10-K 1 tcffinancial12311810-k.htm 10-K Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018 
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
 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)
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
(Name of each exchange on which registered)
Common Stock (par value $.01 per share)
New York Stock Exchange
Depositary shares, each representing a 1/1000th interest in a share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes þ    No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ¨    No þ
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 every Interactive Data File required to be submitted 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 such files).    Yes þ    No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 ¨ 
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
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter as reported by the New York Stock Exchange, was $3,817,422,395.
As of February 19, 2019, there were 163,980,779 shares outstanding of the registrant's common stock, par value $.01 per share, its only outstanding class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Specific portions of the Registrant's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to be held on April 24, 2019 are incorporated by reference into Part III hereof.


TABLE OF CONTENTS
 
Description
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Part I

Item 1. Business

General

TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Company"), a Delaware corporation incorporated on April 28,1987, 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. Its principal subsidiary, TCF National Bank ("TCF Bank"), is headquartered in Sioux Falls, South Dakota. TCF Bank operates bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota (TCF's "primary banking markets"). Through its direct subsidiaries, TCF Bank provides a full range of consumer-facing and commercial services, including consumer banking services in 47 states, commercial banking services in 42 states, commercial leasing and equipment financing in all 50 states and, to a limited extent, in foreign countries and commercial inventory financing in all 50 states and Canada and, to a limited extent, in other foreign countries.

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the specific needs of the largest consumer segments in the market. The Company focuses on attracting and retaining customers through an exceptional customer experience driven by convenience through multiple points of contact, including digital banking, phone banking, a branch presence with select locations open at least six days a week and with extended hours, and access to automated teller machine ("ATM") networks. TCF's philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low interest cost deposits. TCF's growth strategies include organic growth in existing businesses, development of new products and services, new customer acquisition and acquisitions of portfolios or businesses. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. Funded generally through retail deposit generation, TCF continues to focus on profitable asset growth.

TCF generated total revenue, defined as net interest income plus total non-interest income, of $1.5 billion, $1.4 billion and $1.3 billion in 2018, 2017 and 2016, respectively. TCF had total assets of $23.7 billion at December 31, 2018 and was the 49th largest publicly traded bank holding company in the United States based on total assets at September 30, 2018.

On January 28, 2019, TCF entered into an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Financial Corporation ("Chemical"), a bank holding company with $21.5 billion in assets, headquartered in Detroit, Michigan. The merger is expected to close in late 2019, subject to satisfaction of customary closing conditions, including regulatory approvals and approval by the shareholders of TCF and Chemical. Under the terms of the Merger Agreement, which has been unanimously approved by the boards of directors of both companies, each outstanding share of TCF common stock will be converted into the right to receive, without interest, 0.5081 shares of Chemical common stock. Also, at the effective time of the merger, each outstanding share of the 5.70% Series C non-cumulative perpetual preferred stock of TCF will be converted into the right to receive, without interest, one share of a newly created series of preferred stock of Chemical with equivalent rights and preferences (the "New Chemical Preferred Stock"). The shares of Chemical common stock and the New Chemical Preferred Stock to be issued in the merger will be listed on the Nasdaq. Following the completion of the merger, TCF and Chemical shareholders will own approximately 54% and 46% of the combined company, respectively, on a fully diluted basis.

Effective April 1, 2017, the Company executed its strategic shift from an originate-to-sell and originate-to-hold model to an entirely originate-to-hold model for its auto finance business and effective December 1, 2017, the Company discontinued auto finance loan originations. The determination was based on management's review of strategic alternatives and the financial outlook of the auto finance loan origination business compared with alternative uses of capital. TCF's subsidiary, Gateway One Lending & Finance, LLC ("Gateway One"), continues to service existing auto loans on its balance sheet and those that are serviced for others. The decision to discontinue auto finance loan originations resulted in a goodwill impairment charge of $73.0 million, an other intangible assets impairment charge of $0.4 million and approximately $14.8 million of expenses related to severance, other asset impairments and lease termination expenses in 2017.

The Company's reportable segments are Consumer Banking, Wholesale Banking and Enterprise Services.


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Consumer Banking

Consumer Banking is comprised of all of the Company's consumer-facing businesses and includes retail banking, consumer real estate and other, and auto finance. TCF's consumer banking strategy is primarily to generate deposits and originate high credit quality secured consumer real estate loans for investment and for sale. Deposits are generated from consumers and small businesses to provide a source of low cost funds, with a focus on building and maintaining quality customer relationships.

Retail Banking TCF offers an array of solutions for consumers and small businesses through its physical and digital distribution channels. TCF offers a broad selection of deposit and lending services including (i) checking and savings accounts, (ii) credit and debit cards, (iii) check cashing and remittance services and (iv) residential, consumer and small business lending.

Deposits are the primary source of TCF's funds for use in lending and for other general business purposes. Deposit inflows and outflows are significantly influenced by general interest rates, market and competitive conditions and other economic factors. Deposits are acquired from within TCF's primary banking markets through (i) checking, savings and money market accounts, (ii) certificates of deposit and (iii) individual retirement accounts. Such deposit accounts provide fee income, including fees and service charges.

At December 31, 2018, TCF had 314 branches, consisting of 189 traditional branches, 122 supermarket branches and three campus branches. TCF operates 120 branches in Illinois, 85 in Minnesota, 50 in Michigan, 33 in Colorado, 17 in Wisconsin, seven in Arizona and two in South Dakota. TCF also offers 845 ATMs across TCF's primary banking markets. See "Item 1A. Risk Factors" for further information regarding the risks related to TCF's supermarket branch relationships.

Providing a wide range of retail banking services is an integral component of TCF's business philosophy. Primary drivers of fees and service charges include the number of customers we attract, the customers' level of engagement and the frequency with which the customer uses our solutions. TCF's business philosophy is to offer our customers an "easy-to-bank-with" experience, with multiple solutions that benefit the customer and are consistent with TCF's business philosophy. Customers have convenient access to their funds through their credit and debit cards, as well as by utilizing TCF's enhanced digital channels. TCF's card programs are supported by interchange fees paid by retailers.

Consumer Real Estate and Other TCF originates consumer loans for personal, family or household purposes, such as home purchases, debt consolidation and financing of home improvements. TCF's retail lending origination activity primarily consists of consumer real estate secured lending. It also includes originating loans secured by personal property and, to a limited extent, unsecured personal loans. Consumer loans are originated for investment and for sale, either on a fixed-term basis or as a revolving line of credit. TCF's junior lien lending business is a national platform focused on originating junior lien loans to high credit quality customers. TCF Home Loans, a division of TCF Bank, originates first mortgage lien loans in our primary banking markets. TCF has two consumer real estate loan sale programs: one that sells the nationally originated consumer real estate junior lien loans and one that sells the first mortgage lien loans through correspondent relationships. TCF does not have any consumer real estate subprime lending programs.

Auto Finance Gateway One services existing loans on new and used autos on its balance sheet and those that are serviced for others.

Wholesale Banking

Wholesale Banking is comprised of commercial banking, leasing and equipment finance, and inventory finance. TCF's wholesale banking strategy is primarily to originate high credit quality secured loans and leases for investment.

Commercial With an emphasis on secured lending, essentially all of TCF's commercial loans were secured either by properties or other business assets at December 31, 2018 and 2017.



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Commercial real estate loans originated by TCF are primarily secured by commercial real estate, including multi-family housing, office buildings, health care facilities, warehouse and industrial buildings, hotel and motel buildings, self-storage buildings and retail services buildings. The commercial real estate portfolio represented 75.5% and 77.3% of TCF's total commercial portfolio at December 31, 2018 and 2017, respectively.

Commercial business loans originated by TCF are secured by various types of business assets including inventory, receivables, equipment or financial instruments. Commercial business loans are used for a variety of purposes, including working capital and financing the purchase of equipment.

Leasing and Equipment Finance TCF provides a broad range of comprehensive lease and equipment finance products addressing the diverse financing needs of small to large companies in a growing number of select market segments including specialty vehicles, construction equipment, golf cart and turf equipment, manufacturing equipment, medical equipment, trucks and trailers, furniture and fixtures, technology and data processing equipment, and agricultural equipment. TCF's leasing and equipment finance businesses are TCF Equipment Finance, a division of TCF Bank, and Winthrop Resources Corporation ("Winthrop"). TCF Equipment Finance delivers equipment finance solutions primarily to small and mid-size companies in various industries with significant diversity in the types of underlying equipment. Winthrop focuses on providing customized lease financing to meet the special needs of mid-size and large companies and health care facilities that procure high-tech essential business equipment such as computers, servers, telecommunication equipment, medical equipment and other technology equipment.

Inventory Finance TCF Inventory Finance, Inc. ("TCF Inventory Finance") originates commercial, primarily variable-rate loans which are secured by the underlying floorplan equipment and supported by repurchase agreements from original equipment manufacturers. The operation focuses on establishing relationships with distributors, dealer buying groups and manufacturers, giving TCF access to thousands of independent retailers primarily in the areas of powersports equipment and lawn and garden equipment. TCF Inventory Finance's portfolio balances are impacted by seasonal shipments and sales activities as dealers receive inventory shipments in anticipation of the upcoming selling season while carrying current season product. In 2009, TCF Inventory Finance formed a joint venture with The Toro Company ("Toro") called Red Iron Acceptance, LLC ("Red Iron"). Red Iron provides U.S. distributors and dealers and select Canadian distributors of the Toro® and Exmark® brands with reliable, cost-effective sources of financing. TCF maintains a 55% ownership interest in Red Iron, with Toro owning the other 45%.

Enterprise Services

Enterprise Services is comprised of (i) corporate treasury, which includes the Company's investment and borrowing portfolios and management of capital, debt and market risks, (ii) corporate functions, such as information technology, risk and credit management, bank operations, finance, investor relations, corporate development, internal audit, legal and human capital management that provide services to the operating segments, (iii) the Holding Company and (iv) eliminations. The Company's investment portfolio accounts for the earning assets within this segment. Borrowings may be used to offset reductions in deposits or to support lending activities. This segment also includes residual revenues and expenses representing the difference between actual amounts incurred by Enterprise Services and amounts allocated to the operating segments, including interest rate risk residuals such as funds transfer pricing mismatches.

Corporate Treasury Corporate treasury's primary responsibility is management of liquidity, capital, interest rate risk, and investment and borrowing portfolios. Corporate treasury has authority to invest in various types of liquid assets including, but not limited to, U.S. Department of the Treasury obligations and debt securities of various federal agencies and U.S. Government sponsored enterprises, obligations of states and political subdivisions, deposits of insured banks, bankers' acceptances and federal funds. Corporate treasury also has the authority to enter into wholesale borrowing transactions which may be used to compensate for reductions in deposit inflows or net deposit outflows, or to support lending, leasing and other expansion activities. These borrowings may include Federal Home Loan Bank ("FHLB") advances, brokered deposits, repurchase agreements, federal funds and other permitted borrowings from counterparties.

See "Item 7. Management's Discussion and Analysis - Consolidated Income Statement Analysis - Reportable Segments" and Note 24. Business Segments of Notes to Consolidated Financial Statements for further information.


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Other Information

Activities of Subsidiaries of TCF TCF's business operations include those conducted by direct and indirect subsidiaries of TCF Financial, all of which are consolidated for purposes of preparing TCF's consolidated financial statements. TCF Bank's subsidiaries principally engage in leasing, inventory finance and auto finance activities. See "Consumer Banking" and "Wholesale Banking" above for further information.

Competition TCF competes with a number of depository institutions and financial service providers primarily based on price and service and faces significant competition in attracting and retaining deposits and in lending activities. Direct competition for deposits comes primarily from banks, savings institutions, credit unions and investment banks. Additional significant competition for deposits comes from institutions selling money market mutual funds and corporate and government securities. TCF competes for the origination of loans with banks, mortgage bankers, mortgage brokers, consumer and commercial finance companies, credit unions, insurance companies and savings institutions. TCF also competes nationwide with other companies and banks in the financing of equipment and inventory, leasing of equipment and origination of consumer real estate junior lien loans. The growth of financial technology companies partnering with financial services providers has increased competition for loan, lease and deposit products.

Employees As of December 31, 2018, TCF had 5,544 employees, including 698 part-time employees. TCF provides its employees with comprehensive benefits, some of which are provided on a contributory basis, including medical and dental plans, a 401(k) savings plan with a company matching contribution, life insurance and short- and long-term disability coverage.

Regulation

TCF Financial, as a publicly held bank holding company, and TCF Bank, which has deposits insured by the Federal Deposit Insurance Corporation (the "FDIC"), are subject to extensive regulation. Among other things, TCF Financial and TCF Bank are subject to minimum capital requirements, lending and deposit restrictions and numerous other requirements. TCF Financial's primary regulator is the Federal Reserve and TCF Bank's primary regulator is the Office of the Comptroller of the Currency (the "OCC"). TCF's consumer products are also regulated by the Consumer Financial Protection Bureau (the "CFPB").
 
Regulatory Capital Requirements TCF Financial and TCF Bank are subject to various minimum regulatory capital requirements administered by the Federal Reserve and the OCC. These requirements include quantitative measures that assign risk weightings to assets and off-balance sheet items, as well as define and set minimum regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal banking regulators that, if undertaken, could have a material adverse effect on TCF's financial condition and results of operations. These federal banking regulators are required by law to take prompt action when institutions are viewed as engaging in unsafe or unsound practices or do not meet certain minimum capital requirements. In addition to other potential actions, failure to meet these requirements would result in limitations on capital distributions as well as executive bonuses. The Basel III capital standards allowed institutions not subject to the advanced approaches requirements to opt out of including components of accumulated other comprehensive income (loss) in common equity Tier 1 capital. TCF and TCF Bank made the one-time permanent election to not include accumulated other comprehensive income (loss) in regulatory capital. TCF and TCF Bank are subject to a capital conservation buffer. As of January 1, 2019, the Basel III capital standard requires TCF and TCF Bank to maintain a 2.5% capital conservation buffer, designed to absorb losses during periods of economic stress, composed entirely of common equity Tier 1 capital, on top of the minimum risk-weighted asset ratios, resulting in minimum ratios for TCF Bank of (i) a common equity Tier 1 capital ratio of at least 7.0%, (ii) a Tier 1 risk-based capital ratio of at least 8.5% and (iii) a total risk-based capital ratio of at least 10.5%. TCF and TCF Bank exceeded the Basel III capital standard at December 31, 2018. See Note 16.  Regulatory Capital Requirements of Notes to Consolidated Financial Statements for further information.

Restrictions on Distributions  TCF Financial's ability to pay dividends is subject to limitations imposed by the Federal Reserve. In general, Federal Reserve regulatory guidelines require the board of directors of a bank holding company to consider a number of factors in determining the payment of dividends, including the quality and level of current and future earnings. Restricted retained earnings represents earnings legally appropriated to thrift bad debt reserves and deducted for federal income tax purposes in prior years and is generally not available for payment of cash dividends or other distributions to stockholders. See Note 15. Equity of Notes to Consolidated Financial Statements for further information on restricted retained earnings.
 


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Dividends or other capital distributions from TCF Bank to TCF Financial are an important source of funds to enable TCF Financial to pay dividends on its preferred and common stock, to pay TCF Financial's obligations, to repurchase common stock or to meet other cash needs. The ability of TCF Financial and TCF Bank to pay dividends depends on regulatory policies and regulatory capital requirements and may be subject to regulatory approval.
 
In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained earnings for the current year combined with its net retained earnings for the preceding two calendar years without prior approval of the OCC. The OCC also has the authority to prohibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice. TCF Bank's ability to make capital distributions in the future may require regulatory approval and may be restricted by its federal banking regulators. TCF Bank's ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. In the future, these capital adequacy standards may be higher than existing minimum regulatory capital requirements. See Note 16. Regulatory Capital Requirements of Notes to Consolidated Financial Statements for further information.  

In addition, income tax considerations may limit the ability of TCF Bank to make dividend payments in excess of its current and accumulated tax earnings. Annual dividend distributions in excess of earnings could result in a tax liability based on the amount of excess earnings distributed and current tax rates.

Regulation of TCF and Affiliates and Insider Transactions  TCF Financial is subject to Federal Reserve regulations, examinations and reporting requirements applicable to bank holding companies. Subsidiaries of bank holding companies, like TCF Bank, are subject to certain restrictions in their dealings with holding company affiliates.
 
A holding company must serve as a source of strength for its subsidiary banks and the Federal Reserve may require a holding company to contribute additional capital to an undercapitalized subsidiary bank. In addition, the OCC may assess TCF Financial if it believes the capital of TCF Bank has become impaired. If TCF Financial were to fail to pay such an assessment within three months, the Board of Directors would be required to cause the sale of TCF Bank's stock to cover a deficiency in the capital. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal banking regulator to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors.
 
Under the Bank Holding Company Act of 1956 (the "BHCA"), Federal Reserve approval is required before acquiring more than 5% control, or substantially all of the assets, of another bank or bank holding company, or merging or consolidating with such a bank or bank holding company. The BHCA also generally prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries or conducting activities permitted by the Federal Reserve as being closely related to the business of banking. Further restrictions or limitations on acquisitions or establishing financial subsidiaries may also be imposed by TCF's regulators or examiners.

Restrictions on Acquisitions and Changes in Control  Under federal and state law, merger and branch acquisition transactions may be subject to certain restrictions, including certain nationwide and statewide insured deposit maximum concentration levels or other limitations. In addition, federal and state laws and regulations contain a number of provisions which impose restrictions on changes in control of financial institutions such as TCF Bank and which require regulatory approval prior to any such changes in control.

Insurance of Accounts  TCF Bank is a member of the FDIC, which maintains the Deposit Insurance Fund (the "DIF"). The FDIC insures deposits up to prescribed limits for each depositor through the DIF, which is funded through assessments on member institutions. To maintain the DIF, member institutions are assessed an insurance premium based on an assessment base and an assessment rate.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") gave the FDIC much greater discretion to manage the DIF and also changed the assessment base from domestic deposits to average total assets less tangible equity. Additionally, the Dodd-Frank Act raised the minimum designated reserve ratio (the "DRR") to 1.35% of estimated insured deposits from 1.15% and required this new minimum be reached by September 30, 2020. From July 1, 2016 to October 1, 2018, an additional surcharge of 4.5 cents for each $100 of an institution's assessment base in excess of $10.0 billion was assessed to ensure the DRR reached this new minimum by the required date. The DIF ratio calculated by the FDIC using estimated insured deposits as of September 30, 2018 was 1.36%.


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In 2018, insurance premiums on bank deposits insured by the FDIC for banks with at least $10.0 billion in total assets ranged from 1.5 cents to 40 cents per $100 of the institution's assessment base. TCF's FDIC insurance expense was $15.1 million, $16.0 million and $15.9 million in 2018, 2017 and 2016, respectively.

In addition to deposit insurance premium assessments from the FDIC, additional assessments may be imposed by the Financing Corporation, a separate U.S. government agency affiliated with the FDIC, to pay for the interest cost of Financing Corporation bonds. As of December 31, 2018, the Financing Corporation assessment rate was 14 cents for each $10,000 of the institution's assessment base.

Examinations and Regulatory Sanctions  TCF is subject to periodic examination by the Federal Reserve, the OCC, the CFPB and the FDIC. Federal banking regulators may impose a number of restrictions or new requirements on institutions, including, but not limited to, growth limitations, dividend restrictions, increased regulatory capital requirements, increased loan and lease loss reserve requirements, increased supervisory assessments, activity limitations or other restrictions that could have an adverse effect on such institutions, their holding companies or holders of their debt and equity securities. Various enforcement remedies, including civil money penalties, may be assessed against an institution or an institution's directors, officers, employees, agents or independent contractors. Certain enforcement actions may not be publicly disclosed by TCF or its federal banking regulators. Subsidiaries of TCF Bank are also subject to state and/or self-regulatory organization licensing, regulation and examination requirements in connection with certain activities.

National Bank Investment Limitations  Permissible investments by national banks are limited by the National Bank Act of 1864, as amended, and by rules of the OCC. Non-traditional bank activities permitted by the Gramm-Leach-Bliley Act of 1999 will subject a bank to additional regulatory limitations or requirements, including a required regulatory capital deduction and application of transactions with affiliates limitations in connection with such activities.

Taxation 

Federal Taxation  TCF's federal income tax returns are open and subject to examination for 2015 and later tax return years. As a result of the Tax Cuts and Jobs Act ("Tax Reform"), enacted on December 22, 2017, TCF recorded a reasonable estimate of a net tax benefit of $130.7 million in 2017, primarily resulting from the re-measurement of the Company's estimated net deferred tax liability. TCF recorded an additional net tax benefit of $1.1 million in the second quarter of 2018 for the finalization of the provisional amounts recorded in 2017.

State Taxation  TCF and/or its subsidiaries currently file tax returns in all state and local taxing jurisdictions which impose corporate income, franchise or other taxes. TCF's various state income tax returns are generally open for 2014 and later tax return years based on individual state statutes of limitation. The methods of filing and the methods for calculating taxable and apportionable income vary depending on the laws of each taxing jurisdiction.

Foreign Taxation TCF and/or its subsidiaries currently file tax returns in Canada and certain Canadian provinces which impose corporate income taxes. TCF's various foreign income tax returns are open and subject to examination for 2014 and later tax return years. The methods of filing and the methods for calculating taxable and apportionable income vary depending on the laws of each taxing jurisdiction.
 
See "Item 7. Management's Discussion and Analysis - Consolidated Income Statement Analysis - Income Taxes", Note 2. Summary of Significant Accounting Policies and Note 14. Income Taxes of Notes to Consolidated Financial Statements for further information regarding TCF's income taxes.



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Available Information
 
TCF's website, www.tcfbank.com, includes free access to Company news releases, investor presentations, conference calls to discuss published financial results, TCF's Annual Report and periodic filings required by the U.S. Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments to those reports, as soon as reasonably practicable after electronic filing of such material with, or furnishing it to, the SEC. TCF's periodic filings required by the SEC are also available on the SEC's website, www.sec.gov. TCF's Compensation, Nominating, and Corporate Governance Committee and Audit Committee charters, Corporate Governance Guidelines, Codes of Ethics and information on all of TCF's securities are also available on TCF's website. Stockholders may request these documents in print free of charge by contacting the Corporate Secretary at TCF Financial Corporation, 200 Lake Street East, Mail Code EX0-01-G, Wayzata, MN 55391-1693.

Item 1A. Risk Factors
 
An investment in securities issued by TCF, including an investment in TCF's common and preferred stock, involves certain risks that should be considered carefully. The most significant risks that management believes affect TCF are described below. Any of the risks described below may have a material impact on TCF's financial condition, results of operations or reputation. To the extent that any of the information contained in this Annual Report on Form 10-K is forward-looking, the risk factors set forth below also are cautionary statements identifying important factors that could cause TCF's actual results to differ materially from those expressed in any forward-looking statements.

TCF's financial results are significantly affected by general economic and political conditions.

TCF's operations and profitability are impacted by both business and economic conditions generally, as well as those in the local markets in which TCF operates. Economic conditions have a significant impact on the demand for TCF's products and services, as well as the ability of its customers to repay loans and leases, the value of the collateral securing loans and leases, the ability of TCF to sell loans and leases, the stability of its deposit funding sources and sales revenue at the end of contractual lease terms. A significant decline in general economic conditions caused by inflation, recession, unemployment, changes in debt securities markets, government shutdowns, defaults, anticipated defaults or rating agency downgrades of sovereign debt (including debt of the U.S.), changes in housing market prices or other factors could impact economic conditions and, in turn, could have a material adverse effect on TCF's financial condition and results of operations.

Additionally, adverse economic conditions may result in a decline in demand for equipment that TCF leases or finances, which could result in a decline in the amount of new equipment being placed in service, as well as declines in the values of collateral already in service. Adverse economic conditions may also hinder TCF from expanding the inventory finance business by limiting its ability to attract and retain manufacturers and dealers as expected. Any such difficulties in TCF's leasing and equipment and inventory finance businesses could have a material adverse effect on its financial condition and results of operations.

TCF and its customers face cyber-security and other external risks, including "denial of service," "hacking," "ransomware" and "identity theft," that could adversely affect TCF's reputation and could have a material adverse effect on TCF's financial condition and results of operations.

TCF's computer systems and network infrastructure present security risks and could be susceptible to cyber-attacks, such as denial of service, hacking, ransomware or identity theft. Hacking, cyber-attacks and identity theft risks, in particular, could cause serious financial and reputational harm. Information security risks for financial institutions such as TCF have generally increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions and the increased sophistication and activities of organized crime, hackers, terrorists, activists and other external parties, including foreign state-sponsored parties. Additionally, cyber threats are rapidly evolving. TCF may not be able to anticipate or prevent all such attacks and may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents.



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While TCF does not believe it has experienced a material cyber-security breach, TCF experiences periodic threats to its data and systems, including malware and computer virus attacks, attempted unauthorized access of accounts, internal employee fraud or misappropriation of information, misplaced or lost data, human or programming errors and attempts to disrupt its systems. In the future, TCF may incur increasing costs in an effort to minimize these risks and could be held liable for damages and suffer reputational damage as a result of any security breach or loss. There can be no assurance that such cyber incidents will not occur again and they could occur more frequently and on a more significant scale. Due to the complexity and interconnectedness of our systems, efforts to minimize these risks by enhancing our infrastructure and operating systems can create a risk of system disruptions and security issues, and a significant and widespread disruption to our infrastructure or operating systems that support our business and customers could adversely affect our business operations.

Other increasingly sophisticated and large-scale efforts on the part of third parties to breach data security with respect to financial transactions include intercepting account information at locations where customers make purchases or withdraw money, as well as through the use of social engineering schemes such as "phishing." For example, many retailers have reported data breaches resulting in the loss of customer information and many financial institutions have experienced losses as account information has been stolen through the use of skimmers placed on ATMs and point of sale terminals. In the event that third parties are able to misappropriate financial information of TCF's customers, even if such breaches take place due to weaknesses in other parties' security protections, TCF could suffer reputational damage or financial losses which could have a material adverse effect on its financial condition and results of operations.

TCF's financial results are subject to interest rate risk.

TCF's earnings and cash flows largely depend upon its net interest income. Interest rates are highly sensitive to many factors that are beyond TCF's control, including general economic conditions and policies of various governmental and regulatory agencies, including the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence the amount of interest TCF receives on loans, leases and other investments and the amount of interest TCF pays on deposits and other borrowings, as well as: (i) TCF's ability to originate loans and leases and attract or retain deposits; (ii) the fair value of TCF's financial assets and liabilities and (iii) the average life of TCF's interest-earning assets. A significant portion of TCF's loans, including certain consumer real estate, commercial real estate and inventory finance loans, bear interest at variable- and adjustable-rates. Increases in market interest rates can have a negative impact to our business, including reducing the amount of money our customers borrow or adversely impacting their ability to make increased payments caused by any increase in interest rates. In addition, as interest rates increase, in order to compete for deposits in our primary banking markets, TCF may have to offer more attractive interest rates to depositors, or pursue other sources of liquidity, such as wholesale funding. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans, leases and other investments, TCF's net interest income and earnings could be adversely affected due to the increase in interest expense without a corresponding increase in interest income. Earnings could also be adversely affected if the interest rates received on loans, leases and other investments decrease more quickly than the interest rates paid on deposits and other borrowings due to the decrease in interest income without a corresponding decrease in interest expense. In addition, we have a debt security portfolio that could decline substantially in value if interest rates increase materially or if obligations of states and political subdivisions debt securities become subject to less favorable tax treatment. Although management believes it has implemented effective asset and liability management strategies, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on its financial condition and results of operations.



8

Acquisitions may disrupt TCF's business and dilute stockholder value.

TCF regularly evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with banks or other financial institutions. As a result, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time. Transactions with other banks, businesses or branches involve various risks, such as: difficulty in estimating the value of the other company; payment of a premium over book and market values that may dilute TCF's tangible book value and earnings per share in the short- and long-term; potential exposure to unknown or contingent liabilities of the target company; exposure to potential asset quality issues of the target company; volatility in reported income as goodwill impairment losses could occur irregularly and in varying amounts; difficulty and expense of integrating the operations and personnel of the target company; inability to realize the expected revenue increases, cost savings, increases in product sales or other projected benefits; potential disruption to TCF's business; potential diversion of TCF management's time and attention; slower than anticipated growth; potential loss of key employees and customers of either company; and potential changes in banking or tax laws or regulations, any of which could have a material adverse effect on TCF's financial condition and results of operations.

Risks related to TCF's proposed merger with Chemical

TCF and Chemical have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on TCF's and Chemical's ability to successfully combine and integrate the businesses of TCF and Chemical in a manner that permits growth opportunities and does not materially disrupt the existing customer relations or result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company's ability to maintain relationships with customers, depositors, clients and employees or to achieve the anticipated benefits and cost savings of the merger. If the combined companies experience difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected.

TCF may have difficulty attracting and retaining key personnel until the proposed merger is complete, which could cause customers to seek to discontinue or reduce their banking relationship with TCF. Some of our employees may experience uncertainty about their future roles with the combined company following the proposed merger with Chemical. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with TCF, our business could be harmed. In addition, subject to certain exceptions, we have agreed to operate our business in the ordinary course prior to the closing of the proposed merger with Chemical. This restriction may prevent us from pursuing certain business opportunities that may arise prior to completion of the merger.

TCF has incurred, and will continue to incur, substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement with Chemical. If the merger is not completed, TCF would have to recognize these expenses without realizing the expected benefits of the merger. These circumstances could have an adverse effect on TCF's business, results of operations and stock price.

Under the merger agreement, both TCF and Chemical have agreed not to, subject to certain exceptions generally related to their respective boards of directors' exercise of their fiduciary duties, as set forth in the merger agreement, initiate or solicit, or knowingly facilitate or knowingly encourage, inquiries or proposals with respect to, engage or participate in any discussions or negotiations concerning, or provide any confidential information relating to, certain alternative business combination transactions. In addition, the merger agreement contains certain termination rights for both TCF and Chemical. If the merger agreement is terminated under certain circumstances by TCF, including termination of the merger agreement to accept an alternative business combination transaction as permitted by and subject to the terms of the merger agreement, TCF would be required to pay Chemical a termination fee of $134.0 million, which could have an adverse impact on TCF's financial condition. Further, these provisions might discourage a party that might have an interest in merging with TCF or acquiring all or a significant part of TCF from considering or proposing that merger or acquisition even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing merger partner or acquiror proposing to pay a lower per share price to acquire TCF than it might otherwise have proposed to pay.



9

Before the merger may be completed, TCF and Chemical must obtain approvals from the Board of Governors of the Federal Reserve System. Other approvals, waivers or consents from regulators may also be required. These regulators may impose conditions on the completion of the merger or require changes to the terms of the merger. Although TCF and Chemical do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying or preventing completion of the merger or imposing additional costs on or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger.

Before the merger may be completed, TCF and Chemical must obtain the requisite approval of their respective shareholders. There is no assurance that these approvals will be obtained.

Litigation filed against TCF, its board of directors or Chemical and its board of directors could prevent or delay the completion of the merger or result in the payment of damages following completion of the merger.

In connection with the merger, lawsuits may be filed against TCF, Chemical, or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the effective time of the merger may adversely affect the combined company's business, financial condition, results of operations, cash flows and market price.

An inability to obtain needed liquidity could have a material adverse effect on TCF's financial condition and results of operations.

TCF's liquidity could be limited by an inability to access the capital markets or unforeseen outflows of cash, which could arise due to circumstances outside of its control, such as a general market disruption, a downturn in the markets in which we function, difficult credit markets, regulatory actions against us or operational problems that affect TCF or third parties. TCF's credit rating is important to its liquidity. A reduction or anticipated reduction in TCF's credit ratings could adversely affect the ability of TCF Bank and its subsidiaries to lend and adversely affect its liquidity and competitive position, increase its borrowing costs, limit its access to the capital markets or trigger unfavorable contractual obligations, such as termination of or providing additional collateral pursuant to our derivative contracts. An inability to meet its funding needs on a timely basis could have a material adverse effect on TCF's financial condition and results of operations.

Competition for growth in deposits and evolving payment system developments could increase TCF's funding costs.

TCF relies on bank deposits as a low cost and stable source of funding. TCF competes with banks and other financial institutions for deposits and it is expected that competition for deposits will continue to increase. If TCF's competitors raise the rates they pay on deposits, TCF may experience either a loss of deposits or an increase in rates paid by TCF to avoid losing deposits. Industry developments involving payment system changes could also impose additional costs. Losses of deposits may require TCF to address its liquidity needs in ways that increase its funding costs. Increased funding costs could reduce TCF's net interest margin and net interest income, which could have a material adverse effect on TCF's financial condition and results of operations.

The soundness of other financial institutions could adversely affect TCF's financial results.

TCF's ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. TCF routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks and other institutional clients. As a result, defaults by, or even speculation regarding the soundness of, any financial institution, or the financial services industry generally, could lead to losses by, or other adverse consequences to, TCF or a counterparty. Many of these transactions expose TCF to credit risk in the event of default of the counterparty or client. A diminished availability of counterparties who satisfy TCF's credit quality requirements could negatively impact our business. In addition, TCF's credit risk may be exacerbated if the collateral held by TCF cannot be realized or is liquidated at prices not sufficient to recover the full amount of the financial exposure. Any such losses could have a material adverse effect on TCF's financial condition and results of operations.



10

TCF relies on its systems and counterparties, including reliance on other companies for the provision of key components of its business infrastructure, and any failures, including failures due to cyber-attacks, could have a material adverse effect on its financial condition and results of operations.

TCF, through systems and counterparties, settles funds on behalf of financial institutions, other businesses and consumers and receives funds from payment networks, consumers and other paying agents. TCF's businesses depend on their ability to process, record and monitor a large number of complex transactions and process large amounts of information, including employee and financial information. Any disruptions to these systems may result in significant costs and other adverse developments. Although we have plans, policies and procedures designed to prevent or limit the negative effect of these disruptions, there can be no assurance that these will be successful. Our failure to effectively mitigate or promptly remediate any disruptions could result in an inability to perform necessary business functions, damage our reputation, result in a loss of customer business or confidence, subject us to regulatory scrutiny or expose us to litigation or other financial liability, any of which could materially affect us, including our results of operations.

Third party vendors provide key components of TCF's business infrastructure, such as internet connections, network access and transaction and other processing services. While TCF has selected these third party vendors carefully and attempts to monitor ongoing compliance with any arrangements with TCF, it does not control their actions. Any problems experienced or caused by these third parties, including inadequate or interrupted service, could adversely affect TCF's ability to process, record or monitor transactions, or to deliver products and services to its customers and to conduct its business. Furthermore, concentration among larger third party providers servicing large segments of the banking industry can also potentially affect wide segments of the financial industry. Replacing these third party vendors could entail significant delay and expense.

TCF also may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, whether suffered by TCF or its counterparties, computer malware, cyber-attacks, electrical, internet or telecommunications outages, natural disasters, terrorist acts or other damage to property or physical assets. Such disruptions may give rise to loss of services to customers and loss or liability to TCF. Any system failure could have a material adverse effect on TCF's financial condition and results of operations. If any of TCF's financial, accounting or other data processing systems fail or if personal information of TCF's customers or clients were mishandled or misused (whether by employees or counterparties), TCF could suffer regulatory consequences, reputational damage and financial losses, any of which could have a material adverse effect on our financial condition and results of operations. Furthermore, our customers' devices may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of TCF's or our customers' confidential, proprietary and other information, or otherwise disrupt TCF's, our customers' or other third parties' business operations. For example, various retailers have reported they were victims of cyber-attacks in which large amounts of their customers' data, including debit and credit card information, was obtained. In these situations, we may incur costs to address fraudulent transaction activity affecting our customers.

In addition, certain of TCF's floating rate funding and certain products, such as variable- and adjustable-rate loans, reference a benchmark rate, such as the London Interbank Offered Rate ("LIBOR"), to determine the applicable interest rate or payment amount. In the event such benchmark rate or other referenced financial metric is significantly changed, replaced, discontinued or otherwise unavailable to us, there may be uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instrument and there may be significant work required to transition to using any new benchmark rate or other financial metric. This could result in changes to previously recorded transactions, disputes, litigation or other actions with customers or counterparties regarding the interpretation and enforceability of certain provisions of LIBOR-based contracts, create hedging imbalances or require changes to our hedging strategies and may impact our existing transaction data, products, systems, operations and pricing processes.



11

The success of TCF's supermarket branches depends on the continued long-term success and viability of TCF's supermarket partners, TCF's ability to maintain licenses or lease agreements for its supermarket locations and customer preferences.

A significant financial decline or change in ownership involving one of TCF's supermarket partners, including New Albertson's Inc. (our supermarket partner for our Jewel-Osco locations) and SUPERVALU INC. (our supermarket partner for our Cub Foods locations), could result in the loss of supermarket branches or could increase costs to operate the supermarket branches. At December 31, 2018, TCF had 122 supermarket branches. Supermarket banking continues to play an important role in TCF's deposit account strategy. TCF is subject to the risk, among others, that its license or lease for a location or locations will terminate upon the sale or closure of that location or locations by the supermarket partner or that we may not be able to renew branch leases with our supermarket partners on favorable terms, or at all. In October 2018, SUPERVALU INC. completed its merger with United Natural Foods, Inc. ("UNFI"), becoming a wholly-owned subsidiary of UNFI. Should UNFI choose to sell any Cub Foods store, the buyer may terminate the branch license or lease for that location after a specified notice period in certain circumstances at the buyer's election. Furthermore, UNFI or an independent franchisee could choose to close any Cub Foods store after a specified notice period at which point the branch license or lease as to that location would automatically terminate.

Difficult economic conditions, financial or labor difficulties in the supermarket industry, or a decrease in in-store customer traffic or utilization of traditional bank branches may reduce activity in TCF's supermarket branches. Although utilization of these branches may decrease, the nature of these leases with our supermarket partners generally do not allow us to terminate significant numbers of individual branches. Because these leases are generally all renewed together, in the event of a decrease in customer utilization there may be limited opportunities to terminate unprofitable branch leases without incurring additional costs or penalties. Any of the above risks could have a material adverse effect on TCF's financial condition and results of operations.

The allowance for loan and lease losses maintained by TCF may not be sufficient to cover actual losses experienced by TCF and losses in excess of TCF's allowance could have a material adverse effect on TCF's financial condition and results of operations.

TCF maintains an allowance for loan and lease losses, which is a reserve established through a provision for credit losses. The level of the allowance for loan and lease losses represents management's best estimate of probable credit losses incurred within the existing portfolio of loans and leases based on management's continuing evaluation of industry concentrations, specific credit risks, loan and lease loss experience, current loan and lease portfolio quality, present economic, political and regulatory conditions and unidentified losses in the current loan and lease portfolio. The determination of the appropriate level of the allowance for loan and lease losses involves a high degree of subjectivity and requires management to make significant estimates of current credit risks using qualitative and quantitative factors, each of which is subject to significant change. Changes in economic conditions affecting customers, new information regarding existing loans and leases, identification of additional problem loans and leases, lower than expected recoveries in the case of default and other factors may require an increase in the allowance for loan and lease losses. In addition, federal banking regulators periodically review TCF's allowance for loan and lease losses and may disagree with the estimates determined by management. An increase in the provision for credit losses would result in a decrease in net income and possibly risk-based capital, and could have a material adverse effect on TCF's financial condition and results of operations.

TCF is subject to extensive government regulation and supervision and changes in applicable laws and regulations or their enforcement could have a material adverse effect on TCF's financial results.

TCF Financial, its subsidiary TCF Bank and certain indirect subsidiaries are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect bank customers, depositors' funds, federal deposit insurance funds and the banking system as a whole, not stockholders. These regulations affect TCF's revenues, lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulators continually review banking laws, regulations and policies for possible changes and the implementation of banking laws or regulations may change depending on leadership at federal banking agencies. Since many new banking rules are issued with limited interpretive guidance, we may not sufficiently comply with or anticipate the full impact of such new rules.



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Future changes in regulations, regulatory policies, interpretation and enforcement of statutes, regulations or policies could reduce revenues and increase compliance burdens and could limit the types of financial services and products we may offer or increase competition from non-banks offering competing financial services and products, among other things. Future legislative and regulatory initiatives cannot be fully or accurately predicted. Such proposals may impose more stringent standards than currently applicable or anticipated with respect to capital and liquidity requirements, leverage, deposit insurance and risk management requirements for depository institutions. For example, the CFPB has examination and enforcement authority over TCF Bank and its subsidiaries, and broad rulemaking authority to administer and carry out the purposes and objectives of the federal consumer financial laws with respect to all financial institutions that offer financial products and services to consumers. The CFPB is authorized to make rules identifying and prohibiting acts or practices that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. Uncertainties remain regarding how the term "abusive" will be interpreted. Regulatory actions that adversely impact our deposit, lending, loan collection, campus banking programs or customer opt-in preferences with respect to overdrafts could have a material adverse effect on our financial condition and results of operations. In recent years there has been an increase in the frequency of enforcement actions brought by federal banking regulators, such as the CFPB, dealing with matters such as indirect auto lending, fair lending, account fees, loan servicing and other products and services provided to customers.

While TCF has policies and procedures designed to prevent violations of laws, regulations and regulatory policies, and to ensure compliance with new or changed laws, regulations and regulatory policies, there can be no assurance that violations will not occur and failure to comply could result in reputational damage, remediation, disgorgement, penalties, increased capital requirements, higher deposit insurance assessments, other monetary relief, injunctive relief or changes to TCF's business practices or operations, any of which could have a material adverse effect on its financial condition and results of operations.

Increased competition in the already highly competitive financial services industry could have a material adverse effect on TCF's financial condition and results of operations.

The financial services industry is highly competitive and could become even more competitive as a result of legislative, regulatory and technological changes, as well as continued industry consolidation, which may increase in connection with current economic and market conditions. TCF competes with other commercial banks, savings and loan associations, mutual savings banks, finance companies, mortgage banking companies, credit unions and investment companies. In addition, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as providing loans through peer-to-peer lending. Some of TCF's competitors have fewer regulatory constraints or lower cost structures. Privately-held competitors may have more flexibility than TCF as a publicly-held enterprise. Adapting to industry changes in information technology systems, on which TCF and the financial services industry generally highly depend, could also present operational issues and require considerable capital spending. Decreased underwriting standards of competitors may also result in lower interest rates on loans originated by TCF or lower loan volumes originated by TCF. As a result, any increased competition in the already highly competitive financial services industry could have a material adverse effect on TCF's financial condition and results of operations.

TCF Financial relies on dividends from TCF Bank for most of its liquidity.

TCF Financial is a separate and distinct legal entity from TCF Bank. TCF Financial's liquidity comes principally from dividends from TCF Bank. These dividends, which are limited by various federal and state regulations, are the principal source of funds TCF Financial uses to pay dividends on its preferred and common stock and to meet its other cash needs. In the event TCF Bank is unable to pay dividends to TCF Financial, it may not be able to pay dividends, repurchase common stock or pay other obligations, which could have a material adverse effect on TCF's financial condition and results of operations. See Note 16. Regulatory Capital Requirements for further discussion on regulations governing the payment of dividends by TCF Bank.



