respectively
265,967

 
263,240

Common stock, par value $0.01 per share, 280,000,000 shares authorized;
 
 
 
171,876,492 and 171,034,506 shares issued, respectively
1,719

 
1,710

Additional paid-in capital
864,632

 
862,776

Retained earnings, subject to certain restrictions
1,488,966

 
1,382,901

Accumulated other comprehensive income (loss)
(13,809
)
 
(33,725
)
Treasury stock at cost, 42,566 shares, and other
(30,867
)
 
(49,419
)
Total TCF Financial Corporation stockholders' equity
2,576,608

 
2,427,483

Non-controlling interest in subsidiaries
19,906

 
17,162

Total equity
2,596,514

 
2,444,645

Total liabilities and equity
$
23,005,038

 
$
21,441,326

 
See accompanying notes to consolidated financial statements.


1


Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
 
Quarter Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(In thousands, except per-share data)
2017
 
2016
 
2017
 
2016
Interest income:
 

 
 

 
 
 
 
Loans and leases
$
243,973

 
$
210,765

 
$
697,613

 
$
639,698

Securities available for sale
8,486

 
7,126

 
24,518

 
19,020

Securities held to maturity
1,073

 
1,049

 
3,388

 
3,484

Loans held for sale and other
4,073

 
13,786

 
22,910

 
36,870

Total interest income
257,605

 
232,726

 
748,429

 
699,072

Interest expense:
 

 
 

 
 
 
 
Deposits
17,015

 
15,851

 
45,166

 
46,735

Borrowings
6,487

 
4,857

 
19,885

 
15,677

Total interest expense
23,502

 
20,708

 
65,051

 
62,412

Net interest income
234,103

 
212,018

 
683,378

 
636,660

Provision for credit losses
14,545

 
13,894

 
46,184

 
45,986

Net interest income after provision for credit losses
219,558

 
198,124

 
637,194

 
590,674

Non-interest income:
 

 
 

 
 
 
 
Fees and service charges
34,605

 
35,093

 
98,620

 
102,532

Card revenue
14,177

 
13,747

 
41,481

 
41,193

ATM revenue
5,234

 
5,330

 
14,970

 
15,639

Subtotal
54,016

 
54,170

 
155,071

 
159,364

Gains on sales of auto loans, net

 
11,624

 
3,244

 
33,687

Gains on sales of consumer real estate loans, net
8,049

 
13,528

 
25,920

 
33,751

Servicing fee income
9,966

 
10,393

 
32,347

 
28,778

Subtotal
18,015

 
35,545

 
61,511

 
96,216

Leasing and equipment finance
34,080

 
28,289

 
102,208

 
87,850

Other
2,930

 
2,270

 
8,428

 
7,518

Fees and other revenue
109,041

 
120,274

 
327,218

 
350,948

Gains (losses) on securities, net
189

 
(600
)
 
189

 
(716
)
Total non-interest income
109,230

 
119,674

 
327,407

 
350,232

Non-interest expense:
 

 
 

 
 
 
 
Compensation and employee benefits
115,127

 
117,155

 
355,522

 
359,721

Occupancy and equipment
38,766

 
37,938

 
117,331

 
111,830

Other
61,408

 
59,421

 
186,520

 
172,185

Subtotal
215,301

 
214,514

 
659,373

 
643,736

Operating lease depreciation
15,696

 
10,038

 
39,404

 
29,453

Foreclosed real estate and repossessed assets, net
3,829

 
4,243

 
13,017

 
11,298

Other credit costs, net
209

 
83

 
334

 
41

Total non-interest expense
235,035

 
228,878

 
712,128

 
684,528

Income before income tax expense
93,753

 
88,920

 
252,473

 
256,378

Income tax expense
30,704

 
30,257

 
77,341

 
86,766

Income after income tax expense
63,049

 
58,663

 
175,132

 
169,612

Income attributable to non-controlling interest
2,521

 
2,371

 
7,894

 
7,580

Net income attributable to TCF Financial Corporation
60,528

 
56,292

 
167,238

 
162,032

Preferred stock dividends
6,464

 
4,847

 
16,158

 
14,541

Impact of notice to redeem preferred stock
5,779

 

 
5,779

 

Net income available to common stockholders
$
48,285

 
$
51,445

 
$
145,301

 
$
147,491

Earnings per common share:
 

 
 

 
 
 
 
Basic
$
0.29

 
$
0.31

 
$
0.86

 
$
0.88

Diluted
$
0.29

 
$
0.31

 
$
0.86

 
$
0.88

 
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)
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2017
 