13

TCF's earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies, as well as other legal changes affecting businesses and consumers.

The policies of the Federal Reserve impact TCF significantly. The Federal Reserve regulates the supply of money and credit in the U.S. Its policies directly and indirectly influence the rate of interest earned on loans and leases and paid on borrowings and interest-bearing deposits, and also affect the value of financial instruments that TCF holds. Changes in those policies are difficult to predict. Federal Reserve policies can also affect TCF's borrowers, potentially increasing the risk that they may fail to repay their loans or leases. For example, a tightening of the money supply by the Federal Reserve could increase unemployment or reduce the demand for a borrower's products and services. This could adversely affect the borrower's earnings and ability to repay its loan or lease. As a result, changes to the fiscal and monetary policies by the Federal Reserve could have a material adverse effect on TCF's financial condition and results of operations.

In addition, legal changes affecting consumers and businesses, including the deductibility or other tax attributes associated with certain products, may significantly decrease the demand for certain products that we offer. For example, Tax Reform limits the tax deductibility of interest paid on home equity loans to those loans used to purchase or substantially improve qualified residences, which may decrease consumer demand for such loan products.

Damage to TCF's reputation could have a material adverse effect on TCF's financial results.

Reputational risk, or the risk to earnings and capital from negative public opinion, is inherent in TCF's business. Negative public opinion could adversely affect TCF's ability to keep and attract employees and customers and expose it to adverse legal and regulatory consequences. Negative public opinion could result from TCF's actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, disclosure, cyber-security, sharing or inadequate protection of customer information or from actions taken by government regulators and community organizations in response to such conduct and could be exacerbated by negative publicity. Because TCF conducts most of its businesses under the "TCF" brand, negative public opinion about one business could affect all of TCF's businesses.

Failure to keep pace with technology-driven products and services could adversely affect TCF's business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. TCF's future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, create additional efficiencies in its operations, avoid disruptions relating to upgrading systems and prevent cyber-attacks and security breaches. Many of TCF's competitors have substantially greater resources to invest in technological improvements. TCF may not be able to effectively develop and implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on TCF's financial condition and results of operations.

New lines of business or new products and services may subject TCF to additional risk.

From time to time, TCF may implement new lines of business, offer new products and services within existing lines of business, expand into new markets or pursue new distribution channels. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are new or not fully developed. In developing and marketing new lines of business and new products or services, TCF may invest significant time and resources. Initial timetables for the introduction and development of, or anticipated level of growth or profitability for new lines of business and new products or services, may not be achieved. External factors such as compliance with regulations, competitive alternatives and shifting market preferences may also impact the successful implementation of a new line of business or a new product or service. Any new line of business or new product or service could have a significant impact on the effectiveness of TCF's system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and new products or services could have a material adverse effect on TCF's financial condition and results of operations.



14

The Company is subject to certain risks related to originating and selling loans that could have a material adverse effect on TCF's financial condition and results of operations.

TCF relies on the sale of loans to generate earnings and manage its liquidity and capital levels, as well as create geographical and product diversity in its loan portfolio. Disruptions in the financial markets, a decrease in demand for loans we sell, changes to laws or regulations that reduce the attractiveness of such loans to purchasers of the loans or a decrease in the willingness of purchasers to purchase loans from TCF or in general, could require TCF to decrease its lending activities or retain a greater portion of the loans it originates. Selling fewer loans would result in a decrease in the gains recognized on the sale of loans, would decrease TCF's capital ratios as a result of the increase of risk weighted assets, could result in decreased liquidity and could result in increased credit risk as TCF's loan portfolio increased in size, any of which could have a material adverse effect on TCF's financial condition and results of operations.

The structure of certain loan sales may result in the retention of credit risk. TCF may receive interest-only strips in connection with certain of its loan sales. The interest-only strip is recorded at fair value, which represents the present value of future cash flows expected to be received by TCF. The value of these interest-only strips may be affected by factors such as changes in the behavior patterns of customers (including defaults and prepayments), changes in the strength of the economy and developments in the interest rate markets; therefore, actual performance may differ from TCF's expectations. The impact of such factors could have a material adverse effect on the value of these interest-only strips and on TCF's financial condition and results of operations.

When loans are sold or securitized, it is customary to make representations, warranties and covenants to the purchaser or investors about the loans, including the manner in which they were originated and will be serviced. 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. TCF has not been obligated to make significant repurchases of sold loans in the past. A material increase in the amount of loans repurchased could have a material adverse effect on TCF's financial condition and results of operations.

Changes in accounting policies or in accounting standards could materially affect how TCF reports its financial condition and results of operations.

TCF's accounting policies are fundamental to the understanding of its financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of TCF's assets or liabilities and results of operations. The accounting policy for the allowance for loan and lease losses is critical because it requires management to make challenging, subjective and complex judgments about matters that are inherently uncertain and because materially different amounts would be reported if different estimates or assumptions were used. If such estimates or assumptions underlying the financial statements are incorrect, TCF could experience material losses.

From time to time the Financial Accounting Standards Board (the "FASB") and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of TCF's financial statements. These changes are beyond TCF's control, can be difficult to predict and could materially impact how TCF reports its financial condition and results of operations. Additionally, TCF could be required to apply a new or revised standard retrospectively, resulting in it restating prior period financial statements in material amounts.



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For example, in June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and requires the use of a current expected credit loss ("CECL") approach to determine the allowance for credit losses for loans and held to maturity debt securities. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842. CECL represents a significant change in U.S. generally accepted accounting principles and may result in a material impact on our consolidated financial statements. The impact of these ASUs will depend on the composition of TCF's portfolios and general economic conditions at the date of the adoption. TCF has established a governance structure to implement these ASUs and is developing the methodologies and models to be used upon adoption. Management will begin to test the new methodologies and models in 2019. The adoption of these ASUs will be required on a modified retrospective basis with a cumulative effect adjustment required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020.

Significant legal actions could subject TCF to substantial uninsured liabilities.

TCF can be subject to claims and legal actions related to its operations. These claims and legal actions, including supervisory or enforcement actions by TCF's regulators and other government authorities or private litigation, could result in large, unpredictable monetary awards or penalties, as well as significant defense costs. While TCF maintains insurance coverage in amounts and with deductibles that it believes are appropriate for its operations, such insurance does not cover all types of liability, including regulatory fines or penalties and may not continue to be available to TCF at a reasonable cost, or at all. As a result, TCF may be exposed to substantial uninsured liabilities, which could have a material adverse effect on TCF's financial condition and results of operations.

For example, on January 19, 2017, the CFPB filed a civil lawsuit against TCF Bank in the United States District Court for the District of Minnesota alleging violations of the Consumer Financial Protection Act (the "CFPA") and Regulation E §1005.17, in connection with TCF Bank's practices administering checking account overdraft program "opt-in" requirements from 2010 to early 2014. Pursuant to a restitution plan with the CFPB and OCC resulting from the litigation, TCF Bank will pay restitution in the total amount of $25.0 million to certain current and former customers and TCF Bank paid $5.0 million in civil money penalties. For further discussion, see "Item 3. Legal Proceedings" and Note 26. Litigation Contingencies in this Annual Report on Form 10-K.

In addition, customers may make claims and take legal action pertaining to TCF's deposit products and sale and servicing of its loan and lease products, account opening/origination practices, fees, employment practices, checking account overdraft program "opt in" requirements, or fiduciary responsibilities. Whether or not such claims and legal action have merit, they may result in significant financial liability and could adversely affect the market perception of TCF and its products and services, as well as impact customer demand for those products and services. Any financial liability or reputational damage could have a material adverse effect on TCF's financial condition and results of operations.

In addition, the financial services industry has increasingly been targeted by lawsuits alleging infringement of patent rights, often from patent holding companies seeking to monetize patents they have purchased or otherwise obtained. Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, TCF may have to engage in protracted and costly litigation which may be time consuming and disruptive to TCF's operations and management. If TCF is found to infringe on one or more patents or other intellectual property rights, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting TCF from utilizing certain technologies.

For a discussion of litigation risks related to our merger with Chemical, see "Litigation filed against TCF, its board of directors or Chemical and its board of directors could prevent or delay the completion of the merger or result in the payment of damages following completion of the merger" in this Risk Factors section.
 


16

We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations and corresponding enforcement proceedings.

The federal Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. Federal and state bank regulators also have focused on compliance with Bank Secrecy Act and anti-money laundering regulations. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations. Sanctions that the regulators have imposed on banks that have not complied with all requirements have been especially severe. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition and results of operations.

TCF's framework for managing risks may not be effective in mitigating risk and any resulting loss.

TCF's risk management framework seeks to mitigate risk and any resulting loss. TCF has established processes intended to identify, measure, monitor, report and analyze the types of risk to which TCF is subject, including legal and compliance, operational, reputational, strategic and market risk such as interest rate, credit, liquidity and foreign currency risk. However, as with any risk management framework, there are inherent limitations to TCF's risk management strategies. There may exist, or develop in the future, risks that TCF has not appropriately anticipated or identified. Any future breakdowns in TCF's risk management framework could have a material adverse effect on its financial condition and results of operations.

Financial institutions depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions, TCF may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. TCF may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could cause TCF to enter into unfavorable transactions which could have a material adverse effect on TCF's financial condition and results of operations.

The failure to attract and retain key personnel could have a material adverse effect on TCF's financial condition and results of operations.

TCF's success depends to a large extent upon its key personnel, including its ability to attract and retain such personnel. The loss of key personnel could have a material adverse impact on TCF's business because of their skills, market knowledge, industry experience and the difficulty of promptly finding qualified replacements. Additionally, portions of TCF's business are relationship driven and many of TCF's key personnel have extensive customer relationships. Loss of key personnel to a competitor could result in the loss of some of TCF's customers. As a result, a failure to attract and retain key personnel could have a material adverse effect on TCF's financial condition and results of operations.
 


17

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing consumers to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have previously been held as traditional bank deposits in brokerage accounts, online bank accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills, transferring funds and obtaining loans directly without the assistance of banks. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the loss of lower-cost deposits as a source of funds could have a material adverse effect on TCF's financial condition and results of operations.

TCF is subject to examinations and challenges by tax authorities that could adversely affect TCF's results of operations and financial condition.

TCF is subject to federal, state and foreign income tax regulations, which often require interpretation due to their complexity. Changes in income tax regulations, including those resulting from the enactment of Tax Reform or in how the regulations are interpreted could have a material adverse effect on TCF's results of operations. In the normal course of business, TCF is routinely subject to examinations and challenges from taxing authorities regarding its tax positions. Taxing authorities have been aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. These challenges may result in adjustments to the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in TCF's favor, they could have a material adverse effect on TCF's financial condition and results of operations.

TCF's internal controls may be ineffective.

Management regularly reviews and updates TCF's internal controls, disclosure controls and procedures and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of TCF's controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our reputation, financial condition and results of operations.

TCF is subject to environmental liability and risks related to natural disasters that are associated with lending activities.

A significant portion of TCF's loan portfolio is secured by real property. In the ordinary course of business, TCF may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, TCF may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require TCF to incur substantial expenses and may materially reduce the affected property's value or limit TCF's ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase TCF's exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on TCF's financial condition and results of operations.

In addition, severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other adverse external events could have a significant impact on our lending business. Such events could impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage and/or cause us to incur additional expenses. Because our lending businesses are geographically diverse, those businesses are likely to be impacted more often by natural disasters, including hurricanes, flooding, fires and earthquakes, which have caused extensive damage in various parts of the United States in which they conduct business. The occurrence of any such events could have a material adverse effect on our financial condition and results of operations.

Item 1B. Unresolved Staff Comments

None.



18

Item 2. Properties

Offices TCF owns its headquarters office in Wayzata, Minnesota. Other operations facilities, located in Minnesota, Illinois and California, are either owned or leased. These facilities are predominantly utilized by the Consumer Banking and Wholesale Banking reportable segments. Several facilities in Minnesota are also utilized by the Enterprise Services reportable segment. At December 31, 2018, TCF leased or licensed 145 of its bank branch offices, owned the buildings and land for 143 of its bank branch offices and owned the buildings and leased the land for the remaining 26 bank branch offices, all of which are functional and appropriately maintained and are utilized by both the Consumer Banking and Wholesale Banking reportable segments. These branch offices are located in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota. For further information on premises and equipment, see Note 8. Premises and Equipment, Net of Notes to Consolidated Financial Statements.

Item 3. Legal Proceedings
 
From time to time TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to regulatory examinations and enforcement actions brought by federal regulators, including the SEC, the Federal Reserve, the OCC and the CFPB which may impose sanctions on TCF for failures related to regulatory compliance. From time to time borrowers and other customers, and employees and former employees have also brought actions against TCF, in some cases claiming substantial damages. TCF and other financial services companies are subject to the risk of class action litigation. Litigation is often unpredictable and the actual results of litigation cannot be determined and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established. Based on our current understanding of TCF's pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of TCF.
 
On January 19, 2017, the CFPB filed a civil lawsuit against TCF Bank in the United States District Court for the District of Minnesota (the "Court"), captioned Consumer Financial Protection Bureau v. TCF National Bank, alleging violations of the CFPA and Regulation E, §1005.17 in connection with TCF Bank's practices administering checking account overdraft program "opt-in" requirements from 2010 to early 2014. On September 8, 2017, the Court issued a ruling on the motion made by TCF Bank to dismiss the complaint of the CFPB. In its ruling, the Court granted TCF Bank's motion to dismiss the CFPB's Regulation E claims and also dismissed the CFPB's unfair, deceptive and abusive conduct claims under the CFPA for periods prior to July 21, 2011. On July 20, 2018, TCF Bank entered into a Stipulated Final Judgment and Order (the "CFPB Settlement") with the CFPB to resolve the matter and has entered into a Consent Order and a Consent Order For a Civil Money Penalty and related stipulations (collectively, the "OCC Consent Orders") with the OCC to resolve related regulatory issues with the OCC (collectively, the CFPB Settlement and the OCC Consent Orders are referred to herein as the "Consent Agreements"). The Consent Agreements provide, among other things, for TCF Bank to submit a restitution plan to the CFPB and OCC pursuant to which TCF Bank will pay restitution in the total amount of $25.0 million to certain current and former customers and require a notice to certain customers opted-in to overdraft service reminding them of their current opt-in choice. TCF is working toward completion of the restitution plan and expects to satisfy all the requirements in a timely fashion and in accordance with the terms of the CFPB Settlement and the restitution plan. Pursuant to the Consent Agreements, TCF Bank paid $5.0 million in civil money penalties, $3.0 million of which was paid to the OCC and $2.0 million of which was paid to the CFPB. In addition, TCF Bank expects to incur approximately $2.0 million in administrative costs related to the administration of the restitution plan required under the Consent Agreements.

Item 4. Mine Safety Disclosures
 
Not applicable.



19

Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

TCF's common stock trades on the New York Stock Exchange under the symbol "TCF." As of February 19, 2019, there were 5,151 holders of record of TCF's common stock.

The Board of Directors of TCF Financial and TCF Bank have each adopted a Capital Adequacy and Dividend Policy. The policies define how enterprise risk related to capital will be managed, how the adequacy of capital will be measured and the process by which capital strategy, capital management and preferred and common stock dividend recommendations will be presented to TCF's Board of Directors. TCF management is charged with ensuring that capital strategy actions, including the declaration of preferred and common stock dividends, are prudent, efficient and provide value to TCF's stockholders, while ensuring that past and prospective earnings retention is consistent with TCF's capital needs, asset quality, risk profile and overall financial condition. The Board of Directors intends to continue its practice of paying quarterly cash dividends on TCF's common stock as justified by the financial condition of TCF. The declaration and amount of future dividends will depend on circumstances existing at the time, including TCF's earnings, level of internally generated common capital excluding earnings, financial condition and capital requirements, the cash available to pay such dividends (derived mainly from dividends and distributions from TCF Bank), as well as regulatory and contractual limitations and such other factors as the Board of Directors may deem relevant. Dividends for the current dividend period on all outstanding shares of preferred stock must be declared and paid or declared and a sum sufficient for the payment thereof must be set aside before any dividend may be declared or paid on TCF's common stock. In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained earnings for the current year combined with its net retained earnings for the preceding two calendar years without prior approval of the OCC. Restrictions on the ability of TCF Bank to pay cash dividends or possible diminished earnings of TCF may limit the ability of TCF Financial to pay dividends in the future to holders of its preferred and common stock. In addition, the ability of TCF Financial and TCF Bank to pay dividends depends on regulatory policies and capital requirements and may be subject to regulatory approval. See "Item 1. Business - Regulation - Regulatory Capital Requirements", "Item 1. Business - Regulation - Restrictions on Distributions", Note 16. Regulatory Capital Requirements and Note 25. Parent Company Financial Information of Notes to Consolidated Financial Statements.




20

Total Return Performance

The following chart compares the cumulative total stockholder return on TCF common stock over the last five fiscal years with the cumulative total return of the KBW NASDAQ Regional Banking Index and the Standard and Poor's ("S&P") 500 Index (assuming the investment of $100 in each index on December 31, 2013 and reinvestment of all dividends).

TCF Total Stock Return Performance Chart
chart-ce4eb1ad06765357856.jpg
        
u TCF Financial Corporation l KBW NASDAQ Regional Banking Index     n S&P 500 Index
 
At December 31,
Index
2013
 
2014
 
2015
 
2016
 
2017
 
2018
TCF Financial Corporation
$
100.00

 
$
99.03

 
$
89.27

 
$
126.70

 
$
135.01

 
$
131.65

KBW NASDAQ Regional Banking Index
100.00

 
102.42

 
108.48

 
150.80

 
153.45

 
126.59

S&P 500 Index
100.00

 
113.69

 
115.26

 
129.05

 
157.22

 
150.33

Source: S&P Global Market Intelligence



21

Repurchases of TCF Stock

Share repurchase activity for the quarter ended December 31, 2018 was as follows:
Period
Total Number
of Shares
Purchased
 
Average
Price Paid
Per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced Plan
 
Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the Plan
October 1 to October 31, 2018
 

 
 

 
 

 
 

Share repurchase program(1)
—

 
$
—

 
—

 
$
141,025,633

Employee transactions(2)
12,698

 
23.78

 
N.A.

 
N.A.

November 1 to November 30, 2018
 

 
 

 
 

 
 

Share repurchase program(1)
1,860,210

 
$
22.01

 
1,860,210

 
$
100,079,548

Employee transactions(2)
—

 
—

 
N.A.

 
N.A.

December 1 to December 31, 2018
 

 
 

 
 

 
 

Share repurchase program(1)
1,040,000

 
$
21.18

 
1,040,000

 
$
78,052,490

Employee transactions(2)
—

 
—

 
N.A.

 
N.A.

Total
 

 
 

 
 

 
 

Share repurchase program(1)
2,900,210

 
$
21.71

 
2,900,210

 
$
78,052,490

Employee transactions(2)
12,698

 
23.78

 
N.A.

 
N.A.

 N.A. Not Applicable
(1)
On July 25, 2018, the Board of Directors approved a $150.0 million increase to TCF's common stock repurchase program. Repurchases will be based on market conditions, the trading price of TCF shares and other factors. The ability to repurchase shares in the future may be adversely affected by new legislation or regulations or by changes in regulatory policies. Repurchases under this authorization may be commenced or suspended at any time or from time to time.
(2)
Represents restricted stock withheld pursuant to the terms of awards granted under either the TCF Financial Incentive Stock Program or the TCF Financial 2015 Omnibus Incentive Plan to offset tax withholding obligations that occur upon vesting and release of restricted stock. Both plans provide that the value of shares withheld shall be the average of the high and low prices of common stock of TCF Financial Corporation on the date the relevant transaction occurs.



22

Item 6. Selected Financial Data

The selected five-year financial summary presented below should be read in conjunction with the Consolidated Financial Statements and related notes. Historical data is not necessarily indicative of TCF's future results of operations or financial condition. See "Item 1A. Risk Factors."

Five-Year Financial Summary
 
At or For the Year Ended December 31,
(Dollars in thousands, except per share data)
2018
 
2017
 
2016
 
2015
 
2014
Consolidated Income:
 
 
 
 
 
 
 
 
 
Net interest income
$
992,007

 
$
925,238

 
$
848,106

 
$
820,388

 
$
815,629

Non-interest income
470,885

 
448,299

 
465,900

 
441,998

 
433,267

Total revenue
1,462,892

 
1,373,537

 
1,314,006

 
1,262,386

 
1,248,896

Provision for credit losses
46,768

 
68,443

 
65,874

 
52,944

 
95,737

Non-interest expense
1,014,400

 
1,059,934

 
909,887

 
894,747

 
871,777

Income before income tax expense (benefit)
401,724

 
245,160

 
338,245

 
314,695

 
281,382

Income tax expense (benefit)
86,096

 
(33,624
)
 
116,528

 
108,872

 
99,766

Income attributable to non-controlling interest
11,270

 
10,147

 
9,593

 
8,700

 
7,429

Net income attributable to TCF Financial Corporation
304,358

 
268,637

 
212,124

 
197,123

 
174,187

Preferred stock dividends
11,588

 
19,904

 
19,388

 
19,388

 
19,388

Impact of preferred stock redemption
3,481

 
5,779

 
—

 
—

 
—

Net income available to common stockholders
$
289,289

 
$
242,954

 
$
192,736

 
$
177,735

 
$
154,799

Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
1.75

 
$
1.44

 
$
1.15

 
$
1.07

 
$
0.95

Diluted
1.74

 
1.44

 
1.15

 
1.07

 
0.94

Dividends declared
0.60

 
0.30

 
0.30

 
0.225

 
0.20

Consolidated Financial Condition:
 
 
 
 
 
 
 
 
 
Loans and leases
$
19,072,311

 
$
19,104,460

 
$
17,843,827

 
$
17,435,999

 
$
16,401,646

Total assets
23,699,612

 
23,002,159

 
21,441,326

 
20,689,609

 
19,393,656

Deposits
18,903,686

 
18,335,002

 
17,242,522

 
16,719,989

 
15,449,882

Borrowings
1,449,472

 
1,249,449

 
1,077,572

 
1,039,938

 
1,235,535

Total equity
2,556,260

 
2,680,584

 
2,444,645

 
2,306,917

 
2,135,364

Book value per common share
14.45

 
13.96

 
12.66

 
11.94

 
11.10

Tangible book value per common share(1)
13.38

 
12.92

 
11.33

 
10.59

 
9.72

Financial Ratios:
 
 
 
 
 
 
 
 
 
Return on average assets
1.37
%
 
1.26
%
 
1.05
%
 
1.03
%
 
0.96
%
Return on average common equity
12.42

 
10.80

 
9.13

 
9.19

 
8.71

Adjusted return on average common equity(1)
13.51

 
10.80

 
9.13

 
9.19

 
8.71

Return on average tangible common equity(1)
13.56

 
15.73

 
10.29

 
10.48

 
10.08

Adjusted return on average tangible common equity(1)
14.74

 
15.73

 
10.29

 
10.48

 
10.08

Net interest margin(2)
4.63

 
4.54

 
4.34

 
4.42

 
4.61

Common equity to assets
9.99

 
10.42

 
10.09

 
9.80

 
9.58

Dividend payout ratio
34.48

 
20.83

 
26.09

 
21.03

 
21.28

Efficiency ratio
69.34

 
77.17

 
69.25

 
70.88

 
69.80

Adjusted efficiency ratio(1)
67.15

 
77.17

 
69.25

 
70.88

 
69.80

Credit Quality Ratios:
 
 
 
 
 
 
 
 
 
Non-accrual loans and leases as a percentage of total loans and leases
0.56
%
 
0.62
%
 
1.02
%
 
1.15
%
 
1.32
%
Non-performing assets as a percentage of total loans and leases and other real estate owned
0.65

 
0.72

 
1.28

 
1.43

 
1.71

Allowance for loan and lease losses as a percentage of total loans and leases
0.83

 
0.90

 
0.90

 
0.90

 
1.00

Net charge-offs as a percentage of average loans and leases
0.29

 
0.24

 
0.26

 
0.30

 
0.49

(1)
See "Item 7. Management's Discussion and Analysis - Consolidated Financial Condition Analysis - Non-GAAP Financial Measures" for further information.
(2)
Net interest income on a fully tax-equivalent basis divided by average interest-earning assets.


23

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Table of Contents

 


24

Management's discussion and analysis of the consolidated financial condition and results of operations of TCF Financial Corporation should be read in conjunction with "Part I, Item 1A. Risk Factors," "Item 6. Selected Financial Data" and "Item 8. Consolidated Financial Statements."

Overview

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. Its principal subsidiary, TCF National Bank ("TCF Bank"), is headquartered in Sioux Falls, South Dakota. At December 31, 2018, TCF Bank operated 314 bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota (TCF's "primary banking markets"). Through its direct subsidiaries, TCF Bank provides a full range of consumer-facing and commercial services, including consumer banking services in 47 states, commercial banking services in 42 states, commercial leasing and equipment financing in all 50 states and, to a limited extent, in foreign countries and commercial inventory financing in all 50 states and Canada and, to a limited extent, in other foreign countries.

TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the specific needs of the largest consumer segments in the market. The Company focuses on attracting and retaining customers through an exceptional customer experience driven by convenience through multiple points of contact, including digital banking, phone banking, a branch presence with select locations open at least six days a week and with extended hours, and access to automated teller machine ("ATM") networks. TCF's philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low interest cost deposits. TCF's growth strategies include organic growth in existing businesses, development of new products and services, new customer acquisition and acquisitions of portfolios or businesses. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. Funded generally through retail deposit generation, TCF continues to focus on profitable asset growth.

Net interest income, the difference between interest income earned on loans and leases, debt securities, investments and other interest-earning assets (interest income) and interest paid on deposits and borrowings (interest expense), represented 67.8% of TCF's total revenue for 2018, compared with 67.4% and 64.5% for 2017 and 2016, respectively. Net interest income can change significantly from period to period based on interest rates, customer prepayment patterns and the volume and mix of interest-earning assets, non-interest bearing deposits and interest-bearing liabilities. TCF manages the risk of changes in interest rates on its net interest income through a management Asset & Liability Committee ("ALCO") and through related interest rate risk monitoring and management policies. See "Part I, Item 1A. Risk Factors" and "Item 7A. Quantitative and Qualitative Disclosures about Market Risk" for further discussion.

Non-interest income is a significant source of revenue for TCF and an important component of TCF's results of operations. The significant components of non-interest income are from leasing and equipment finance, and fees and service charges. The leasing and equipment finance business generates non-interest income primarily from operating leases and sales-type leases. Providing a wide range of consumer banking services is an integral component of TCF's business philosophy. Primary drivers of fees and service charges include the number of customers we attract, the customers' level of engagement and the frequency with which the customer uses our solutions.

As an effort to diversify TCF's non-interest income sources and manage credit concentration risk, TCF sells loans, primarily secured by consumer real estate, which results in gains on sales, as well as servicing fee income. Primary drivers of gains on sales include TCF's ability to originate loans, identify loan buyers and execute loan sales.



25

Effective April 1, 2017, the Company executed its strategic shift from an originate-to-sell and originate-to-hold model to an entirely originate-to-hold model for its auto finance business and effective December 1, 2017, the Company discontinued auto finance loan originations. The determination was based on management's review of strategic alternatives and the financial outlook of the auto finance loan origination business compared with alternative uses of capital. TCF's subsidiary, Gateway One Lending & Finance, LLC ("Gateway One"), continues to service existing auto loans on its balance sheet and those that are serviced for others. The decision to discontinue auto finance loan originations resulted in a goodwill impairment charge of $73.0 million, an other intangible assets impairment charge of $0.4 million and approximately $14.8 million of expenses related to severance, other asset impairments and lease termination expenses in 2017.

The following portions of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management's Discussion and Analysis") focus in more detail on the results of operations for 2018, 2017 and 2016 and on information about TCF's financial condition, loan and lease portfolio, liquidity, funding resources, capital and other matters.

Pending Merger with Chemical Financial Corporation On January 28, 2019, TCF entered into an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Financial Corporation ("Chemical"), a bank holding company with $21.5 billion in assets, headquartered in Detroit, Michigan. The merger is expected to close in late 2019, subject to satisfaction of customary closing conditions, including regulatory approvals and approval by the shareholders of TCF and Chemical. Under the terms of the Merger Agreement, which has been unanimously approved by the boards of directors of both companies, each outstanding share of TCF common stock will be converted into the right to receive, without interest, 0.5081 shares of Chemical common stock. Also, at the effective time of the merger, each outstanding share of the 5.70% Series C non-cumulative perpetual preferred stock of TCF will be converted into the right to receive, without interest, one share of a newly created series of preferred stock of Chemical with equivalent rights and preferences (the "New Chemical Preferred Stock"). The shares of Chemical common stock and the New Chemical Preferred Stock to be issued in the merger will be listed on the Nasdaq. Following the completion of the merger, TCF and Chemical shareholders will own approximately 54% and 46% of the combined company, respectively, on a fully diluted basis.

Results of Operations

Performance Summary TCF reported net income of $304.4 million for 2018, compared with $268.6 million and $212.1 million for 2017 and 2016, respectively. TCF reported diluted earnings per common share of $1.74 for 2018, compared with $1.44 and $1.15 for 2017 and 2016, respectively.

Return on average assets on a fully tax-equivalent basis was 1.37% for 2018, compared with 1.26% and 1.05% for 2017 and 2016, respectively. Total average assets were $23.1 billion for 2018, compared with $22.1 billion and $21.1 billion for 2017 and 2016, respectively. Return on average common equity ("ROACE") was 12.42% for 2018, compared with 10.80% and 9.13% for 2017 and 2016, respectively. Return on average tangible common equity ("ROATCE") was 13.56% for 2018, compared with 15.73% and 10.29% for 2017 and 2016, respectively. Adjusted ROATCE for 2018, which excludes the settlement with the Consumer Financial Protection Bureau (the "CFPB") and the Office of the Comptroller of the Currency (the "OCC") of $32.0 million, including related expenses, was 14.74%. Total average common equity was $2.3 billion for 2018, compared with $2.2 billion and $2.1 billion for 2017 and 2016, respectively. Total average tangible common equity was $2.2 billion for 2018, compared with $2.0 billion and $1.9 billion for 2017 and 2016, respectively. See "Consolidated Financial Condition Analysis — Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.



26

Consolidated Income Statement Analysis

Net Interest Income  Net interest income was $992.0 million for 2018, compared with $925.2 million and $848.1 million for 2017 and 2016, respectively. Net interest income represented 67.8% of TCF's total revenue for 2018, compared with 67.4% and 64.5% for 2017 and 2016, respectively. The increase in net interest income in 2018 was primarily due to increased interest income on the variable- and adjustable-rate loan portfolios (including the inventory finance loan portfolio) as a result of interest rate increases and higher average balances, increased interest income on the leasing and equipment finance loan and lease portfolio and higher average balances of debt securities available for sale, partially offset by increased cost of funds and lower average balances of auto finance loans and decreased interest income on the fixed-rate consumer real estate loans. The increase in net interest income in 2017 was primarily due to an increase in interest income on loans and leases, partially offset by a decrease in interest income on loans held for sale and an increase in total interest expense. Total interest income increased primarily due to higher average balances and increased average yields on commercial loans, increased average yields on auto finance loans, higher average balances and increased average yields on inventory finance loans and higher average balances of leasing and equipment finance loans and leases. These increases were partially offset by lower average balances of consumer real estate loans. Total interest expense increased primarily due to higher average balances of long-term borrowings and increased average rates and higher average balances of certificates of deposit driven by the current interest rate environment, partially offset by lower average rates on money market accounts.

Net interest income on a fully tax-equivalent basis divided by average interest-earning assets is referred to as the net interest margin, expressed as a percentage. Net interest income and net interest margin are affected by (i) changes in prevailing short- and long-term interest rates, (ii) loan and deposit pricing strategies and competitive conditions, (iii) the volume and mix of interest-earning assets, non-interest bearing deposits and interest-bearing liabilities, (iv) the level of non-accrual loans and leases and other real estate owned and (v) the impact of modified loans and leases. Net interest margin was 4.63% for 2018, compared with 4.54% and 4.34% for 2017 and 2016, respectively.


27

TCF's average balances, interest, and yields and rates on major categories of TCF's interest-earning assets and interest-bearing liabilities on a fully tax-equivalent basis were as follows:
 
Year Ended December 31,
 
 
 
 
 
 
 
2018
 
2017
 
Change
(Dollars in thousands)
Average
Balance
 
Interest(1)
 
Yields and
Rates(1)
 
Average
Balance
 
Interest(1)
 
Yields and
Rates(1)
 
Average
Balance
 
Interest
 
Yields and
Rates (bps)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments and other
$
319,472

 
$
11,964

 
3.74
%
 
$
282,507

 
$
10,491

 
3.71
%
 
$
36,965

 
$
1,473

 
3

Debt securities held to maturity
154,619

 
3,970

 
2.57

 
170,006

 
4,436

 
2.61

 
(15,387
)
 
(466
)
 
(4
)
Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 


Taxable
1,390,016

 
37,436

 
2.69

 
823,526

 
18,382

 
2.23

 
566,490

 
19,054

 
46

Tax-exempt(2)
815,540

 
21,694

 
2.66

 
712,530

 
22,916

 
3.22

 
103,010

 
(1,222
)
 
(56
)
Loans and leases held for sale
103,240

 
6,619

 
6.41

 
208,678

 
16,606

 
7.96

 
(105,438
)
 
(9,987
)
 
(155
)
Loans and leases:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Consumer real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed-rate
1,790,069

 
97,850

 
5.47

 
1,934,395

 
109,185

 
5.64

 
(144,326
)
 
(11,335
)
 
(17
)
Variable- and adjustable-rate
3,027,030

 
196,291

 
6.48

 
2,961,449

 
171,671

 
5.80

 
65,581

 
24,620

 
68

Total consumer real estate
4,817,099

 
294,141

 
6.11

 
4,895,844

 
280,856

 
5.74

 
(78,745
)
 
13,285

 
37

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed-rate
875,551

 
39,789

 
4.54

 
977,698

 
47,587

 
4.87

 
(102,147
)
 
(7,798
)
 
(33
)
Variable- and adjustable-rate
2,832,471

 
153,068

 
5.40

 
2,455,578

 
111,886

 
4.56

 
376,893

 
41,182

 
84

Total commercial
3,708,022

 
192,857

 
5.20

 
3,433,276

 
159,473

 
4.64

 
274,746

 
33,384

 
56

Leasing and equipment finance
4,642,811

 
230,418

 
4.96

 
4,399,138

 
202,508

 
4.60

 
243,673

 
27,910

 
36

Inventory finance
3,079,059

 
214,262

 
6.96

 
2,646,500

 
164,386

 
6.21

 
432,559

 
49,876

 
75

Auto finance
2,565,668

 
136,692

 
5.33

 
3,105,326

 
152,974

 
4.93

 
(539,658
)
 
(16,282
)
 
40

Other
13,603

 
579

 
4.26

 
11,149

 
571

 
5.11

 
2,454

 
8

 
(85
)
Total loans and leases
18,826,262

 
1,068,949

 
5.68

 
18,491,233

 
960,768

 
5.20

 
335,029

 
108,181

 
48

Total interest-earning assets
21,609,149

 
1,150,632

 
5.32

 
20,688,480

 
1,033,599

 
5.00

 
920,669

 
117,033

 
32

Other assets(4)
1,452,999

 
 
 
 
 
1,363,487

 
 
 
 
 
89,512

 


 


Total assets
$
23,062,148

 
 
 
 
 
$
22,051,967

 
 
 
 
 
$
1,010,181

 


 


Liabilities and Equity:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Non-interest bearing deposits
$
3,843,494

 
 
 
 
 
$
3,492,233

 
 
 
 
 
$
351,261

 


 


Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Checking
2,438,040

 
714

 
0.03

 
2,541,407

 
379

 
0.01

 
(103,367
)
 
335

 
2

Savings
5,621,723

 
20,009

 
0.36

 
4,888,280

 
4,255

 
0.09

 
733,443

 
15,754

 
27

Money market
1,553,255

 
11,582

 
0.75

 
2,140,553

 
10,139

 
0.47

 
(587,298
)
 
1,443

 
28

Certificates of deposit
4,897,937

 
74,808

 
1.53

 
4,495,062

 
51,239

 
1.14

 
402,875

 
23,569

 
39

Total interest-bearing deposits
14,510,955

 
107,113

 
0.74

 
14,065,302

 
66,012

 
0.47

 
445,653

 
41,101

 
27

Total deposits
18,354,449

 
107,113

 
0.58

 
17,557,535

 
66,012

 
0.38

 
796,914

 
41,101

 
20

Borrowings:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 


Short-term borrowings
3,288

 
77

 
2.35

 
5,267

 
58

 
1.10

 
(1,979
)
 
19

 
125

Long-term borrowings
1,412,186

 
43,067

 
3.05

 
1,239,433

 
27,749

 
2.24

 
172,753

 
15,318

 
81

Total borrowings
1,415,474

 
43,144

 
3.05

 
1,244,700

 
27,807

 
2.23

 
170,774

 
15,337

 
82

Total interest-bearing liabilities
15,926,429

 
150,257

 
0.94

 
15,310,002

 
93,819

 
0.61

 
616,427

 
56,438

 
33

Total deposits and borrowings
19,769,923

 
150,257

 
0.76

 
18,802,235

 
93,819

 
0.50

 
967,688

 
56,438

 
26

Accrued expenses and other liabilities
761,723

 
 
 
 
 
713,794

 
 
 
 
 
47,929

 
 
 
 
Total liabilities
20,531,646

 
 
 
 
 
19,516,029

 
 
 
 
 
1,015,617

 
 
 
 
Total TCF Financial Corp. stockholders' equity
2,506,179

 
 
 
 
 
2,513,424

 
 
 
 
 
(7,245
)
 
 
 
 
Non-controlling interest in subsidiaries
24,323

 
 
 
 
 
22,514

 
 
 
 
 
1,809

 
 
 
 
Total equity
2,530,502

 
 
 
 
 
2,535,938

 
 
 
 
 
(5,436
)
 
 
 
 
Total liabilities and equity
$
23,062,148

 
 
 
 
 
$
22,051,967

 
 
 
 
 
$
1,010,181

 
 
 
 
Net interest income and margin
 
 
$
1,000,375

 
4.63

 
 
 
$
939,780

 
4.54

 


 
$
60,595

 
9

(1)
Interest and yields are presented on a fully tax-equivalent basis.
(2)
The yield on tax-exempt debt securities available for sale is computed on a tax-equivalent basis using a statutory federal income tax rate of 21% and 35% for 2018 and 2017, respectively.
(3)
Average balances of loans and leases include non-accrual loans and leases and are presented net of unearned income.
(4)
Includes leased equipment and related initial direct costs under operating leases of $288.4 million and $224.7 million for 2018 and 2017, respectively.


28

 
Year Ended December 31,
 
 
 
 
 
 
 
2017
 
2016
 
Change
(Dollars in thousands)
Average
Balance
 
Interest(1)
 
Yields and
Rates(1)
 
Average
Balance
 
Interest(1)
 
Yields and
Rates(1)
 
Average
Balance
 
Interest
 
Yields and
Rates (bps)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments and other
$
282,507

 
$
10,491

 
3.71
%
 
$
319,582

 
$
9,314

 
2.91
%
 
$
(37,075
)
 
$
1,177

 
80

Debt securities held to maturity
170,006

 
4,436

 
2.61

 
190,863

 
4,649

 
2.44

 
(20,857
)
 
(213
)
 
17

Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Taxable
823,526

 
18,382

 
2.23

 
719,743

 
16,238

 
2.26

 
103,783

 
2,144

 
(3
)
Tax-exempt(2)
712,530

 
22,916

 
3.22

 
495,708

 
15,900

 
3.21

 
216,822

 
7,016

 
1

Loans and leases held for sale
208,678

 
16,606

 
7.96

 
479,401

 
39,648

 
8.27

 
(270,723
)
 
(23,042
)
 
(31
)
Loans and leases:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate
1,934,395

 
109,185

 
5.64

 
2,285,647

 
130,753

 
5.72

 
(351,252
)
 
(21,568
)
 
(8
)
Variable- and adjustable-rate
2,961,449

 
171,671

 
5.80

 
2,948,482

 
156,919

 
5.32

 
12,967

 
14,752

 
48

Total consumer real estate
4,895,844

 
280,856

 
5.74

 
5,234,129

 
287,672

 
5.50

 
(338,285
)
 
(6,816
)
 
24

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate
977,698

 
47,587

 
4.87

 
972,107

 
47,445

 
4.88

 
5,591

 
142

 
(1
)
Variable- and adjustable-rate
2,455,578

 
111,886

 
4.56

 
2,154,774

 
85,996

 
3.99

 
300,804

 
25,890

 
57

Total commercial
3,433,276

 
159,473

 
4.64

 
3,126,881

 
133,441

 
4.27

 
306,395

 
26,032

 
37

Leasing and equipment finance
4,399,138

 
202,508

 
4.60

 
4,106,718

 
183,029

 
4.46

 
292,420

 
19,479

 
14

Inventory finance
2,646,500

 
164,386

 
6.21

 
2,414,684

 
140,453

 
5.82

 
231,816

 
23,933

 
39

Auto finance
3,105,326

 
152,974

 
4.93

 
2,693,041

 
110,651

 
4.11

 
412,285

 
42,323

 
82

Other
11,149

 
571

 
5.11

 
9,538

 
548

 
5.74

 
1,611

 
23

 
(63
)
Total loans and leases
18,491,233

 
960,768

 
5.20

 
17,584,991

 
855,794

 
4.87

 
906,242

 
104,974

 
33

Total interest-earning assets
20,688,480

 
1,033,599

 
5.00

 
19,790,288

 
941,543

 
4.76

 
898,192

 
92,056

 
24

Other assets(4)
1,363,487

 
 
 
 
 
1,285,127

 
 
 
 
 
78,360

 
 
 
 
Total assets
$
22,051,967

 
 
 
 
 
$
21,075,415

 
 
 
 
 
$
976,552

 
 
 
 
Liabilities and Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest bearing deposits
$
3,492,233

 
 
 
 
 
$
3,248,510

 
 
 
 
 
$
243,723

 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking
2,541,407

 
379

 
0.01

 
2,452,206

 
346

 
0.01

 
89,201

 
33

 
—

Savings
4,888,280

 
4,255

 
0.09

 
4,677,517

 
1,510

 
0.03

 
210,763

 
2,745

 
6

Money market
2,140,553

 
10,139

 
0.47

 
2,488,977

 
15,114

 
0.61

 
(348,424
)
 
(4,975
)
 
(14
)
Certificates of deposit
4,495,062

 
51,239

 
1.14

 
4,229,247

 
44,818

 
1.06

 
265,815

 
6,421

 
8

Total interest-bearing deposits
14,065,302

 
66,012

 
0.47

 
13,847,947

 
61,788

 
0.45

 
217,355

 
4,224

 
2

Total deposits
17,557,535

 
66,012

 
0.38

 
17,096,457

 
61,788

 
0.36

 
461,078

 
4,224

 
2

Borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
5,267

 
58

 
1.10

 
7,051

 
51

 
0.73

 
(1,784
)
 
7

 
37

Long-term borrowings
1,239,433

 
27,749

 
2.24

 
890,846

 
20,785

 
2.33

 
348,587

 
6,964

 
(9
)
Total borrowings
1,244,700

 
27,807

 
2.23

 
897,897

 
20,836

 
2.32

 
346,803

 
6,971

 
(9
)
Total interest-bearing liabilities
15,310,002

 
93,819

 
0.61

 
14,745,844

 
82,624

 
0.56

 
564,158

 
11,195

 
5

Total deposits and borrowings
18,802,235

 
93,819

 
0.50

 
17,994,354

 
82,624

 
0.46

 
807,881

 
11,195

 
4

Accrued expenses and other liabilities
713,794

 
 
 
 
 
686,360

 
 
 
 
 
27,434

 
 
 
 
Total liabilities
19,516,029

 
 
 
 
 
18,680,714

 
 
 
 
 
835,315

 
 
 
 
Total TCF Financial Corp. stockholders' equity
2,513,424

 
 
 
 
 
2,373,176

 
 
 
 
 
140,248

 
 
 
 
Non-controlling interest in subsidiaries
22,514

 
 
 
 
 
21,525

 
 
 
 
 
989

 
 
 
 
Total equity
2,535,938

 
 
 
 
 
2,394,701

 
 
 
 
 
141,237

 
 
 
 
Total liabilities and equity
$
22,051,967

 
 
 
 
 
$
21,075,415

 
 
 
 
 
$
976,552

 
 
 
 
Net interest income and margin
 
 
$
939,780

 
4.54

 
 
 
$
858,919

 
4.34

 
 
 
$
80,861

 
20

(1)
Interest and yields are presented on a fully tax-equivalent basis.
(2)
The yield on tax-exempt debt securities available for sale is computed on a tax-equivalent basis using a statutory federal income tax rate of 35% for all periods presented.
(3)
Average balances of loans and leases include non-accrual loans and leases and are presented net of unearned income.
(4)
Includes leased equipment and related initial direct costs under operating leases of $224.7 million and $140.3 million for 2017 and 2016, respectively.