2016
 
2017
 
2016
Net income attributable to TCF Financial Corporation
$
60,528

 
$
56,292

 
$
167,238

 
$
162,032

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Net unrealized gains (losses) on securities available for sale and interest-only strips
2,445

 
(4,464
)
 
17,555

 
21,141

Net unrealized gains (losses) on net investment hedges
(1,682
)
 
561

 
(3,144
)
 
(1,669
)
Foreign currency translation adjustment
2,939

 
(957
)
 
5,527

 
2,791

Recognized postretirement prior service cost
(8
)
 
(8
)
 
(22
)
 
(22
)
Total other comprehensive income (loss), net of tax
3,694

 
(4,868
)
 
19,916

 
22,241

Comprehensive income
$
64,222

 
$
51,424

 
$
187,154

 
$
184,273

 
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





162,032



162,032

7,580

169,612

Other comprehensive income (loss), net of tax






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
)
Common shares purchased by TCF employee benefit plans

511,420


5

5,833




5,838


5,838

Stock compensation plans, net of tax

595,350


6

4,585




4,591


4,591

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

 
 
 
 
 
 
 
 
 
 
 
 
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





167,238



167,238

7,894

175,132

Other comprehensive income (loss), net of tax






19,916


19,916


19,916

Net investment by (distribution to) non-controlling interest









(5,150
)
(5,150
)
Public offering of Series C preferred stock
7,000


169,448






169,448


169,448

Notice to redeem Series A preferred stock
(6,900
)

(166,721
)


(5,779
)


(172,500
)

(172,500
)
Dividends on preferred stock





(16,158
)


(16,158
)

(16,158
)
Dividends on common stock





(37,917
)


(37,917
)

(37,917
)
Common shares purchased by TCF employee benefit plans

1,079,753


11

17,691




17,702


17,702

Stock compensation plans, net of tax

(237,767
)

(2
)
1,398




1,396


1,396

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




(18,552
)


18,552




Balance, September 30, 2017
4,007,000

171,876,492

$
265,967

$
1,719

$
864,632

$
1,488,966

$
(13,809
)
$
(30,867
)
$
2,576,608

$
19,906

$
2,596,514

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)
2017
 
2016
Cash flows from operating activities:
 

 
 

Net income
$
175,132

 
$
169,612

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

 
 

Provision for credit losses
46,184

 
45,986

Depreciation and amortization
149,313

 
135,103

Provision for deferred income taxes
17,685

 
31,527

Proceeds from sales of loans and leases held for sale
188,756

 
867,669

Originations of loans and leases held for sale, net of repayments
(359,109
)
 
(904,503
)
Gains on sales of assets, net
(37,023
)
 
(75,660
)
Net change in other assets and accrued expenses and other liabilities
(95,267
)
 
76,215

Other, net
(33,057
)
 
(21,562
)
Net cash provided by (used in) operating activities
52,614

 
324,387

Cash flows from investing activities:
 

 
 

Proceeds from maturities of and principal collected on securities
105,561

 
101,166

Purchases of securities
(238,586
)
 
(584,524
)
Redemption of Federal Home Loan Bank stock
190,001

 
102,966

Purchases of Federal Home Loan Bank stock
(203,000
)
 
(92,080
)
Proceeds from sales of loans and leases
1,156,854

 
1,926,290

Loan and lease originations and purchases, net of principal collected on loans and leases
(1,541,913
)
 
(1,358,906
)
Acquisition of Equipment Financing & Leasing Corporation, net of cash acquired
(8,120
)
 

Proceeds from sales of lease equipment
7,430

 
11,348

Purchases of lease equipment
(743,819
)
 
(840,650
)
Proceeds from sales of real estate owned
39,102

 
53,045

Purchases of premises and equipment
(36,376
)
 
(22,192
)
Other, net
22,099

 
16,937

Net cash provided by (used in) investing activities
(1,250,767
)
 
(686,600
)
Cash flows from financing activities:
 

 
 

Net change in deposits
869,029

 
514,217

Net change in short-term borrowings
(4,746
)
 
(4,084
)
Proceeds from long-term borrowings
7,931,686

 
3,241,585

Payments on long-term borrowings
(7,625,170
)
 
(3,570,356
)
Net proceeds from public offering of Series C preferred stock
169,448

 

Net investment by (distribution to) non-controlling interest
(5,150
)
 
(4,655
)
Dividends paid on preferred stock
(14,541
)
 
(14,541
)
Dividends paid on common stock
(37,917
)
 
(37,623
)
Stock compensation tax (expense) benefit

 
(340
)
Common shares sold to TCF employee benefit plans
17,702

 
5,838

Exercise of stock options
(57
)
 
(684
)
Net cash provided by (used in) financing activities
1,300,284

 
129,357

Net change in cash and due from banks
102,131

 
(232,856
)
Cash and due from banks at beginning of period
609,603

 
889,337

Cash and due from banks at end of period
$
711,734

 
$
656,481

Supplemental disclosures of cash flow information:
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
60,561

 
$
59,753

Income taxes, net
53,621

 
(12,235
)
Transfer of loans and leases to other assets
74,958

 
76,417

Transfer of loans and leases from held for investment to held for sale, net
965,532

 
2,097,857

Transfer of mandatorily redeemable Series A preferred stock to accrued expenses and other liabilities
172,500

 

See accompanying notes to consolidated financial statements.

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Table of Contents



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

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

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

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.


6


Table of Contents



Note 2Cash and Due from Banks
 
At September 30, 2017 and December 31, 2016, TCF Bank was required by Federal Reserve regulations to maintain reserves of $108.2 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 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 $38.8 million and $51.3 million at September 30, 2017 and December 31, 2016, respectively.

TCF had cash held in interest-bearing accounts of $429.0 million and $326.5 million at September 30, 2017 and December 31, 2016, respectively.

Note 3.  Securities Available for Sale and Securities Held to Maturity
 
Securities were as follows:
 
At September 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
$
838,801

 
$
1,040

 
$
9,220

 
$
830,621

 
$
827,722

 
$
423

 
$
17,254

 
$
810,891

Other
8

 

 

 
8

 
18

 

 

 
18

Obligations of states and political subdivisions
764,534

 
8,709

 
5,709

 
767,534

 
628,972

 
394

 
16,840

 
612,526

Total securities available for sale
$
1,603,343

 
$
9,749

 
$
14,929

 
$
1,598,163

 
$
1,456,712

 
$
817

 
$
34,094

 
$
1,423,435

Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
162,515

 
$
5,068

 
$
281

 
$
167,302

 
$
178,514

 
$
3,072

 
$
440

 
$
181,146

Other securities
2,800

 

 

 
2,800

 
2,800

 

 

 
2,800

Total securities held to maturity
$
165,315

 
$
5,068

 
$
281

 
$
170,102

 
$
181,314

 
$
3,072

 
$
440

 
$
183,946

 
At September 30, 2017 and December 31, 2016, mortgage-backed securities with a carrying value of $1.1 million and $7.5 million, respectively, were pledged as collateral to secure certain deposits and borrowings. We have assessed each security with unrealized losses included in the table above for credit impairment. As part of that assessment we evaluated and concluded that we do not intend to sell any of the securities and that it is more likely than not that we will not be required to sell prior to recovery of the amortized cost. Unrealized losses on securities available for sale and securities held to maturity were due to changes in interest rates.
 
Gains (losses) on securities, net was $0.2 million for the third quarter and first nine months of 2017, compared with $(0.6) million and $(0.7) million for the same periods in 2016. There were no sales or impairment charges for securities available for sale during the third quarter and first nine months of 2017 and 2016. TCF received $0.2 million in recoveries on previously impaired securities held to maturity for the third quarter and first nine months of 2017 compared to impairment charges of $0.6 million and $0.7 million for the same periods in 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 September 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
$
405,892

 
$
3,936

 
$
207,494

 
$
5,284

 
$
613,386

 
$
9,220

Obligations of states and political subdivisions
128,741

 
821

 
203,775

 
4,888

 
332,516

 
5,709

Total securities available for sale
$
534,633

 
$
4,757

 
$
411,269

 
$
10,172

 
$
945,902

 
$
14,929

 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
17,988

 
$
142

 
$
4,808

 
$
139

 
$
22,796

 
$
281

Total securities held to maturity
$
17,988

 
$
142

 
$
4,808

 
$
139

 
$
22,796

 
$
281

 
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 September 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
$
8

 
$
8

 
$
1

 
$
1

Due in 1-5 years
9,547

 
9,757

 
18

 
18

Due in 5-10 years
448,223

 
453,761

 
331,430

 
329,005

Due after 10 years
1,145,565

 
1,134,637

 
1,125,263

 
1,094,411

Total securities available for sale
$
1,603,343

 
$
1,598,163

 
$
1,456,712

 
$
1,423,435

 
 
 
 
 
 
 
 
Securities held to maturity:
 

 
 

 
 

 
 