29

The components of the changes in net interest income on a fully tax-equivalent basis by volume and rate were as follows:
 
Year Ended
 
December 31, 2018
 
December 31, 2017
 
Versus December 31, 2017
 
Versus December 31, 2016
 
Increase (Decrease) Due to
 
Increase (Decrease) Due to
(In thousands)
Volume(1)
 
Rate(1) 
 
Total
 
Volume(1)
 
Rate(1) 
 
Total
Interest income:
 
 
 
 
 
 
 
 
 
 
 
Investments and other
$
1,384

 
$
89

 
$
1,473

 
$
(1,166
)
 
$
2,343

 
$
1,177

Debt securities held to maturity
(396
)
 
(70
)
 
(466
)
 
(530
)
 
317

 
(213
)
Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Taxable
14,890

 
4,164

 
19,054

 
2,318

 
(174
)
 
2,144

Tax-exempt
3,052

 
(4,274
)
 
(1,222
)
 
6,974

 
42

 
7,016

Loans and leases held for sale
(7,212
)
 
(2,775
)
 
(9,987
)
 
(21,553
)
 
(1,489
)
 
(23,042
)
Loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Consumer real estate:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate
(7,966
)
 
(3,369
)
 
(11,335
)
 
(19,589
)
 
(1,979
)
 
(21,568
)
Variable- and adjustable-rate
3,873

 
20,747

 
24,620

 
715

 
14,037

 
14,752

Total consumer real estate
(4,575
)
 
17,860

 
13,285

 
(18,630
)
 
11,814

 
(6,816
)
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate
(4,770
)
 
(3,028
)
 
(7,798
)
 
360

 
(218
)
 
142

Variable- and adjustable-rate
18,617

 
22,565

 
41,182

 
13,001

 
12,889

 
25,890

Total commercial
13,374

 
20,010

 
33,384

 
13,913

 
12,119

 
26,032

Leasing and equipment finance
11,581

 
16,329

 
27,910

 
13,326

 
6,153

 
19,479

Inventory finance
28,730

 
21,146

 
49,876

 
14,284

 
9,649

 
23,933

Auto finance
(28,060
)
 
11,778

 
(16,282
)
 
18,588

 
23,735

 
42,323

Other
113

 
(105
)
 
8

 
88

 
(65
)
 
23

Total loans and leases
17,671

 
90,510

 
108,181

 
46,284

 
58,690

 
104,974

Total interest income
47,218

 
69,815

 
117,033

 
44,754

 
47,302

 
92,056

Interest expense:
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Checking
(16
)
 
351

 
335

 
14

 
19

 
33

Savings
730

 
15,024

 
15,754

 
72

 
2,673

 
2,745

Money market
(3,298
)
 
4,741

 
1,443

 
(1,924
)
 
(3,051
)
 
(4,975
)
Certificates of deposit
4,923

 
18,646

 
23,569

 
2,979

 
3,442

 
6,421

Total deposits
3,124

 
37,977

 
41,101

 
1,768

 
2,456

 
4,224

Borrowings:
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
(28
)
 
47

 
19

 
(15
)
 
22

 
7

Long-term borrowings
4,257

 
11,061

 
15,318

 
7,862

 
(898
)
 
6,964

Total borrowings
4,195

 
11,142

 
15,337

 
7,801

 
(830
)
 
6,971

Total interest expense
3,921

 
52,517

 
56,438

 
3,310

 
7,885

 
11,195

Net interest income
$
42,362

 
$
18,233

 
$
60,595

 
$
40,815

 
$
40,046

 
$
80,861

(1)
Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate. Changes due to volume and rate are calculated independently for each line item presented.



30

Provision for Credit Losses  The provision for credit losses was $46.8 million for 2018, compared with $68.4 million and $65.9 million for 2017 and 2016, respectively. The decrease in 2018 was primarily due to run-off in and maturation of the auto finance portfolio, partially offset by a decrease in recoveries on previous charge-offs related to the consumer real estate non-accrual loan sales. The recoveries on previous charge-offs related to the consumer real estate non-accrual loan sales were $6.6 million for 2018, compared with $13.3 million for 2017. The increase in 2017 was primarily due to increased provision for credit losses attributable to the auto finance, commercial and leasing and equipment finance portfolios, partially offset by a decrease in provision for credit losses attributable to the consumer real estate portfolio.

The provision for credit losses is predominantly a function of TCF's reserving methodology used to determine the appropriate level of the allowance for loan and lease losses, which is a critical accounting estimate. TCF's evaluation of incurred losses is based on historical loss rates multiplied by the respective portfolio's loss emergence period. Factors utilized in the determination and allocation of the allowance for loan and lease losses and the related provision for credit losses include historical trends in loss rates, a portfolio's overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values, economic outlook and prevailing economic conditions.

For further information, see "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis and Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements.

Non-interest Income  The components of non-interest income were as follows:
 
Year Ended December 31,
Change
(Dollars in thousands)
2018
 
2017
 
2016
 
2018 / 2017
 
2017 / 2016
Leasing and equipment finance
$
185,107

 
$
145,039

 
$
119,166

 
27.6
 %
 
21.7
 %
Fees and service charges
132,201

 
131,887

 
137,664

 
0.2

 
(4.2
)
Card revenue
58,864

 
55,732

 
54,882

 
5.6

 
1.5

ATM revenue
19,690

 
19,624

 
20,445

 
0.3

 
(4.0
)
Gains on sales of loans, net
33,498

 
42,787

 
85,259

 
(21.7
)
 
(49.8
)
Servicing fee income
27,334

 
41,347

 
40,182

 
(33.9
)
 
2.9

Gains (losses) on debt securities, net
348

 
237

 
(581
)
 
46.8

 
N.M.

Other
13,843

 
11,646

 
8,883

 
18.9

 
31.1

Total non-interest income
$
470,885

 
$
448,299

 
$
465,900

 
5.0

 
(3.8
)
Total non-interest income as a percentage of total revenue
32.2
%
 
32.6
%
 
35.5
%
 
 
 
 
N.M. Not Meaningful

Leasing and Equipment Finance Leasing and equipment finance non-interest income was $185.1 million for 2018, compared with $145.0 million and $119.2 million for 2017 and 2016, respectively. The increase in 2018 was primarily due to increases in operating lease revenue and sales-type lease revenue. The increase in 2017 was primarily due to an increase in operating lease revenue, mainly driven by the acquisition of Equipment Financing & Leasing Corporation ("EFLC") in the second quarter of 2017 and portfolio growth.

Fees and Service Charges  Fees and service charges were $132.2 million for 2018, compared with $131.9 million and $137.7 million for 2017 and 2016, respectively. The decrease in 2017 was primarily due to ongoing consumer behavior changes, as well as higher average checking account balances per customer.

Gains on Sales of Loans, Net  Net gains on sales of loans were $33.5 million for 2018, compared with $42.8 million and $85.3 million for 2017 and 2016, respectively. The decreases in both periods were primarily due to the strategic shift executed in 2017 to no longer sell auto finance loans and decreased volume of consumer real estate loans sold. TCF sold $1.0 billion of consumer real estate loans in 2018, compared with $1.3 billion and $1.6 billion in 2017 and 2016, respectively. TCF did not sell any auto finance loans in 2018, compared with $424.7 million and $2.1 billion in 2017 and 2016, respectively. See Note 6. Loans and Leases of Notes to Consolidated Financial Statements for further information.

Servicing Fee Income  Servicing fee income was $27.3 million on $4.0 billion of average loans and leases serviced for others for 2018, compared with $41.3 million on $5.2 billion of average loans and leases serviced for others for 2017 and $40.2 million on $4.9 billion of average loans and leases serviced for others for 2016. The decrease in 2018 was primarily due to continued run-off in the auto finance serviced for others portfolio.


31

Non-interest Expense  The components of non-interest expense were as follows:
 
Year Ended December 31,
 
Change
 
(Dollars in thousands)
2018
 
2017
 
2016
 
2018 / 2017
 
2017 / 2016
 
Compensation and employee benefits
$
497,063

 
$
482,512

 
$
475,964

 
3.0

%
1.4

%
Occupancy and equipment
165,812

 
156,909

 
149,980

 
5.7

 
4.6

 
Operating lease depreciation
73,829

 
55,901

 
40,359

 
32.1

 
38.5

 
Foreclosed real estate and repossessed assets, net
17,050

 
17,756

 
13,187

 
(4.0
)
 
34.6

 
Other
260,646

 
346,856

 
230,397

 
(24.9
)
 
50.5

 
Total non-interest expense
$
1,014,400

 
$
1,059,934

 
$
909,887

 
(4.3
)
 
16.5

 
 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio
69.34
%
 
77.17
%
 
69.25
%
 
(783
)
bps
792

bps
Adjusted efficiency ratio(1)
67.15

 
77.17

 
69.25

 
(1,002
)
 
792

 
(1)
See "Consolidated Financial Condition Analysis - Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

Compensation and Employee Benefits Compensation and employee benefits expense was $497.1 million for 2018, compared with $482.5 million and $476.0 million for 2017 and 2016, respectively. The increase in 2018 was primarily due to higher salaries, higher medical claims expense, including a large medical claim of $7.4 million, and higher incentive compensation, partially offset by lower headcount in the auto finance business. The increase in 2017 was primarily due to higher enterprise services contract labor utilization, higher incentive compensation and one-time employee bonuses, partially offset by reduced headcount in auto finance resulting in lower salaries and commissions.

Occupancy and Equipment Occupancy and equipment expense was $165.8 million for 2018, compared with $156.9 million and $150.0 million for 2017 and 2016, respectively. The increase in 2018 was primarily due to increased software maintenance expense and software depreciation expense. The increase in 2017 was primarily due to increased software maintenance expense and ATM expenses, partially offset by lower repairs and maintenance. Depreciation and amortization expense related to premises and equipment was $48.6 million, $45.9 million and $44.9 million for 2018, 2017 and 2016, respectively.

Operating Lease Depreciation Operating lease depreciation was $73.8 million for 2018, compared with $55.9 million and $40.4 million for 2017 and 2016, respectively. The increases in both periods were primarily due to higher balances of leased equipment.

Foreclosed Real Estate and Repossessed Assets, Net  Net foreclosed real estate and repossessed assets expense was $17.1 million for 2018, compared with $17.8 million and $13.2 million for 2017 and 2016, respectively. The increase in 2017 was due to higher repossessed assets expense primarily attributable to auto finance and lower gains on sales of commercial properties, partially offset by lower operating costs associated with maintaining fewer consumer properties.

Other Non-interest Expense Other non-interest expense was $260.6 million for 2018, compared with $346.9 million and $230.4 million for 2017 and 2016, respectively. The decrease in 2018 was primarily due to charges related to the discontinuation of auto finance loan originations in 2017, as well as decreases in professional fees, loan and lease processing expense and charitable contributions, partially offset by the settlement with the CFPB and the OCC of $32.0 million, including related expenses. The increase in 2017 was primarily due to charges related to the discontinuation of auto finance loan originations, including goodwill and other intangible assets impairment charges of $73.4 million and severance, asset impairment and lease termination expenses of $14.8 million, as well as increases in professional fees, charitable contributions, outside processing expense, advertising and marketing expense, and card processing expense, partially offset by decreases in loan and lease processing expense and branch realignment expense. See Note 23. Other Non-interest Expense of Notes to Consolidated Financial Statements for further information.



32

Income Taxes  Income tax expense was $86.1 million for 2018, compared with income tax benefit of $33.6 million and income tax expense of $116.5 million for 2017 and 2016, respectively. Income tax expense was 21.4% of income before income taxes for 2018. Income tax expense for 2018 was primarily impacted by the change in the corporate statutory tax rate as a result of the Tax Cuts and Jobs Act, enacted on December 22, 2017 ("Tax Reform"). Income tax expense for 2018 was also impacted by a net tax benefit of $1.1 million recorded in the second quarter of 2018 for the finalization of the provisional amounts recorded in 2017 related to Tax Reform. Income tax benefit for 2017 was impacted by an estimated net tax benefit of $130.7 million primarily resulting from the re-measurement of the Company's estimated net deferred tax liability as a result of the enactment of Tax Reform. See Note 2. Summary of Significant Accounting Policies and Note 14. Income Taxes of Notes to Consolidated Financial Statements for further information.

Reportable Segment Results The Company's reportable segments are Consumer Banking, Wholesale Banking and Enterprise Services. See Note 24. Business Segments of Notes to Consolidated Financial Statements for further information regarding net income (loss), revenues and assets for each of TCF's reportable segments.

Consumer Banking
Consumer Banking is comprised of all of the Company's consumer-facing businesses and includes retail banking, consumer real estate and other, and auto finance. TCF's consumer banking strategy is primarily to generate deposits and originate high credit quality secured consumer real estate loans for investment and for sale. Effective December 1, 2017, the Company discontinued auto finance loan originations. TCF continues to service existing auto loans on its balance sheet and those that are serviced for others. Deposits are generated from consumers and small businesses to provide a source of low cost funds, with a focus on building and maintaining quality customer relationships.
Consumer Banking generated net income available to common stockholders of $102.9 million for 2018, compared with $23.1 million and $124.0 million for 2017 and 2016, respectively.
Consumer Banking net interest income was $556.1 million for 2018, compared with $574.6 million and $559.9 million for 2017 and 2016, respectively. Consumer Banking net interest income was 56.1% of the Company's total net interest income for 2018, compared with 62.1% and 66.0% for 2017 and 2016, respectively. The decrease in 2018 was primarily due to lower average balances of auto finance loans, increased interest expense on deposits and decreased interest income on the fixed-rate consumer real estate loans, partially offset by increased interest income on the variable- and adjustable-rate consumer real estate loans, higher net funds transfer pricing credits and lower interest expense on inter-company borrowings. The increase in 2017 was primarily due to an increase in interest income on loans primarily due to higher average yields on auto finance loans and an increase in funds transfer pricing credits driven by deposits, partially offset by a decrease in interest income on consumer real estate loans and an increase in total interest expense due to an increase in interest expense on inter-company borrowings and an increase in funds transfer charges.
Consumer Banking provision for credit losses was $24.9 million for 2018, compared with $48.2 million and $50.8 million for 2017 and 2016, respectively. The decrease in 2018 was primarily due to run-off in and maturation of the auto finance portfolio, partially offset by a decrease in recoveries on previous charge-offs related to the consumer real estate non-accrual loan sales. The recoveries on previous charge-offs related to the consumer real estate non-accrual loan sales were $6.6 million for 2018, compared with $13.3 million for 2017. The decrease in 2017 was primarily due to a decrease in the provision for credit losses attributable to the consumer real estate portfolio, partially offset by an increase in the provision for credit losses attributable to the auto finance portfolio. The provision for credit losses is predominantly a function of TCF's reserving methodology used to determine the appropriate level of the allowance for loan and lease losses. For further information, see "Consolidated Income Statement Analysis — Provision for Credit Losses" and "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis and Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements.


33

Consumer Banking non-interest income was $269.2 million for 2018, compared with $290.0 million and $337.0 million for 2017 and 2016, respectively. Consumer Banking non-interest income was 57.2% of the Company's total non-interest income for 2018, compared with 64.7% and 72.3% for 2017 and 2016, respectively. The decrease in non-interest income in 2018 was primarily due to decreased servicing fee income due to continued run-off in the auto finance serviced for others portfolio and decreased gains on sales of loans primarily due to the strategic shift executed in 2017 to no longer sell auto finance loans and decreased volume of consumer real estate loans sold. Servicing fee income attributable to the Consumer Banking segment was $26.0 million for 2018, compared with $40.0 million for 2017. Average Consumer Banking loans serviced for others were $3.6 billion for 2018, compared with $4.8 billion for 2017. The decrease in 2017 was primarily due to a decrease in net gains on sales of loans as a result of the strategic shift executed in 2017 to no longer sell auto finance loans and decreased volume of consumer real estate loans sold. The decrease was also due to a decrease in fees and service charges as a result of ongoing consumer behavior changes and higher average checking account balances per customer.
Consumer Banking non-interest expense was $666.7 million for 2018, compared with $743.7 million and $652.5 million for 2017 and 2016, respectively. The decrease in 2018 was primarily due to charges related to the discontinuation of auto finance loan originations in 2017, as well as a decrease in compensation and employee benefits expense as a result of lower headcount in the auto finance business and a decrease in loan processing expense. These decreases were partially offset by the settlement with the CFPB and the OCC of $32.0 million, including related expenses and higher allocations of other non-interest expense from the Enterprise Services segment. The increase in 2017 was primarily due to charges related to the discontinuation of auto finance loan originations, including goodwill and other intangible asset impairment charges and severance, asset impairment and lease termination expenses, as well as increases in occupancy and equipment expense, allocation expense from Enterprise Services, advertising and marketing expense, net foreclosed real estate and repossessed assets expense and card processing expense. These increases were partially offset by a decrease in compensation and employee benefits expense attributable to reduced headcount in auto finance resulting in lower salaries and commissions, a decrease in branch realignment expense and a decrease in loan processing expense.
Wholesale Banking
Wholesale Banking is comprised of commercial banking, leasing and equipment finance, and inventory finance. TCF's wholesale banking strategy is primarily to originate high credit quality secured loans and leases for investment.
Wholesale Banking generated net income available to common stockholders of $181.6 million for 2018, compared with $278.4 million and $130.0 million for 2017 and 2016, respectively.
Wholesale Banking net interest income was $379.7 million for 2018, compared with $359.3 million and $343.7 million for 2017 and 2016, respectively. Wholesale Banking net interest income was 38.3% of the Company's total net interest income for 2018, compared with 38.8% and 40.5% for 2017 and 2016, respectively. The increase in net interest income in 2018 was primarily due to increased interest income on the variable- and adjustable-rate wholesale loan portfolios and the leasing and equipment finance portfolio, partially offset by an increase in net funds transfer pricing charges and higher interest expense on inter-company borrowings driven by increases in interest rates and higher average balances of loans and leases. The increase in 2017 was primarily due to increased interest income on loans and leases due to higher average balances and increased average yields on commercial and inventory finance loans and higher average balances of leasing and equipment finance loans and leases, partially offset by an increase in net funds transfer pricing charges driven by an increase in loans and leases and higher interest expense on inter-company borrowings.
Wholesale Banking provision for credit losses was $21.8 million for 2018, compared with $20.2 million and $15.1 million for 2017 and 2016, respectively. The increase in 2017 was primarily due to increased provision for credit losses attributable to the commercial and leasing and equipment finance portfolios, partially offset by a decrease in the provision for credit losses attributable to the inventory finance portfolio. The provision for credit losses is predominantly a function of TCF's reserving methodology used to determine the appropriate level of the allowance for loan and lease losses. For further information, see "Consolidated Income Statement Analysis — Provision for Credit Losses" and "Consolidated Financial Condition Analysis — Credit Quality" in this Management's Discussion and Analysis and Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements.


34

Wholesale Banking non-interest income was $200.5 million for 2018, compared with $158.0 million and $128.9 million for 2017 and 2016, respectively. Wholesale Banking non-interest income was 42.6% of the Company's total non-interest income for 2018, compared with 35.2% and 27.7% for 2017 and 2016, respectively.The increase in non-interest income for 2018 was primarily due to an increase in leasing and equipment finance non-interest income as a result of increased operating lease revenue and sales-type lease revenue. The increase in 2017 was primarily due to an increase in leasing and equipment finance non-interest income due to an increase in operating lease revenue, mainly driven by the acquisition of EFLC in the second quarter of 2017 and portfolio growth.
Wholesale Banking non-interest expense was $311.9 million for 2018, compared with $277.4 million and $247.1 million for 2017 and 2016, respectively. The increase in 2018 was primarily due to an increase in operating lease depreciation as a result of higher balances of leased equipment, higher allocations of other non-interest expense from the Enterprise Services segment and an increase in compensation and employee benefits expense. The increase in 2017 was primarily due to an increase in operating lease depreciation primarily attributable to higher balances of leased equipment resulting in part from the acquisition of EFLC and an increase in occupancy and equipment expense.
Enterprise Services

Enterprise Services is comprised of (i) corporate treasury, which includes the Company's investment and borrowing portfolios and management of capital, debt and market risks, (ii) corporate functions, such as information technology, risk and credit management, bank operations, finance, investor relations, corporate development, internal audit, legal and human capital management that provide services to the operating segments, (iii) the Holding Company and (iv) eliminations. The Company's investment portfolio accounts for the earning assets within this segment. Borrowings may be used to offset reductions in deposits or to support lending activities. This segment also includes residual revenues and expenses representing the difference between actual amounts incurred by Enterprise Services and amounts allocated to the operating segments, including interest rate risk residuals such as funds transfer pricing mismatches.

Enterprise Services generated net income available to common stockholders of $4.9 million for 2018, compared with a net loss available to common shareholders of $58.5 million and $61.3 million for 2017 and 2016, respectively.
Enterprise Services net interest income was $56.2 million for 2018, compared with net interest expense of $8.7 million and $55.4 million for 2017 and 2016, respectively. The increase in net interest income in 2018 was due to asset sensitivity of the funds transfer pricing mismatches as a result of rising interest rates, an increase in interest income attributable to higher average balances of debt securities available for sale and an increase in interest income on inter-company borrowings, partially offset by an increase in interest expense on deposits. The decrease in net interest expense in 2017 was primarily driven by a decrease in funds transfer pricing mismatches as a result of rising interest rates and an increase in interest income attributable to higher average balances of debt securities available for sale, partially offset by an increase in interest expense primarily due to higher average balances of long-term borrowings and higher interest expense on deposits.
Enterprise Services non-interest expense was $35.7 million for 2018, compared with $38.8 million and $10.3 million for 2017 and 2016, respectively. The decrease in 2018 was primarily due to higher allocations of other non-interest expense to the Consumer Banking and Wholesale Banking segments and decreases in professional fees and charitable contributions, partially offset by an increase in compensation and employee benefits expense primarily driven by higher medical claims expense and an increase in occupancy and equipment expense. The increase in 2017 was primarily due to higher compensation and employee benefits expense due to higher contract labor utilization, higher incentive compensation and one-time employee bonuses, as well as higher professional fees related to strategic investments in technology capabilities and higher contribution expense related to the additional donation to TCF Foundation of $5.0 million. These increases were partially offset by a decrease in occupancy and equipment expense.



35

Consolidated Financial Condition Analysis

Debt Securities Available for Sale and Debt Securities Held to Maturity Total debt securities available for sale were $2.5 billion at December 31, 2018, compared with $1.7 billion at December 31, 2017. TCF's debt securities available for sale portfolio consists primarily of fixed-rate mortgage-backed securities issued by the Federal National Mortgage Association (the "FNMA") and the Federal Home Loan Mortgage Corporation (the "FHLMC"), and obligations of states and political subdivisions. The increase in securities available for sale was primarily due to purchases of fixed-rate mortgage-backed debt securities, partially offset by sales of obligations of states and political subdivisions and proceeds from maturities of and principal collected on fixed-rate mortgage-backed securities. TCF may, from time to time, sell securities available for sale and utilize the proceeds to reduce borrowings, fund growth in loans and leases or for other corporate purposes. TCF sold $251.3 million of obligations of states and political subdivisions during 2018. There were no sales of debt securities available for sale in 2017 and 2016.

Total debt securities held to maturity were $148.9 million at December 31, 2018, compared with $161.6 million at December 31, 2017. TCF's debt securities held to maturity portfolio consists primarily of fixed-rate mortgage-backed securities issued by the FNMA. The decrease in debt securities held to maturity was primarily due to proceeds from maturities of and principal collected on fixed-rate mortgage-backed securities.
 
The amortized cost, fair value and fully tax-equivalent yield of debt securities available for sale and debt securities held to maturity by final contractual maturity were as follows. The final contractual maturities do not consider possible prepayments and therefore expected maturities may differ because borrowers may have the right to prepay.
 
At December 31,
 
2018
 
2017
 
2016
(Dollars in thousands)
Amortized Cost
 
Fair Value
 
Tax-equivalent Yield
 
Amortized Cost
 
Fair Value
 
Tax-equivalent Yield
 
Amortized Cost
 
Fair Value
 
Tax-equivalent Yield
Debt securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
$
—

 
$
—

 
—
%
 
$
6

 
$
6

 
1.98
%
 
$
1

 
$
1

 
8.02
%
Due in 1-5 years
10,105

 
10,033

 
2.04

 
—

 
—

 
—

 
18

 
18

 
2.28

Due in 5-10 years
210,522

 
208,514

 
2.54

 
82,842

 
82,046

 
2.04

 
54,202

 
54,429

 
1.93

Due after 10 years
1,710,073

 
1,694,647

 
3.05

 
825,347

 
812,639

 
2.32

 
773,519

 
756,461

 
2.25

Obligations of states and political subdivisions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in 1-5 years
14,359

 
14,342

 
2.39

 
15,178

 
15,312

 
2.97

 
—

 
—

 
—

Due in 5-10 years
299,310

 
295,254

 
2.51

 
431,494

 
435,821

 
3.14

 
277,228

 
274,576

 
3.13

Due after 10 years
252,635

 
247,275

 
2.72

 
363,487

 
363,194

 
3.29

 
351,744

 
337,950

 
3.20

Total debt securities available for sale
$
2,497,004

 
$
2,470,065

 
2.90

 
$
1,718,354

 
$
1,709,018

 
2.72

 
$
1,456,712

 
$
1,423,435

 
2.63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in 5-10 years
$
30

 
$
32

 
6.50
%
 
$
—

 
$
—

 
—
%
 
$
—

 
$
—

 
—
%
Due after 10 years
146,022

 
146,435

 
2.56

 
158,776

 
162,826

 
2.55

 
178,514

 
181,146

 
2.54

Other securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
—

 
—

 
—

 
1,000

 
1,000

 
3.00

 
—

 
—

 
—

Due in 1-5 years
2,400

 
2,400

 
2.92

 
1,400

 
1,400

 
3.21

 
1,400

 
1,400

 
2.86

Due in 5-10 years
400

 
400

 
3.00

 
400

 
400

 
3.00

 
1,400

 
1,400

 
3.36

Total debt securities held to maturity
$
148,852

 
$
149,267

 
2.57

 
$
161,576

 
$
165,626

 
2.56

 
$
181,314

 
$
183,946

 
2.55


See Note 5. Debt Securities Available for Sale and Debt Securities Held to Maturity of Notes to Consolidated Financial Statements for further information regarding TCF's debt securities available for sale and debt securities held to maturity.



36

Loans and Leases  Information about loans and leases held in TCF's portfolio was as follows:
 
 
 
 
 
 
 
 
 
 
 
Compound Annual
 
At December 31,
 
Growth Rate
 
 
 
 
 
 
 
 
 
 
 
1-Year
 
5-Year
(Dollars in thousands)
2018
 
2017
 
2016
 
2015
 
2014
 
2018 / 2017
 
2018 / 2013
Consumer real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
First mortgage lien
$
2,444,380

 
$
1,959,387

 
$
2,292,596

 
$
2,624,956

 
$
3,139,152

 
24.8
 %
 
(8.3
)%
Junior lien
2,965,960

 
2,860,309

 
2,791,756

 
2,839,316

 
2,543,212

 
3.7

 
2.9

Total consumer real estate
5,410,340

 
4,819,696

 
5,084,352

 
5,464,272

 
5,682,364

 
12.3

 
(3.1
)
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
2,908,147

 
2,751,285

 
2,634,191

 
2,593,429

 
2,624,255

 
5.7

 
1.2

Commercial business
943,156

 
809,908

 
652,287

 
552,403

 
533,410

 
16.5

 
18.4

Total commercial
3,851,303

 
3,561,193

 
3,286,478

 
3,145,832

 
3,157,665

 
8.1

 
4.1

Leasing and equipment finance
4,699,740

 
4,761,661

 
4,336,310

 
4,012,248

 
3,745,322

 
(1.3
)
 
6.5

Inventory finance
3,107,356

 
2,739,754

 
2,470,175

 
2,146,754

 
1,877,090

 
13.4

 
13.3

Auto finance
1,982,277

 
3,199,639

 
2,647,741

 
2,647,596

 
1,915,061

 
(38.0
)
 
9.8

Other
21,295

 
22,517

 
18,771

 
19,297

 
24,144

 
(5.4
)
 
(4.5
)
Total loans and leases
$
19,072,311

 
$
19,104,460

 
$
17,843,827

 
$
17,435,999

 
$
16,401,646

 
(0.2
)
 
3.8



 
At December 31, 2018
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
Geographic Distribution:
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
1,329,099

 
$
218,714

 
$
654,381

 
$
130,913

 
$
320,379

 
$
2

 
$
2,653,488

Illinois
1,064,791

 
494,830

 
195,911

 
85,169

 
74,039

 
5,978

 
1,920,718

Minnesota
863,910

 
743,567

 
104,553

 
75,051

 
28,491

 
4,731

 
1,820,303

Michigan
392,431

 
558,991

 
138,816

 
140,492

 
31,892

 
5,651

 
1,268,273

Texas
41,680

 
167,867

 
452,670

 
163,134

 
182,478

 
9

 
1,007,838

Florida
214,223

 
151,013

 
257,472

 
147,102

 
120,567

 
34

 
890,411

Wisconsin
185,359

 
369,881

 
70,120

 
108,032

 
15,283

 
833

 
749,508

Colorado
263,066

 
191,169

 
89,886

 
39,799

 
29,613

 
3,500

 
617,033

New York
56,028

 
47,438

 
257,121

 
118,489

 
112,812

 
40

 
591,928

Other
999,753

 
907,833

 
2,478,810

 
2,099,175

 
1,066,723

 
517

 
7,552,811

Total
$
5,410,340

 
$
3,851,303

 
$
4,699,740

 
$
3,107,356

 
$
1,982,277

 
$
21,295

 
$
19,072,311




37

The contractual maturities of loans and leases outstanding were as follows:
 
At December 31, 2018(1)
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
Amounts due:
 
 
 
 
 
 
 
 
 
 
 
 
 
Within 1 year
$
117,891

 
$
554,492

 
$
1,621,895

 
$
3,107,356

 
$
632,636

 
$
11,983

 
$
6,046,253

1 to 5 years
406,641

 
2,630,236

 
2,955,013

 
—

 
1,348,137

 
3,052

 
7,343,079

Over 5 years
4,885,808

 
666,575

 
122,832

 
—

 
1,504

 
6,260

 
5,682,979

Total
$
5,410,340

 
$
3,851,303

 
$
4,699,740

 
$
3,107,356

 
$
1,982,277

 
$
21,295

 
$
19,072,311

Amounts due after 1 year:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate loans and leases
$
2,254,390

 
$
678,811

 
$
3,076,022

 
$
—

 
$
1,349,641

 
$
9,165

 
$
7,368,029

Variable- and adjustable-rate loans and leases
3,038,059

 
2,618,000

 
1,823

 
—

 
—

 
147

 
5,658,029

Total after 1 year
$
5,292,449

 
$
3,296,811

 
$
3,077,845

 
$
—

 
$
1,349,641

 
$
9,312

 
$
13,026,058

(1)
This table does not include the effect of prepayments, which is an important consideration in management's interest-rate risk analysis. Company experience indicates that loans and leases remain outstanding for significantly shorter periods than their contractual terms.

Consumer Real Estate TCF's consumer real estate portfolio represented 28.4% of TCF's total loan and lease portfolio at December 31, 2018, compared with 25.2% at December 31, 2017. The consumer real estate portfolio is secured by mortgages on residential real estate and consisted of $2.4 billion of first mortgage lien loans and $3.0 billion of junior lien loans, compared with $2.0 billion and $2.9 billion, respectively, at December 31, 2017. The average loan size was $126 thousand for first mortgage lien loans and $51 thousand for junior lien loans at December 31, 2018, compared with $99 thousand and $48 thousand, respectively, at December 31, 2017. Loans are originated for investment and for sale.The increase in the consumer real estate portfolio was primarily due to loan purchases of $950.4 million during the year. Consumer real estate originations were $2.0 billion in 2018, compared with $2.3 billion in 2017. TCF sold $1.0 billion of consumer real estate loans in 2018, compared with $1.3 billion in 2017. At December 31, 2018, 53.7% of the consumer real estate portfolio was in TCF's primary banking markets, compared with 61.5% at December 31, 2017. At December 31, 2018, 56.7% of the consumer real estate portfolio carried a variable or adjustable interest rate generally tied to the prime rate, compared with 62.2% at December 31, 2017. At December 31, 2018, 46.2% of TCF's consumer real estate loans consisted of closed-end loans, compared with 42.2% at December 31, 2017. TCF's closed-end consumer real estate loans require payments of principal and interest over a fixed term.

The average Fair Isaac Corporation ("FICO®") credit score at loan origination for the consumer real estate portfolio was 740 at December 31, 2018, compared with 738 at December 31, 2017. As part of TCF's credit risk monitoring, TCF obtains updated FICO score information quarterly. The average updated FICO score for the consumer real estate portfolio was 737 at December 31, 2018, compared with 736 at December 31, 2017.

TCF's consumer real estate underwriting standards are intended to produce adequately secured loans to customers with good credit scores at the origination date. Beginning in 2008, TCF generally has not made new loans in excess of 90% loan-to-value at origination. TCF also has not originated consumer real estate loans with multiple payment options or loans with "teaser" interest rates. At December 31, 2018, 77.4% of the consumer real estate portfolio had been originated since January 1, 2009 with net charge-offs of 0.01% in 2018.

The consumer real estate junior lien portfolio was comprised of $2.8 billion of home equity lines of credit ("HELOCs") and $164.8 million of amortizing consumer real estate junior lien mortgage loans at December 31, 2018, compared with $2.7 billion and $206.2 million, respectively, at December 31, 2017. At December 31, 2018, $2.5 billion of the consumer real estate junior lien HELOCs had a 10-year interest-only draw period and a 20-year amortization repayment period, compared with $2.3 billion at December 31, 2017. At December 31, 2018 and 2017, all of these loans were within the 10-year interest-only draw period and will not convert to amortizing loans until 2021 or later. At December 31, 2018, $308.8 million of the consumer real estate junior lien HELOCs were interest-only revolving draw loans with no defined amortization period and original draw periods of five to 40 years, compared with $400.4 million at December 31, 2017. As of December 31, 2018, 12.5% of these loans mature prior to 2021. Outstanding balances on consumer real estate lines of credit were 66.1% of total lines of credit at December 31, 2018, compared with 66.9% at December 31, 2017.



38

Commercial TCF's commercial portfolio represented 20.2% of TCF's total loan and lease portfolio at December 31, 2018, compared with 18.6% at December 31, 2017. The commercial portfolio consisted of $2.9 billion of commercial real estate loans and $943.2 million of commercial business loans at December 31, 2018, compared with $2.8 billion and $809.9 million, respectively, at December 31, 2017. The increase in the commercial portfolio was primarily due to originations outpacing payments. Total commercial originations were $2.8 billion in 2018, compared with $2.1 billion in 2017. At December 31, 2018, 68.6% of TCF's commercial real estate loans outstanding were secured by properties located in TCF's primary banking markets, compared with 74.7% at December 31, 2017. While commercial real estate collateral is generally located in TCF's primary banking markets, commercial real estate lending follows its strong, proven sponsors into other markets. With an emphasis on secured lending, essentially all of TCF's commercial loans were secured either by properties or other business assets at December 31, 2018 and 2017. At December 31, 2018, variable- and adjustable-rate loans represented 78.3% of total commercial loans outstanding, compared with 73.5% at December 31, 2017.

TCF's commercial real estate loan portfolio by property and loan type was as follows:
 
At December 31,
 
2018
 
2017
(In thousands)
Permanent
 
Construction and
Development
 
Total
 
Permanent
 
Construction and
Development
 
Total
Multi-family housing
$
846,422

 
$
185,187

 
$
1,031,609

 
$
791,201

 
$
178,517

 
$
969,718

Office buildings
388,547

 
34,937

 
423,484

 
305,853

 
56,177

 
362,030

Health care facilities
283,317

 
41,100

 
324,417

 
262,889

 
34,632

 
297,521

Warehouse/industrial buildings
284,040

 
31,066

 
315,106

 
309,804

 
4,795

 
314,599

Hotels and motels
252,404

 
44,231

 
296,635

 
199,336

 
41,176

 
240,512

Self-storage
233,261

 
43,040

 
276,301

 
246,369

 
44,676

 
291,045

Retail services(1)
187,732

 
2,050

 
189,782

 
251,903

 
5,052

 
256,955

Residential home builders
24,397

 
15,007

 
39,404

 
—

 
—

 
—

Other
10,463

 
946

 
11,409

 
18,397

 
508

 
18,905

Total
$
2,510,583

 
$
397,564

 
$
2,908,147

 
$
2,385,752

 
$
365,533

 
$
2,751,285

(1)
Primarily retail strip shopping centers and malls, convenience stores, supermarkets, restaurants and automobile related businesses.

Leasing and Equipment Finance TCF's leasing and equipment finance portfolio represented 24.6% of TCF's total loan and lease portfolio at December 31, 2018, compared with 24.9% at December 31, 2017. The leasing and equipment finance portfolio consisted of $2.5 billion of leases and $2.2 billion of loans at December 31, 2018, compared with $2.5 billion and $2.3 billion, respectively, at December 31, 2017. Leasing and equipment finance originations (including operating lease originations) were $2.1 billion in 2018, compared with $2.0 billion in 2017. The uninstalled backlog of approved transactions was $572.4 million at December 31, 2018, compared with $506.4 million at December 31, 2017. The average loan and lease size was $75 thousand at December 31, 2018, compared with $77 thousand at December 31, 2017.

At December 31, 2018, $93.0 million of TCF's lease portfolio was discounted with third-party financial institutions on a non-recourse basis, compared with $119.5 million at December 31, 2017. These amounts are recorded in long-term borrowings. The leasing and equipment finance portfolio table below includes lease residuals, including those related to non-recourse debt. Lease residuals represent the estimated fair value of the leased equipment at the expiration of the initial term of the transaction and are reviewed on an ongoing basis. Any downward revisions in estimated fair value are recorded to expense in the periods in which they become known. At December 31, 2018, lease residuals totaled $138.3 million, or 9.5% of original equipment value, including $6.3 million related to non-recourse sales, compared with $139.9 million, or 9.7% of original equipment value, including $6.2 million related to non-recourse sales at December 31, 2017. See Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for further information on lease accounting.







39

TCF's leasing and equipment finance portfolio by equipment type was as follows:
 
At December 31,
 
2018
2017
(Dollars in thousands)
Balance
 
Percent
of Total
 
Balance
 
Percent
of Total
Specialty vehicles
$
1,396,113

 
29.7
%
 
$
1,403,142

 
29.5
%
Construction equipment
556,905

 
11.9

 
548,575

 
11.5

Golf cart and turf equipment
428,578

 
9.1

 
431,888

 
9.1

Manufacturing equipment
421,978

 
9.0

 
472,902

 
9.9

Medical equipment
353,540

 
7.5

 
335,636

 
7.1

Trucks and trailers
339,863

 
7.2

 
367,206

 
7.7

Furniture and fixtures
307,075

 
6.5

 
334,732

 
7.0

Technology and data processing equipment
297,292

 
6.3

 
290,999

 
6.1

Agricultural equipment
144,903

 
3.1

 
148,269

 
3.1

Other
453,493

 
9.7

 
428,312

 
9.0

Total
$
4,699,740

 
100.0
%
 
$
4,761,661

 
100.0
%

Inventory Finance TCF's inventory finance portfolio represented 16.3% of TCF's total loan and lease portfolio at December 31, 2018, compared with 14.3% at December 31, 2017. The inventory finance portfolio consisted of $3.1 billion of loans at December 31, 2018, compared with $2.7 billion at December 31, 2017. The increase was primarily due to the addition of new exclusive programs driving strong originations, as well as growth with existing customers resulting from new manufacturer products and increased customer sales. Inventory finance originations were $8.9 billion in 2018, compared with $7.4 billion in 2017. Origination levels are impacted by the velocity of fundings and repayments with dealers. TCF's inventory finance customers included more than 10,800 active dealers at December 31, 2018, compared with more than 10,900 active dealers at December 31, 2017.