Due in one year or less
$
1,000

 
$
1,000

 
$

 
$

Due in 1-5 years
400

 
400

 
1,400

 
1,400

Due in 5-10 years
1,400

 
1,400

 
1,400

 
1,400

Due after 10 years
162,515

 
167,302

 
178,514

 
181,146

Total securities held to maturity
$
165,315

 
$
170,102

 
$
181,314

 
$
183,946


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Table of Contents




Interest income attributable to securities available for sale was as follows:
 
Quarter Ended 
 September 30,
 
Nine Months Ended September 30,
(In thousands)
2017
 
2016
 
2017
 
2016
Taxable interest income
$
4,619

 
$
4,167

 
$
13,707

 
$
11,838

Tax-exempt interest income
3,867

 
2,959

 
10,811

 
7,182

Total interest income
$
8,486

 
$
7,126

 
$
24,518

 
$
19,020


Note 4Loans and Leases

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

 
 

First mortgage lien
$
1,953,199

 
$
2,292,596

Junior lien
2,977,613

 
2,791,756

Total consumer real estate
4,930,812

 
5,084,352

Commercial:
 

 
 

Commercial real estate:
 

 
 

Permanent
2,373,001

 
2,356,287

Construction and development
338,667

 
277,904

Total commercial real estate
2,711,668

 
2,634,191

Commercial business
778,012

 
652,287

Total commercial
3,489,680

 
3,286,478

Leasing and equipment finance
4,730,931

 
4,336,310

Inventory finance
2,576,077

 
2,470,175

Auto finance
3,240,413

 
2,647,741

Other
20,439

 
18,771

Total loans and leases(1)
$
18,988,352

 
$
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 $43.2 million and $54.1 million at September 30, 2017 and December 31, 2016, respectively.
 

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Table of Contents



Loan Sales The following tables summarize 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, as applicable. TCF generally retains servicing on loans sold. Included in consumer real estate loans sold in the third quarter and first nine months of 2017 were $21.8 million and $71.2 million, respectively, of non-accrual loans, which were sold servicing released. The auto finance securitizations included in the third quarter and first nine months of 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.
 
Quarter Ended September 30, 2017
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
300,038

 
$

 
$

 
$

Interest-only strips, initial value
542

 

 

 

Recorded investment in loans sold, including accrued interest
(292,267
)
 

 

 

Net gains(2)
$
8,313

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Quarter Ended September 30, 2016
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
450,666

 
$
105,766

 
$
525,745

 
$
631,511

Interest-only strips, initial value
2,513

 

 

 

Recorded investment in loans sold, including accrued interest
(438,900
)
 
(100,009
)
 
(519,315
)
 
(619,324
)
Net gains(2)
$
14,279

 
$
5,757

 
$
6,430

 
$
12,187

 
 
 
 
 
 
Nine Months Ended September 30, 2017
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
971,755

 
$
302,616

 
$

 
$
302,616

Interest-only strips, initial value
2,458

 

 

 

Recorded investment in loans sold, including accrued interest
(947,735
)
 
(298,581
)
 

 
(298,581
)
Net gains(2)
$
26,478

 
$
4,035

 
$

 
$
4,035

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
(In thousands)
Consumer Real Estate Loans
 
Auto Finance Loans
 
Auto Finance Securitizations
 
Total Auto Finance Loans
Sales proceeds, net(1)
$
1,129,251

 
$
688,227

 
$
925,986

 
$
1,614,213

Securitization receivable

 

 
18,620

 
18,620

Interest-only strips, initial value
13,426

 
5,695

 

 
5,695

Recorded investment in loans sold, including accrued interest
(1,107,327
)
 
(669,775
)
 
(933,638
)
 
(1,603,413
)
Net gains(2)
$
35,350

 
$
24,147

 
$
10,968

 
$
35,115

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

Total interest-only strips and the contractual liabilities related to loan sales were as follows:
(In thousands)
At September 30, 2017
At December 31, 2016
Interest-only strips attributable to:
 
 
Consumer real estate loan sales
$
17,445

$
27,260

Auto finance loan sales
6,352

12,892

Contractual liabilities attributable to:
 
 
Consumer real estate loan sales
$
1,082

$
701

Auto finance loan sales

168



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Table of Contents



TCF recorded no impairment charges on the consumer real estate interest-only strips in the third quarter and $0.9 million of impairment charges for the first nine months of 2017, respectively, compared with $0.2 million and $0.8 million for the same periods in 2016. TCF recorded $0.2 million and $0.4 million of impairment charges on the auto finance interest-only strips for the third quarter and first nine months of 2017, respectively, compared with $2.3 million for each of 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 first nine months of 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.