TCF's inventory finance portfolio by marketing segment was as follows:
 
At December 31,
 
2018
 
2017
(Dollars in thousands)
Balance
 
Percent
of Total
 
Balance
 
Percent
of Total
Powersports
$
1,275,128

 
41.0
%
 
$
1,187,049

 
43.3
%
Lawn and garden
667,429

 
21.5

 
606,173

 
22.1

Other
1,164,799

 
37.5

 
946,532

 
34.6

Total
$
3,107,356

 
100.0
%
 
$
2,739,754

 
100.0
%

Auto Finance TCF's auto finance portfolio represented 10.4% of TCF's total loan and lease portfolio at December 31, 2018, compared with 16.7% at December 31, 2017. The auto finance portfolio consisted of $2.0 billion of loans at December 31, 2018, compared with $3.2 billion at December 31, 2017. The decrease was due to run-off as a result of the discontinuation of auto finance loan originations effective December 1, 2017. There were no auto finance originations in 2018, compared with $2.2 billion in 2017. TCF did not sell any auto finance loans in 2018, compared with $424.7 million in 2017. The auto finance portfolio consisted of 20.7% new auto loans and 79.3% used auto loans at December 31, 2018, compared with 19.9% and 80.1%, respectively, at December 31, 2017.



40

Credit Quality  The following summarizes TCF's loan and lease portfolio based on the credit quality factors that TCF believes are the most important and should be considered to understand the overall condition of the portfolio. The following items should be considered throughout this section:

•
Loans and leases that are over 60-days delinquent have a higher potential to become non-accrual and generally are a leading indicator for future charge-off trends.
•
Troubled debt restructuring ("TDR") loans are loans to financially troubled borrowers that have been modified such that TCF has granted a concession in terms to improve the likelihood of collection of all principal and modified interest owed.
•
Non-accrual loans and leases have been charged down to the estimated fair value of the collateral less estimated selling costs, or reserved for expected loss upon workout.
•
Within the performing loans and leases, TCF classifies customers within regulatory classification guidelines. Loans and leases that are "classified" are loans or leases that management has concerns regarding the ability of the borrowers to meet existing loan or lease terms and conditions, but may never become non-accrual or result in a loss.

Past Due Loans and Leases  Over 60-day delinquent loans and leases by type, excluding non-accrual loans and leases, were as follows. Delinquent balances are determined based on the contractual terms of the loan or lease. See Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements for further information.
 
60 Days or More Delinquent and Accruing
 
Percentage of Period-end Loans and Leases(1)
 
At December 31,
 
At December 31,
(Dollars in thousands)
2018
 
2017
 
2016
 
2015
 
2014
 
2018
 
2017
 
2016
 
2015
 
2014
Consumer real estate:
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
First mortgage lien
$
4,557

 
$
4,666

 
$
8,725

 
$
11,565

 
$
13,370

 
0.19
%
 
0.25
%
 
0.40
%
 
0.46
%
 
0.49
%
Junior lien
1,213

 
1,268

 
1,404

 
1,519

 
2,091

 
0.04

 
0.04

 
0.05

 
0.05

 
0.08

Total consumer real estate
5,770

 
5,934

 
10,129

 
13,084

 
15,461

 
0.11

 
0.13

 
0.21

 
0.25

 
0.30

Commercial
1

 
1

 
—

 
1

 
—

 
—

 
—

 
—

 
—

 
—

Leasing and equipment finance
10,638

 
6,389

 
4,523

 
2,292

 
2,549

 
0.23

 
0.14

 
0.10

 
0.06

 
0.07

Inventory finance
310

 
208

 
55

 
118

 
75

 
0.01

 
0.01

 
—

 
0.01

 
—

Auto finance
11,657

 
9,077

 
6,102

 
3,573

 
4,263

 
0.59

 
0.28

 
0.23

 
0.14

 
0.22

Other
28

 
9

 
20

 
20

 
—

 
0.14

 
0.04

 
0.10

 
0.10

 
—

Subtotal
28,404

 
21,618

 
20,829

 
19,088

 
22,348

 
0.15

 
0.11

 
0.12

 
0.11

 
0.14

Portfolios acquired with deteriorated credit quality
178

 
1,561

 
—

 
1

 
88

 
4.65

 
13.18

 
—

 
0.43

 
0.03

Total
$
28,582

 
$
23,179

 
$
20,829

 
$
19,089

 
$
22,436

 
0.15

 
0.12

 
0.12

 
0.11

 
0.14

(1)
Excludes non-accrual loans and leases


41

Loan Modifications  TDR loans were as follows:
 
At December 31,
(Dollars in thousands)
2018
 
2017
 
2016
 
2015
 
2014
Accruing TDR Loans:
 
 
 
 
 
 
 
 
 
Consumer real estate
$
80,739

 
$
88,092

 
$
98,606

 
$
106,787

 
$
111,933

Commercial
4,174

 
12,249

 
20,304

 
24,731

 
80,375

Leasing and equipment finance
8,491

 
10,263

 
4,802

 
2,904

 
924

Inventory finance
—

 
—

 
—

 
51

 
527

Auto finance
5,054

 
3,464

 
2,323

 
799

 
—

Other
1

 
3

 
6

 
11

 
89

Total
$
98,459

 
$
114,071

 
$
126,041

 
$
135,283

 
$
193,848

Non-accrual TDR Loans:
 
 
 
 
 
 
 
 
 
Consumer real estate
$
16,192

 
$
34,282

 
$
71,961

 
$
79,055

 
$
87,685

Commercial
3,946

 
83

 
2,170

 
7,016

 
11,265

Leasing and equipment finance
1,754

 
1,413

 
1,350

 
641

 
1,953

Inventory finance
453

 
476

 
357

 
172

 
37

Auto finance
6,362

 
5,351

 
5,504

 
8,440

 
3,676

Other
—

 
1

 
—

 
—

 
—

Total
$
28,707

 
$
41,606

 
$
81,342

 
$
95,324

 
$
104,616

Total TDR loans:
 
 
 
 
 
 
 
 
 
Consumer real estate
$
96,931

 
$
122,374

 
$
170,567

 
$
185,842

 
$
199,618

Commercial
8,120

 
12,332

 
22,474

 
31,747

 
91,640

Leasing and equipment finance
10,245

 
11,676

 
6,152

 
3,545

 
2,877

Inventory finance
453

 
476

 
357

 
223

 
564

Auto finance
11,416

 
8,815

 
7,827

 
9,239

 
3,676

Other
1

 
4

 
6

 
11

 
89

Total
$
127,166

 
$
155,677

 
$
207,383

 
$
230,607

 
$
298,464

Over 60-day delinquency as a percentage of total accruing TDR loans
0.51
%
 
0.36
%
 
1.19
%
 
1.54
%
 
1.39
%

Total TDR loans were $127.2 million at December 31, 2018, compared with $155.7 million at December 31, 2017. Accruing TDR loans were $98.5 million at December 31, 2018, compared with $114.1 million at December 31, 2017. The decrease in accruing TDR loans was primarily due to decreases in commercial and consumer real estate accruing TDR loans driven by payments received outpacing additions. Non-accrual TDR loans were $28.7 million at December 31, 2018, compared with $41.6 million at December 31, 2017. The decrease in non-accrual TDR loans was primarily due to a decrease in consumer real estate non-accrual TDR loans driven by the non-accrual loan sale in the third quarter of 2018, partially offset by an increase in commercial non-accrual TDR loans.

Loan modifications to borrowers who have not been granted concessions are not considered TDR loans and therefore are not included in the table above. TDR loans are no longer disclosed as TDR loans in the calendar years after modification if the loans were modified to an interest rate equal to or greater than the yields of new loan originations with comparable risk at the time of restructuring and if the loan is performing based on the restructured terms; however, these loans are still considered impaired and follow TCF's impaired loan reserve policies.
 
TCF modifies loans through reductions in interest rates, extension of payment dates, term extensions or term extensions with a reduction of contractual payments, but generally not through reductions of principal.



42

TCF typically reduces a consumer real estate customer's contractual payments by reducing the interest rate by an amount appropriate for the borrower's financial condition. Loans discharged in Chapter 7 bankruptcy where the borrower did not reaffirm the debt are reported as non-accrual TDR loans upon discharge as a result of the removal of the borrower's personal liability on the loan. These loans may return to accrual status when TCF expects full repayment of the remaining pre-discharged contractual principal and interest. At December 31, 2018, 83.3% of total consumer real estate TDR loans were accruing and TCF recognized more than 61% of the original contractual interest due on accruing consumer real estate TDR loans in 2018 by modifying the loans to qualified customers instead of foreclosing on the property. At December 31, 2018, collection of principal and interest under the modified terms was reasonably assured on all accruing consumer real estate TDR loans. TDR loans for the remaining classes of financing receivables were not material at December 31, 2018.

See Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements for further information regarding TCF's loan modifications.

Non-performing Assets  Non-performing assets, consisting of non-accrual loans and leases and other real estate owned, were as follows:
 
At December 31,
(Dollars in thousands)
2018
 
2017
 
2016
 
2015
 
2014
Non-accrual loans and leases:
 
 
 
 
 
 
 
 
 
Consumer real estate
$
58,765

 
$
83,224

 
$
152,471

 
$
168,269

 
$
173,271

Commercial
15,025

 
6,785

 
5,919

 
10,325

 
25,035

Leasing and equipment finance
15,264

 
17,089

 
10,880

 
11,262

 
12,670

Inventory finance
8,283

 
4,116

 
5,134

 
1,098

 
2,082

Auto finance
8,578

 
7,366

 
7,038

 
9,509

 
3,676

Other
3

 
2

 
3

 
3

 
—

Total non-accrual loans and leases
105,918

 
118,582

 
181,445

 
200,466

 
216,734

Other real estate owned:
 
 
 
 
 
 
 
 
 
Consumer real estate
13,519

 
17,907

 
34,070

 
42,912

 
44,932

Commercial real estate
3,884

 
318

 
12,727

 
7,070

 
20,718

Total other real estate owned
17,403

 
18,225

 
46,797

 
49,982

 
65,650

Total non-performing assets
$
123,321

 
$
136,807

 
$
228,242

 
$
250,448

 
$
282,384

 
 
 
 
 
 
 
 
 
 
Non-accrual loans and leases as a percentage of total loans and leases
0.56
%
 
0.62
%
 
1.02
%
 
1.15
%
 
1.32
%
 
 
 
 
 
 
 
 
 
 
Non-performing assets as a percentage of total loans and leases and other real estate owned
0.65

 
0.72

 
1.28

 
1.43

 
1.71

 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses as a percentage of non-accrual loans and leases
148.65

 
144.24

 
88.33

 
77.85

 
75.75


Non-performing assets were $123.3 million at December 31, 2018, compared with $136.8 million at December 31, 2017. The decrease was primarily due to the $34.7 million sale of consumer real estate non-accrual loans in the third quarter of 2018, partially offset by increases in commercial and inventory finance non-accrual loans. See Note 2. Summary of Significant Accounting Policies and Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements for further information.

Loans and leases are generally placed on non-accrual status when the collection of interest or principal is 90 days or more past due unless, in the case of commercial loans, they are well secured and in process of collection. Delinquent consumer real estate junior lien loans are also placed on non-accrual status when there is evidence that the related third-party first lien mortgage may be 90 days or more past due, or foreclosure, charge-off or collection action has been initiated. TDR loans are placed on non-accrual status prior to the past due thresholds outlined above if repayment under the modified terms is not likely after performing a well-documented credit analysis. Loans on non-accrual status are generally reported as non-accrual loans until there is sustained repayment performance for six consecutive months, with the exception of loans not reaffirmed upon discharge under Chapter 7 bankruptcy, which remain on non-accrual status until a well-documented credit analysis indicates full repayment of the remaining pre-discharged contractual principal and interest is likely. For purposes of this disclosure, purchased credit impaired loans have been excluded.



43

Most of TCF's non-accrual loans and past due loans are secured by real estate. Given the nature of these assets and the related mortgage foreclosure, property sale and, if applicable, mortgage insurance claims processes, it can take 18 months or longer for a loan to migrate from initial delinquency to final disposition. This resolution process generally takes much longer for loans secured by real estate than for unsecured loans or loans secured by other property primarily due to state real estate foreclosure laws.

Changes in the amount of non-accrual loans and leases were as follows:
 
At or For the Year Ended December 31, 2018
(In thousands)
Consumer Real Estate
 
Commercial
 
Leasing and Equipment Finance
 
Inventory Finance
 
Auto Finance
 
Other
 
Total
Balance, beginning of period
$
83,224

 
$
6,785

 
$
17,089

 
$
4,116

 
$
7,366

 
$
2

 
$
118,582

Additions
54,922

 
19,037

 
30,170

 
21,714

 
12,492

 
101

 
138,436

Charge-offs
(7,119
)
 
(3,521
)
 
(7,702
)
 
(3,504
)
 
(2,609
)
 
(76
)
 
(24,531
)
Transfers to other assets
(17,666
)
 
—

 
(8,581
)
 
(6,014
)
 
(1,912
)
 
—

 
(34,173
)
Return to accrual status
(6,289
)
 
—

 
(2,502
)
 
(2,188
)
 
—

 
—

 
(10,979
)
Payments received
(12,265
)
 
(9,836
)
 
(12,797
)
 
(5,779
)
 
(6,759
)
 
(24
)
 
(47,460
)
Sales
(35,786
)
 
—

 
—

 
—

 
—

 
—

 
(35,786
)
Other, net
(256
)
 
2,560

 
(413
)
 
(62
)
 
—

 
—

 
1,829

Balance, end of period
$
58,765

 
$
15,025

 
$
15,264

 
$
8,283

 
$
8,578

 
$
3

 
$
105,918

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Year Ended December 31, 2017
(In thousands)
Consumer Real Estate
 
Commercial
 
Leasing and Equipment Finance
 
Inventory Finance
 
Auto Finance
 
Other
 
Total
Balance, beginning of period
$
152,471

 
$
5,919

 
$
10,880

 
$
5,134

 
$
7,038

 
$
3

 
$
181,445

Additions
64,540

 
16,726

 
28,779

 
9,950

 
9,730

 
81

 
129,806

(Charge-offs) recoveries
(7,313
)
 
(5,428
)
 
(8,175
)
 
(1,588
)
 
(2,281
)
 
2

 
(24,783
)
Transfers to other assets
(26,830
)
 
(100
)
 
(5,951
)
 
(1,858
)
 
(1,776
)
 
—

 
(36,515
)
Return to accrual status
(8,111
)
 
—

 
(292
)
 
(3,011
)
 
—

 
—

 
(11,414
)
Payments received
(20,576
)
 
(6,088
)
 
(8,152
)
 
(4,539
)
 
(5,345
)
 
(84
)
 
(44,784
)
Sales
(72,448
)
 
(4,284
)
 
—

 
—

 
—

 
—

 
(76,732
)
Other, net
1,491

 
40

 
—

 
28

 
—

 
—

 
1,559

Balance, end of period
$
83,224

 
$
6,785

 
$
17,089

 
$
4,116

 
$
7,366

 
$
2

 
$
118,582




44

Loan and Lease Credit Classifications TCF assesses the risk of its loan and lease portfolio utilizing numerous risk characteristics as outlined in the previous sections. Loan and lease credit classifications are an additional characteristic monitored in the overall credit risk process. Loan and lease credit classifications are derived from standard regulatory rating definitions, which include: non-classified (pass and special mention) and classified (substandard and doubtful). Classified loans and leases have well-defined weaknesses, but may never result in a loss.

Loans and leases by portfolio and regulatory classification were as follows:
 
At December 31, 2018
 
Non-classified
 
Classified
 
Total
(In thousands)
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Consumer real estate
$
5,338,036

 
$
7,353

 
$
64,951

 
$
—

 
$
5,410,340

Commercial
3,753,229

 
42,315

 
55,759

 
—

 
3,851,303

Leasing and equipment finance
4,621,229

 
42,236

 
36,275

 
—

 
4,699,740

Inventory finance
2,931,221

 
111,804

 
64,331

 
—

 
3,107,356

Auto finance
1,960,580

 
1,302

 
20,395

 
—

 
1,982,277

Other
21,264

 
—

 
31

 
—

 
21,295

Total loans and leases
$
18,625,559

 
$
205,010

 
$
241,742

 
$
—

 
$
19,072,311

 
At December 31, 2017
 
Non-classified
 
Classified
 
Total
(In thousands)
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Consumer real estate
$
4,706,493

 
$
22,075

 
$
91,128

 
$
—

 
$
4,819,696

Commercial
3,452,837

 
42,729

 
65,627

 
—

 
3,561,193

Leasing and equipment finance
4,681,488

 
40,252

 
39,921

 
—

 
4,761,661

Inventory finance
2,553,028

 
116,312

 
70,414

 
—

 
2,739,754

Auto finance
3,180,807

 
551

 
18,281

 
—

 
3,199,639

Other
22,507

 
—

 
10

 
—

 
22,517

Total loans and leases
$
18,597,160

 
$
221,919

 
$
285,381

 
$
—

 
$
19,104,460


Total classified loans and leases were $241.7 million at December 31, 2018, compared with $285.4 million at December 31, 2017. The decrease was primarily due to the $34.7 million sale of consumer real estate non-accrual loans in the third quarter of 2018 and decreases in classified commercial and inventory finance loans.

Allowance for Loan and Lease Losses  The determination of the allowance for loan and lease losses is a critical accounting estimate. TCF's evaluation of incurred losses is based on historical loss rates multiplied by the respective portfolio's loss emergence period. Factors utilized in the determination of the amount of the allowance include historical trends in loss rates, a portfolio's overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values, economic outlook and prevailing economic conditions. The various factors used in the methodologies are reviewed on a periodic basis.
 
The Company considers the allowance for loan and lease losses of $157.4 million appropriate to cover losses incurred in the loan and lease portfolios at December 31, 2018. However, no assurance can be given that TCF will not, in any particular period, sustain loan and lease losses that are sizable in relation to the amount reserved or will not require significant changes in the balance of the allowance for loan and lease losses due to subsequent evaluations of the loan and lease portfolios, in light of factors then prevailing, including economic conditions, information obtained during TCF's ongoing credit review process or regulatory requirements. Among other factors, an economic slowdown, increasing levels of unemployment, a decline in collateral values and/or rising interest rates may have an adverse impact on the current adequacy of the allowance for loan and lease losses by increasing credit risk and the risk of potential loss.



45

The total allowance for loan and lease losses is expected to absorb losses from any segment of the portfolio. The allocation of TCF's allowance for loan and lease losses disclosed in the following table is subject to change based on changes in the criteria used to evaluate the allowance and is not necessarily indicative of the trend of future losses in any particular portfolio.

In conjunction with Note 7. Allowance for Loan and Lease Losses and Credit Quality Information of Notes to Consolidated Financial Statements, detailed information regarding TCF's allowance for loan and lease losses was as follows:
 
Credit Loss Reserves
 
Credit Loss Reserves as a
Percentage of Portfolio
 
At December 31,
 
At December 31,
(Dollars in thousands)
2018
 
2017
 
2016
 
2015
 
2014
 
2018
 
2017
 
2016
 
2015
 
2014
Consumer real estate:
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
First mortgage lien
$
21,436

 
$
26,698

 
$
33,828

 
$
36,888

 
$
55,319

 
0.88
%
 
1.36
%
 
1.48
%
 
1.41
%
 
1.76
%
Junior lien
23,430

 
20,470

 
25,620

 
31,104

 
30,042

 
0.79

 
0.72

 
0.92

 
1.10

 
1.18

Consumer real estate
44,866

 
47,168

 
59,448

 
67,992

 
85,361

 
0.83

 
0.98

 
1.17

 
1.24

 
1.50

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
22,877

 
24,842

 
22,785

 
22,215

 
24,616

 
0.79

 
0.90

 
0.86

 
0.86

 
0.94

Commercial business
18,305

 
12,353

 
9,910

 
7,970

 
6,751

 
1.94

 
1.53

 
1.52

 
1.44

 
1.27

Total commercial
41,182

 
37,195

 
32,695

 
30,185

 
31,367

 
1.07

 
1.04

 
0.99

 
0.96

 
0.99

Leasing and equipment finance
23,791

 
22,528

 
21,350

 
19,018

 
18,446

 
0.51

 
0.47

 
0.49

 
0.47

 
0.49

Inventory finance
12,456

 
13,233

 
13,932

 
11,128

 
10,020

 
0.40

 
0.48

 
0.56

 
0.52

 
0.53

Auto finance
34,329

 
50,225

 
32,310

 
26,486

 
18,230

 
1.73

 
1.57

 
1.22

 
1.00

 
0.95

Other
822

 
692

 
534

 
1,245

 
745

 
3.86

 
3.07

 
2.84

 
6.45

 
3.09

Total allowance for loan and lease losses
157,446

 
171,041

 
160,269

 
156,054

 
164,169

 
0.83

 
0.90

 
0.90

 
0.90

 
1.00

Other credit loss reserves:
 

 
 

 
 

 
 
 
 
 
 

 
 

 
 

 
 
 
 
Reserves for unfunded commitments
1,429

 
1,479

 
1,115

 
1,044

 
943

 
N.A.

 
N.A.

 
N.A.

 
N.A.

 
N.A.

Total credit loss reserves
$
158,875

 
$
172,520

 
$
161,384

 
$
157,098

 
$
165,112

 
0.83

 
0.90

 
0.90

 
0.90

 
1.01

N.A. Not Applicable



46

Reconciliations of changes in the allowance for loan and lease losses were as follows:
 
Year Ended December 31,
(Dollars in thousands)
2018
 
2017
 
2016
 
2015
 
2014
Balance, beginning of period
$
171,041

 
$
160,269

 
$
156,054

 
$
164,169

 
$
252,230

Charge-offs:
 
 
 
 
 
 
 
 
 
Consumer real estate:
 
 
 
 
 
 
 
 
 
First mortgage lien
(3,585
)
 
(6,077
)
 
(10,413
)
 
(19,448
)
 
(43,632
)
Junior lien
(3,544
)
 
(5,784
)
 
(8,211
)
 
(14,239
)
 
(19,494
)
Total consumer real estate
(7,129
)
 
(11,861
)
 
(18,624
)
 
(33,687
)
 
(63,126
)
Commercial:
 
 
 
 
 
 
 
 
 
Commercial real estate
—

 
(3,608
)
 
(752
)
 
(5,225
)
 
(8,646
)
Commercial business
(3,585
)
 
(1,823
)
 
(1
)
 
(24
)
 
(11
)
Total commercial
(3,585
)
 
(5,431
)
 
(753
)
 
(5,249
)
 
(8,657
)
Leasing and equipment finance
(9,695
)
 
(10,816
)
 
(7,738
)
 
(7,631
)
 
(7,316
)
Inventory finance
(6,928
)
 
(3,014
)
 
(2,623
)
 
(2,501
)
 
(1,653
)
Auto finance
(49,833
)
 
(41,101
)
 
(26,994
)
 
(18,386
)
 
(11,856
)
Other
(7,558
)
 
(6,869
)
 
(7,353
)
 
(7,093
)
 
(8,359
)
Total charge-offs
(84,728
)
 
(79,092
)
 
(64,085
)
 
(74,547
)
 
(100,967
)
Recoveries:
 
 
 
 
 
 
 
 
 
Consumer real estate:
 
 
 
 
 
 
 
 
 
First mortgage lien
5,679

 
6,231

 
1,206

 
1,578

 
1,513

Junior lien
6,072

 
14,550

 
5,859

 
5,850

 
5,354

Total consumer real estate
11,751

 
20,781

 
7,065

 
7,428

 
6,867

Commercial:
 
 
 
 
 
 
 
 
 
Commercial real estate
182

 
776

 
308

 
2,032

 
754

Commercial business
46

 
57

 
65

 
1,737

 
2,133

Total commercial
228

 
833

 
373

 
3,769

 
2,887

Leasing and equipment finance
2,252

 
2,065

 
2,386

 
2,792

 
3,705

Inventory finance
736

 
838

 
816

 
1,019

 
826

Auto finance
11,289

 
6,625

 
3,853

 
2,971

 
1,491

Other
3,447

 
3,510

 
4,357

 
5,034

 
5,860

Total recoveries
29,703

 
34,652

 
18,850

 
23,013

 
21,636

Net charge-offs
(55,025
)
 
(44,440
)
 
(45,235
)
 
(51,534
)
 
(79,331
)
Provision for credit losses
46,768

 
68,443

 
65,874

 
52,944

 
95,737

Other(1)
(5,338
)
 
(13,231
)
 
(16,424
)
 
(9,525
)
 
(104,467
)
Balance, end of period
$
157,446

 
$
171,041

 
$
160,269

 
$
156,054

 
$
164,169

Net charge-offs as a percentage of average loans and leases
0.29
%
 
0.24
%
 
0.26
%
 
0.30
%
 
0.49
%
(1)
Primarily includes the transfer of the allowance for loan and lease losses to loans and leases held for sale.

Net loan and lease charge-offs for 2018 were $55.0 million, or 0.29% of average loans and leases, compared with $44.4 million, or 0.24% of average loans and leases, for 2017 and $45.2 million, or 0.26% of average loans and leases, for 2016. The increase in net loan and lease charge-offs in 2018 was primarily due to a decrease in recoveries in the consumer real estate portfolio and increased net charge-offs in the auto finance and inventory finance portfolios, partially offset by lower charge-offs in the consumer real estate portfolio. The decrease in net loan and lease charge-offs in 2017 was primarily due to the recovery of $13.3 million on previous charge-offs related to the consumer real estate non-accrual loans that were sold in the first and third quarters of 2017, partially offset by increased net charge-offs in the auto finance, commercial, and leasing and equipment finance portfolios.


47

Liquidity Management TCF manages its liquidity to ensure that its funding needs are met both promptly and in a cost-effective manner. Asset liquidity arises from liquid assets that can be sold or pledged as collateral, amortization, prepayment or maturity of assets and from the ability of TCF to sell loans. Liability liquidity results from the ability of TCF to maintain a diverse set of funding sources to promptly meet funding requirements.

ALCO and the Finance Committee of TCF Financial's Board of Directors have adopted a Liquidity Management Policy for TCF Bank to direct management of the Company's liquidity risk and a Holding Company Investment and Liquidity Management Policy, which establishes a minimum target amount of cash or liquid investments TCF Financial will hold. See "Item 7A. Quantitative and Qualitative Disclosures about Market Risk" for further information.

TCF Bank had $208.4 million of net liquidity qualifying interest-bearing deposits at the Federal Reserve Bank at December 31, 2018, compared with $242.6 million at December 31, 2017. Certain debt securities held to maturity and debt securities available for sale provide the ability to liquidate or pledge unencumbered securities as needed. At December 31, 2018, the balance of these securities was $2.6 billion, of which $1.6 million was pledged as collateral to secure certain deposits and borrowings.

TCF Financial had net liquidity qualifying cash of $90.4 million at December 31, 2018, compared with $79.8 million at December 31, 2017.

Deposits are the primary source of TCF's funds for use in lending and for other general business purposes. In addition to deposits, TCF receives funds from loan and lease repayments, loan sales and borrowings. Borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels, net deposit outflows or to fund balance sheet growth. TCF primarily borrows from the Federal Home Loan Bank (the "FHLB") of Des Moines. TCF had $1.2 billion of additional borrowing capacity at the FHLB of Des Moines at December 31, 2018, as well as access to the Federal Reserve Discount Window. In addition, TCF maintains a diversified set of unsecured and uncommitted funding sources, including access to overnight federal funds purchased lines, brokered deposits and capital markets. Lending activities, such as loan originations, loan purchases and equipment purchases for lease financing, are the primary uses of TCF's funds.

TCF Commercial Finance Canada, Inc. ("TCFCFC") maintains a $20.0 million Canadian dollar-denominated line of credit facility with a counterparty, which is guaranteed by TCF Bank. TCFCFC had no outstanding borrowings under the line of credit with the counterparty at December 31, 2018 and 2017.

Deposits  Deposits were $18.9 billion at December 31, 2018, compared with $18.3 billion at December 31, 2017.

Non-interest bearing checking accounts represented 20.7% of total deposits at December 31, 2018, compared with 20.0% of total deposits at December 31, 2017. TCF's weighted-average interest rate for deposits, including non-interest bearing deposits, was 0.58% for 2018 compared with 0.38% for 2017.

Certificates of deposit were $4.8 billion at December 31, 2018, compared with $5.0 billion at December 31, 2017. The maturities of certificates of deposit with denominations equal to or greater than $100,000 at December 31, 2018 were as follows:
(In thousands)
 
Three months or less
$
549,273

Over three through six months
258,607

Over six through 12 months
1,013,156

Over 12 months
407,739

Total
$
2,228,775



48

Borrowings  Borrowings were $1.4 billion at December 31, 2018, compared with $1.2 billion at December 31, 2017. TCF primarily borrows from the FHLB of Des Moines.

See Note 12. Short-term Borrowings and Note 13. Long-term Borrowings of Notes to Consolidated Financial Statements and "Consolidated Financial Condition Analysis — Liquidity Management" in this Management's Discussion and Analysis for further information regarding TCF's borrowings.

Contractual Obligations and Commitments As discussed further in Note 8. Premises and Equipment, Net; Note 10. Investments in Affordable Housing Limited Liability Entities; Note 11. Deposits; Note 13. Long-term Borrowings and Note 19. Financial Instruments with Off-Balance Sheet Risk of Notes to Consolidated Financial Statements, TCF has certain obligations and commitments to make future payments under contracts.

At December 31, 2018, the aggregate contractual obligations and commitments were as follows:
 
Payments Due by Period
(In thousands)
Total
 
Less than
1 year
 
1-3
years
 
3-5
years
 
More than
5 years
Contractual Obligations:
 
 
 
 
 
 
 
 
 
Certificates of deposit
$
4,790,680

 
$
3,891,081

 
$
872,625

 
$
11,220

 
$
15,754

Long-term borrowings
1,453,637

 
41,672

 
1,145,214

 
115,625

 
151,126

Contractual interest payments(1)
202,661

 
117,745

 
59,693

 
17,075

 
8,148

Annual rental commitments under non-cancelable operating leases
123,909

 
26,309

 
42,304

 
22,848

 
32,448

Investments in affordable housing limited liability entities
57,815

 
23,697

 
33,615

 
133

 
370

Campus marketing agreement
23,302

 
2,742

 
5,484

 
5,484

 
9,592

Liabilities related to acquisition and portfolio purchase
6,703

 
1,000

 
4,853

 
850

 
—

Total
$
6,658,707

 
$
4,104,246

 
$
2,163,788

 
$
173,235

 
$
217,438

(1)
Includes accrued interest and future contractual interest obligations on borrowings and time deposits.
 
Amount of Commitment - Expiration by Period
(In thousands)
Total
 
Less than
1 year
 
1-3
years
 
3-5
years
 
More than
5 years
Commitments:
 
 
 
 
 
 
 
 
 
Commitments to extend credit:
 
 
 
 
 
 
 
 
 
Consumer real estate and other
$
1,627,960

 
$
37,920

 
$
17,993

 
$
10,090

 
$
1,561,957

Commercial
1,127,368

 
152,593

 
694,439

 
233,953

 
46,383

Leasing and equipment finance
153,339

 
153,339

 
—

 
—

 
—

Total commitments to extend credit
2,908,667

 
343,852

 
712,432

 
244,043

 
1,608,340

Standby letters of credit and guarantees on industrial revenue bonds
20,662

 
19,621

 
482

 
559

 
—

Total
$
2,929,329

 
$
363,473

 
$
712,914

 
$
244,602

 
$
1,608,340


Unrecognized tax benefits, projected benefit obligations, demand deposits with indeterminate maturities and discretionary credit facilities that do not obligate the Company to lend have been excluded from the contractual obligations table above.

TCF's campus marketing agreement consists of fixed and minimum obligations for exclusive marketing rights and naming rights with one university. TCF is obligated to make annual payments for the exclusive marketing rights through 2023, with a renewal option to extend the terms through 2029. TCF is obligated to make annual payments for the exclusive naming rights through 2030 and TCF has the option to extend the terms through 2040 upon making a renewal option payment.

Liabilities related to acquisition and portfolio purchase consist of liabilities related to TCF's acquisition of EFLC and a leasing and equipment finance loan and lease portfolio purchase in 2017. See Note 9. Goodwill and Other Intangible Assets for further information.



49

Capital Management  TCF is committed to managing capital to maintain protection for stockholders, depositors and creditors. TCF employs a variety of capital management tools to achieve its capital goals, including, but not limited to, dividends, public offerings of preferred and common stock, common stock repurchases, redemption of preferred stock and the issuance or redemption of subordinated debt and other capital instruments. TCF maintains a Capital Planning and Dividend Policy which applies to TCF Financial and incorporates TCF Bank's Capital Planning and Dividend Policy. These policies ensure that capital strategy actions, including the addition of new capital, if needed, common stock repurchases, redemption of preferred stock or the declaration of preferred stock, common stock and bank dividends are prudent, efficient and provide value to TCF's stockholders, while ensuring that past and prospective earnings retention is consistent with TCF's capital needs for growth, as well as asset quality and overall financial condition. TCF and TCF Bank manage their capital levels to exceed all regulatory capital requirements, which were achieved at December 31, 2018 and 2017. See Note 16. Regulatory Capital Requirements of Notes to Consolidated Financial Statements for further information.
 
Equity  Total equity was $2.6 billion, or 10.8% of total assets, at December 31, 2018, compared with $2.7 billion, or 11.7%, at December 31, 2017.

Preferred Stock Preferred stock was $169.3 million at December 31, 2018, compared with $265.8 million at December 31, 2017. The decrease was due to the redemption of all 4,000,000 shares of the outstanding 6.45% Series B non-cumulative perpetual preferred stock on March 1, 2018. See Note 15. Equity of Notes to Consolidated Financial Statements for further information regarding TCF's preferred stock.

Treasury Stock and Other Treasury stock and other was $252.2 million at December 31, 2018, compared with $40.8 million at December 31, 2017. The increase was primarily due to repurchases of TCF common stock. See Note 15. Equity of Notes to Consolidated Financial Statements for further information.

Common Stock Dividends Dividends to common stockholders on a per share basis were 15.0 cents for each quarter of 2018, compared with 7.5 cents for each quarter of 2017. TCF's common stock dividend payout ratio was 34.5% for 2018, compared with 20.8% for 2017. TCF Financial's primary funding sources for dividends are earnings and dividends received from TCF Bank.

Common Stockholders' Equity Total common stockholders' equity was $2.4 billion, or 9.99% of total assets, at December 31, 2018, compared with $2.4 billion, or 10.42%, at December 31, 2017. Tangible common equity was $2.2 billion, or 9.32% of total tangible assets, at December 31, 2018, compared with $2.2 billion, or 9.72%, at December 31, 2017. Book value per common share was $14.45 at December 31, 2018, compared with $13.96 at December 31, 2017. Tangible book value per common share was $13.38 at December 31, 2018, compared with $12.92 at December 31, 2017. See "Consolidated Financial Condition Analysis — Non-GAAP Financial Measures" in this Management's Discussion and Analysis for further information.

Non-GAAP Financial Measures This report contains the following financial measures that are not recognized under generally accepted accounting principles in the United States ("GAAP") (i.e. non-GAAP): tangible book value per common share, adjusted ROACE, ROATCE, adjusted ROATCE, adjusted efficiency ratio and tangible common equity to tangible assets. The adjusted ROACE, adjusted ROATCE and adjusted efficiency ratios are adjusted for the settlement with the CFPB and the OCC of $32.0 million, including related expenses. Management uses these non-GAAP financial measures internally to measure performance and believes that these non-GAAP financial measures provide meaningful information to investors that will permit them to assess the ability of the Company's capital levels to withstand unexpected market or economic conditions and to assess the performance of the Company in relation to other banking institutions on the same basis as that applied by management, analysts and banking regulators.

These non-GAAP financial measures are not defined by GAAP and other entities may calculate them differently than TCF does. Non-GAAP financial measures have inherent limitations and are not required to be uniformly applied. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. The following tables provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.


50

The computations of adjusted ROACE, ROATCE and adjusted ROATCE were as follows:
 
 
For the Year Ended December 31,
(Dollars in thousands)
 
2018
 
2017
 
2016
 
2015
 
2014
Net income available to common stockholders
(a)
$
289,289

 
$
242,954

 
$
192,736

 
$
177,735

 
$
154,799

Plus: Goodwill impairment
 
—

 
73,041

 
—

 
—

 
—

Plus: Other intangibles amortization and impairment(1)
 
3,426

 
2,354

 
1,388

 
1,562

 
1,686

Less: Income tax expense attributable to other intangibles amortization and impairment
 
801

 
1,050

 
493

 
562

 
624

Adjusted net income available to common stockholders
(b)
$
291,914

 
$
317,299

 
$
193,631

 
$
178,735

 
$
155,861

 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders adjusted for CFPB/OCC settlement:
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
289,289

 
$
242,954

 
$
192,736

 
$
177,735

 
$
154,799

Plus: CFPB/OCC settlement adjustment
 
32,000

 
—

 
—

 
—

 
—

Less: Income tax expense attributable to CFPB/OCC settlement adjustment
 
6,491

 
—

 
—

 
—

 
—

Net income available to common stockholders adjusted for CFPB/OCC settlement
(c)
314,798

 
242,954

 
192,736

 
177,735

 
154,799

Plus: Goodwill impairment
 
—

 
73,041

 
—

 
—

 
—

Plus: Other intangibles amortization and impairment(1)
 
3,426

 
2,354

 
1,388

 
1,562

 
1,686

Less: Income tax expense attributable to other intangibles amortization and impairment
 
801

 
1,050

 
493

 
562

 
624

Adjusted net income available to common stockholders adjusted for CFPB/OCC settlement
(d)
$
317,423

 
$
317,299

 
$
193,631

 
$
178,735

 
$
155,861

 
 
 
 
 
 
 
 
 
 
 
Average balances:
 
 
 
 
 
 
 
 
 
 
Total equity
 
$
2,530,502

 
$
2,535,938

 
$
2,394,701

 
$
2,217,204

 
$
2,058,442

Less: Non-controlling interest in subsidiaries
 
24,323

 
22,514

 
21,525

 
19,514

 
17,014

Total TCF Financial Corporation stockholders' equity
 
2,506,179

 
2,513,424

 
2,373,176

 
2,197,690

 
2,041,428

Less: Preferred stock
 
176,971

 
264,474

 
263,240

 
263,240

 
263,240

Average total common stockholders' equity
(e)
2,329,208

 
2,248,950

 
2,109,936

 
1,934,450

 
1,778,188

Less:
 
 
 
 
 
 
 
 
 
 
Goodwill, net
 
154,757


219,144


225,640


225,640

 
225,640

Other intangibles, net(1)
 
22,162


12,807


2,414


3,913

 
5,498

Average tangible common stockholders' equity
(f)
$
2,152,289

 
$
2,016,999

 
$
1,881,882

 
$
1,704,897

 
$
1,547,050

 
 
 
 
 
 
 
 
 
 
 
Average total common stockholders' equity adjusted for CFPB/OCC settlement:
 
 
 
 
 
 
 
 
 
 
Average total common stockholders' equity
 
$
2,329,208

 
$
2,248,950

 
$
2,109,936

 
$
1,934,450

 
$
1,778,188

Plus: CFPB/OCC settlement adjustment to average total common stockholders' equity
 
1,048

 
—

 
—

 
—

 
—

Average total common stockholders' equity adjusted for CFPB/OCC settlement
(g)
2,330,256

 
2,248,950

 
2,109,936

 
1,934,450

 
1,778,188

Less:
 
 
 
 
 
 
 
 
 
 
Goodwill, net
 
154,757

 
219,144

 
225,640

 
225,640

 
225,640

Other intangibles, net(1)
 
22,162

 
12,807

 
2,414

 
3,913

 
5,498

Adjusted average tangible common stockholders' equity
(h)
$
2,153,337

 
$
2,016,999

 
$
1,881,882

 
$
1,704,897

 
$
1,547,050

 
 
 
 
 
 
 
 
 
 
 
ROACE
(a) / (e)
12.42
%
 
10.80
%
 
9.13
%
 
9.19
%
 
8.71
%
Adjusted ROACE
(c) / (g)
13.51

 
10.80

 
9.13

 
9.19

 
8.71

ROATCE
(b) / (f)
13.56

 
15.73

 
10.29

 
10.48

 
10.08

Adjusted ROATCE
(d) / (h)
14.74

 
15.73

 
10.29

 
10.48

 
10.08

(1)
Includes non-mortgage servicing assets.







51

The computation of the adjusted efficiency ratio was as follows:
 
 
For the Year Ended December 31,
(Dollars in thousands)
 
2018
 
2017
 
2016
 
2015
 
2014
Non-interest expense
(a)
$
1,014,400

 
$
1,059,934

 
$
909,887

 
$
894,747

 
$
871,777

Less: CFPB/OCC settlement adjustment
 
32,000

 
—

 
—

 
—

 
—

Adjusted non-interest expense
(b)
$
982,400

 
$
1,059,934

 
$
909,887

 
$
894,747

 
$
871,777

 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
992,007

 
$
925,238

 
$
848,106

 
$
820,388

 
$
815,629

Non-interest income
 
470,885

 
448,299

 
465,900

 
441,998

 
433,267

Total revenue
(c)
$
1,462,892

 
$
1,373,537

 
$
1,314,006

 
$
1,262,386

 
$
1,248,896

 
 

 
 
 
 
 
 
 
 
Efficiency ratio
(a) / (c)
69.34
%
 
77.17
%
 
69.25
%
 
70.88
%
 
69.80
%
Adjusted efficiency ratio
(b) / (c)
67.15

 
77.17

 
69.25

 
70.88

 
69.80


The computations of the tangible common equity to tangible assets and tangible book value per common share were as follows:
 
 
At December 31,
(Dollars in thousands, except per share data)
 
2018
 
2017
 
2016
 
2015
 
2014
Total equity
 
$
2,556,260

 
$
2,680,584

 
$
2,444,645

 
$
2,306,917

 
$
2,135,364

Less: Non-controlling interest in subsidiaries
 
18,459

 
17,827

 
17,162

 
16,001

 
13,715

Total TCF Financial Corporation stockholders' equity
 
2,537,801

 
2,662,757

 
2,427,483

 
2,290,916

 
2,121,649

Less: Preferred stock
 
169,302

 
265,821

 
263,240

 
263,240

 
263,240

Total common stockholders' equity
(d)
2,368,499

 
2,396,936

 
2,164,243

 
2,027,676

 
1,858,409

Less:
 
 
 
 
 
 
 
 
 
 
Goodwill, net
 
154,757

 
154,757

 
225,640

 
225,640

 
225,640

Other intangibles, net(1)
 
20,518

 
23,687

 
1,738

 
3,126

 
4,641

Tangible common stockholders' equity
(e)
$
2,193,224

 
$
2,218,492

 
$
1,936,865

 
$
1,798,910

 
$
1,628,128

 
 
 
 
 
 
 
 
 
 
 
Total assets
(f)
$
23,699,612

 
$
23,002,159

 
$
21,441,326

 
$
20,689,609

 
$
19,393,656

Less:
 
 
 
 

 
 

 
 
 
 
Goodwill, net
 
154,757

 
154,757

 
225,640

 
225,640

 
225,640

Other intangibles, net(1)
 
20,518

 
23,687

 
1,738

 
3,126

 
4,641

Tangible assets
(g)
$
23,524,337

 
$
22,823,715

 
$
21,213,948

 
$
20,460,843

 
$
19,163,375

 
 
 
 
 
 
 
 
 
 
 
Common stock shares outstanding
(h)
163,923,227

 
171,669,419

 
170,991,940

 
169,844,464

 
167,461,002

 
 
 
 
 
 
 
 
 
 
 
Common equity to assets
(d) / (f)
9.99
%
 
10.42
%
 
10.09
%
 
9.80
%
 
9.58
%
Tangible common equity to tangible assets
(e) / (g)
9.32

 
9.72

 
9.13

 
8.79

 
8.50

 
 
 
 
 
 
 
 
 
 
 
Book value per common share
(d) / (h)
$
14.45

 
$
13.96

 
$
12.66

 
$
11.94

 
$
11.10

Tangible book value per common share
(e) / (h)
13.38

 
12.92

 
11.33

 
10.59

 
9.72

(1)
Includes non-mortgage servicing assets.

Critical Accounting Estimates

TCF's accounting policies are fundamental to the understanding of its financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of TCF's assets or liabilities and results of operations. The accounting policy for the allowance for loan and lease losses is critical because it requires management to make challenging, subjective and complex judgments about matters that are inherently uncertain and because materially different amounts would be reported if different estimates or assumptions were used. See Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for further discussion of the accounting policy for the allowance for loan and lease losses.



52

Recent Accounting Developments

For a description of new accounting standards issued, but not yet adopted by the Company, see Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.
Forward-looking Information
 
Any statements contained in this Annual Report on Form 10-K regarding the outlook for the Company's businesses and their respective markets, such as projections of future performance, targets, guidance, statements of the Company's plans and objectives, forecasts of market trends and other matters are forward-looking statements based on the Company's assumptions and beliefs. Such statements may be identified by such words or phrases as "will likely result," "are expected to," "will continue," "outlook," "will benefit," "is anticipated," "estimate," "project," "management believes" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, TCF claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.
Certain factors could cause the Company's future results to differ materially from those expressed or implied in any forward-looking statements contained herein. These factors include the factors discussed in Part I, Item 1A of this Annual Report on Form 10-K under the heading "Risk Factors", the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive: deterioration in general economic, political and banking industry conditions; cyber-security breaches, hacking, denial of service, security breaches, loss or theft of information, or other cyber-attacks that disrupt TCF's business operations or damage its reputation; fluctuation in interest rates that result in decreases in the value of assets or a mismatch between yields earned on TCF's interest-earning assets and the rates paid on its deposits and borrowings; lack of access to liquidity; inability to pay and receive dividends; adverse effects related to competition from traditional competitors, non-bank providers of financial services and new technologies; soundness of other financial institutions and other counterparty risk, including the risk of default, operational disruptions, security breaches, or diminished availability of counterparties who satisfy our credit quality requirements; adverse developments affecting TCF's branches, including its supermarket branches; risks related to developing new products, markets or lines of business; changes in the allowance for loan and lease losses dictated by new market conditions, regulatory requirements or accounting standards; new consumer protection and supervisory requirements or regulatory reform related to capital, leverage, liquidity or risk management; adverse changes in monetary, fiscal or tax policies; heightened regulatory practices or requirements related to enterprise risk management, the Bank Secrecy Act and anti-money laundering compliance activity; deficiencies in TCF's compliance programs or risk mitigation frameworks; the effect of any negative publicity or reputational damage; technological or operational difficulties; failure to keep pace with technological change, including with respect to customer demands or system upgrades; risks related to TCF's loan sales activity; dependence on accurate and complete information from customers and counterparties; the failure to attract and retain key employees; inability to successfully execute on TCF's growth strategy through acquisitions or expanding existing business relationships; changes in accounting standards or interpretations of existing standards; adverse federal, state or foreign tax assessments; litigation or government enforcement actions; ineffective internal controls; and the effects of man-made and natural disasters, any of which may negatively affect our operations and/or our customers.


53

This report also contains forward-looking statements regarding TCF's outlook or expectations with respect to the planned merger with Chemical. Examples of forward-looking statements include, but are not limited to, statements regarding the outlook and expectations of TCF and Chemical with respect to their planned merger, the strategic benefits and financial benefits of the merger, including the expected impact of the transaction on the combined company's future financial performance (including anticipated accretion to earnings per share, the tangible book value earn-back period and other operating and return metrics), and the timing of the closing of the transaction. Such risks, uncertainties and assumptions, include, among others, the following:
•
the failure to obtain necessary regulatory approvals when expected or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction);
•
the failure of either TCF or Chemical to obtain shareholder approval, or to satisfy any of the other closing conditions to the transaction on a timely basis or at all;
•
the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;
•
the possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where TCF and Chemical do business, or as a result of other unexpected factors or events;
•
the impact of purchase accounting with respect to the transaction, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
•
diversion of management's attention from ongoing business operations and opportunities;
•
potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction;
•
the ability of either company to effectuate share repurchases and the prices at which such repurchases may be effectuated;
•
the outcome of any legal proceedings that may be instituted against TCF or Chemical;
•
the integration of the businesses and operations of TCF and Chemical, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to TCF's or Chemical's existing businesses;
•
business disruptions following the merger; and
•
other factors that may affect future results of TCF and Chemical including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms.

Additional factors that could cause results to differ materially from those described above can be found in the risk factors described in Part I, Item 1A of this Annual Report on Form 10-K under the heading "Risk Factors" and Chemical's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2017. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results. TCF and Chemical disclaim any obligation to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by law.


54

Important Additional Information and Where to Find It
In connection with the proposed merger, Chemical will file with the SEC a Registration Statement on Form S-4 that will include the Joint Proxy Statement of TCF and Chemical and a Prospectus of Chemical, as well as other relevant documents regarding the proposed transaction. A definitive Joint Proxy Statement/Prospectus will also be sent to TCF and Chemical shareholders. INVESTORS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
This Annual Report on Form 10-K does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
A free copy of the Joint Proxy Statement/Prospectus once available, as well as other filings containing information about TCF and Chemical, may be obtained at the SEC's Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from TCF by accessing TCF's website at http://www.tcfbank.com (which website is not incorporated herein by reference) or from Chemical by accessing Chemical's website at http://www.chemicalbank.com (which website is not incorporated herein by reference). Copies of the Joint Proxy Statement/Prospectus once available can also be obtained, free of charge, by directing a request to TCF Investor Relations at Investor Relations, TCF Financial Corporation, 200 Lake Street East, EXO-02C, Wayzata, MN 55391 by calling (952) 745-2760 or by sending an e-mail to investor@tcfbank.com, or to Chemical Investor Relations at Investor Relations, Chemical Financial Corporation, Chemical Financial Corporation, 333 W. Fort Street, Suite 1800, Detroit, MI 48226, Dennis L. Klaeser (800) 867-9757 or by sending an e-mail to dennis.klaeser@ChemicalBank.com.
Participants in Solicitation
TCF and Chemical and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from TCF and Chemical shareholders in respect of the transaction described in the Joint Proxy Statement/Prospectus. Information regarding TCF's directors and executive officers is contained in this Annual Report on Form 10-K for the year ended December 31, 2018, its Proxy Statement on Schedule 14A, dated March 14, 2018, and certain of its Current Reports on Form 8-K, which are filed with the SEC. Information regarding Chemical's directors and executive officers is contained in Chemical's Annual Report on Form 10-K for the year ended December 31, 2017, its Proxy Statement on Schedule 14A, dated March 16, 2018, and certain of its Current Reports on Form 8-K, which are filed with the SEC. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Joint Proxy Statement/Prospectus regarding the proposed merger when it becomes available.



55

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

TCF's results of operations depend, to a large degree, on its net interest income and its ability to manage interest rate risk. Although TCF manages other risks in the normal course of business, such as credit risk, liquidity risk and foreign currency risk, the Company considers interest rate risk to be one of its more significant market risks.

Interest Rate Risk

TCF's ALCO and the Finance Committee of TCF Financial's Board of Directors have established interest rate risk policy limits. Interest rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrowings) to movements in interest rates. Since TCF does not hold a trading portfolio, the Company is not exposed to market risk from trading activities. As such, the major sources of the Company's interest rate risk are timing differences in the maturity and repricing characteristics of assets and liabilities, changes in the shape of the yield curve, changes in consumer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including through the use of simulation and valuation analyses. The interest rate scenarios may include gradual or rapid changes in interest rates, spread narrowing and widening, yield curve twists and changes in assumptions about consumer behavior in various interest rate scenarios. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest rate risk. TCF, like most financial institutions, has material interest rate risk exposure to changes in both short- and long-term interest rates, as well as variable interest rate indices (e.g., the prime rate or London Interbank Offered Rate).
 
TCF's ALCO is responsible for reviewing the Company's interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. ALCO manages TCF's interest rate risk based on interest rate expectations and other factors. The principal objective of TCF in managing its assets and liabilities is to provide maximum levels of net interest income and facilitate the funding needs of the Company, while maintaining acceptable levels of interest rate risk and liquidity risk.
 
ALCO primarily uses two interest rate risk tools with policy limits to evaluate TCF's interest rate risk: net interest income simulation and economic value of equity ("EVE") analysis. In addition, the interest rate gap is reviewed periodically to monitor asset and liability repricing over various time periods.

Management utilizes net interest income simulation models to estimate the near-term effects of changing interest rates on its net interest income. Net interest income simulation involves forecasting net interest income under a variety of scenarios, including the level of interest rates, the shape of the yield curve and the spreads between market interest rates. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit repricings and events outside management's control, including consumer behavior on loan and deposit activity and the effect that competition has on both loan and deposit pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions, consumer behavior and management strategies, among other factors. TCF performs various sensitivity analyses on new loan spreads, prepayment rates, basis risk and deposit assumptions.

The following table presents changes in TCF's net interest income over a twelve month period if short- and long-term interest rates were to sustain an immediate change. The impact of planned changes to interest-earning assets and new business activities is factored into the simulation model.
 
Impact on Net Interest Income
(Dollars in millions)
December 31, 2018
Immediate change in interest rates:
 
 
+200 basis points
$
63.9

6.2
 %
+100 basis points
36.5

3.5

-100 basis points
(71.8
)
(7.0
)



56

As of December 31, 2018, approximately 65% of TCF's loan and lease balances were expected to reprice, amortize or prepay in the next 12 months and approximately 59% of TCF's deposit balances were low or no cost deposits. TCF believes that the mix of assets repricing compared with low or no cost deposits positions TCF well for rising interest rates. Currently our interest rate risk profile is such that we project net interest income will benefit from a rising rate environment, as our assets reprice faster and to a greater degree than our liabilities. In a declining interest rate environment, our assets would reprice downward to a greater degree than our liabilities. Since 2016, management has taken steps to manage this interest rate risk position. While management continues to take action to advance TCF toward being less asset sensitive, the risk of lower net interest income as a result of a declining interest rate environment remains. Since deposit costs are already at a low level, management believes that lower interest rates are unlikely to impact our low or no cost deposits to the same degree as TCF’s interest rate sensitive assets.

Management also uses EVE and interest rate gap analyses to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analysis. Net interest income simulation highlights exposure over a relatively short time period, while EVE analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted present value of liability cash flows. EVE analysis addresses only the current balance sheet and does not incorporate the planned changes to interest-earning assets that are used in the net interest income simulation model. As with the net interest income simulation model, EVE analysis is based on key assumptions about the timing and variability of balance sheet cash flows and does not take into account any potential responses by management to anticipated changes in interest rates.

Interest rate gap is primarily the difference between interest-earning assets and interest-bearing liabilities repricing within a given period and represents the net asset or liability sensitivity at a point in time. An interest rate gap measure could be significantly affected by external factors such as loan prepayments, early withdrawals of deposits, changes in the correlation of various interest-bearing instruments, competition, or a rise or decline in interest rates.

Credit Risk

Credit risk is defined as the risk to current or anticipated earnings or capital arising from an obligor's failures to meet the terms of any contract with the Company or otherwise fails to perform as agreed, such as the failure of customers and counterparties to meet their contractual obligations, as well as contingent exposures from unfunded loan commitments and letters of credit.

TCF's Enterprise Risk Management Committee meets at least quarterly and is responsible for monitoring the loan and lease portfolio composition and risk tolerance within the various segments of the portfolio. The Enterprise Risk Management Committee and the Board of Directors have adopted a Risk Appetite Statement to manage the Company's credit risk by setting (i) a desired balance between asset classes, (ii) concentration limits based on loan type, business line and geographic region and (iii) maximum tolerances for credit performance. To manage credit risk arising from lending and leasing activities, management has adopted and maintains underwriting policies and procedures and periodically reviews the appropriateness of these policies and procedures. Customers and guarantors or recourse providers are evaluated as part of initial underwriting processes and through periodic reviews. For consumer loans, credit scoring models are used to help determine eligibility for credit and terms of credit. These models are periodically reviewed to verify that they are predictive of borrower performance. Limits are established on the exposure to a single customer (including affiliates) and on concentrations for certain categories of customers. Loan and lease credit approval levels are established so that larger credit exposures receive managerial review at the appropriate level through the credit committees.



57

Management continuously monitors asset quality in order to manage the Company's credit risk and to determine the appropriateness of valuation allowances, including, in the case of commercial loans, inventory finance loans and equipment finance loans and leases, a risk rating methodology under which a rating of one through nine is assigned to each loan or lease. The rating reflects management's assessment of the potential impact on repayment of the customer's financial and operational condition. Asset quality is monitored separately based on the type or category of loan or lease. The rating process allows management to better define the Company's loan and lease portfolio risk profile. Management also uses various risk models to estimate probable impact on payment performance under various scenarios, both expected and unexpected.

The Company also has credit risk in its debt securities available for sale portfolio related to obligations of states and political subdivisions. The Company maintains a set of underwriting criteria and regularly monitors credit performance under the direction and supervision of the TCF Bank Credit Committee to manage this risk. The remainder of the debt securities available for sale portfolio and the debt securities held to maturity portfolio consist primarily of fixed-rate mortgage-backed securities issued and guaranteed by the FNMA and the FHLMC, and therefore credit risk is minimal. All investment related counterparties and transaction limits are reviewed and approved annually by both ALCO and the TCF Bank Credit Committee.
Liquidity Risk

Liquidity risk is defined as the risk to earnings or capital arising from the Company's inability to meet its obligations when they come due without incurring unacceptable losses.

ALCO and the Finance Committee of TCF Financial's Board of Directors have adopted a Holding Company Investment and Liquidity Management Policy, which establishes a minimum target amount of cash or liquid investments TCF Financial will hold. TCF Financial's primary source of cash flow is capital distributions from TCF Bank. TCF Bank may be required to receive regulatory approval prior to making any such distributions in the future and such distributions may be restricted by its federal banking regulators. TCF Bank's ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. See "Item 1. Business - Regulation - Restrictions on Distributions", Note 16. Regulatory Capital Requirements and Note 25. Parent Company Financial Information of Notes to Consolidated Financial Statements for further information.

ALCO and the Finance Committee of TCF Financial's Board of Directors have adopted a Liquidity Management Policy for TCF Bank to direct management of the Company's liquidity risk. The objective of the Liquidity Management Policy is to ensure that TCF Bank meets its cash and collateral obligations promptly, in a cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and liability liquidity will provide TCF with the ability to meet both expected and unexpected cash flows and collateral needs. Key liquidity ratios, asset liquidity levels and the amount available from funding sources are reported to ALCO on a monthly basis. TCF Bank's Liquidity Management Policy defines liquidity stress scenarios and establishes asset liquidity target ranges based on those stress scenarios that are deemed appropriate for its risk profile.

TCF's asset liquidity may be held in the form of on-balance sheet cash invested with the Federal Reserve Bank or other highly liquid marketable securities that are not pledged and can be sold or pledged to various counterparties under established agreements. TCF’s liability liquidity is sourced primarily through deposits and other secured sources of funding. See "Item 7. Management's Discussion and Analysis - Consolidated Income Statement Analysis - Liquidity Management" for further information.

Foreign Currency Risk

The Company is also exposed to foreign currency risk as changes in the exchange rate of the Canadian dollar may impact the Company's investment in TCFCFC. TCF enters into forward foreign exchange contracts in order to minimize the risk of changes in foreign exchange rates on its investment in and loans to TCFCFC. The values of forward foreign exchange contracts vary over their contractual lives as the related currency exchange rates fluctuate. TCF may also experience realized and unrealized gains or losses on forward foreign exchange contracts as a result of changes in foreign exchange rates. See Note 2. Summary of Significant Accounting Policies and Note 20. Derivative Instruments of Notes to Consolidated Financial Statements for further information.



58

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
TCF Financial Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of TCF Financial Corporation and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP

We have served as the Company's auditor since 1991.

Minneapolis, Minnesota
February 26, 2019



59

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
 
At December 31,
(Dollars in thousands, except per share data)
2018
 
2017
Assets:
 

 
 

Cash and due from banks
$
587,057

 
$
621,782

Investments
91,654

 
82,644

Debt securities held to maturity
148,852

 
161,576

Debt securities available for sale
2,470,065

 
1,709,018

Loans and leases held for sale
90,664

 
134,862

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
2,444,380

 
1,959,387

Junior lien
2,965,960

 
2,860,309

Total consumer real estate
5,410,340

 
4,819,696

Commercial
3,851,303

 
3,561,193

Leasing and equipment finance
4,699,740

 
4,761,661

Inventory finance
3,107,356

 
2,739,754

Auto finance
1,982,277

 
3,199,639

Other
21,295

 
22,517

Total loans and leases
19,072,311

 
19,104,460

Allowance for loan and lease losses
(157,446
)
 
(171,041
)
Net loans and leases
18,914,865

 
18,933,419

Premises and equipment, net
427,534

 
421,549

Goodwill, net
154,757

 
154,757

Other assets
814,164

 
782,552

Total assets
$
23,699,612

 
$
23,002,159

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
6,381,327

 
$
6,300,127

Savings
6,122,257

 
5,287,606

Money market
1,609,422

 
1,764,998

Certificates of deposit
4,790,680

 
4,982,271

Total deposits
18,903,686

 
18,335,002

Long-term borrowings
1,449,472

 
1,249,449

Accrued expenses and other liabilities
790,194

 
737,124

Total liabilities
21,143,352

 
20,321,575

Equity:
 

 
 

Preferred stock, par value $0.01 per share, 30,000,000 shares authorized;
 
 
 
7,000 and 4,007,000 shares issued
169,302

 
265,821

Common stock, par value $0.01 per share, 280,000,000 shares authorized;
 
 
 
173,584,846 and 172,158,449 shares issued
1,736

 
1,722

Additional paid-in capital
885,089

 
877,217

Retained earnings, subject to certain restrictions
1,766,994

 
1,577,311

Accumulated other comprehensive income (loss)
(33,138
)
 
(18,517
)
Treasury stock at cost, 9,661,619 and 489,030 shares and other
(252,182
)
 
(40,797
)
Total TCF Financial Corporation stockholders' equity
2,537,801

 
2,662,757

Non-controlling interest in subsidiaries
18,459

 
17,827

Total equity
2,556,260

 
2,680,584

Total liabilities and equity
$
23,699,612

 
$
23,002,159

 
See accompanying notes to consolidated financial statements.


60

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
 
Year Ended December 31,
(Dollars in thousands, except per share data)
2018
 
2017
 
2016
Interest income:
 
 
 
 
 
Loans and leases
$
1,065,137

 
$
954,246

 
$
850,546

Debt securities available for sale
54,574

 
33,278

 
26,573

Debt securities held to maturity
3,970

 
4,436

 
4,649

Loans held for sale and other
18,583

 
27,097

 
48,962

Total interest income
1,142,264

 
1,019,057

 
930,730

Interest expense:
 
 
 
 
 
Deposits
107,113

 
66,012

 
61,788

Borrowings
43,144

 
27,807

 
20,836

Total interest expense
150,257

 
93,819

 
82,624

Net interest income
992,007

 
925,238

 
848,106

Provision for credit losses
46,768

 
68,443

 
65,874

Net interest income after provision for credit losses
945,239

 
856,795

 
782,232

Non-interest income:
 
 
 
 
 
Leasing and equipment finance
185,107

 
145,039

 
119,166

Fees and service charges
132,201

 
131,887

 
137,664

Card revenue
58,864

 
55,732

 
54,882

ATM revenue
19,690

 
19,624

 
20,445

Gains on sales of loans, net
33,498

 
42,787

 
85,259

Servicing fee income
27,334

 
41,347

 
40,182

Gains (losses) on debt securities, net
348

 
237

 
(581
)
Other
13,843

 
11,646

 
8,883

Total non-interest income
470,885

 
448,299

 
465,900

Non-interest expense:
 
 
 
 
 
Compensation and employee benefits
497,063

 
482,512

 
475,964

Occupancy and equipment
165,812

 
156,909

 
149,980

Operating lease depreciation
73,829

 
55,901

 
40,359

Foreclosed real estate and repossessed assets, net
17,050

 
17,756

 
13,187

Other
260,646

 
346,856

 
230,397

Total non-interest expense
1,014,400

 
1,059,934

 
909,887

Income before income tax expense (benefit)
401,724

 
245,160

 
338,245

Income tax expense (benefit)
86,096

 
(33,624
)
 
116,528

Income after income tax expense (benefit)
315,628

 
278,784

 
221,717

Income attributable to non-controlling interest
11,270

 
10,147

 
9,593

Net income attributable to TCF Financial Corporation
304,358

 
268,637

 
212,124

Preferred stock dividends
11,588

 
19,904

 
19,388

Impact of preferred stock redemption
3,481

 
5,779

 
—

Net income available to common stockholders
$
289,289

 
$
242,954

 
$
192,736

 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Basic
$
1.75

 
$
1.44

 
$
1.15

Diluted
1.74

 
1.44

 
1.15

Weighted-average common shares outstanding:
 
 
 
 
 
Basic
165,585,493

 
168,679,501

 
167,219,964

Diluted
166,561,705

 
169,089,244

 
167,807,451

 
See accompanying notes to consolidated financial statements.


61

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Net income attributable to TCF Financial Corporation
$
304,358

 
$
268,637

 
$
212,124

Other comprehensive income (loss), net of tax:
 

 
 

 
 

Net unrealized gains (losses) on debt securities available for sale and interest-only strips
(11,669
)
 
16,454

 
(18,894
)
Net unrealized gains (losses) on net investment hedges
10,450

 
(2,746
)
 
(756
)
Foreign currency translation adjustment
(13,368
)
 
4,921

 
1,300

Recognized postretirement prior service cost
(34
)
 
(29
)
 
(29
)
Total other comprehensive income (loss), net of tax
(14,621
)
 
18,600

 
(18,379
)
Comprehensive income
$
289,737

 
$
287,237

 
$
193,745

 
See accompanying notes to consolidated financial statements.


62

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
 
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
—

—

—

—

—

212,124

—

—

212,124

9,593

221,717

Other comprehensive income (loss), net of tax
—

—

—

—

—

—

(18,379
)
—

(18,379
)
—

(18,379
)
Net investment by (distribution to) non-controlling interest
—

—

—

—

—

—

—

—

—

(8,432
)
(8,432
)
Dividends on 7.50% Series A Preferred Stock
—

—

—

—

—

(12,938
)
—

—

(12,938
)
—

(12,938
)
Dividends on 6.45% Series B Preferred Stock
—

—

—

—

—

(6,450
)
—

—

(6,450
)
—

(6,450
)
Dividends on common stock of $0.30 per common share
—

—

—

—

—

(50,182
)
—

—

(50,182
)
—

(50,182
)
Common shares purchased by TCF employee benefit plans
—

511,420

—

5

5,833

—

—

—

5,838

—

5,838

Stock compensation plans, net of tax
—

636,056

—

6

6,548

—

—

—

6,554

—

6,554

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

—

—

—

(1,441
)
—

—

1,441

—

—

—

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
)
—

—

—

—

—

Balance, January 1, 2017
4,006,900

171,034,506

263,240

1,710

864,095

1,381,582

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

17,162

2,444,645

Reclassification of stranded tax effects from AOCI to retained earnings
—

—

—

—

—

3,392

(3,392
)
—

—

—

—

Net income
—

—

—

—

—

268,637

—

—

268,637

10,147

278,784

Other comprehensive income (loss), net of tax
—

—

—

—

—

—

18,600

—

18,600

—

18,600

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

—

—

—

—

—

—

—

—

(9,482
)
(9,482
)
Public offering of Series C Preferred Stock
7,000

—

169,302

—

—

—

—

—

169,302

—

169,302

Redemption of Series A Preferred Stock
(6,900
)
—

(166,721
)
—

—

(5,779
)
—

—

(172,500
)
—

(172,500
)
Repurchase of 446,464 shares of common stock
—

—

—

—

—

—

—

(9,163
)
(9,163
)
—

(9,163
)
Dividends on 7.50% Series A Preferred Stock
—

—

—

—

—

(11,320
)
—

—

(11,320
)
—

(11,320
)
Dividends on 6.45% Series B Preferred Stock
—

—

—

—

—

(6,450
)
—

—

(6,450
)
—

(6,450
)
Dividends on 5.70% Series C Preferred Stock
—

—

—

—

—

(2,134
)
—

—

(2,134
)
—

(2,134
)
Dividends on common stock of $0.30 per common share
—

—

—

—

—

(50,617
)
—

—

(50,617
)
—

(50,617
)
Common shares purchased by TCF employee benefit plans
—

1,381,448

—

14

23,240

—

—

—

23,254

—

23,254

Stock compensation plans, net of tax
—

(257,505
)
—

(2
)
7,667

—

—

—

7,665

—

7,665

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

—

—

—

(17,785
)
—

—

17,785

—

—

—

Balance, December 31, 2017
4,007,000

172,158,449

$
265,821

$
1,722

$
877,217

$
1,577,311

$
(18,517
)
$
(40,797
)
$
2,662,757

$
17,827

$
2,680,584

See accompanying notes to consolidated financial statements.


63

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity, Continued
 
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, 2017
4,007,000

172,158,449

$
265,821

$
1,722

$
877,217

$
1,577,311

$
(18,517
)
$
(40,797
)
$
2,662,757

$
17,827

$
2,680,584

Change in accounting principle
—

—

—

—

—

(116
)
—

—

(116
)
—

(116
)
Balance, January 1, 2018
4,007,000

172,158,449

265,821

1,722

877,217

1,577,195

(18,517
)
(40,797
)
2,662,641

17,827

2,680,468

Net income
—

—

—

—

—

304,358

—

—

304,358

11,270

315,628

Other comprehensive income (loss), net of tax
—

—

—

—

—

—

(14,621
)
—

(14,621
)
—

(14,621
)
Net investment by (distribution to) non-controlling interest
—

—

—

—

—

—

—

—

—

(10,638
)
(10,638
)
Redemption of Series B Preferred Stock
(4,000,000
)
—

(96,519
)
—

—

(3,481
)
—

—

(100,000
)
—

(100,000
)
Repurchases of 9,188,589 shares of common stock
—

—

—

—

—

—

—

(212,929
)
(212,929
)
—

(212,929
)
Dividends on 6.45% Series B Preferred Stock
—

—

—

—

—

(1,613
)
—

—

(1,613
)
—

(1,613
)
Dividends on 5.70% Series C Preferred Stock
—

—

—

—

—

(9,975
)
—

—

(9,975
)
—

(9,975
)
Dividends on common stock of $0.60 per common share
—

—

—

—

—

(99,490
)
—

—

(99,490
)
—

(99,490
)
Common stock warrants exercised
—

1,088,918

—

11

(11
)
—

—

—

—

—

—

Common shares purchased by TCF employee benefit plans
—

34,627

—

—

715

—

—

—

715

—

715

Stock compensation plans, net of tax
—

302,852

—

3

8,334

—

—

378

8,715

—

8,715

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

—

—

—

(1,166
)
—

—

1,166

—

—

—

Balance, December 31, 2018
7,000

173,584,846

$
169,302

$
1,736

$
885,089

$
1,766,994

$
(33,138
)
$
(252,182
)
$
2,537,801

$
18,459

$
2,556,260

See accompanying notes to consolidated financial statements.


64

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Cash flows from operating activities:
 

 
 

 
 
Net income
$
315,628

 
$
278,784

 
$
221,717

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

 
 

 
 
Provision for credit losses
46,768

 
68,443

 
65,874

Depreciation and amortization
222,602

 
206,567

 
182,226

Impairment of goodwill and other intangible assets
—

 
73,409

 
—

Provision (benefit) for deferred income taxes
58,986

 
(53,729
)
 
32,966

Proceeds from sales of loans and leases held for sale
372,354

 
280,640

 
1,044,282

Originations of loans and leases held for sale, net of repayments
(375,622
)
 
(430,121
)
 
(1,207,227
)
Gains on sales of assets, net
(39,881
)
 
(51,965
)
 
(97,383
)
Net change in other assets and accrued expenses and other liabilities
(2,121
)
 
(96,380
)
 
71,495

Other, net
(41,949
)
 
(36,196
)
 
(24,667
)
Net cash provided by (used in) operating activities
556,765

 
239,452

 
289,283

Cash flows from investing activities:
 

 
 

 
 
Proceeds from sales of debt securities
254,146

 
—

 
—

Proceeds from maturities of and principal collected on debt securities
185,029

 
137,544

 
145,782

Purchases of debt securities
(1,232,618
)
 
(354,608
)
 
(692,996
)
Redemption of Federal Home Loan Bank stock
269,002

 
246,002

 
156,967

Purchases of Federal Home Loan Bank stock
(278,000
)
 
(254,000
)
 
(161,080
)
Proceeds from sales of loans and leases
903,606

 
1,618,791

 
2,830,807

Principal collected on loans and leases, net of loan and lease originations and purchases
172,849

 
(1,808,603
)
 
(2,200,776
)
Acquisition of Equipment Financing & Leasing Corporation, net of cash acquired
—

 
(8,120
)
 
—

Purchases of lease equipment
(1,230,094
)
 
(1,038,208
)
 
(1,197,281
)
Proceeds from sales of assets
88,942

 
63,875

 
76,885

Purchases of premises and equipment
(56,091
)
 
(48,428
)
 
(34,513
)
Other, net
20,935

 
26,103

 
23,002

Net cash provided by (used in) investing activities
(902,294
)
 
(1,419,652
)
 
(1,053,203
)
Cash flows from financing activities:
 

 
 

 
 
Net change in deposits
549,157

 
1,094,612

 
518,468

Net change in short-term borrowings
160

 
(4,747
)
 
(1,192
)
Proceeds from long-term borrowings
9,380,950

 
9,990,967

 
5,582,983

Payments on long-term borrowings
(9,182,536
)
 
(9,816,286
)
 
(5,542,831
)
Payments on liabilities related to acquisition and portfolio purchase
(2,000
)
 
(3,000
)
 
—

Redemption of Series B preferred stock
(100,000
)
 
—

 
—

Net proceeds from public offering of Series C preferred stock
—

 
169,302

 
—

Redemption of Series A preferred stock
—

 
(172,500
)
 
—

Repurchases of common stock
(212,929
)
 
(9,163
)
 
—

Common shares sold to TCF employee benefit plans
715

 
23,254

 
5,838

Dividends paid on preferred stock
(11,588
)
 
(19,904
)
 
(19,388
)
Dividends paid on common stock
(99,490
)
 
(50,617
)
 
(50,182
)
Stock compensation tax (expense) benefit
—

 
—

 
(377
)
Exercise of stock options
(997
)
 
(57
)
 
(701
)
Net investment by (distribution to) non-controlling interest
(10,638
)
 
(9,482
)
 
(8,432
)
Net cash provided by (used in) financing activities
310,804

 
1,192,379

 
484,186

Net change in cash and due from banks
(34,725
)
 
12,179

 
(279,734
)
Cash and due from banks at beginning of period
621,782

 
609,603

 
889,337

Cash and due from banks at end of period
$
587,057

 
$
621,782

 
$
609,603

Supplemental disclosures of cash flow information:
 

 
 

 
 
Cash paid (received) for:
 

 
 

 
 
Interest on deposits and borrowings
$
139,026

 
$
86,411

 
$
78,930

Income taxes, net
(26,308
)
 
62,115

 
23,064

Transfer of loans and leases to other assets
105,247

 
100,608

 
107,768

Transfer of loans and leases from held for investment to held for sale, net
848,941

 
1,320,210

 
2,739,126

See accompanying notes to consolidated financial statements.


65

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements

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. Its principal subsidiary, TCF National Bank ("TCF Bank"), is headquartered in Sioux Falls, South Dakota. TCF Bank operates bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota (TCF's "primary banking markets"), providing an exceptional customer experience driven by convenience through multiple points of contact, including digital banking, phone banking, a branch presence with select locations open at least six days a week and with extended hours, and access to automated teller machine ("ATM") networks. Through its direct subsidiaries, TCF Bank provides a full range of consumer-facing and commercial services, including consumer banking services in 47 states, commercial banking services in 42 states, commercial leasing and equipment financing in all 50 states and, to a limited extent, in foreign countries and commercial inventory financing in all 50 states and Canada and, to a limited extent, in other foreign countries.

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"). 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. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

Effective April 1, 2017, the Company executed its strategic shift from an originate-to-sell and originate-to-hold model to an entirely originate-to-hold model for its auto finance business and effective December 1, 2017, the Company discontinued auto finance loan originations. The determination was based on management's review of strategic alternatives and the financial outlook of the auto finance loan origination business compared with alternative uses of capital. TCF's subsidiary, Gateway One Lending & Finance, LLC ("Gateway One"), continues to service existing auto loans on its balance sheet and those that are serviced for others. The decision to discontinue auto finance loan originations resulted in a goodwill impairment charge of $73.0 million, an other intangible assets impairment charge of $0.4 million and approximately $14.8 million of expenses related to severance, other asset impairments and lease termination expenses in 2017.

Note 2. Summary of Significant Accounting Policies
 
Allowance for Loan and Lease Losses TCF's reserving methodology used to determine the appropriate level of the allowance for loan and lease losses contains critical accounting estimates. The allowance for loan and lease losses is maintained at a level believed to be appropriate to provide for probable loan and lease losses incurred in the portfolio as of the balance sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. Loans classified as troubled debt restructuring ("TDR") loans are considered impaired loans, along with non-accrual commercial, equipment finance and inventory finance loans. TCF individually evaluates impairment on all impaired loans and all non-accrual leases and other consumer real estate, commercial and auto finance loans specifically identified for evaluation. All other loans and leases are evaluated collectively for impairment.

Loan impairment on consumer real estate TDR loans is a key component of the allowance for loan and lease losses. Impairment is generally based on the present value of the expected future cash flows discounted at the loan's initial effective interest rate, unless the loans are collateral dependent, in which case loan impairment is based on the fair value of the collateral less estimated selling costs.

Impairment on commercial loans, inventory finance loans and leasing and equipment finance loans and leases is generally based on the present value of the expected future cash flows discounted at the initial effective interest rate of the loan or lease, unless the loan or lease is collateral dependent, in which case impairment is based on the fair value of collateral less estimated selling costs; however, if payment or satisfaction of the loan or lease is dependent on the operation, rather than the sale of the collateral, the impairment does not include estimated selling costs.


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Impairment on auto finance loans is generally based on the fair value of collateral less estimated selling costs. The impairment for all other loans and leases is evaluated collectively by various characteristics. The collective evaluation of incurred losses in these portfolios is based on their historical loss rates multiplied by the respective loss emergence period. Factors utilized in the determination of the amount of the allowance include historical trends in loss rates, a portfolio's overall risk characteristics, changes in its character or size, risk rating migration, delinquencies, collateral values, economic outlook and prevailing economic conditions. The various factors used in the methodologies are reviewed on a periodic basis.

Loans and leases are charged off to the extent they are deemed to be uncollectible. Charge-offs are utilized in the historical data in calculating the allowance for loan and lease losses. Consumer real estate loans are charged off to the estimated fair value of the underlying collateral, less estimated selling costs, no later than 150 days past due. Additional review of the fair value, less estimated costs to sell, compared with the recorded value occurs upon foreclosure and additional charge-offs are recorded if necessary. Commercial loans, leasing and equipment finance loans and leases and inventory finance loans that are considered collateral dependent are charged off to estimated fair value, less estimated selling costs when it becomes probable, based on current information and events, that all principal and interest amounts will not be collectible in accordance with their contractual terms. Auto finance loans will be charged off in full no later than 120 days past due, unless repossession is reasonably assured and in process, in which case the loan would be charged off to the fair value of the collateral, less estimated selling costs. Consumer real estate and auto finance loans in bankruptcy status may be charged down to the fair value of the collateral, less estimated selling costs, within 60 days past due based on specific criteria. Deposit account overdrafts are reported in other loans. Net losses on uncollectible overdrafts are reported as net charge-offs in the allowance for loan and lease losses within 60 days from the date of overdraft. Loans that are not collateral dependent are charged off when deemed uncollectible based on specific facts and circumstances.

The amount of the allowance for loan and lease losses significantly depends on management's estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status and the amounts and timing of future cash flows expected to be received. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees or properties. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known. See Note 7. Allowance for Loan and Lease Losses and Credit Quality Information for further information on the allowance for loan and lease losses.

Debt Securities Held to Maturity Debt securities held to maturity are carried at cost and adjusted for amortization of premiums or accretion of discounts using a level yield method; however, transfers of debt securities available for sale to debt securities held to maturity are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of each transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held to maturity debt security. Such amounts are then amortized over the remaining life of the transferred debt security as an adjustment of the yield on those debt securities. TCF evaluates debt securities held to maturity for other than temporary impairment on a quarterly basis. Declines in value considered other than temporary, if any, would be recorded in non-interest income within gains (losses) on debt securities, net. See Note 5. Debt Securities Available for Sale and Debt Securities Held to Maturity for further information on debt securities held to maturity.

Debt Securities Available for Sale Debt securities available for sale are carried at fair value with the unrealized gains or losses net of related deferred income taxes reported within accumulated other comprehensive income (loss). The cost of debt securities sold is determined on a specific identification basis and gains or losses on sales of debt securities available for sale are recognized on trade dates. Discounts and premiums on debt securities available for sale are amortized using a level yield method over the expected life of the debt security, or to the earliest call date for premiums on debt securities with call features. TCF evaluates debt securities available for sale for other than temporary impairment on a quarterly basis. Declines in value considered other than temporary, if any, would be recorded in non-interest income within gains (losses) on debt securities, net. See Note 5. Debt Securities Available for Sale and Debt Securities Held to Maturity for further information on debt securities available for sale.
 


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Loans and Leases Held for Sale Loans and leases designated as held for sale are generally carried at the lower of cost or fair value. Any amount by which cost exceeds fair value is initially recorded as a valuation allowance and subsequently recorded in the gain or loss on sale when sold. Certain other loans held for sale are recorded at fair value under the elected fair value option. From time to time, management identifies and designates, primarily consumer real estate, loans held in the loan portfolios for sale. These loans are transferred to loans and leases held for sale at the lower of cost or fair value at the time of transfer net of any associated allowance for loan and lease losses.

Loans and Leases Loans and leases are reported at historical cost including net direct fees and costs associated with originating and acquiring loans and leases. The net direct fees and costs for sales-type leases are offset against revenues recorded at the commencement of sales-type leases. Discounts and premiums on acquired loans, net direct fees and costs, unearned discounts and finance charges, and unearned lease income are amortized to interest income using methods that approximate a level yield over the estimated remaining lives of the loans and leases. Net direct fees and costs on all lines of credit are amortized on a straight line basis over the contractual life of the line of credit and adjusted for payoffs. Net deferred fees and costs on consumer real estate lines of credit are amortized to fees and service charges. See Note 6. Loans and Leases for further information on 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 the acquisition date and the fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan or lease. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Purchased loans are evaluated at the acquisition date and classified as purchased loans or purchased credit impaired ("PCI") loans. Loans are considered PCI loans if it is probable at the acquisition date 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. If subsequent to acquisition there is credit deterioration in excess of the acquisition date credit discount for PCI loans or purchased loans and leases, an additional allowance for loan and lease losses is established.

Non-accrual Loans and Leases Loans and leases are generally placed on non-accrual status when the collection of interest or principal is 90 days or more past due, unless, in the case of commercial loans, they are well secured and in the process of collection. Delinquent consumer real estate junior lien loans are placed on non-accrual status when there is evidence that the related third-party first lien mortgage may be 90 days or more past due, or foreclosure, charge-off or collection action has been initiated. TDR loans are placed on non-accrual status prior to the past due thresholds outlined above if repayment under the modified terms is not likely after performing a well-documented credit analysis.

Loans on non-accrual status are generally reported as non-accrual loans until there is sustained repayment performance for six consecutive months, with the exception of loans not reaffirmed upon discharge under Chapter 7 bankruptcy, which remain on non-accrual status until a well-documented credit analysis indicates full repayment of the remaining pre-discharged contractual principal and interest is likely. Income on these loans is recognized on a cash basis when there is sustained repayment performance for nine or 12 consecutive months based on the credit evaluation and the loan is not more than 60 days delinquent.

Generally, when a loan or lease is placed on non-accrual status, uncollected interest accrued in prior years is charged off against the allowance for loan and lease losses and interest accrued in the current year is reversed against interest income. For non-accrual leases that have been discounted with third-party financial institutions on a non-recourse basis, the related liability is also placed on non-accrual status. Interest payments received on loans and leases in non-accrual status are generally applied to principal unless the remaining principal balance has been determined to be fully collectible, in which case interest income is recognized on a cash basis.

See Note 7. Allowance for Loan and Lease Losses and Credit Quality Information for further information on non-accrual loans and leases.



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Lease Financing TCF provides various types of commercial lease financing that are classified for accounting purposes as direct financing, sales-type or operating leases. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are classified as direct financing or sales-type leases and are included in loans and leases. Direct financing and sales-type leases are carried at the combined present value of future minimum lease payments and lease residual values. The determination of lease classification requires various judgments and estimates by management including the fair value of the equipment at lease inception, useful life of the equipment under lease, estimate of the lease residual value and collectability of minimum lease payments.

Sales-type leases generate dealer profit, which is recognized at lease inception by recording lease revenue net of lease cost. Lease revenue consists of the present value of the future minimum lease payments. Lease cost consists of the leased equipment's book value, less the present value of its residual. Interest income on direct financing and sales-type leases is recognized using methods that approximate a level yield over the fixed, non-cancelable term of the lease. TCF receives pro rata rent payments for the interim period until the lease contract commences and the fixed, non-cancelable lease term begins. TCF recognizes these interim payments in the month they are earned and records the income in interest income. Management has policies and procedures in place for the determination of lease classification and review of the related judgments and estimates for all lease financings.

Some lease financings include a residual value component, which represents the estimated fair value of the leased equipment at the expiration of the initial term of the transaction. The estimation of residual values involves judgment regarding product and technology changes, customer behavior, shifts in supply and demand and other economic assumptions. TCF reviews residual assumptions in the portfolio at least annually and records impairment, if necessary, which is charged to non-interest expense in the periods in which it becomes known. TCF may sell minimum lease payments primarily as a credit risk reduction tool to third-party financial institutions at fixed rates on a non-recourse basis with its underlying equipment as collateral. For those transactions that achieve sale treatment, the related lease cash flow stream and the non-recourse financing are derecognized. For those transactions that do not achieve sale treatment, the underlying lease remains on TCF's Consolidated Statements of Financial Condition and non-recourse debt is recorded in the amount of the proceeds received. TCF retains servicing of these leases and bills, collects and remits funds to the third-party financial institution. Upon default by the lessee, the third-party financial institutions may take control of the underlying collateral which TCF would otherwise retain as residual value.