Acquired Loans and Leases TCF acquires loans and leases through business combinations and purchases of loan and lease portfolios. These loans and leases are recorded at fair value at acquisition and the fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan or lease. Loans are considered purchased credit impaired ("PCI") loans if it is probable at acquisition that all contractually required payments will not be collected. Upon acquisition, the acquired PCI loans are recorded at fair value without a corresponding allowance for loan losses as the non-accretable discount is adequate to absorb expected remaining credit losses. The excess of expected cash flows to be collected over the initial fair value of the acquired portfolios is referred to as the accretable yield and is accreted into interest income over the estimated life of the acquired portfolios using the effective yield method. The accretable yield is affected by changes in interest rate indices for variable-rate acquired portfolios, changes in prepayment assumptions and changes in the expected principal and interest payments over the estimated life of the loan. These acquired loans are classified as accruing and interest income continues to be recognized unless expected credit losses exceed the non-accretable discount.

TCF purchased loans and leases at fair value of $624.6 million and $631.5 million during the third quarter and first nine months of 2017, respectively, compared with $17.5 million for each of the same periods in 2016. Included in loans and leases acquired during the third quarter of 2017 were $14.0 million of leasing and equipment finance PCI loans that TCF acquired on September 29, 2017. On the acquisition date, the leasing and equipment finance PCI loans had contractually required payments receivable of $24.0 million, expected cash flows of $16.6 million and a fair value (initial carrying amount) of $14.0 million. The $7.4 million difference between the contractually required payments receivable and the expected cash flows represents the non-accretable difference. The $2.6 million difference between the expected cash flows and fair value represented the initial accretable yield.


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 Quarter Ended September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
52,408

 
$
34,669

 
$
21,922

 
$
12,129

 
$
43,893

 
$
599

 
$
165,620

Charge-offs
(2,940
)
 

 
(1,404
)
 
(750
)
 
(11,028
)
 
(1,877
)
 
(17,999
)
Recoveries
6,392

 
196

 
358

 
281

 
1,780

 
840

 
9,847

Net (charge-offs) recoveries
3,452

 
196

 
(1,046
)
 
(469
)
 
(9,248
)
 
(1,037
)
 
(8,152
)
Provision for credit losses
(5,669
)
 
1,479

 
1,967

 
240

 
15,437

 
1,091

 
14,545

Other
(2,353
)
 

 
(72
)
 
78

 
(1,422
)
 

 
(3,769
)
Balance, end of period
$
47,838

 
$
36,344

 
$
22,771

 
$
11,978

 
$
48,660

 
$
653

 
$
168,244

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Quarter 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

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

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

Charge-offs
(9,205
)
 
(5,431
)
 
(5,694
)
 
(1,856
)
 
(28,045
)
 
(4,996
)
 
(55,227
)
Recoveries
18,783

 
455

 
1,718

 
675

 
4,680

 
2,761

 
29,072

Net (charge-offs) recoveries
9,578

 
(4,976
)
 
(3,976
)
 
(1,181
)
 
(23,365
)
 
(2,235
)
 
(26,155
)
Provision for credit losses
(13,553
)
 
8,625

 
5,520

 
(903
)
 
44,141

 
2,354

 
46,184

Other
(7,635
)
 

 
(123
)
 
130

 
(4,426
)
 

 
(12,054
)
Balance, end of period
$
47,838

 
$
36,344

 
$
22,771

 
$
11,978

 
$
48,660

 
$
653

 
$
168,244

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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



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 September 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
$
29,042

 
$
35,342

 
$
19,049

 
$
11,462

 
$
48,234

 
$
652

 
$
143,781

Individually evaluated for impairment
18,796

 
1,002

 
3,722

 
516

 
426

 
1

 
24,463

Total
$
47,838

 
$
36,344

 
$
22,771

 
$
11,978

 
$
48,660

 
$
653

 
$
168,244

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,784,528

 
$
3,457,229

 
$
4,692,676

 
$
2,572,899

 
$
3,230,469

 
$
20,436

 
$
18,758,237

Individually evaluated for impairment
146,284

 
32,451

 
24,295

 
3,178

 
9,944

 
3

 
216,155

Loans acquired with deteriorated credit quality

 

 
13,960

 

 

 

 
13,960

Total
$
4,930,812

 
$
3,489,680

 
$
4,730,931

 
$
2,576,077

 
$
3,240,413

 
$
20,439

 
$
18,988,352

<
 
At December 31, 2016
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
 Finance