Leases that do not transfer substantially all benefits and risks of ownership to the lessee are classified as operating leases. Such leased equipment and related initial direct costs are included in other assets and depreciated on a straight-line basis over the term of the lease to its estimated salvage value. Depreciation expense on the leased equipment is recorded in non-interest expense. Operating lease rental income is recognized when it is due and is recorded as a component of leasing and equipment finance non-interest income. An allowance for lease losses is not provided on operating leases.

Premises and Equipment Premises and equipment, including leasehold improvements, are carried at cost and are depreciated or amortized on a straight-line basis over the estimated useful lives of owned assets, over the lease term for capitalized leases and over the estimated useful life of the related asset or the lease term, whichever is shorter, for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Rent expense for leased land with facilities is recognized in occupancy and equipment expense. Rent expense for leases with free rent periods or scheduled rent increases is recognized on a straight-line basis over the lease term. See Note 8. Premises and Equipment, Net for further information on premises and equipment.

Other Real Estate Owned and Repossessed and Returned Assets Assets acquired through foreclosure, repossession or returned to TCF are initially recorded at the lower of the loan or lease carrying amount or fair value of the collateral less estimated selling costs at the time of transfer to real estate owned or repossessed and returned assets. The fair value of other real estate owned is based on independent appraisals, real estate brokers' price opinions or automated valuation methods, less estimated selling costs. The fair value of repossessed and returned assets is based on available pricing guides, auction results or price opinions, less estimated selling costs. Any carrying amount in excess of the fair value less estimated selling costs is charged off to the allowance for loan and lease losses upon transfer. Subsequently, if the fair value of an asset, less the estimated costs to sell, declines to less than the carrying amount of the asset, the shortfall is recognized in the period in which it becomes known and is included in foreclosed real estate and repossessed assets, net expense. Operating expenses of properties and recoveries on sales of other real estate owned are also recorded in non-interest expense within foreclosed real estate and repossessed assets, net expense. Operating revenue from foreclosed property is included in other non-interest income. See Note 7. Allowance for Loan and Lease Losses and Credit Quality Information for further information on other real estate owned and repossessed and returned assets.


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Investments in Affordable Housing Limited Liability Entities TCF has investments in affordable housing limited liability entities that either operate qualified affordable housing projects or invest in other limited liability entities formed to operate affordable housing projects, which TCF generally accounts for under the proportional amortization method. However, depending on circumstances, the effective yield, equity or cost methods may be utilized. The amount of the investments, along with any unfunded equity contributions that are unconditional and legally binding, are recorded in other assets. A liability for the unfunded equity contributions is recorded at fair value in accrued expenses and other liabilities. The tax credits and amortization of the investments are recorded as a component of income tax expense (benefit). See Note 10. Investments in Affordable Housing Limited Liability Entities for further information on investments in affordable housing limited liability entities.

Interest-only Strips TCF sells loans with or without interest-only strips to third party financial institutions. For those transactions that achieve sale treatment, the underlying loans are removed from TCF's Consolidated Statements of Financial Condition. The Company may receive as part of the sale consideration an interest in the future cash flows of borrower loan payments, known as an interest-only strip. The interest-only strip is recorded at fair value in other assets with the unrealized gains or losses net of deferred income taxes reported within accumulated other comprehensive income (loss). The fair value of the interest-only strip represents the present value of future cash flows expected to be received by TCF. After initial recording of the interest-only strip, the accretable yield is measured as the difference between the initial investment, or fair value, and the cash flows expected to be collected. The accretable yield is amortized into interest income over the life of the interest-only strip using the effective yield method. The expected cash flows are evaluated quarterly to determine if they have changed from previous projections. Declines in the value of interest-only strips that are considered other than temporary are recorded in other non-interest expense. See Note 6. Loans and Leases for further information on interest-only strips.

Goodwill and Other Intangible Assets All assets and liabilities acquired in purchase acquisitions, including other intangibles, are initially recorded at fair value. Goodwill is recorded when the purchase price of an acquisition is greater than the fair value of net assets, including identifiable intangible assets. Goodwill is not amortized, but assessed for impairment on at least an annual basis at the reporting unit level. Interim impairment analysis may be required if events occur or circumstances change that would more likely than not reduce a reporting unit's fair value below its carrying amount. Other intangible assets are amortized on a straight-line basis or accelerated method over their estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize their carrying amounts.

When testing for goodwill impairment, TCF has the option to perform a qualitative assessment of goodwill. TCF may also elect to perform a quantitative test without first performing a qualitative analysis. If the qualitative assessment is performed and TCF concludes it is more likely than not that a reporting unit's fair value is less than its carrying amount, a quantitative analysis is performed. Quantitative valuation methodologies primarily include a discounted cash flow analysis in determining the fair value of reporting units. If the fair value is less than the carrying amount, additional analysis is required to measure the amount of impairment. Impairment losses, if any, are recorded as a charge to non-interest expense and an adjustment to the carrying value of goodwill.

Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate their carrying amount may not be recoverable. Impairment is indicated if the sum of the undiscounted estimated future net cash flows is less than the carrying value of the intangible asset. Impairment losses, if any, permanently reduce the carrying value of the other intangible assets.

See Note 9. Goodwill and Other Intangible Assets for further information on goodwill and other intangible assets.



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Derivative Instruments All derivative instruments are recognized at fair value within other assets or accrued expenses and other liabilities. The Company's derivative instruments may be subject to master netting arrangements and collateral arrangements and qualify for offset in the Consolidated Statements of Financial Condition. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company's policy is to recognize amounts subject to master netting arrangements and collateral arrangements on a net basis in the Consolidated Statements of Financial Condition. The value of derivative instruments will vary over their contractual terms as the related underlying rates fluctuate. The accounting for changes in the fair value of a derivative instrument depends on whether or not the contract has been designated and qualifies as a hedge. To qualify as a hedge, a contract must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a contract to be designated as a hedge, the risk management objective and strategy must be documented at inception. Hedge documentation must also identify the hedging instrument, the asset or liability and type of risk to be hedged and how the effectiveness of the contract is assessed prospectively and retrospectively. To assess effectiveness, TCF uses statistical methods such as regression analysis. A contract that has been, and is expected to continue to be effective at offsetting changes in fair values or the net investment, must be assessed and documented at least quarterly. If it is determined that a contract is not highly effective at hedging the designated exposure, hedge accounting is discontinued.

Upon origination of a derivative instrument, the contract is designated either as a hedge of the exposure to changes in the fair value of an asset or liability due to changes in market risk ("fair value hedge"), a hedge of the volatility of an investment in foreign operations driven by changes in foreign currency exchange rates ("net investment hedge") or is not designated as a hedge.

Fair Value Hedges TCF Bank entered into an interest rate swap agreement related to its contemporaneously issued subordinated debt, which settles through a central clearing house. The swap was designated as a fair value hedge and effectively converts the fixed interest rate to a floating rate based on the three-month London InterBank Offered Rate ("LIBOR") plus a fixed number of basis points on the $150.0 million notional amount through February 27, 2025, the maturity date of the subordinated debt.

The interest rate swap substantially offsets the change in fair value of the hedged underlying subordinated debt that is attributable to the changes in market risk. The gains and losses related to changes in the fair value of the interest rate swap, as well as the offsetting changes in fair value of the hedged debt, are recorded in interest expense - borrowings effective January 1, 2018 and were previously recorded in other non-interest income.

Net Investment Hedges  Forward foreign exchange contracts, which generally settle within 34 days, are used to manage the foreign exchange risk associated with the Company's net investment in TCF Commercial Finance Canada, Inc. ("TCFCFC"), a wholly-owned indirect Canadian subsidiary of TCF Bank. Changes in net investment hedges recorded within other comprehensive income (loss) are subsequently reclassified to non-interest expense during the period in which the foreign investment is substantially liquidated or when other elements of the currency translation adjustment are reclassified to income.

Derivatives Not Designated as Hedges  TCF executes interest rate contracts with commercial banking customers to facilitate their respective risk management strategies. Those interest rate contracts are simultaneously hedged with offsetting interest rate contracts that TCF executes with a third party and generally settles through a central clearing house, minimizing TCF's net risk exposure. As the interest rate contracts do not meet hedge accounting requirements, changes in the fair value of both the customer contracts and the offsetting contracts are recorded in other non-interest income. These contracts have original fixed maturity dates ranging from three to 11 years.

Certain of TCF's forward foreign exchange contracts are not designated as hedges and are generally settled within 34 days. Changes in the fair value of these forward foreign exchange contracts are recorded in other non-interest expense.

TCF enters into interest rate lock commitments in conjunction with the sale of certain consumer real estate loans. These interest rate lock commitments are agreements to extend credit under certain specified terms and conditions at fixed rates with original lock expirations generally within three months. They are not designated as hedges and accordingly, changes in the valuation of these commitments are recorded in gains on sales of loans, net.



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During the second quarter of 2012, TCF sold its Visa® Class B stock. In conjunction with the sale, TCF and the purchaser entered into a derivative transaction whereby TCF may receive or be required to make cash payments whenever the conversion ratio of the Visa Class B stock into Visa Class A stock is adjusted. The fair value of this derivative has been determined using estimated future cash flows using probability weighted scenarios for multiple estimates of Visa's aggregate exposure to covered litigation matters, which include consideration of amounts funded by Visa into its escrow account for the covered litigation matters. Changes, if any, in the valuation of this swap agreement, which has no determinable maturity date, are recorded in other non-interest expense.

See Note 20. Derivative Instruments for further information on derivative instruments.

Income Taxes Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis carrying amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recorded in income tax expense (benefit) in the period in which the enactment date occurs. If current period income tax rates change, the impact on the annual effective income tax rate is applied year to date in the period of enactment.

The determination of current and deferred income taxes is based on analyses of many factors, including interpretation of income tax laws, the evaluation of uncertain tax positions, differences between the tax and financial reporting bases of assets and liabilities (temporary differences), estimates of amounts due or owed, the timing of reversals of temporary differences and current financial accounting standards. Additionally, there can be no assurance that estimates and interpretations used in determining income tax assets or liabilities will not be challenged by taxing authorities. Actual results could differ significantly from the estimates and tax law interpretations used in determining the current and deferred income tax assets and liabilities.

In the preparation of income tax returns, tax positions are taken based on interpretation of income tax laws for which the outcome is uncertain. At each balance sheet date, management reviews and evaluates the status of uncertain tax positions and makes estimates of amounts ultimately due or owed. The benefits of tax positions are recorded in income tax expense (benefit) net of the estimates of ultimate amounts due or owed, including any applicable interest and penalties. Changes in the estimated amounts due or owed may result from closing of the statute of limitations on tax returns, new legislation, clarification of existing legislation through government pronouncements, judicial action and through the examination process. TCF's policy is to record interest and penalties, if any, related to unrecognized tax benefits in income tax expense (benefit).

See Note 14. Income Taxes for further information on income taxes.

Stock-based Compensation The fair value of restricted stock, stock options and restricted stock units is determined on the date of grant and amortized to compensation and employee benefits expense, with a corresponding increase to additional paid-in capital, over the longer of the service period or performance period, but in no event beyond an employee's retirement date or date of employment termination. For performance-based restricted stock or stock units, TCF estimates the degree to which performance conditions will be met to determine the number of shares or units that will vest and the related expense. Compensation and employee benefits expense is adjusted in the period such estimates change. Non-forfeitable dividends, if any, paid on shares of restricted stock are recorded to retained earnings for shares that are expected to vest and to compensation and employee benefits expense for shares that are not expected to vest.

Income tax benefits (detriments) related to stock compensation, where the fair value on vesting or exercise of the award is greater than (less than) the grant date value less any proceeds on exercise, are recognized in income tax expense (benefit).

See Note 17. Stock Compensation for further information on stock-based compensation.

Earnings Per Common Share TCF's restricted stock awards that pay non-forfeitable common stock dividends meet the criteria of a participating security. Accordingly, earnings per share is calculated using the two-class method under which earnings are allocated to both common shares and participating securities.



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All shares of restricted stock are deducted from weighted-average shares outstanding for the computation of basic earnings per common share. Shares of performance-based restricted stock and restricted stock units are included in the calculation of diluted earnings per common share using the treasury stock method at the beginning of the quarter in which the performance goals have been achieved. All other shares of restricted stock, which vest over specified time periods, stock options and warrants are included in the calculation of diluted earnings per common share using the treasury stock method. See Note 22. Earnings Per Common Share for further information on earnings per share.

Recently Adopted Accounting Pronouncements

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2018-14: Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which eliminates, adds and modifies certain annual disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The adoption of this ASU was on a retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2017-12: Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands hedge accounting for nonfinancial and financial risk components and amends measurement methodologies to more closely align hedge accounting with a company’s risk management activities. The ASU decreases the complexity of preparing and understanding hedge results through measurement and reporting of hedge ineffectiveness. In addition, disclosures have been enhanced and the presentation of hedged results changed to align the effects of the hedging instrument and the hedged item. The adoption of this ASU was on a modified retrospective basis and resulted in the Company recording a cumulative effect reduction to the opening balance of retained earnings of $116 thousand.

Effective January 1, 2018, the Company adopted ASU No. 2017-09: Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms and conditions of a share-based payment award requires an entity to apply modification accounting in Topic 718. The adoption of this ASU was on a prospective basis and will be applicable to an award modified on or after January 1, 2018. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2017-07: Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Under the new guidance, employers present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component is eligible for capitalization in assets. The other components of net periodic benefit cost are presented separately from the line item that includes service cost and outside of any subtotal of operating income. In addition, disclosure of the line items used to present the other components of net periodic benefit cost is required if the components are not presented separately in the income statement. The adoption of this ASU was on a modified retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2017-05: Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The ASU also clarifies that Accounting Standards Codification 610-20 applies to the derecognition of nonfinancial assets and in substance nonfinancial assets unless other specific guidance applies or the sale is to a customer. The guidance does not apply to the derecognition of businesses, nonprofit activities, financial assets, including equity method investments, or to revenue contracts with customers. The adoption of this ASU was on a modified retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU provides a more robust framework to use in determining when a set of assets and activities is a business. The adoption of this ASU was on a prospective basis. TCF will evaluate future transactions to determine if they should be accounted for as acquisitions (or disposals) of assets or businesses.


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Effective January 1, 2018, the Company adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires entities to show changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities no longer present transfers between cash and cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The adoption of this ASU was on a retrospective basis. The adoption of this guidance did not have an impact on our consolidated financial statements.
Effective January 1, 2018, the Company adopted ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control, which changes the way in which a single decision maker considers indirect interests when performing the primary beneficiary analysis under the variable interest model. Under the amended guidance, indirect interests held by a related party would be considered on a proportional basis. The adoption of this ASU was on a retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Effective January 1, 2018, the Company adopted ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the income tax effects of intercompany sales and transfers of assets, other than inventory, to be recognized in the period the transaction occurs. The adoption of this ASU was on a modified retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain types of cash receipts and cash payments are presented in the statement of cash flows. The adoption of this ASU was on a retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Effective January 1, 2018, the Company adopted ASU No. 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products, which requires issuers of prepaid stored-value products redeemable for goods, services or cash at third-party merchants to derecognize liabilities related to those products for breakage. The adoption of this ASU was on a modified retrospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amend the classification and measurement of investments in equity securities, simplify the impairment analysis of equity investments without readily determinable fair values, require separate presentation of certain fair value changes for financial liabilities measured at fair value and eliminate certain disclosure requirements associated with the fair value of financial instruments. The adoption of these ASUs was on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Effective January 1, 2018, the Company adopted the following ASUs using the modified retrospective method with no cumulative-effect adjustment to opening retained earnings: ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date; ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers; ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs and ASU No. 2017-14, Income Statement - Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606).


74

TCF derives a majority of its revenue from loans and leases, as well as any related servicing fee revenue, which are not within the scope of these ASUs. These ASUs are applicable to most of the fees and service charges, card and ATM revenue earned by TCF, as well as the gains on sales of certain non-financial assets. However, the recognition of these revenue streams does not change in a significant manner as a result of the adoption of these ASUs. The majority of this revenue is both charged to the customer and earned either at a point in time or on a transactional basis. As a result, the revenue expected to be recognized in any future year related to remaining performance obligations, contracts where revenue is recognized when invoiced and contracts with variable consideration related to undelivered performance obligations are not material. In addition, receivables related to fees and service charges and the related bad debt expense are not material. There are no material contract assets, contract liabilities or deferred contract costs recorded in the Company's Consolidated Statements of Financial Condition. As a significant majority of the Company's revenue streams are not included in the scope of these ASUs and the recognition of revenue for the revenue streams within the scope of these ASUs are not significantly changed, the adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In November 2018, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which makes targeted improvements to the accounting for collaborative arrangements in response to questions raised as a result of the issuance of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Early adoption is allowed. The adoption of this guidance will not have a material impact on our consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which provides an elective exemption to private companies from applying variable interest entities ("VIE") guidance to all entities under common control if certain criteria are met. In addition, this ASU contains an amendment applicable to all entities which amends how a decision maker or service provider determines whether its fee is a variable interest in a VIE when a related party under common control also has an interest in the VIE. The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Early adoption is allowed. The adoption of this guidance will not have a material impact on our consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the use of the OIS Rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government, the LIBOR swap rate, the OIS Rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association Municipal Swap Rate. The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2019. Prospective application is required for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. Early adoption is allowed. The adoption of this guidance will not have a material impact on our consolidated financial statements.


75

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), which requires the decision to capitalize or expense implementation costs incurred in a cloud computing arrangement (i.e. a hosting arrangement) that is a service contract to follow the internal-use software guidance in Accounting Standards Codification ("ASC") 350-40. TCF's policy has been to expense these costs as incurred. The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Both retrospective and prospective application are allowed. Early adoption is allowed. Management has elected to early adopt this ASU beginning with the quarter ending March 31, 2019 on a prospective basis. The adoption of this guidance will not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The adoption of this ASU will be required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Certain of the amendments require prospective application, while the remainder require retrospective application. Early adoption is allowed either for the entire standard or only the provisions that eliminate or modify the requirements. Management is currently evaluating the potential impact of this guidance on our consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it more consistently with the accounting for share-based payments to employees. The new guidance in ASC 718 supersedes the guidance in ASC 505-50. The adoption of this ASU will be required on a modified retrospective basis with a cumulative effect adjustment required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2019. Early adoption is allowed. The adoption of this guidance will not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets, including trade and other receivables, held to maturity debt securities, loans and purchased financial assets with credit deterioration. The ASU requires the use of a current expected credit loss ("CECL") approach to determine the allowance for credit losses for loans and held to maturity debt securities. CECL requires loss estimates for the remaining estimated life of the asset using historical loss data as well as reasonable and supportable forecasts based on current economic conditions. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842. The adoption of these ASUs will be required on a modified retrospective basis with a cumulative effect adjustment required beginning with TCF's Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Early adoption is allowed. Management is currently evaluating the potential impact of this guidance on our consolidated financial statements. CECL represents a significant change in GAAP and may result in a material impact to our consolidated financial statements. The impact of these ASUs will depend on the composition of TCF's portfolios and general economic conditions at the date of adoption. Additionally, there are several implementation questions which could affect the adoption impact once resolved. TCF has established a governance structure to implement these ASUs and is developing the methodologies and models to be used upon adoption. Management will begin to test the new methodologies and models in 2019.


76

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which, along with other amendments, requires lessees to recognize most leases on their balance sheet. Lessor accounting is largely unchanged. The ASU requires both quantitative and qualitative disclosure regarding key information about leasing arrangements from both lessees and lessors. In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842): Amendments to SEC Paragraphs, which rescinds certain SEC Observer comments and staff announcements from the lease guidance and incorporates SEC staff announcements on the effect of a change in tax law on leveraged leases from ASC 840 into ASC 842. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which amends the new lease guidance to add an optional transition practical expedient that permits an entity to continue applying its current accounting policy for land easements that exist or expire before Topic 842's effective date. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which makes narrow scope improvements to the standard for specific issues. In July 2018, the FASB also issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method allowing the standard to be applied at the adoption date and provides a practical expedient related to separating components of a contract for lessors. In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which allows lessors to elect to account for all sales taxes as lessee costs, instead of determining whether they are lessee or lessor costs in each individual jurisdiction. It requires lessor costs paid by lessees directly to third parties to be excluded from revenue and requires lessors to account for costs excluded from the consideration of a contract that are paid by the lessor as revenue. It also requires certain variable payments to be allocated (rather than recognized) to lease and nonlease components when changes occur in the facts and circumstances on which the variable payments are based. The adoption of these ASUs will be required on a modified retrospective basis beginning with TCF’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2019. Early adoption is allowed. Management has evaluated and will elect the practical expedients and optional transition method, which allow for existing leases to be accounted for consistent with current guidance and the new guidance applied at the adoption date. Management has evaluated TCF’s leasing contracts and activities and developed the methodologies and processes to estimate and account for the right-of-use assets and lease liabilities based on the present value of future lease payments. TCF adopted this guidance on January 1, 2019 by recording right-of-use assets and lease liabilities totaling $91.9 million and $112.8 million, respectively. While the increase to consolidated total assets resulting from the right-of-use assets recorded will increase TCF's risk-weighted assets, management does not expect the impact to capital ratios to be material. The adoption of this guidance is not expected to result in a material change to lessee expense recognition. The changes to lessor accounting, as well as changes in customer behavior driven by the adoption of these ASUs, could materially impact the results of TCF's lessor subsidiaries. Management expects earlier recognition of expense due to a narrower definition of initial direct costs and the timing of revenue recognition to be impacted for certain leases, resulting in more revenue being deferred over the lease term.

Note 3.  Cash and Due from Banks
 
At December 31, 2018 and 2017, TCF Bank was required by Federal Reserve regulations to maintain reserves of $106.2 million and $107.0 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 obligations. 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 $38.3 million and $36.5 million at December 31, 2018 and 2017, respectively.

TCF had cash held in interest-bearing accounts of $307.8 million and $324.2 million at December 31, 2018 and 2017, respectively.



77

Note 4. Investments

Investments were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Federal Home Loan Bank stock, at cost
$
54,019

 
$
45,021

Federal Reserve Bank stock, at cost
37,635

 
37,623

Total investments
$
91,654

 
$
82,644


The investments in Federal Home Loan Bank ("FHLB") stock are required investments related to TCF's membership in and current borrowings from the FHLB of Des Moines. TCF's investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the Federal Home Loan Banks and actions of their regulator, the Federal Housing Finance Agency. The amount of Federal Reserve Bank stock that TCF Bank is required to hold is based on TCF Bank's capital structure. TCF periodically evaluates investments for other than temporary impairment. There was no impairment of these investments in 2018, 2017 and 2016.
 
The yield on these investments, which have no stated contractual maturity, was 4.34% and 2.96% at December 31, 2018 and 2017, respectively.

Note 5.  Debt Securities Available for Sale and Debt Securities Held to Maturity
 
Debt securities were as follows:
 
At December 31,
 
2018
 
2017
(In thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Debt securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
1,930,696

 
$
9,222

 
$
26,728

 
$
1,913,190

 
$
908,189

 
$
308

 
$
13,812

 
$
894,685

Other
4

 
—

 
—

 
4

 
6

 
—

 
—

 
6

Obligations of states and political subdivisions
566,304

 
46

 
9,479

 
556,871

 
810,159

 
7,967

 
3,799

 
814,327

Total debt securities available for sale
$
2,497,004

 
$
9,268

 
$
36,207

 
$
2,470,065

 
$
1,718,354

 
$
8,275

 
$
17,611

 
$
1,709,018

Debt securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
146,052

 
$
1,460

 
$
1,045

 
$
146,467

 
$
158,776

 
$
4,462

 
$
412

 
$
162,826

Other securities
2,800

 
—

 
—

 
2,800

 
2,800

 
—

 
—

 
2,800

Total debt securities held to maturity
$
148,852

 
$
1,460

 
$
1,045

 
$
149,267

 
$
161,576

 
$
4,462

 
$
412

 
$
165,626

 
At December 31, 2018 and 2017, mortgage-backed debt securities with a carrying value of $1.6 million and $0.9 million, respectively, were pledged as collateral to secure certain deposits and borrowings.

We have assessed each debt security with unrealized losses included in the table above for credit impairment. As part of that assessment we evaluated and concluded that it is more likely than not that we will not be required to and do not intend to sell any of the debt securities prior to recovery of the amortized cost. Unrealized losses on debt securities available for sale and debt securities held to maturity were due to changes in interest rates.



78

Net gains (losses) on debt securities were $348 thousand, $237 thousand and $(581) thousand for 2018, 2017 and 2016, respectively. During 2018, TCF sold $251.3 million of debt securities available for sale. There were no sales of debt securities available for sale in 2017 and 2016. There were no impairment charges recognized on debt securities available for sale in 2018, 2017 and 2016 and no impairment charges recognized on debt securities held to maturity in 2018 and 2017. The net gains on debt securities in 2018 and 2017 were primarily related to recoveries on previously impaired debt securities held to maturity and included net gains of $127 thousand on the sale of debt securities available for sale in 2018. The net loss on debt securities in 2016 was primarily due to impairment charges of $716 thousand recognized on debt securities held to maturity.

Gross unrealized losses and fair value of debt securities available for sale and debt 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 December 31, 2018
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Debt securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
102,709

 
$
184

 
$
838,482

 
$
26,544

 
$
941,191

 
$
26,728

Obligations of states and political subdivisions
3,620

 
—

 
526,817

 
9,479

 
530,437

 
9,479

Total debt securities available for sale
$
106,329

 
$
184

 
$
1,365,299

 
$
36,023

 
$
1,471,628

 
$
36,207

 
 
 
 
 
 
 
 
 
 
 
 
Debt securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
3,074

 
$
14

 
$
31,738

 
$
1,031

 
$
34,812

 
$
1,045

Total debt securities held to maturity
$
3,074

 
$
14

 
$
31,738

 
$
1,031

 
$
34,812

 
$
1,045

 
At December 31, 2017
 
Less than 12 months
 
12 months or more
 
Total
(In thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Debt securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
406,298

 
$
2,686

 
$
428,585

 
$
11,126

 
$
834,883

 
$
13,812

Obligations of states and political subdivisions
103,759

 
486

 
207,516

 
3,313

 
311,275

 
3,799

Total debt securities available for sale
$
510,057

 
$
3,172

 
$
636,101

 
$
14,439

 
$
1,146,158

 
$
17,611

 
 
 
 
 
 
 
 
 
 
 
 
Debt securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
13,309

 
$
132

 
$
11,470

 
$
280

 
$
24,779

 
$
412

Total debt securities held to maturity
$
13,309

 
$
132

 
$
11,470

 
$
280

 
$
24,779

 
$
412




79

The amortized cost and fair value of debt securities available for sale and debt securities held to maturity by final contractual maturity were as follows. The final contractual maturities do not consider possible prepayments and therefore expected maturities may differ because borrowers may have the right to prepay.
 
At December 31,
 
2018
 
2017
(In thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Debt securities available for sale:
 

 
 

 
 

 
 

Due in one year or less
$
—

 
$
—

 
$
6

 
$
6

Due in 1-5 years
24,464

 
24,375

 
15,178

 
15,312

Due in 5-10 years
509,832

 
503,768

 
514,336

 
517,867

Due after 10 years
1,962,708

 
1,941,922

 
1,188,834

 
1,175,833

Total debt securities available for sale
$
2,497,004

 
$
2,470,065

 
$
1,718,354

 
$
1,709,018

 
 
 
 
 
 
 
 
Debt securities held to maturity:
 

 
 

 
 

 
 

Due in one year or less
$
—

 
$
—

 
$
1,000

 
$
1,000

Due in 1-5 years
2,400

 
2,400

 
1,400

 
1,400

Due in 5-10 years
430

 
432

 
400

 
400

Due after 10 years
146,022

 
146,435

 
158,776

 
162,826

Total debt securities held to maturity
$
148,852

 
$
149,267

 
$
161,576

 
$
165,626


Interest income attributable to debt securities available for sale was as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Taxable interest income
$
37,436

 
$
18,382

 
$
16,238

Tax-exempt interest income
17,138

 
14,896

 
10,335

Total interest income
$
54,574


$
33,278


$
26,573


Note 6.  Loans and Leases

Loans and leases were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Consumer real estate:
 

 
 

First mortgage lien
$
2,444,380

 
$
1,959,387

Junior lien
2,965,960

 
2,860,309

Total consumer real estate
5,410,340

 
4,819,696

Commercial:
 

 
 

Commercial real estate:
 

 
 

Permanent
2,510,583

 
2,385,752

Construction and development
397,564

 
365,533

Total commercial real estate
2,908,147

 
2,751,285

Commercial business
943,156

 
809,908

Total commercial
3,851,303

 
3,561,193

Leasing and equipment finance
4,699,740

 
4,761,661

Inventory finance
3,107,356

 
2,739,754

Auto finance
1,982,277

 
3,199,639

Other
21,295

 
22,517

Total loans and leases(1)
$
19,072,311

 
$
19,104,460

(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 $(2.2) million and $33.3 million at December 31, 2018 and 2017, respectively.



80

Loan Sales During 2018, 2017 and 2016, TCF sold $1.0 billion, $1.3 billion and $1.6 billion, respectively, of consumer real estate loans, received cash of $1.1 billion, $1.4 billion and $1.7 billion, respectively, and recognized net gains of $33.5 million, $37.3 million and $50.4 million, respectively. Related to these sales, TCF retained interest-only strips of $4.8 million, $3.4 million and $16.9 million during 2018, 2017 and 2016, respectively. Included in consumer real estate loans sold in 2018 and 2017 were $34.7 million and $71.2 million, respectively, of non-accrual loans, which were sold servicing released. TCF generally retains servicing on loans sold.

During 2018, TCF did not sell any auto finance loans. During 2017 and 2016, TCF sold $424.7 million and $2.1 billion, respectively, of auto finance loans, received cash of $431.9 million and $2.1 billion, respectively, and recognized net gains of $5.5 million and $34.8 million, respectively. Related to the sales during 2016, TCF retained interest-only strips of $5.7 million. Included in auto finance loans sold in 2016 were amounts related to the completion of securitizations. The auto finance securitizations qualify for sale accounting and were executed by transferring the recorded investment to trusts. TCF transferred auto finance loans of $1.4 billion, with servicing retained, to trusts, received cash of $1.5 billion, recorded a securitization receivable of $18.6 million and recognized net gains of $12.5 million. These trusts are considered VIEs 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 at December 31, 2018 and 2017, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace.

Total interest-only strips and the contractual liabilities related to loan sales were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Interest-only strips attributable to:
 
 
 
Consumer real estate loan sales
$
15,316

 
$
16,440

Auto finance loan sales
1,519

 
4,946

Total interest-only strips
$
16,835

 
$
21,386

Contractual liabilities attributable to:
 
 
 
Consumer real estate loan sales
$
1,321

 
$
1,234


TCF recorded impairment charges on the consumer real estate interest-only strips of $0.3 million, $1.1 million and $0.8 million in 2018, 2017 and 2016, respectively. TCF recorded impairment charges on the auto finance interest-only strips of $0.4 million, $0.5 million and $2.4 million in 2018, 2017 and 2016, respectively.
 
TCF's agreements to sell consumer real estate and auto 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. For repurchases related to auto finance loans, TCF typically has contractual agreements with the automobile dealerships that originated the loans requiring the dealers to reimburse TCF for the cost of such repurchases. Losses related to repurchases pursuant to such representations, warranties and covenants were immaterial for 2018, 2017 and 2016.


81

Leasing and Equipment Finance Portfolio The leasing and equipment finance portfolio consisted of $2.5 billion of leases and $2.2 billion of loans at December 31, 2018 and $2.5 billion of leases and $2.3 billion of loans at December 31, 2017.

Future minimum lease payments receivable for direct financing, sales-type and operating leases at December 31, 2018 were as follows:
(In thousands)
 
2019
$
986,449

2020
739,766

2021
520,985

2022
301,757

2023
145,156

Thereafter
57,194

Total
$
2,751,307


Acquired Loans and Leases TCF acquires loans and leases through business combinations and purchases of loan and lease portfolios. TCF purchased loans and leases at fair value of $1.0 billion and $771.3 million during 2018 and 2017, respectively. No PCI loans were acquired during 2018. Included in loans and leases acquired during 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 represented the non-accretable difference. The $2.6 million difference between the expected cash flows and fair value represented the initial accretable yield. At December 31, 2018 and 2017, the outstanding contractual balance of these PCI loans was $7.0 million and $16.4 million, respectively.

The changes in accretable yield and carrying value of all PCI loans were as follows:
 
At or For the Year Ended December 31,
 
2018
 
2017
(In thousands)
Accretable Yield
 
Carrying Amount
 
Accretable Yield
 
Carrying Amount
Balance, beginning of period
$
1,051

 
$
11,844

 
$
—

 
$
17

Additions due to acquisitions of loans
—

 
—

 
2,635

 
13,951

Accretion
(215
)
 
215

 
(25
)
 
25

Reclassifications from non-accretable difference
370

 
(356
)
 
312

 
—

Payments received
(245
)
 
(7,886
)
 
(1,871
)
 
(2,149
)
Balance, end of period
$
961

 
$
3,817

 
$
1,051

 
$
11,844




82

Note 7.  Allowance for Loan and Lease Losses and Credit Quality Information
 
The rollforwards of the allowance for loan and lease losses were as follows:
 
At or For the Year Ended December 31, 2018
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
Balance, beginning of period
$
47,168

 
$
37,195

 
$
22,528

 
$
13,233

 
$
50,225

 
$
692

 
$
171,041

Charge-offs
(7,129
)
 
(3,585
)
 
(9,695
)
 
(6,928
)
 
(49,833
)
 
(7,558
)
 
(84,728
)
Recoveries
11,751

 
228

 
2,252

 
736

 
11,289

 
3,447

 
29,703

Net (charge-offs) recoveries
4,622

 
(3,357
)
 
(7,443
)
 
(6,192
)
 
(38,544
)
 
(4,111
)
 
(55,025
)
Provision for credit losses
(2,038
)
 
7,344

 
8,960

 
5,613

 
22,648

 
4,241

 
46,768

Other(1)
(4,886
)
 
—

 
(254
)
 
(198
)
 
—

 
—

 
(5,338
)
Balance, end of period
$
44,866

 
$
41,182

 
$
23,791

 
$
12,456

 
$
34,329

 
$
822

 
$
157,446

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Year Ended December 31, 2017
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
Balance, beginning of period
$
59,448

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

Charge-offs
(11,861
)
 
(5,431
)
 
(10,816
)
 
(3,014
)
 
(41,101
)
 
(6,869
)
 
(79,092
)
Recoveries
20,781

 
833

 
2,065

 
838

 
6,625

 
3,510

 
34,652

Net (charge-offs) recoveries
8,920

 
(4,598
)
 
(8,751
)
 
(2,176
)
 
(34,476
)
 
(3,359
)
 
(44,440
)
Provision for credit losses
(12,318
)
 
9,098

 
10,067

 
1,367

 
56,712

 
3,517

 
68,443

Other(1)
(8,882
)
 
—

 
(138
)
 
110

 
(4,321
)
 
—

 
(13,231
)
Balance, end of period
$
47,168

 
$
37,195

 
$
22,528

 
$
13,233

 
$
50,225

 
$
692

 
$
171,041

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Year Ended December 31, 2016
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
Balance, beginning of period
$
67,992

 
$
30,185

 
$
19,018

 
$
11,128

 
$
26,486

 
$
1,245

 
$
156,054

Charge-offs
(18,624
)
 
(753
)
 
(7,738
)
 
(2,623
)
 
(26,994
)
 
(7,353
)
 
(64,085
)
Recoveries
7,065

 
373

 
2,386

 
816

 
3,853

 
4,357

 
18,850

Net (charge-offs) recoveries
(11,559
)
 
(380
)
 
(5,352
)
 
(1,807
)
 
(23,141
)
 
(2,996
)
 
(45,235
)
Provision for credit losses
9,304

 
2,890

 
7,706

 
4,540

 
39,149

 
2,285

 
65,874

Other(1)
(6,289
)
 
—

 
(22
)
 
71

 
(10,184
)
 
—

 
(16,424
)
Balance, end of period
$
59,448

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

(1)
Primarily includes the transfer of the allowance for loan and lease losses to loans and leases held for sale.



83

The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology were as follows:
 
At December 31, 2018
(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
$
22,134

 
$
36,411

 
$
20,108

 
$
11,621

 
$
34,157

 
$
822

 
$
125,253

Individually evaluated for impairment
22,732

 
4,771

 
3,683

 
835

 
172

 
—

 
32,193

Total
$
44,866

 
$
41,182

 
$
23,791

 
$
12,456

 
$
34,329

 
$
822

 
$
157,446

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
5,295,817

 
$
3,815,422

 
$
4,672,168

 
$
3,099,073

 
$
1,968,645

 
$
21,291

 
$
18,872,416

Individually evaluated for impairment
114,523

 
35,881

 
23,755

 
8,283

 
13,632

 
4

 
196,078

Loans acquired with deteriorated credit quality
—

 
—

 
3,817

 
—

 
—

 
—

 
3,817

Total
$
5,410,340

 
$
3,851,303

 
$
4,699,740

 
$
3,107,356

 
$
1,982,277

 
$
21,295

 
$
19,072,311


 
At December 31, 2017
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
 Finance
 
Inventory
 Finance
 
Auto
 Finance
 
Other
 
Total
Allowance for loan and lease losses:
 

 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
28,851

 
$
35,635

 
$
19,083

 
$
12,945

 
$
49,900

 
$
691

 
$
147,105

Individually evaluated for impairment
18,317

 
1,560

 
3,445

 
288

 
325

 
1

 
23,936

Total
$
47,168

 
$
37,195

 
$
22,528

 
$
13,233

 
$
50,225

 
$
692

 
$
171,041

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,675,626

 
$
3,524,864

 
$
4,721,905

 
$
2,735,638

 
$
3,188,810

 
$
22,513

 
$
18,869,356

Individually evaluated for impairment
144,070

 
36,329

 
27,912

 
4,116

 
10,829

 
4

 
223,260

Loans acquired with deteriorated credit quality
—

 
—

 
11,844

 
—

 
—

 
—

 
11,844

Total
$
4,819,696

 
$
3,561,193

 
$
4,761,661

 
$
2,739,754

 
$
3,199,639

 
$
22,517

 
$
19,104,460




84

Accruing and Non-accrual Loans and Leases  TCF's key credit quality indicator is the receivable's payment performance status, defined as accruing or non-accruing. Non-accrual loans and leases are those which management believes have a higher risk of loss. Delinquent balances are determined based on the contractual terms of the loan or lease. Loans and leases that are over 60 days delinquent have a higher potential to become non-accrual and generally are a leading indicator for future charge-off trends. TCF's accruing and non-accrual loans and leases were as follows:
 
At December 31, 2018
(In thousands)
Current-59 Days
Delinquent 
and Accruing
 
60-89 Days
 Delinquent
 and Accruing
 
90 Days or More
Delinquent 
and Accruing
 
Total
 Accruing
 
Non-accrual
 
Total
Consumer real estate:
 

 
 

 
 

 
 

 
 

 
 

First mortgage lien
$
2,403,391

 
$
3,281

 
$
1,276

 
$
2,407,948

 
$
36,432

 
$
2,444,380

Junior lien
2,942,414

 
1,213

 
—

 
2,943,627

 
22,333

 
2,965,960

Total consumer real estate
5,345,805

 
4,494

 
1,276

 
5,351,575

 
58,765

 
5,410,340

Commercial:
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
2,903,629

 
—

 
—

 
2,903,629

 
4,518

 
2,908,147

Commercial business
932,648

 
1

 
—

 
932,649

 
10,507

 
943,156

Total commercial
3,836,277

 
1

 
—

 
3,836,278

 
15,025

 
3,851,303

Leasing and equipment finance
4,670,021

 
7,996

 
2,642

 
4,680,659

 
15,264

 
4,695,923

Inventory finance
3,098,763

 
310

 
—

 
3,099,073

 
8,283

 
3,107,356

Auto finance
1,962,042

 
8,326

 
3,331

 
1,973,699

 
8,578

 
1,982,277

Other
21,264

 
11

 
17

 
21,292

 
3

 
21,295

Subtotal
18,934,172

 
21,138

 
7,266

 
18,962,576

 
105,918

 
19,068,494

Portfolios acquired with deteriorated credit quality
3,639

 
—

 
178

 
3,817

 
—

 
3,817

Total
$
18,937,811

 
$
21,138

 
$
7,444

 
$
18,966,393

 
$
105,918

 
$
19,072,311

 
At December 31, 2017
(In thousands)
Current-59 Days
Delinquent 
and Accruing
 
60-89 Days
 Delinquent
 and Accruing
 
90 Days or More
Delinquent 
and Accruing
 
Total
 Accruing
 
Non-accrual
 
Total
Consumer real estate:
 

 
 

 
 

 
 

 
 

 
 

First mortgage lien
$
1,892,771

 
$
4,073

 
$
593

 
$
1,897,437

 
$
61,950

 
$
1,959,387

Junior lien
2,837,767

 
1,268

 
—

 
2,839,035

 
21,274

 
2,860,309

Total consumer real estate
4,730,538

 
5,341

 
593

 
4,736,472

 
83,224

 
4,819,696

Commercial:
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
2,744,500

 
—

 
—

 
2,744,500

 
6,785

 
2,751,285

Commercial business
809,907

 
1

 
—

 
809,908

 
—

 
809,908

Total commercial
3,554,407

 
1

 
—

 
3,554,408

 
6,785

 
3,561,193

Leasing and equipment finance
4,726,339

 
4,272

 
2,117

 
4,732,728

 
17,089

 
4,749,817

Inventory finance
2,735,430

 
191

 
17

 
2,735,638

 
4,116

 
2,739,754

Auto finance
3,183,196

 
6,078

 
2,999

 
3,192,273

 
7,366

 
3,199,639

Other
22,506

 
3

 
6

 
22,515

 
2

 
22,517

Subtotal
18,952,416

 
15,886

 
5,732

 
18,974,034

 
118,582

 
19,092,616

Portfolios acquired with deteriorated credit quality
10,283

 
361

 
1,200

 
11,844

 
—

 
11,844

Total
$
18,962,699

 
$
16,247

 
$
6,932

 
$
18,985,878

 
$
118,582

 
$
19,104,460

 
Interest income recognized on loans and leases in non-accrual status and contractual interest that would have been recorded had the loans and leases performed in accordance with their original contractual terms were as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Contractual interest due on non-accrual loans and leases
$
10,921

 
$
15,009

 
$
20,604

Interest income recognized on non-accrual loans and leases
1,351

 
2,982

 
4,152

Unrecognized interest income
$
9,570

 
$
12,027

 
$
16,452




85

Consumer real estate loans to customers currently involved in ongoing Chapter 7 or Chapter 13 bankruptcy proceedings which have not yet been discharged, dismissed or completed were as follows: 
 
At December 31,
(In thousands)
2018
 
2017
Consumer real estate loans to customers in bankruptcy:
 

 
 

0-59 days delinquent and accruing
$
3,306

 
$
7,324

Non-accrual
9,046

 
10,552

Total consumer real estate loans to customers in bankruptcy
$
12,352

 
$
17,876


Loan Modifications for Borrowers with Financial Difficulties  Included within loans and leases in the previous accruing and non-accrual loans and leases tables are certain loans that have been modified in order to maximize collection of loan balances. If, for economic or legal reasons related to the customer's financial difficulties, TCF grants a concession, the modified loan is classified as a TDR loan. When a loan is modified as a TDR, principal balances are generally not forgiven. All loans classified as TDR loans are considered to be impaired. For purposes of this disclosure, PCI loans have been excluded.

TDR loans were as follows:
 
At December 31,
 
2018
 
2017
(In thousands)
Accruing TDR Loans
 
Non-accrual TDR Loans
 
Total TDR Loans
 
Accruing TDR Loans
 
Non-accrual TDR Loans
 
Total TDR Loans
Consumer real estate
$
80,739

 
$
16,192

 
$
96,931

 
$
88,092

 
$
34,282

 
$
122,374

Commercial
4,174

 
3,946

 
8,120

 
12,249

 
83

 
12,332

Leasing and equipment finance
8,491

 
1,754

 
10,245

 
10,263

 
1,413

 
11,676

Inventory finance
—

 
453

 
453

 
—

 
476

 
476

Auto finance
5,054

 
6,362

 
11,416

 
3,464

 
5,351

 
8,815

Other
1

 
—

 
1

 
3

 
1

 
4

Total
$
98,459

 
$
28,707

 
$
127,166

 
$
114,071

 
$
41,606

 
$
155,677


Consumer real estate TDR loans generally remain on accruing status following modification if they are less than 90 days past due and payment in full under the modified terms of the loan is expected based on a current credit evaluation and historical payment performance. Of the non-accrual TDR balance at December 31, 2018, $7.8 million, or 48.2%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed by the borrower, of which 56.5% were current. Of the non-accrual TDR balance at December 31, 2017, $22.3 million, or 65.0%, were loans discharged in Chapter 7 bankruptcy that were not reaffirmed by the borrower, of which 70.0% were current. All eligible loans are re-aged to current delinquency status upon modification.

The allowance on accruing consumer real estate TDR loans was $15.5 million, or 19.2% of the outstanding balance, at December 31, 2018 and $17.1 million, or 19.4% of the outstanding balance, at December 31, 2017. At December 31, 2018 and 2017, 0.3% and 0.5%, respectively, of accruing consumer real estate TDR loans were 60 days or more delinquent. The allowance on accruing TDRs and the percentage of accruing TDR loans that were 60 days or more delinquent were not material for the remaining classes of finance receivables at December 31, 2018 and 2017.

Unfunded commitments to consumer real estate loans classified as TDRs were $0.6 million and $0.4 million at December 31, 2018 and 2017, respectively. There were no unfunded commitments to commercial loans classified as TDRs at December 31, 2018 and $0.5 million at December 31, 2017. At December 31, 2018 and 2017, no additional funds were committed to leasing and equipment finance, inventory finance or auto finance loans classified as TDRs.
 
Loan modifications to troubled borrowers are no longer disclosed as TDR loans in the calendar years after modification if the loans were modified to an interest rate equal to or greater than the yields of new loan originations with comparable risk at the time of restructuring and if the loan is performing based on the restructured terms; however, these loans are still considered impaired and follow TCF's impaired loan reserve policies.



86

Interest income on TDR loans is recognized based on the restructured terms. Unrecognized interest represents the financial impact of TDR loans and is the difference between interest income recognized on accruing TDR loans and the contractual interest that would have been recorded had the loans performed in accordance with their original contractual terms. The following table summarizes the financial effects of consumer real estate accruing TDR loans. The financial effects of TDR loans for the remaining classes of finance receivables were not material for 2018, 2017 and 2016.
(In thousands)
Contractual Interest Due
 
Interest Income
 
Unrecognized Interest
Year ended December 31, 2018:
 
 
 
 
 
Consumer real estate:
 
 
 
 
 
First mortgage lien
$
4,161

 
$
2,473

 
$
1,688

Junior lien
1,642

 
1,122

 
520

Total consumer real estate
$
5,803

 
$
3,595

 
$
2,208

Year ended December 31, 2017:
 
 
 
 
 
Consumer real estate:
 
 
 
 
 
First mortgage lien
$
4,522

 
$
2,707

 
$
1,815

Junior lien
1,923

 
1,327

 
596

Total consumer real estate
$
6,445

 
$
4,034

 
$
2,411

Year ended December 31, 2016:
 
 
 
 
 
Consumer real estate:
 
 
 
 
 
First mortgage lien
$
4,722

 
$
2,765

 
$
1,957

Junior lien
2,325

 
1,632

 
693

Total consumer real estate
$
7,047

 
$
4,397

 
$
2,650


TCF considers a loan to have defaulted when under the modified terms it becomes 90 or more days delinquent, has been transferred to non-accrual status, has been charged down or has been transferred to other real estate owned or repossessed and returned assets. The following table summarizes the TDR loans that defaulted during the periods presented that were modified during the respective reporting period or within one year of the beginning of the respective reporting period.
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Defaulted TDR loan balances modified during the applicable period:(1)
 
 
 
 
 
Consumer real estate:
 

 
 

 
 
First mortgage lien
$
3,514

 
$
3,081

 
$
8,193

Junior lien
302

 
579

 
1,630

Total consumer real estate
3,816

 
3,660

 
9,823

Commercial business
4,697

 
—

 
—

Leasing and equipment finance
—

 
555

 
—

Auto finance
1,436

 
1,169

 
1,693

Defaulted TDR loans modified during the applicable period
$
9,949

 
$
5,384

 
$
11,516

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



87

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

Information on impaired loans was as follows:
 
At December 31,
 
2018
 
2017
(In thousands)
Unpaid
Contractual
Balance
 
Loan
Balance
 
Related
Allowance
Recorded
 
Unpaid
Contractual
Balance
 
Loan
Balance
 
Related
Allowance
Recorded
Impaired loans with an allowance recorded:
 

 
 

 
 

 
 

 
 

 
 

Consumer real estate:
 

 
 

 
 

 
 

 
 

 
 

First mortgage lien
$
64,529

 
$
61,744

 
$
16,848

 
$
91,624

 
$
80,802

 
$
13,792

Junior lien
25,861

 
24,264

 
5,656

 
32,327

 
29,544

 
4,165

Total consumer real estate
90,390

 
86,008

 
22,504

 
123,951

 
110,346

 
17,957

Commercial:
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
4,905

 
4,474

 
1,108

 
6,810

 
6,702

 
1,000

Commercial business
12,317

 
9,192

 
3,663

 
7,841

 
7,841

 
560

Total commercial
17,222

 
13,666

 
4,771

 
14,651

 
14,543

 
1,560

Leasing and equipment finance
15,763

 
15,763

 
1,856

 
17,105

 
17,105

 
1,345

Inventory finance
7,364

 
7,371

 
835

 
1,296

 
1,298

 
288

Auto finance
917

 
646

 
81

 
1,333

 
1,016

 
243

Other
2

 
1

 
—

 
3

 
4

 
1

Total impaired loans with an allowance recorded
131,658

 
123,455

 
30,047

 
158,339

 
144,312

 
21,394

Impaired loans without an allowance recorded:
 

 
 

 
 

 
 

 
 

 
 

Consumer real estate:
 

 
 

 
 

 
 

 
 

 
 

First mortgage lien
11,829

 
9,586

 
—

 
12,898

 
10,445

 
—

Junior lien
10,427

 
1,337

 
—

 
17,697

 
1,583

 
—

Total consumer real estate
22,256

 
10,923

 
—

 
30,595

 
12,028

 
—

Commercial real estate
4,275

 
4,208

 
—

 
4,552

 
4,491

 
—

Commercial business
1,328

 
1,325

 
—

 
—

 
—

 
—

Total commercial
5,603

 
5,533

 
—

 
4,552

 
4,491

 
—

Inventory finance
911

 
912

 
—

 
2,810

 
2,818

 
—

Auto finance
15,071

 
10,770

 
—

 
10,566

 
7,799

 
—

Other
329

 
—

 
—

 
331

 
—

 
—

Total impaired loans without an allowance recorded
44,170

 
28,138

 
—

 
48,854

 
27,136

 
—

Total impaired loans
$
175,828

 
$
151,593

 
$
30,047

 
$
207,193

 
$
171,448

 
$
21,394





88

The average loan balances of impaired loans and interest income recognized on impaired loans were as follows:
 
Year Ended December 31,
 
2018
 
2017
 
2016
(In thousands)
Average Loan Balance
 
Interest Income Recognized
 
Average Loan Balance
 
Interest Income Recognized
 
Average Loan Balance
 
Interest Income Recognized
Impaired loans with an allowance recorded:
 

 
 

 
 

 
 

 
 
 
 
Consumer real estate:
 

 
 

 
 

 
 

 
 
 
 
First mortgage lien
$
71,273

 
$
2,172

 
$
92,702

 
$
2,748

 
$
114,164

 
$
3,597

Junior lien
26,904

 
1,090

 
40,477

 
1,488

 
54,888

 
2,606

Total consumer real estate
98,177

 
3,262

 
133,179

 
4,236


169,052


6,203

Commercial:
 

 
 

 
 

 
 

 
 
 
 
Commercial real estate
5,588

 
—

 
8,388

 
16

 
5,186

 
353

Commercial business
8,517

 
130

 
3,927

 
97

 
15

 
—

Total commercial
14,105

 
130

 
12,315

 
113


5,201


353

Leasing and equipment finance
16,433

 
82

 
13,502

 
58

 
8,579

 
40

Inventory finance
4,335

 
70

 
2,831

 
192

 
2,619

 
56

Auto finance
831

 
—

 
3,218

 
—

 
6,741

 
112

Other
3

 
—

 
5

 
—

 
9

 
—

Total impaired loans with an allowance recorded
133,884

 
3,544

 
165,050

 
4,599


192,201


6,764

Impaired loans without an allowance recorded:
 

 
 

 
 

 
 

 
 
 
 
Consumer real estate:
 

 
 

 
 

 
 

 
 
 
 
First mortgage lien
10,016

 
689

 
11,560

 
921

 
7,951

 
449

Junior lien
1,460

 
182

 
1,733

 
438

 
1,201

 
672

Total consumer real estate
11,476

 
871

 
13,293

 
1,359


9,152


1,121

Commercial:
 

 
 

 
 

 
 

 
 
 
 
Commercial real estate
4,350

 
231

 
10,136

 
709

 
23,468

 
743

Commercial business
662

 
1

 
177

 
4

 
1,970

 
—

Total commercial
5,012

 
232

 
10,313

 
713


25,438


743

Inventory finance
1,865

 
172

 
1,794

 
196

 
523

 
95

Auto finance
9,284

 
302

 
5,102

 
209

 
1,792

 
—

Total impaired loans without an allowance recorded
27,637

 
1,577

 
30,502

 
2,477


36,905


1,959

Total impaired loans
$
161,521

 
$
5,121

 
$
195,552

 
$
7,076


$
229,106


$
8,723


Other Real Estate Owned and Repossessed and Returned Assets Other real estate owned and repossessed and returned assets were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Other real estate owned
$
17,403

 
$
18,225

Repossessed and returned assets
14,574

 
12,630

Consumer real estate loans in process of foreclosure
15,540

 
22,622


Other real estate owned and repossessed and returned assets were written down $3.4 million, $6.2 million and $8.3 million in 2018, 2017 and 2016, respectively.



89

Note 8. Premises and Equipment, Net

Premises and equipment, net were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Land
$
144,754

 
$
146,688

Office buildings
268,495

 
272,428

Leasehold improvements
51,868

 
48,543

Furniture, equipment and computer software
404,743

 
363,445

Premises and equipment leased under capital leases
3,180

 
—

Subtotal
873,040

 
831,104

Less: Accumulated depreciation and amortization
445,506

 
409,555

Premises and equipment, net
$
427,534

 
$
421,549


Depreciation and amortization expense related to premises and equipment was $48.6 million, $45.9 million and $44.9 million for 2018, 2017 and 2016, respectively. TCF leases certain premises and equipment under operating leases. Lease expense was $38.0 million, $36.4 million and $36.5 million for 2018, 2017 and 2016, respectively. Sublease income was $1.0 million for 2018, 2017 and 2016, respectively.

At December 31, 2018, the total future minimum rental payments for operating leases of premises and equipment were as follows:
(In thousands)
 
2019
$
26,309

2020
25,160

2021
17,144

2022
12,258

2023
10,590

Thereafter
32,448

Total
$
123,909




90

Note 9. Goodwill and Other Intangible Assets

Goodwill, net was as follows:
 
At December 31,
(In thousands)
2018
 
2017
Goodwill related to consumer banking segment
$
141,245

 
$
141,245

Goodwill related to wholesale banking segment
13,512

 
13,512

Goodwill, net
$
154,757

 
$
154,757

 
Included in goodwill at December 31, 2018 and 2017 was accumulated impairment losses resulting from the impairment charge of $73.0 million in 2017 related to the acquisition of Gateway One as a result of the Company's decision to discontinue auto finance loan originations effective December 1, 2017. Goodwill related to Gateway One was fully impaired at December 31, 2017. There was no impairment of goodwill in 2018 and 2016.

Other intangible assets, net were as follows:
 
At December 31,
 
2018
 
2017
(In thousands)
Gross
Amount
 
Accumulated
Amortization
 
Impairment
 
Net
Amount
 
Gross
Amount
 
Accumulated
Amortization
 
Impairment
 
Net
Amount
Program agreement
$
14,700

 
$
408

 
$
—

 
$
14,292

 
$
14,700

 
$
49

 
$
—

 
$
14,651

Non-compete agreement
9,250

 
3,643

 
—

 
5,607

 
9,000

 
1,081

 
—

 
7,919

Customer base intangibles
2,000

 
1,950

 
—

 
50

 
3,330

 
2,630

 
368

 
332

Deposit base intangibles
3,049

 
2,502

 
—

 
547

 
3,049

 
2,289

 
—

 
760

Total
$
28,999

 
$
8,503

 
$
—

 
$
20,496

 
$
30,079

 
$
6,049

 
$
368

 
$
23,662


There was no impairment of other intangible assets in 2018 and 2016. There was an impairment charge of $0.4 million in 2017 related to the customer base intangible asset attributable to Gateway One as a result of the Company's decision to discontinue auto finance loan originations effective December 1, 2017. The Gateway One customer base intangible asset was fully impaired at December 31, 2017 and written off in 2018.

Amortization expense for intangible assets was $3.4 million, $2.0 million and $1.4 million for 2018, 2017 and 2016, respectively. Amortization expense for intangible assets is estimated to be $3.1 million for 2019, $2.7 million for 2020, $2.7 million for 2021, $1.6 million for 2022 and $1.3 million for 2023.

On June 16, 2017, TCF Bank acquired 100% of the outstanding shares of Equipment Financing & Leasing Corporation ("EFLC"). TCF Bank paid $9.0 million in cash upon closing, recorded a liability of $5.9 million to be paid within three years and assumed $64.2 million of EFLC's debt that was subsequently paid off. Assets acquired consisted of $46.4 million of operating lease equipment, $5.9 million of direct financing leases, $21.3 million of intangible assets, $2.2 million related to goodwill and approximately $3.3 million of cash, other assets and other liabilities, net. The weighted-average amortization periods of the acquired program agreement, non-compete agreement and customer base intangibles were 15 years, five years and three years, respectively. The intangible assets are amortized on an accelerated method over their estimated useful lives.

On December 15, 2017, TCF Bank acquired the assets of Rubicon Mortgage Advisors, LLC. TCF recorded an intangible asset of $3.0 million related to a non-compete agreement as part of the acquisition. The weighted-average amortization period of the acquired non-compete agreement was four years. The intangible asset is amortized on a straight-line basis over its estimated useful life.



91

Note 10. Investments in Affordable Housing Limited Liability Entities

Investments in affordable housing limited liability entities and unfunded commitments were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Investments in affordable housing limited liability entities
$
90,871

 
$
82,399

Accrued expenses and other liabilities - unfunded commitments
56,167

 
48,973


Amortization expense with respect to TCF's investments in affordable housing limited liability entities was $9.9 million, $9.6 million and $4.8 million for 2018, 2017 and 2016, respectively, offset by tax credits and other benefits of $11.6 million, $12.5 million and $7.1 million, respectively. At December 31, 2018, the expected payments for unfunded affordable housing commitments will be payable in 2019 through 2033.

Investments in affordable housing limited liability entities are considered VIEs because TCF, as a limited partner, lacks the power to direct the activities that most significantly impact the entities' economic performance. TCF has concluded it is not the primary beneficiary of the investments in affordable housing limited liability entities and therefore, they are not consolidated. At December 31, 2018 and 2017, the carrying amount of the VIE investments was $90.9 million and $81.9 million, respectively. The maximum exposure to loss on the VIE investments was $91.1 million and $81.9 million at December 31, 2018 and 2017, respectively. The maximum exposure to loss on the VIE investments is limited to the carrying amount of the investments and the potential recapture of any recognized tax credits. TCF believes the likelihood of the tax credits being recaptured is remote, as a loss would require the managing entity to fail to meet certain government compliance requirements. Further, certain of TCF's investments in affordable housing limited liability entities include guaranteed minimum returns which are backed by an investment grade credit-rated company, which reduces the risk of loss.

Note 11.  Deposits

Deposits were as follows:
 
At December 31,
 
2018
 
2017
(Dollars in thousands)
Amount
 
Year-to-Date Weighted-average Rate
 
Amount
 
Year-to-Date Weighted-average Rate
Checking:
 

 
 

 
 

 
 

Non-interest bearing
$
3,921,710

 
—
%
 
$
3,671,915

 
—
%
Interest bearing
2,459,617

 
0.03

 
2,628,212

 
0.01

Total checking
6,381,327

 
0.01

 
6,300,127

 
0.01

Savings
6,122,257

 
0.36

 
5,287,606

 
0.09

Money market
1,609,422

 
0.75

 
1,764,998

 
0.47

Certificates of deposit
4,790,680

 
1.53

 
4,982,271

 
1.14

 Total deposits
$
18,903,686

 
0.58

 
$
18,335,002

 
0.38




92

Annual maturities for certificates of deposit at December 31, 2018 were as follows:
(In thousands)
 
2019
$
3,891,081

2020
857,528

2021
15,097

2022
6,878

2023
4,342

Thereafter
15,754

Total
$
4,790,680


The aggregate amount of certificates of deposit with balances equal to or greater than the Federal Deposit Insurance Corporation insurance limit of $250,000 was $782.4 million and $735.7 million at December 31, 2018 and 2017, respectively.

Note 12.  Short-term Borrowings
 
Selected information for short-term borrowings (borrowings with an original maturity of less than one year) was as follows:
 
At December 31,
 
2018
 
2017
 
2016
(Dollars in thousands)
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
Period-end balance:
 

 
 

 
 

 
 

 
 
 
 
Securities sold under repurchase agreements
$
—

 
—
%
 
$
—

 
—
%
 
$
2,159

 
0.10
%
Line of Credit - TCF Commercial Finance Canada, Inc.
—

 
—

 
—

 
—

 
2,232

 
1.75

Total
$
—

 
—

 
$
—

 
—

 
$
4,391

 
0.94

Average daily balances for the period ended:
 

 
 

 
 

 
 

 
 
 
 
Federal funds purchased
$
156

 
1.91
%
 
$
142

 
1.30
%
 
$
156

 
0.71
%
Securities sold under repurchase agreements
1,977

 
2.22

 
3,730

 
0.78

 
5,235

 
0.41

Line of Credit - TCF Commercial Finance Canada, Inc.
1,155

 
2.64

 
1,395

 
1.92

 
1,660

 
1.75

Total
$
3,288

 
2.35

 
$
5,267

 
1.10

 
$
7,051

 
0.73

Maximum month-end balances for the period ended:
 

 
 

 
 

 
 

 
 
 
 
Securities sold under repurchase agreements
$
—

 
N.A.

 
$
2,868

 
N.A.

 
$
3,391

 
N.A.

Line of Credit - TCF Commercial Finance Canada, Inc.
8,565

 
N.A.

 
6,171

 
N.A.

 
5,907

 
N.A.

 N.A. Not Applicable

Securities sold under short-term repurchase agreements are related to TCF Bank's Repurchase Investment Sweep Agreement product and are collateralized by mortgage-backed securities.



93

Note 13.  Long-term Borrowings
 
Long-term borrowings were as follows:
 
 
 
At December 31,
 
 
 
2018
 
2017
(Dollars in thousands)
Stated
Maturity
 
Amount
 
Stated Rate
 
Amount
 
Stated Rate
Federal Home Loan Bank advances
2019
 
$
—

 
 
 
—
%
 
$
600,000

 
1.40
%
-
1.75
%
 
2020
 
1,100,000

 
2.55
%
-
2.79

 
275,000

 
1.76

-
1.78

Subtotal
 
 
1,100,000

 
 
 
 
 
875,000

 
 
 
 
Subordinated bank notes
2022
 
109,095

 
 
 
6.25

 
108,867

 
 
 
6.25

 
2025
 
148,461

 
 
 
4.60

 
148,252

 
 
 
4.60

Hedge-related basis adjustment(1)
 
 
(4,165
)
 
 
 
 
 
(2,157
)
 
 
 
 
Subtotal
 
 
253,391

 
 
 
 
 
254,962

 
 
 
 
Discounted lease rentals
2018
 
—

 
 

—

 
52,347

 
2.55

-
7.95

 
2019
 
41,605

 
2.53

-
6.00

 
34,978

 
2.53

-
6.00

 
2020
 
28,258

 
2.64

-
6.50

 
19,736

 
2.64

-
6.50

 
2021
 
16,781

 
2.88

-
5.82

 
10,077

 
2.88

-
5.00

 
2022
 
5,765

 
3.04

-
5.95

 
2,349

 
3.04

-
5.43

 
2023
 
567

 
4.89

-
6.07

 
—

 
 
 
—

Subtotal
 
 
92,976

 
 
 
 
 
119,487

 
 
 
 
Capital lease obligation
2019
 
67

 
 
 
3.73

 
—

 
 
 
—

 
2020
 
86

 
 
 
3.73

 
—

 
 
 
—

 
2021
 
89

 
 
 
3.73

 
—

 
 
 
—

 
2022
 
93

 
 
 
3.73

 
—

 
 
 
—

 
2023
 
105

 
 
 
3.73

 
—

 
 
 
—

 
2024 - 2038
 
2,665

 
 
 
3.73

 
—

 
 
 
—

Subtotal
 
 
3,105

 
 
 
 
 
—

 
 
 
 
Total long-term borrowings
 
 
$
1,449,472

 
 
 
 
 
$
1,249,449

 
 
 
 
(1)
Related to subordinated bank notes with a stated maturity of 2025.

At December 31, 2018, TCF Bank had pledged loans secured by consumer and commercial real estate and FHLB stock with an aggregate carrying value of $4.3 billion as collateral for FHLB advances. At December 31, 2018, $1.1 billion of the FHLB advances outstanding were prepayable at TCF's option.



94

Note 14. Income Taxes

Applicable income taxes in the Consolidated Statements of Income were as follows:
(In thousands)
Current
 
Deferred
 
Total
Year Ended December 31, 2018:
 
 
 
 
 
Federal
$
9,424

 
$
54,858

 
$
64,282

State
13,251

 
3,722

 
16,973

Foreign
4,435

 
406

 
4,841

Total
$
27,110

 
$
58,986

 
$
86,096

Year Ended December 31, 2017:
 
 
 
 
 
Federal
$
14,384

 
$
(62,913
)
 
$
(48,529
)
State
237

 
9,340

 
9,577

Foreign
5,484

 
(156
)
 
5,328

Total
$
20,105

 
$
(53,729
)
 
$
(33,624
)
Year Ended December 31, 2016:
 
 
 
 
 
Federal
$
66,810

 
$
28,629

 
$
95,439

State
11,402

 
4,425

 
15,827

Foreign
5,350

 
(88
)
 
5,262

Total
$
83,562

 
$
32,966

 
$
116,528


Reconciliations to TCF's effective income tax rates from the statutory federal income tax rates were as follows:
 
Year Ended December 31,
 
2018
 
2017
 
2016
Federal income tax rate
21.00
 %
 
35.00
 %
 
35.00
 %
Increase (decrease) resulting from:
 
 
 
 
 
State income tax, net of federal tax
3.34

 
3.92

 
3.04

Tax-exempt income
(1.64
)
 
(3.86
)
 
(2.07
)
Stock compensation
(0.64
)
 
(1.15
)
 
—

Non-controlling interest tax effect
(0.59
)
 
(1.45
)
 
(0.99
)
Investments in affordable housing limited liability entities
(0.34
)
 
(0.89
)
 
(0.24
)
Foreign tax effects
0.26

 
(0.67
)
 
(0.50
)
Tax Reform effects, net
(0.26
)
 
(53.29
)
 
—

Nondeductible goodwill impairment effect
—

 
10.43

 
—

State tax settlements, net of federal tax
—

 
(1.38
)
 
0.19

Other, net
0.30

 
(0.38
)
 
0.02

Effective income tax rate
21.43
 %
 
(13.72
)%
 
34.45
 %

As a result of the Tax Cuts and Jobs Act, enacted on December 22, 2017 ("Tax Reform"), TCF recorded a reasonable estimate of a net tax benefit of $130.7 million in its consolidated financial statements for 2017, primarily resulting from the re-measurement of the Company's estimated net deferred tax liability. Certain of these amounts were provisional in nature, as all the information necessary to record more precise amounts was not available, prepared or analyzed for 2017. TCF recorded an additional net tax benefit of $1.1 million in the second quarter of 2018 for the finalization of the provisional amounts recorded in 2017.

TCF has determined the effects of its global intangible low taxed income and its foreign derived intangible income to be immaterial. These effects will be included in income tax expense (benefit) in the period in which they are paid or received.

TCF considers its undistributed foreign earnings to be reinvested indefinitely. This position is based on management's determination that cash held in TCF's foreign jurisdictions is not needed to fund its U.S. operations and that it either has reinvested or has intentions to reinvest these earnings. While management currently intends to indefinitely reinvest all of TCF's foreign earnings, should circumstances or tax laws change, TCF may need to record additional income tax expense in the period in which such determination or tax law change occurs.



95

As a result of Tax Reform, TCF recorded a $2.0 million charge related to U.S. federal income tax on the deemed repatriation of undistributed foreign earnings as of December 31, 2017. TCF recorded an additional $0.2 million charge in the second quarter of 2018 for the finalization of the provisional amounts recorded in 2017. Due to the shift to a worldwide territorial tax regime as part of Tax Reform, future repatriations of foreign earnings will no longer be subject to U.S. federal income tax. However, these foreign earnings may be subject to foreign withholding taxes should they be distributed in the form of dividends. As of December 31, 2018, the estimated withholding taxes that could be due on these earnings was $3.9 million.

Reconciliations of the changes in unrecognized tax benefits were as follows:
 
At or For the Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Balance, beginning of period
$
4,645

 
$
4,690

 
$
4,249

Increases for tax positions related to the current year
903

 
200

 
546

Increases for tax positions related to prior years
1,438

 
86

 
627

Decreases for tax positions related to prior years
(970
)
 
(331
)
 
(84
)
Settlements with taxing authorities
—

 
—

 
(525
)
Decreases related to lapses of applicable statutes of limitation
(144
)
 
—

 
(123
)
Balance, end of period
$
5,872

 
$
4,645

 
$
4,690


The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $3.7 million and $2.2 million at December 31, 2018 and 2017, respectively. TCF recognizes increases and decreases for interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense. TCF recognized approximately $0.1 million of tax expense, $0.6 million of tax benefit and $0.9 million of tax expense for 2018, 2017 and 2016, respectively, related to interest and penalties. Interest and penalties of approximately $0.7 million and $0.6 million were accrued at December 31, 2018 and 2017, respectively.

TCF's federal income tax returns are open and subject to examination for 2015 and later tax return years. TCF's various state income tax returns are generally open for 2014 and later tax return years based on individual state statutes of limitation. TCF's various foreign income tax returns are open and subject to examination for 2014 and later tax return years. Changes in the amount of unrecognized tax benefits within the next 12 months from normal expirations of statutes of limitation are not expected to be material.

TCF's deferred tax assets and deferred tax liabilities were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Deferred tax assets:
 
 
 
Allowance for loan and lease losses
$
33,546

 
$
41,339

Stock compensation and deferred compensation plans
32,686

 
21,150

Net operating losses and other carryforwards
20,591

 
16,452

Debt securities available for sale
9,235

 
5,345

Accrued expense
2,524

 
2,507

Other
1,900

 
3,603

Deferred tax assets
100,482

 
90,396

Valuation allowance
(14,291
)
 
(14,267
)
Total deferred tax assets, net of valuation allowance
86,191

 
76,129

Deferred tax liabilities:
 
 
 
Lease financing
297,603

 
246,221

Premises and equipment
40,130

 
30,109

Loan fees and discounts
17,465

 
12,489

Prepaid expenses
7,921

 
8,047

Goodwill and other intangibles
2,290

 
2,475

Other
7,319

 
4,715

Total deferred tax liabilities
372,728

 
304,056

Net deferred tax liabilities
$
286,537

 
$
227,927



96

The net operating losses and other carryforwards at December 31, 2018 consisted of state net operating losses of $3.3 million that expire in 2019 through 2038, federal credit carryforwards of $2.8 million that expire in 2038 and charitable contribution carryforwards of $0.2 million that expire in 2022. The valuation allowance at December 31, 2018 and 2017 principally applies to net operating losses that, in the opinion of management, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance will reduce income tax expense.

Note 15. Equity

Preferred Stock Preferred stock was as follows:
 
At December 31,
(In thousands)
2018
 
2017
Series C non-cumulative perpetual preferred stock
$
169,302

 
$
169,302

Series B non-cumulative perpetual preferred stock
—

 
96,519

Total preferred stock
$
169,302

 
$
265,821


At December 31, 2018 and 2017, TCF had 7,000,000 depositary shares outstanding, each representing a 1/1000th ownership interest in a share of the 5.70% Series C non-cumulative perpetual preferred stock of TCF Financial Corporation, par value $0.01 per share, with a liquidation preference of $25,000 per share (equivalent to $25 per depositary share) (the "Series C Preferred Stock"). Dividends are payable on the Series C Preferred Stock if, as and when declared by TCF's Board of Directors on a non-cumulative basis on March 1, June 1, September 1 and December 1 of each year, which commenced on December 1, 2017. The Series C Preferred Stock may be redeemed at TCF's option in whole or in part on December 1, 2022 or on any dividend payment date thereafter. The Series C Preferred Stock was issued on September 14, 2017 for an aggregate public offering price of $175.0 million. Net proceeds of the offering to TCF, after deducting deferred stock issuance costs of $5.7 million, were $169.3 million.

On March 1, 2018, TCF redeemed all 4,000,000 of the outstanding shares of the 6.45% Series B non-cumulative perpetual preferred stock of TCF Financial Corporation, par value $0.01 per share, with a liquidation preference of $25 per share (the "Series B Preferred Stock") for $100.0 million. Deferred stock issuance costs of $3.5 million originally recorded as a reduction to preferred stock upon the issuance of the Series B Preferred Stock were reclassified to retained earnings and resulted in a one-time, non-cash reduction to net income available to common stockholders utilized in the computation of earnings per common share and diluted earnings per common share for 2018. Dividends were payable on the Series B Preferred Stock if, as and when declared by TCF's Board of Directors on a non-cumulative basis on March 1, June 1, September 1 and December 1 of each year.

On October 16, 2017, TCF redeemed the 6,900,000 depositary shares, each representing a 1/1000th ownership interest in a share of the 7.50% Series A non-cumulative perpetual preferred stock of TCF Financial Corporation, par value $0.01 per share, with a liquidation preference of $25,000 per share (equivalent to $25 per depositary share) (the "Series A Preferred Stock") for $172.5 million using the net proceeds from the offering of its Series C depositary shares and additional cash on hand. Deferred stock issuance costs of $5.8 million originally recorded as a reduction to preferred stock upon the issuance of the Series A Preferred Stock were reclassified to retained earnings and resulted in a one-time, non-cash reduction to net income available to common stockholders utilized in the computation of earnings per common share and diluted earnings per common share for 2017. Dividends were payable on the Series A Preferred Stock if, as and when declared by TCF's Board of Directors on a non-cumulative basis on March 1, June 1, September 1 and December 1 of each year.

Restricted Retained Earnings Retained earnings at TCF Bank at December 31, 2018 included approximately $134.4 million for which no provision for federal income taxes has been made. This amount represents earnings legally appropriated to thrift bad debt reserves and deducted for federal income tax purposes in prior years and is generally not available for payment of cash dividends or other distributions to stockholders. Future payments or distributions of these appropriated earnings could create a tax liability for TCF based on the amount of the distributions and the tax rates in effect at that time.



97

Treasury Stock and Other Treasury stock and other were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Treasury stock, at cost
$
222,816

 
$
10,265

Shares held in trust for deferred compensation plans, at cost
29,366

 
30,532

Total
$
252,182

 
$
40,797


TCF repurchased $212.9 million and $9.2 million of its common stock in 2018 and 2017, respectively, pursuant to its share repurchase program. These shares were recorded as treasury stock. No repurchases of common stock were made in 2016. At December 31, 2018, TCF had the authority to repurchase an additional $78.1 million in aggregate value of shares pursuant to its share repurchase program.

TCF reissued 16,000 shares of treasury stock at a cost of $378 thousand in 2018 related to grants of restricted stock awards. There were no reissuances of treasury stock in 2017 or 2016.

The cost of TCF common stock held in trust for TCF's deferred compensation plans, including the Senior Officer, Winthrop and Directors Deferred Compensation Plans, TCF Employees Deferred Stock Compensation Plan and the TCF 401K Supplemental Plan, is reported in a manner similar to treasury stock (that is, changes in fair value are not recognized) with a corresponding deferred compensation obligation reflected in additional paid-in capital. Upon resignation, death, disability or termination of a deferred compensation plan participant or based on other contractual requirements, the shares held in trust are distributed to the respective plan's participant or beneficiary, as applicable. See Note 17. Stock Compensation and Note 18. Employee Benefit Plans for further information on deferred compensation plans.

Non-controlling Interest in Subsidiaries TCF has a joint venture with The Toro Company ("Toro") called Red Iron Acceptance, LLC ("Red Iron"). Red Iron provides U.S. distributors and dealers and select Canadian distributors of the Toro® and Exmark® branded products with sources of financing. TCF and Toro maintain a 55% and 45% ownership interest, respectively, in Red Iron. As TCF has a controlling financial interest in Red Iron, its financial results are consolidated in TCF's financial statements. Toro's interest is reported as a non-controlling interest within equity.

Warrants During 2018, 3,194,787 warrants were exercised at an exercise price of $16.93 and 5,201 warrants expired on November 14, 2018. The exercise of the warrants resulted in the issuance of 1,088,918 common shares. No warrants were exercised in 2017 and 2016.



98

Note 16.  Regulatory Capital Requirements

TCF and TCF Bank are subject to minimum capital requirements administered by the federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal banking regulators that could have a material adverse effect on TCF. In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained earnings for the current year combined with its net retained earnings for the preceding two calendar years, which was $235.4 million at December 31, 2018, without prior approval of the Office of the Comptroller of the Currency (the "OCC"). The OCC also has the authority to prohibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice. TCF Bank's ability to make capital distributions in the future may require regulatory approval and may be restricted by its federal banking regulators. TCF Bank's ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. In the future, these capital adequacy standards may be higher than existing minimum regulatory capital requirements.

The Basel III capital standards allowed institutions not subject to the advanced approaches requirements to opt out of including components of accumulated other comprehensive income (loss) in common equity Tier 1 capital. TCF and TCF Bank made the one-time permanent election to not include accumulated other comprehensive income (loss) in regulatory capital. TCF and TCF Bank are subject to a capital conservation buffer. As of January 1, 2019, the Basel III capital standard requires TCF and TCF Bank to maintain a 2.5% capital conservation buffer, designed to absorb losses during periods of economic stress, composed entirely of common equity Tier 1 capital, on top of the minimum risk-weighted asset ratios, resulting in minimum ratios for TCF Bank of (i) a common equity Tier 1 capital ratio of at least 7.0%, (ii) a Tier 1 risk-based capital ratio of at least 8.5% and (iii) a total risk-based capital ratio of at least 10.5%.
Regulatory capital information for TCF and TCF Bank was as follows:
 
TCF
 
TCF Bank
 
At December 31,
 
At December 31,
 
 
 
 
(Dollars in thousands)
2018
 
2017
 
2018
 
2017
 
Well-capitalized Standard
 
Minimum Capital Requirement(1)
Regulatory Capital:
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital
$
2,224,183

 
$
2,242,410

 
$
2,282,013

 
$
2,409,027

 
 
 
 
Tier 1 capital
2,408,393

 
2,522,178

 
2,300,472

 
2,426,854

 
 
 
 
Total capital
2,750,581

 
2,889,323

 
2,675,347

 
2,837,374

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulatory Capital Ratios:
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio
10.82
%
 
10.79
%
 
11.10
%
 
11.59
%
 
6.50
%
 
4.50
%
Tier 1 risk-based capital ratio
11.72

 
12.14

 
11.19

 
11.68

 
8.00

 
6.00

Total risk-based capital ratio
13.38

 
13.90

 
13.01

 
13.65

 
10.00

 
8.00

Tier 1 leverage ratio
10.44

 
11.12

 
9.97

 
10.70

 
5.00

 
4.00

(1)
Excludes capital conservation buffer of 1.875% and 1.25% at December 31, 2018 and 2017, respectively.



99

Note 17.  Stock Compensation

TCF maintains four stock compensation plans: (i) The TCF Financial 2015 Omnibus Incentive Plan (the "Omnibus Incentive Plan"), (ii) the TCF Financial Incentive Stock Program (the "Incentive Stock Program"), (iii) the Senior Officer, Winthrop and Directors Deferred Compensation Plans and (iv) the TCF Employees Deferred Stock Compensation Plan.

Omnibus Incentive Plan and Incentive Stock Program The Omnibus Incentive Plan and the Incentive Stock Program were adopted to enable TCF to attract and retain key personnel. In April 2015, TCF stockholders approved the Omnibus Incentive Plan, which replaced the Incentive Stock Program. At December 31, 2018, there were 4,796,822 shares reserved for issuance under the Omnibus Incentive Plan.

At December 31, 2018, there were 264,373 shares of performance-based restricted stock awards outstanding that will vest only if certain performance goals and service conditions are achieved. Failure to achieve the performance goals and service conditions will result in all or a portion of the shares being forfeited. Service-based restricted stock awards under either the Omnibus Incentive Plan or the Incentive Stock Program vest over periods from one to five years.

Information about restricted stock awards was as follows:
 
At or For the Year Ended December 31,
(Dollars in thousands)
2018
 
2017
 
2016
Unrecognized stock compensation expense
$
18,052

 
$
17,944

 
$
24,925

Weighted-average amortization (years)
1.6

 
1.6

 
1.6


At December 31, 2018, there were 406,575 performance-based restricted stock units granted and outstanding under the Omnibus Incentive Plan that will vest only if certain performance goals are achieved. The performance-based restricted stock units are subject to TCF’s relative total stockholder return for a three-year measurement period, based on award date, as measured against TCF's peer group, which includes publicly-traded banks and thrift institutions with assets between $10 billion and $50 billion as selected by TCF's Compensation Committee. The number of restricted stock units granted was at target and the actual restricted stock units that will vest will depend on actual performance with a maximum total payout of 150% of target. Failure to achieve the performance goals will result in all or a portion of the restricted stock units being forfeited. The remaining weighted-average performance period of the restricted stock units was 1.6 years at December 31, 2018.

Compensation expense for restricted stock awards and restricted stock units was as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Compensation expense
$
16,549

 
$
12,687

 
$
8,715

Tax benefit recognized for stock compensation expense
3,871

 
5,661

 
3,103




100

TCF's restricted stock award and stock option transactions under the Omnibus Incentive Plan and the Incentive Stock Program were as follows:
 
Restricted Stock Awards
 
Stock Options
 
Shares
 
Weighted-average Grant Date Fair Value
 
Shares
 
Weighted-
average
Remaining
Contractual
Life in Years
 
Weighted-
average
Exercise
Price
Outstanding at December 31, 2015
3,273,086

 
$
13.09

 
1,379,000

 
2.17

 
$
14.07

Granted
899,000

 
12.13

 
—

 
—

 
—

Exercised
—

 
—

 
(857,000
)
 
—

 
13.04

Forfeited/canceled
(230,486
)
 
13.59

 
(118,000
)
 
—

 
15.75

Vested
(405,425
)
 
13.10

 
—

 
—

 
—

Outstanding at December 31, 2016
3,536,175

 
12.81

 
404,000

 
1.06

 
15.75

Granted
583,388

 
16.47

 
—

 
—

 
—

Exercised
—

 
—

 
(38,000
)
 
—

 
15.75

Forfeited/canceled
(577,020
)
 
11.38

 
—

 
—

 
—

Vested
(902,880
)
 
13.65

 
—

 
—

 
—

Outstanding at December 31, 2017
2,639,663

 
13.65

 
366,000

 
0.06

 
15.75

Granted
763,446

 
21.65

 
—

 
—

 
—

Exercised
—

 
—

 
(366,000
)
 
—

 
15.75

Forfeited/canceled
(234,974
)
 
15.12

 
—

 
—

 
—

Vested
(878,689
)
 
12.24

 
—

 
—

 
—

Outstanding at December 31, 2018
2,289,446

 
16.70

 
—

 
—

 
—


In 2008, TCF granted stock options under the Incentive Stock Program and during 2018, all of the outstanding stock options were exercised.

Senior Officer, Winthrop and Directors Deferred Compensation Plans TCF maintains the aforementioned deferred compensation plans, which previously allowed both eligible employees and non-employee directors to defer a portion of certain payments, and, in some cases, grants of restricted stock. In October 2008, TCF terminated the employee plans and only the Directors plan remains active, which allows non-employee directors to defer up to 100% of their director fees and restricted stock awards. The amounts deferred under these plans are invested in TCF common stock or other publicly traded stocks, bonds or mutual funds. At December 31, 2018, the fair value of the assets in these plans was $13.8 million and included $11.1 million invested in TCF common stock, compared with a total fair value of $15.7 million including $12.0 million invested in TCF common stock at December 31, 2017. The plans' assets invested in TCF common stock are held in trust and are included in treasury stock and other. See Note 15. Equity for further information on treasury stock and other.

TCF Employees Deferred Stock Compensation Plan The TCF Employees Deferred Stock Compensation Plan is comprised of restricted stock awards issued to certain executives. The assets of this plan are solely held in TCF common stock with a fair value of $6.3 million and $9.6 million at December 31, 2018 and 2017, respectively. The plan's assets invested in TCF common stock are held in trust and are included in treasury stock and other. See Note 15. Equity for further information on treasury stock and other.

Upon resignation, death, disability or termination of a deferred compensation plan participant or based on other contractual requirements, the plan participant's assets are distributed.



101

Note 18.  Employee Benefit Plans

TCF maintains four employee benefit plans: (i) the TCF 401K Plan (the "401K"), (ii) the TCF 401K Supplemental Plan (the "Supplemental Plan"), (iii) the TCF Cash Balance Pension Plan (the "Pension Plan") and (iv) the Postretirement Plan.

TCF 401K Plan The 401K, a qualified 401(k) and employee stock ownership plan, allows participants to make contributions of up to 50% of their covered compensation on a tax-deferred and/or after-tax basis, subject to the annual covered compensation limitation imposed by the Internal Revenue Service ("IRS"). TCF matches the contributions of all participants with TCF common stock at the rate of $1 per dollar for employees with one or more years of service up to a maximum company contribution of 5.0% of the employee's covered compensation per pay period subject to the annual covered compensation limitation imposed by the IRS. Employee contributions vest immediately and matching contributions made subsequent to January 1, 2016 vest immediately. Company matching contributions made prior to January 1, 2016 are subject to a graduated vesting schedule based on an employee's years of service with full vesting after five years.

Employees have the opportunity to diversify and invest their account balance, including matching contributions, in various mutual funds or TCF common stock. At December 31, 2018, the fair value of the assets in the 401K totaled $319.4 million and included $152.0 million invested in TCF common stock. Dividends on TCF common shares held in the 401K reduce retained earnings and the shares are considered outstanding for computing earnings per share. The Company's matching contributions are expensed when earned. TCF's contributions to the 401K were $12.3 million, $12.3 million and $12.6 million for 2018, 2017 and 2016, respectively.

TCF 401K Supplemental Plan The Supplemental Plan, a non-qualified plan, allows certain employees to contribute up to 50% of their salary and bonus. TCF matching contributions to this plan totaled $1.3 million, $1.2 million and $1.7 million for 2018, 2017 and 2016, respectively. The Company made no other contributions to this plan, other than payment of administrative expenses. The amounts deferred under this plan are invested in TCF common stock or mutual funds. At December 31, 2018 and 2017, the fair value of the assets in the plan totaled $51.7 million and $52.7 million, respectively, and included $23.0 million and $26.0 million, respectively, invested in TCF common stock. The plan's assets invested in TCF common stock are held in trust and included in treasury stock and other. See Note 15. Equity for further information on treasury stock and other.

TCF Cash Balance Pension Plan The Pension Plan is a qualified defined benefit plan covering employees who were hired prior to June 30, 2004, were at least 21 years old and had worked 1,000 hours. Effective March 31, 2006, TCF amended the Pension Plan to discontinue compensation credits for all participants. Interest credits will continue to be paid until participants' accounts are distributed from the Pension Plan. TCF makes a monthly interest credit to each participant's account. The interest rate used to determine the monthly interest credit is based on the one-year average of the 5-year Treasury Constant Maturity Rate plus 25 basis points, rounded to the nearest quarter point, capped at 12% and determined at the beginning of each year. The weighted-average interest crediting rate was 2.25% and 1.50% for 2018 and 2017, respectively. All participant accounts are 100% vested. The information set forth in the following tables is based on current actuarial reports using the measurement date of December 31.

The measurement of the projected benefit obligation, prepaid pension asset, pension liability and annual pension expense involves actuarial valuation methods and the use of actuarial and economic assumptions. Due to the long-term nature of the Pension Plan obligation, actual results may differ significantly from the actuarial-based estimates. Differences between estimates and actual experience are recorded in the year they arise. TCF closely monitors all assumptions and updates them annually. The Company does not consolidate the assets and liabilities associated with the Pension Plan.



102

The funded status of the Pension Plan was as follows:
 
At or For the Year Ended December 31,
(In thousands)
2018
 
2017
Change in projected benefit obligation:
 
 
 
Projected benefit obligation, beginning of period
$
31,389

 
$
33,174

Interest cost on projected benefit obligation
983

 
1,138

Actuarial (gain) loss
(630
)
 
765

Benefits paid
(3,412
)
 
(3,688
)
Projected benefit obligation, end of period
28,330

 
31,389

Change in fair value of plan assets:
 
 
 
Fair value of plan assets, beginning of period
36,863

 
39,377

Actual gain (loss) on plan assets
(607
)
 
1,174

Benefits paid
(3,412
)
 
(3,688
)
Fair value of plan assets, end of period
32,844

 
36,863

Funded status of plan, end of period
$
4,514

 
$
5,474

Amounts recognized in the Consolidated Statements of Financial Condition:
 
 
 
Prepaid (accrued) benefit cost, end of period
$
4,514

 
$
5,474


The accumulated benefit obligation for the Pension Plan was $28.3 million and $31.4 million at December 31, 2018 and 2017, respectively.

The discount rate used to determine the projected benefit obligation for the Pension Plan was 3.95% and 3.30% in 2018 and 2017, respectively. The discount rate used to determine the projected benefit obligation was determined by matching estimated benefit cash flows to a yield curve derived from corporate bonds rated AA by either Moody's or Standard and Poor's. Bonds containing call or put provisions were excluded. The average estimated duration of benefit cash flows for the Pension Plan was 6.6 years.

TCF's Pension Plan investment policy permits investments in cash, money market mutual funds, direct fixed income securities to include U.S. Treasury securities and U.S. Government-sponsored enterprises, and indirect fixed income investment securities made in fund form (mutual fund or institutional fund) where the fund invests in fixed income securities in investment grade corporate credits, non-investment grade floating-rate bank loans and non-investment grade bonds.

The Pension Plan assets include mutual funds, U.S. Treasury Bills, interest-bearing cash, mortgage-backed securities and a collective investment fund. The Pension Plan assets are measured at fair value on a recurring basis and grouped in three levels, based on the markets in which the assets are traded and the degree and reliability of estimates and assumptions used to determine fair value. Mutual funds, U.S. Treasury Bills and interest-bearing cash are categorized as Level 1. The fair value of Level 1 assets is based on quotes from independent asset pricing services based on active markets. Mortgage-backed securities are categorized as Level 2. The fair value of level 2 assets is based on prices obtained from independent pricing sources that are based on observable transactions of similar instruments, but not quoted markets. At December 31, 2018 and 2017, there were no assets categorized as Level 3. The fair value of the collective investment fund is based on the net asset value ("NAV") of units as a practical expedient, and therefore the asset is not classified in the fair value hierarchy.



103

The Pension Plan's investments measured at fair value on a recurring basis were as follows:
 
At December 31, 2018
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Mutual funds
$
21,566

 
$
—

 
$
—

 
$
21,566

U.S. Treasury Bills
2,993

 
—

 
—

 
2,993

Interest-bearing cash
83

 
—

 
—

 
83

Mortgage-backed securities
—

 
3,399

 
—

 
3,399

Collective investment fund (measured at NAV of units as a practical expedient)
—

 
—

 
—

 
4,812

Total investments at fair value
$
24,642

 
$
3,399

 
$
—

 
$
32,853

 
 
 
 
 
 
 
 
 
At December 31, 2017
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Mutual funds
$
27,178

 
$
—

 
$
—

 
$
27,178

Interest-bearing cash
63

 
—

 
—

 
63

Mortgage-backed securities
—

 
4,613

 
—

 
4,613

Collective investment fund (measured at NAV of units as a practical expedient)
—

 
—

 
—

 
4,995

Total investments at fair value
$
27,241

 
$
4,613

 
$
—

 
$
36,849


The net periodic benefit plan (income) cost included in other non-interest expense for the Pension Plan was as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Interest cost
$
983

 
$
1,138

 
$
1,281

Return on plan assets
607

 
(1,174
)
 
(1,898
)
Recognized actuarial (gain) loss
(630
)
 
765

 
(625
)
Net periodic benefit plan (income) cost
$
960

 
$
729

 
$
(1,242
)

Pension Plan actual return (loss) on plan assets, net of administrative expenses was (1.6)%, 3.2% and 4.9% for 2018, 2017 and 2016, respectively.
The actuarial assumptions used in the Pension Plan valuation are reviewed annually. The assumptions used to determine the estimated net benefit plan cost for the Pension Plan were as follows:
 
Year Ended December 31,
 
2018
 
2017
 
2016
Discount rate
3.30
%
 
3.60
%
 
3.75
%
Expected long-term rate of return on plan assets
1.50

 
1.50

 
1.50


The expected long-term rate of return on plan assets is determined by reference to historical market returns and future expectations. The 10-year expected average return of the index consistent with the Pension Plan's current investment strategy was 2.5%, net of administrative expenses.

TCF is eligible to contribute up to $11.4 million to the Pension Plan until the 2018 federal income tax return extended due date under various IRS funding methods. TCF made no cash contributions to the Pension Plan in 2018, 2017 and 2016, respectively. TCF does not expect to be required to contribute to the Pension Plan in 2019.

The expected future benefit payments used to determine the projected benefit obligation of the Pension Plan were as follows:
(In thousands)
 
2019
$
3,241

2020
2,793

2021
2,410

2022
2,298

2023
2,478

2024 - 2028
9,399



104

Postretirement Plan The Postretirement Plan provides health care benefits to eligible retired employees who retired prior to December 31, 2009. Effective January 1, 2000, TCF modified the Postretirement Plan for employees not yet eligible for benefits under the Postretirement Plan by eliminating the Company subsidy. The provisions for full-time and retired employees then eligible for these benefits were not changed. The Postretirement Plan is not funded. The information set forth in the following tables is based on current actuarial reports using the measurement date of December 31.

The funded status of the Postretirement Plan was as follows:
 
At or For the Year Ended December 31,
(In thousands)
2018
 
2017
Change in benefit obligation:
 
 
 
Benefit obligation, beginning of period
$
3,717

 
$
4,164

Interest cost on benefit obligation
110

 
133

Actuarial (gain) loss
(115
)
 
(248
)
Benefits paid
(392
)
 
(332
)
Benefit obligation, end of period
3,320

 
3,717

Change in fair value of plan assets:
 
 
 
Fair value of plan assets, beginning of period
—

 
—

Benefits paid
(392
)
 
(332
)
TCF contributions
392

 
332

Fair value of plan assets, end of period
—

 
—

Funded status of plan, end of period
$
(3,320
)
 
$
(3,717
)
Amounts recognized in the Consolidated Statements of Financial Condition:
 
 
 
Prepaid (accrued) benefit cost, end of period
$
(3,320
)
 
$
(3,717
)
Prior service cost included in accumulated other comprehensive income (loss)
(147
)
 
(193
)

The changes recognized in accumulated other comprehensive income (loss) attributable to the Postretirement Plan were as follows:
 
At or For the Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Accumulated other comprehensive income (loss) before tax, beginning of period
$
(193
)
 
$
(239
)
 
$
(285
)
Amortization of prior service credit (recognized in net periodic benefit cost)
46

 
46

 
46

Accumulated other comprehensive income (loss) before tax, end of period
$
(147
)

$
(193
)

$
(239
)

Prior service credits of the Postretirement Plan of $46 thousand were included within accumulated other comprehensive income (loss) at December 31, 2018 and are expected to be recognized as components of net periodic benefit cost during 2019.

The net periodic benefit plan (income) cost included in other non-interest expense for the Postretirement Plan was as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Interest cost
$
110

 
$
133

 
$
151

Recognized actuarial (gain) loss
(115
)
 
(248
)
 
(211
)
Amortization of prior service cost
(46
)
 
(46
)
 
(46
)
Net periodic benefit plan (income) cost
$
(51
)
 
$
(161
)
 
$
(106
)



105

The discount rate used to determine the estimated net periodic benefit plan (income) cost for the Postretirement Plan was 3.15%, 3.40% and 3.50% for 2018, 2017 and 2016, respectively.

The assumptions used to determine the benefit obligation for the Postretirement Plan were as follows:
 
Year Ended December 31,
 
2018
 
2017
Discount rate
3.85
%
 
3.15
%
Health care cost trend rate assumed for next year
5.6

 
5.7

Final health care cost trend rate
4.5

 
4.5

Year that final health care trend rate is reached
2038

 
2038


The discount rate used to determine the benefit obligation was determined by matching estimated benefit cash flows to a yield curve derived from corporate bonds rated AA by either Moody's or Standard and Poor's. Bonds containing call or put provisions were excluded. The average estimated duration of benefit cash flows for the Postretirement Plan was 6.1 years.

TCF contributed $0.4 million, $0.3 million and $0.3 million to the Postretirement Plan in 2018, 2017 and 2016, respectively. TCF expects to contribute $0.4 million to the Postretirement Plan in 2019. TCF currently has no plans to pre-fund the Postretirement Plan in 2019.

The expected future benefit payments used to determine the benefit obligation of the Postretirement Plan were as follows:
(In thousands)

2019
$
431

2020
402

2021
374

2022
347

2023
320

2024 - 2028
1,233


Note 19. Financial Instruments with Off-Balance Sheet Risk

TCF is a party to financial instruments with off-balance sheet risk, primarily to meet the financing needs of its customers. These financial instruments, which are issued or held for purposes other than trading, involve elements of credit and interest-rate risk in excess of the amounts recognized in the Consolidated Statements of Financial Condition.

TCF's exposure to credit loss, in the event of non-performance by the counterparty to the financial instrument, for commitments to extend credit and standby letters of credit is represented by the contractual amount of the commitments. TCF uses the same credit policies in making these commitments as it does for making direct loans. TCF evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained is based on a credit evaluation of the customer.

Financial instruments with off-balance sheet risk were as follows:
 
At December 31,
(In thousands)
2018
 
2017
Commitments to extend credit:
 
 
 
Consumer real estate and other
$
1,627,960

 
$
1,484,065

Commercial
1,127,368

 
1,033,973

Leasing and equipment finance
153,339

 
126,249

Total commitments to extend credit
2,908,667

 
2,644,287

Standby letters of credit and guarantees on industrial revenue bonds
20,662

 
12,992

Total
$
2,929,329

 
$
2,657,279




106

Commitments to Extend Credit Commitments to extend credit are agreements to lend provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a certain amount of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral to secure any funding of these commitments predominantly consists of residential and commercial real estate mortgages.

Standby Letters of Credit and Guarantees on Industrial Revenue Bonds Standby letters of credit and guarantees on industrial revenue bonds are conditional commitments issued by TCF guaranteeing the performance of a customer to a third party. These conditional commitments expire in various years through 2023. Collateral held consists primarily of commercial real estate mortgages. Since the conditions under which TCF is required to fund these commitments may not materialize, the cash requirements are expected to be less than the total outstanding commitments.

Note 20.  Derivative Instruments
 
Derivative instruments, recognized at fair value within other assets or accrued expenses and other liabilities on the Consolidated Statements of Financial Condition, were as follows:
 
 
At December 31, 2018
 
 
 
Fair Value
(In thousands)
Notional Amount
 
Derivative Assets
 
Derivative Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
Interest rate contract
$
150,000

 
$
393

 
$
—

Forward foreign exchange contracts
157,271

 
2,980

 
—

Total derivatives designated as hedging instruments
 
 
3,373

 
—

Derivatives not designated as hedging instruments:
 
 
 
 
 
Interest rate contracts
1,095,449

 
7,516

 
3,732

Forward foreign exchange contracts
254,274

 
3,709

 
13

Interest rate lock commitments
28,007

 
652

 
28

Other contracts
13,020

 
—

 
583

Total derivatives not designated as hedging instruments
 
 
11,877

 
4,356

Total derivatives before netting
 
 
15,250

 
4,356

Netting(1)
 
 
(6,982
)
 
(991
)
Total derivatives, net
 
 
$
8,268

 
$
3,365

 
At December 31, 2017
 
 
 
Fair Value
(In thousands)
Notional Amount
 
Derivative Assets
 
Derivative Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
Interest rate contract
$
150,000

 
$
405

 
$
—

Forward foreign exchange contracts
77,879

 
—

 
1,744

Total derivatives designated as hedging instruments
 
 
405

 
1,744

Derivatives not designated as hedging instruments:
 
 
 
 
 
Interest rate contracts
592,383

 
1,392

 
1,688

Forward foreign exchange contracts
330,928

 
—

 
4,619

Interest rate lock commitments
18,015

 
223

 
—

Other contracts
13,804

 
—

 
615

Total derivatives not designated as hedging instruments
 
 
1,615

 
6,922

Total derivatives before netting
 
 
2,020

 
8,666

Netting(1)
 
 
(457
)
 
(7,098
)
Total derivatives, net
 
 
$
1,563

 
$
1,568

(1)
Includes balance sheet netting of derivative asset and derivative liability balances, related cash collateral and portfolio level counterparty valuation adjustments.



107

Derivative instruments may be subject to master netting arrangements and collateral arrangements and qualify for offset in the Consolidated Statements of Financial Condition. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Derivative instruments subject to master netting arrangements and collateral arrangements are recognized on a net basis in the Consolidated Statements of Financial Condition. The gross amounts recognized, gross amounts offset and net amount presented of derivative instruments were as follows:
 
At December 31, 2018
(In thousands)
Gross Amounts Recognized
 
Gross Amounts
 Offset(1)
 
Net Amount Presented
Derivative assets:
 
 
 
 
 
Interest rate contracts
$
7,909

 
$
(395
)
 
$
7,514

Forward foreign exchange contracts
6,689

 
(6,587
)
 
102

Interest rate lock commitments
652

 
—

 
652

Total derivative assets
$
15,250

 
$
(6,982
)
 
$
8,268

Derivative liabilities:
 
 
 
 
 
Interest rate contracts
$
3,732

 
$
(395
)
 
$
3,337

Forward foreign exchange contracts
13

 
(13
)
 
—

Interest rate lock commitments
28

 
—

 
28

Other contracts
583

 
(583
)
 
—

Total derivative liabilities
$
4,356

 
$
(991
)
 
$
3,365

 
At December 31, 2017
(In thousands)
Gross Amounts Recognized
 
Gross Amounts
Offset(1)
 
Net Amount Presented
Derivative assets:
 
 
 
 
 
Interest rate contracts
$
1,797

 
$
(457
)
 
$
1,340

Interest rate lock commitments
223

 
—

 
223

Total derivative assets
$
2,020

 
$
(457
)
 
$
1,563

Derivative liabilities:
 
 
 
 
 
Interest rate contracts
$
1,688

 
$
(457
)
 
$
1,231

Forward foreign exchange contracts
6,363

 
(6,026
)
 
337

Other contracts
615

 
(615
)
 
—

Total derivative liabilities
$
8,666

 
$
(7,098
)
 
$
1,568

(1)
Includes the amounts with counterparties subject to enforceable master netting arrangements that have been offset in the Consolidated Statements of Financial Condition.

Derivatives Designated as Hedging Instruments

Interest Rate Contract TCF Bank entered into an interest rate swap agreement which was designated as a fair value hedge of its contemporaneously issued subordinated debt. The interest rate swap agreement effectively converts the fixed interest rate to a floating rate based on the three-month LIBOR plus a fixed number of basis points on the $150.0 million notional amount. The carrying amount of the hedged subordinated debt including the cumulative basis adjustment related to the application of fair value hedge accounting is recorded in Long-term borrowings on the Consolidated Statements of Financial Condition and was as follows:
 
Carrying Amount
 of the Hedged Liability
 
Cumulative Amount of
Fair Value Hedging Adjustments
Included in the Carrying Amount
of the Hedged Liability
 
At December 31,
 
At December 31,
(In thousands)
2018
 
2017
 
2018
 
2017
Subordinated bank note - 2025
$
144,296

 
$
146,095

 
$
(4,165
)
 
$
(2,157
)



108

The gain (loss) related to the fair value hedge and the line within the Consolidated Statements of Income where the gain (loss) was recorded were as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Gain (loss) of fair value hedge:
 
 
 
 
 
Hedged item
$
2,163

 
$
808

 
$
1,140

Derivative designated as a hedging instrument
(2,275
)
 
(609
)
 
(1,178
)
Income statement line where the gain (loss) on the fair value hedge was recorded:
 
 
 
 
 
Interest expense - borrowings
$
43,144

 
$
—

 
$
—

Other non-interest income
—

 
11,646

 
8,883


Forward Foreign Exchange Contracts Certain of TCF's forward foreign exchange contracts are used to manage the foreign exchange risk associated with the Company's net investment in TCFCFC. These forward foreign exchange contracts have been designated as net investment hedges. The effect of net investment hedges on accumulated other comprehensive income was as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Forward foreign exchange contracts
$
13,762

 
$
(4,430
)
 
$
(1,213
)

Derivatives Not Designated as Hedging Instruments Certain other interest rate contracts, forward foreign exchange contracts, interest rate lock commitments and other contracts have not been designated as hedging instruments. The effect of these derivatives on the Consolidated Statements of Income was as follows:
 
 
Year Ended December 31,
(In thousands)
Location of Gain (Loss)
2018
 
2017
 
2016
Interest rate contracts
Other non-interest income
$
(409
)
 
$
(268
)
 
$
71

Forward foreign exchange contracts
Other non-interest expense
23,707

 
(15,748
)
 
(13,689
)
Interest rate lock commitments
Gains on sales of loans, net
806

 
(73
)
 
(419
)
Other contracts
Other non-interest expense
(274
)
 
(311
)
 
(629
)
Net gain (loss) recognized
 
$
23,830

 
$
(16,400
)
 
$
(14,666
)

TCF executes all of its forward foreign exchange contracts in the over-the-counter market with large financial institutions pursuant to International Swaps and Derivatives Association, Inc. agreements. These agreements include credit risk-related features that enhance the creditworthiness of these instruments, as compared with other obligations of the respective counterparty with whom TCF has transacted, by requiring that additional collateral be posted under certain circumstances. The amount of collateral required depends on the contract and is determined daily based on market and currency exchange rate conditions.

At December 31, 2018 and 2017, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $25.7 million and $39.8 million, respectively. In the event TCF is rated less than BB- by Standard and Poor's, the contracts could be terminated or TCF may be required to provide approximately $0.5 million and $0.8 million in additional collateral at December 31, 2018 and 2017, respectively. There were no forward foreign exchange contracts containing credit risk-related features in a liability position at December 31, 2018 and $0.4 million at December 31, 2017.

At December 31, 2018, TCF had posted $9.1 million and $1.3 million of cash collateral related to its interest rate contracts and other contracts, respectively, and had received $6.7 million of cash collateral related to its forward foreign exchange contracts.



109

Note 21.  Fair Value Disclosures

TCF uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company's fair values are based on the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Debt securities available for sale, certain loans held for sale, interest-only strips, interest rate contracts, forward foreign exchange contracts, interest rate lock commitments, other contracts, forward loan sales commitments, and assets and liabilities held in trust for deferred compensation plans are recorded at fair value on a recurring basis. From time to time we may be required to record at fair value other assets on a non-recurring basis, such as certain debt securities held to maturity, loans, goodwill, other intangible assets, other real estate owned, repossessed and returned assets or the securitization receivable. These non-recurring fair value adjustments typically involve application of lower of cost or fair value accounting or write-downs of individual assets.

TCF groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the degree and reliability of estimates and assumptions used to determine fair value. The levels are as follows: Level 1, which includes valuations that are based on prices obtained from independent pricing sources for the same instruments traded in active markets; Level 2, which includes valuations that are based on prices obtained from independent pricing sources that are based on observable transactions of similar instruments, but not quoted markets and Level 3, which includes valuations generated from Company model-based techniques that use significant unobservable inputs. Such unobservable inputs reflect estimates of assumptions that market participants would use in pricing the asset or liability.

The following is a discussion of the valuation methodologies used to record assets and liabilities at fair value on a recurring or non-recurring basis.

Debt Securities Available for Sale Debt securities available for sale consist primarily of securities of U.S. Government sponsored enterprises and federal agencies, and obligations of states and political subdivisions. The fair value of these securities, categorized as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and comparisons to current market trading activity.

Loans Held for Sale Loans held for sale for which the fair value option has been elected are categorized as Level 3. The fair value of these loans is recorded utilizing internal valuation models which use quoted investor prices to estimate the fair value.

Loans Loans for which repayment is expected to be provided solely by the value of the underlying collateral, categorized as Level 3 and recorded at fair value on a non-recurring basis, are valued based on the fair value of that collateral less estimated selling costs. Such loans include non-accrual impaired loans as well as certain delinquent non-accrual consumer real estate and auto finance loans. The fair value of the collateral is determined based on internal estimates and assessments provided by third-party appraisers.

Interest-only Strips The fair value of interest-only strips, categorized as Level 3, represents the present value of future cash flows expected to be received by TCF on certain assets. TCF uses available market data, along with its own empirical data and discounted cash flow models, to arrive at the fair value of its interest-only strips. The present value of the estimated expected future cash flows to be received is determined by using discount, loss and prepayment rates that TCF believes are commensurate with the risks associated with the cash flows and what a market participant would use. These assumptions are inherently subject to volatility and uncertainty and, as a result, the fair value of the interest-only strips may fluctuate significantly from period to period.



110

Derivative Instruments

Interest Rate Contracts TCF executes interest rate contracts with commercial banking customers to facilitate their respective risk management strategies. Certain of these interest rate contracts are simultaneously hedged by offsetting interest rate contracts TCF executes with a third party, minimizing TCF's net interest rate risk exposure resulting from such transactions. TCF also has an interest rate swap agreement to convert its $150.0 million of fixed-rate subordinated notes to floating rate debt. These derivative instruments are recorded at fair value. The fair value of these interest rate contracts, categorized as Level 2, is determined using a cash flow model which may consider the forward curve, the discount curve and credit valuation adjustments related to counterparty and/or borrower non-performance risk.

Forward Foreign Exchange Contracts TCF's forward foreign exchange contracts are currency contracts executed in over-the-counter markets and are recorded at fair value using a cash flow model that includes key inputs such as foreign exchange rates and an assessment of the risk of counterparty non-performance. The risk of counterparty non-performance is based on external assessments of credit risk. The fair value of these contracts, categorized as Level 2, is based on observable transactions, but not quoted markets.

Interest Rate Lock Commitments TCF's interest rate lock commitments are derivative instruments that are recorded at fair value using an internal valuation model that utilizes estimated rates of successful loan closings and quoted investor prices. While this model uses both Level 2 and Level 3 inputs, TCF has determined that the significant inputs used in the valuation of these commitments fall within Level 3 and therefore the interest rate lock commitments are categorized as Level 3.

Other Contracts TCF's swap agreement, categorized as Level 3, is related to the sale of TCF's Visa Class B stock. The fair value of the swap agreement is based on TCF's estimated exposure related to the Visa covered litigation through a probability analysis of the funding and estimated settlement amounts.

Forward Loan Sales Commitments TCF enters into forward loan sales commitments to sell certain consumer real estate loans. The resulting loans held for sale are recorded at fair value under the elected fair value option. TCF relies on internal valuation models to estimate the fair value of these instruments. The valuation models utilize estimated rates of successful loan closings and quoted investor prices. While these models use both Level 2 and Level 3 inputs, TCF has determined that the significant inputs used in the valuation of these commitments fall within Level 3 and therefore the forward loan sales commitments are categorized as Level 3.

Other Real Estate Owned and Repossessed and Returned Assets The fair value of other real estate owned, categorized as Level 3, is based on independent appraisals, real estate brokers' price opinions or automated valuation methods, less estimated selling costs. Certain properties require assumptions that are not observable in an active market in the determination of fair value. The fair value of repossessed and returned assets is based on available pricing guides, auction results or price opinions, less estimated selling costs. Assets acquired through foreclosure, repossession or returned to TCF are initially recorded at the lower of the loan or lease carrying amount or fair value less estimated selling costs at the time of transfer to other real estate owned or repossessed and returned assets.

Assets and Liabilities Held in Trust for Deferred Compensation Plans Assets held in trust for deferred compensation plans include investments in publicly traded securities, excluding TCF common stock reported in treasury stock and other equity, and U.S. Treasury notes. The fair value of these assets, categorized as Level 1, is based on prices obtained from independent asset pricing services based on active markets. The fair value of the liabilities equals the fair value of the assets.


111

The balances of assets and liabilities measured at fair value on a recurring and non-recurring basis were as follows:
 
At December 31, 2018
(In thousands)
Level 1
 
Level 2 
 
Level 3 
 
Total
Recurring fair value measurements through net income:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Loans held for sale
$
—

 
$
—

 
$
18,070

 
$
18,070

Interest rate contracts(1)
—

 
7,909

 
—

 
7,909

Forward foreign exchange contracts(1)
—

 
3,709

 
—

 
3,709

Interest rate lock commitments(1)
—

 
—

 
652

 
652

Forward loan sales commitments
—

 
—

 
152

 
152

Assets held in trust for deferred compensation plans
33,217

 
—

 
—

 
33,217

Total assets
$
33,217

 
$
11,618

 
$
18,874

 
$
63,709

Liabilities:
 
 
 
 
 
 
 
Interest rate contracts(1)
$
—

 
$
3,732

 
$
—

 
$
3,732

Forward foreign exchange contracts(1)
—

 
13

 
—

 
13

Interest rate lock commitments(1)
—

 
—

 
28

 
28

Other contracts(1)
—

 
—

 
583

 
583

Forward loan sales commitments
—

 
—

 
178

 
178

Liabilities held in trust for deferred compensation plans
33,217

 
—

 
—

 
33,217

Total liabilities
$
33,217

 
$
3,745

 
$
789

 
$
37,751

Recurring fair value measurements through other comprehensive income:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Debt securities available for sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. Government sponsored enterprises and federal agencies
$
—

 
$
1,913,190

 
$
—

 
$
1,913,190

Other
—

 
—

 
4

 
4

Obligations of states and political subdivisions
—

 
556,871

 
—

 
556,871

Interest-only strips
—

 
—

 
16,835

 
16,835

Forward foreign exchange contracts(1)
—

 
2,980

 
—

 
2,980

Total assets
$
—

 
$
2,473,041

 
$
16,839

 
$
2,489,880

Non-recurring fair value measurements:
 
 
 
 
 
 
 
Loans
$
—

 
$
—

 
$
57,663

 
$
57,663

Other real estate owned
—

 
—

 
9,397

 
9,397

Repossessed and returned assets
—

 
4,358

 
5,165

 
9,523

Total non-recurring fair value measurements
$
—

 
$
4,358

 
$
72,225

 
$
76,583

(1)
As permitted under GAAP, TCF has elected to net derivative assets and derivative liabilities when a legally enforceable master netting agreement exists as well as the related cash collateral received and paid. For purposes of this table, the derivative assets and derivative liabilities are presented gross of this netting adjustment.





112

 
At December 31, 2017
(In thousands)
Level 1 
 
Level 2 
 
Level 3 
 
Total
Recurring fair value measurements through net income:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Loans held for sale
$
—

 
$
—

 
$
3,356

 
$
3,356

Interest rate contracts(1)
—

 
1,797

 
—

 
1,797

Interest rate lock commitments(1)
—

 
—

 
223

 
223

Forward loan sales commitments
—

 
—

 
68

 
68

Assets held in trust for deferred compensation plans
29,962

 
—

 
—

 
29,962

Total assets
$
29,962

 
$
1,797

 
$
3,647

 
$
35,406

Liabilities:
 
 
 
 
 
 
 
Interest rate contracts(1)
$
—

 
$
1,688

 
$
—

 
$
1,688

Forward foreign exchange contracts(1)
—

 
4,619

 
—

 
4,619

Other contracts(1)
—

 
—

 
615

 
615

Forward loan sales commitments
—

 
—

 
5

 
5

Liabilities held in trust for deferred compensation plans
29,962

 
—

 
—

 
29,962

Total liabilities
$
29,962

 
$
6,307

 
$
620

 
$
36,889

Recurring fair value measurements through other comprehensive income:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Debt securities available for sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. Government sponsored enterprises and federal agencies
$
—

 
$
894,685

 
$
—

 
$
894,685

Other
—

 
—

 
6

 
6

Obligations of states and political subdivisions
—

 
814,327

 
—

 
814,327

Interest-only strips
—

 
—

 
21,386

 
21,386

Total assets
$
—

 
$
1,709,012

 
$
21,392

 
$
1,730,404

Liabilities:
 
 
 
 
 
 
 
Forward foreign exchange contracts(1)
$
—

 
$
1,744

 
$
—

 
$
1,744

Total liabilities
$
—

 
$
1,744

 
$
—

 
$
1,744

Non-recurring fair value measurements:
 

 
 

 
 

 
 

Loans
$
—

 
$
—

 
$
72,287

 
$
72,287

Other real estate owned
—

 
—

 
14,036

 
14,036

Repossessed and returned assets
—

 
3,669

 
4,388

 
8,057

Total non-recurring fair value measurements
$
—

 
$
3,669

 
$
90,711

 
$
94,380

(1)
As permitted under GAAP, TCF has elected to net derivative assets and derivative liabilities when a legally enforceable master netting agreement exists as well as the related cash collateral received and paid. For purposes of this table, the derivative assets and derivative liabilities are presented gross of this netting adjustment.

Management assesses the appropriate classification of financial assets and liabilities within the fair value hierarchy by monitoring the level of available observable market information. Changes in markets or economic conditions, as well as changes to Company valuation models, may require the transfer of financial instruments from one fair value level to another. Such transfers, if any, are recorded at the fair values as of the beginning of the quarter in which the transfers occurred. TCF had no transfers in 2018, 2017 and 2016.



113

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:
(In thousands)
Debt
Securities
Available
for Sale
 
Loans
Held for Sale
 
Interest-only Strips
 
Interest
Rate Lock
Commitments
 
Other Contracts
 
Forward
Loan Sales
Commitments
Asset (liability) balance, December 31, 2015
$
34

 
$
10,568

 
$
44,332

 
$
716

 
$
(305
)
 
$
265

Total net gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
(48
)
 
2,980

 
(419
)
 
(629
)
 
96

Other comprehensive income (loss)
—

 
—

 
159

 
—

 
—

 
—

Sales
—

 
(343,949
)
 
—

 
—

 
—

 
—

Originations
—

 
339,930

 
22,620

 
—

 
—

 
—

Principal paydowns / settlements
(16
)
 
(3
)
 
(29,939
)
 
—

 
315

 
—

Asset (liability) balance, December 31, 2016
18

 
6,498

 
40,152

 
297

 
(619
)
 
361

Total net gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
129

 
3,939

 
(74
)
 
(310
)
 
(298
)
Other comprehensive income (loss)
—

 
—

 
(452
)
 
—

 
—

 
—

Sales
—

 
(215,381
)
 
—

 
—

 
—

 
—

Originations
—

 
212,509

 
3,377

 
—

 
—

 
—

Principal paydowns / settlements
(12
)
 
(399
)
 
(25,630
)
 
—

 
314

 
—

Asset (liability) balance, December 31, 2017
6

 
3,356

 
21,386

 
223

 
(615
)
 
63

Total net gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
454

 
2,616

 
401

 
(274
)
 
(89
)
Other comprehensive income (loss)
—

 
—

 
1,195

 
—

 
—

 
—

Sales
—

 
(332,288
)
 
—

 
—

 
—

 
—

Originations
—

 
346,560

 
4,797

 
—

 
—

 
—

Principal paydowns / settlements
(2
)
 
(12
)
 
(13,159
)
 
—

 
306

 
—

Asset (liability) balance, December 31, 2018
$
4

 
$
18,070

 
$
16,835

 
$
624

 
$
(583
)
 
$
(26
)
 
Fair Value Option

TCF Bank originates first mortgage lien loans in its primary banking markets and sells the loans through correspondent relationships. TCF elected the fair value option for these loans. This election facilitates the offsetting of changes in fair value of the loans held for sale and the derivative financial instruments used to economically hedge them. The difference between the aggregate fair value and aggregate unpaid principal balance of these loans held for sale was as follows:
 
At December 31,
(In thousands)
2018
 
2017
Fair value carrying amount
$
18,070

 
$
3,356

Aggregate unpaid principal amount
17,517

 
3,268

Fair value carrying amount less aggregate unpaid principal
$
553

 
$
88


Differences between the fair value carrying amount and the aggregate unpaid principal balance include changes in fair value recorded at and subsequent to funding and gains and losses on the related loan commitment prior to funding. No loans recorded under the fair value option were delinquent or on non-accrual status at December 31, 2018 and 2017. The net gain from initial measurement of the correspondent lending loans held for sale, any subsequent changes in fair value while the loans are outstanding and any actual adjustment to the gains realized upon sales of the loans totaled $10.0 million, $4.9 million and $7.6 million for 2018, 2017 and 2016, respectively, and are included in net gains on sales of loans. These amounts exclude the impacts from the interest rate lock commitments and forward loan sales commitments which are also included in net gains on sales of loans.



114

Disclosures About Fair Value of Financial Instruments

Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at December 31, 2018 and 2017 based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, given there is no active market or observable market transactions for many of the Company's financial instruments, the estimates of fair values are subjective in nature, involve uncertainties and include matters of significant judgment. Changes in assumptions could significantly affect the estimated values.

The carrying amounts and estimated fair values of the Company's financial instruments, excluding short-term financial assets and liabilities as their carrying amounts approximate fair value, and excluding financial instruments recorded at fair value on a recurring basis, were as follows. This information represents only a portion of TCF's balance sheet and not the estimated value of the Company as a whole. Non-financial instruments such as the intangible value of TCF's branches and core deposits, leasing operations, goodwill, premises and equipment and the future revenues from TCF's customers are not reflected in this disclosure. Therefore, this information is of limited use in assessing the value of TCF.
 
At December 31, 2018
 
Carrying
 
Estimated Fair Value
(In thousands)
Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial instrument assets:
 

 
 

 
 

 
 

 
 

Investments
$
91,654

 
$
—

 
$
91,654

 
$
—

 
$
91,654

Debt securities held to maturity
148,852

 
—

 
146,467

 
2,800

 
149,267

Loans held for sale
72,594

 
—

 
—

 
74,078

 
74,078

Loans:
 

 
 

 
 

 
 

 
 
Consumer real estate
5,410,340

 
—

 
—

 
5,461,209

 
5,461,209

Commercial real estate
2,908,147

 
—

 
—

 
2,872,829

 
2,872,829

Commercial business
943,156

 
—

 
—

 
890,828

 
890,828

Equipment finance
2,169,577

 
—

 
—

 
2,131,147

 
2,131,147

Inventory finance
3,107,356

 
—

 
—

 
3,091,593

 
3,091,593

Auto finance
1,982,277

 
—

 
—

 
1,935,017

 
1,935,017

Other
21,295

 
—

 
—

 
16,928

 
16,928

Allowance for loan losses(1)
(157,446
)
 
—

 
—

 
—

 
—

Securitization receivable(2)
19,432

 
—

 
—

 
19,025

 
19,025

Total financial instrument assets
$
16,717,234

 
$
—

 
$
238,121

 
$
16,495,454

 
$
16,733,575

Financial instrument liabilities:
 

 
 

 
 

 
 

 
 

Deposits
$
18,903,686

 
$
14,113,006

 
$
4,820,442

 
$
—

 
$
18,933,448

Long-term borrowings
1,449,472

 
—

 
1,451,550

 
—

 
1,451,550

Total financial instrument liabilities
$
20,353,158

 
$
14,113,006

 
$
6,271,992

 
$
—

 
$
20,384,998

Financial instruments with off-balance sheet risk:(3)
 

 
 

 
 

 
 

 
 

Commitments to extend credit
$
18,555

 
$
—

 
$
18,555

 
$
—

 
$
18,555

Standby letters of credit
(77
)
 
—

 
(77
)
 
—

 
(77
)
Total financial instruments with off-balance sheet risk
$
18,478

 
$
—

 
$
18,478

 
$
—

 
$
18,478

(1)
Expected credit losses are included in the estimated fair values.
(2)
Carrying amounts are included in other assets.
(3)
Positive amounts represent assets, negative amounts represent liabilities.



115

 
At December 31, 2017
 
Carrying
 
Estimated Fair Value
(In thousands)
Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial instrument assets:
 

 
 

 
 

 
 

 
 

Investments
$
82,644

 
$
—

 
$
82,644

 
$
—

 
$
82,644

Debt securities held to maturity
161,576

 
—

 
162,826

 
2,800

 
165,626

Loans held for sale
134,752

 
—

 
—

 
139,458

 
139,458

Loans:
 

 
 

 
 

 
 

 
 
Consumer real estate
4,819,696

 
—

 
—

 
4,916,475

 
4,916,475

Commercial real estate
2,751,285

 
—

 
—

 
2,710,237

 
2,710,237

Commercial business
809,908

 
—

 
—

 
776,989

 
776,989

Equipment finance
2,300,479

 
—

 
—

 
2,260,692

 
2,260,692

Inventory finance
2,739,754

 
—

 
—

 
2,723,045

 
2,723,045

Auto finance
3,199,639

 
—

 
—

 
3,197,794

 
3,197,794

Other
22,517

 
—

 
—

 
21,129

 
21,129

Allowance for loan losses(1)
(171,041
)
 
—

 
—

 
—

 
—

Securitization receivable(2)
19,179

 
—

 
—

 
18,595

 
18,595

Total financial instrument assets
$
16,870,388

 
$
—

 
$
245,470

 
$
16,767,214

 
$
17,012,684

Financial instrument liabilities:
 

 
 

 
 

 
 

 
 

Deposits
$
18,335,002

 
$
13,352,731

 
$
5,023,526

 
$
—

 
$
18,376,257

Long-term borrowings
1,249,449

 
—

 
1,255,333

 
—

 
1,255,333

Total financial instrument liabilities
$
19,584,451

 
$
13,352,731

 
$
6,278,859

 
$
—

 
$
19,631,590

Financial instruments with off-balance sheet risk:(3)
 

 
 

 
 

 
 

 
 

Commitments to extend credit
$
19,423

 
$
—

 
$
19,423

 
$
—

 
$
19,423

Standby letters of credit
(83
)
 
—

 
(83
)
 
—

 
(83
)
Total financial instruments with off-balance sheet risk
$
19,340

 
$
—

 
$
19,340

 
$
—

 
$
19,340

(1)
Expected credit losses are included in the estimated fair values.
(2)
Carrying amounts are included in other assets.
(3)
Positive amounts represent assets, negative amounts represent liabilities.



116

Note 22.  Earnings Per Common Share

The computations of basic and diluted earnings per common share were as follows:
 
Year Ended December 31,
(Dollars in thousands, except per share data)
2018
 
2017
 
2016
Basic Earnings Per Common Share:
 

 
 

 
 
Net income attributable to TCF Financial Corporation
$
304,358

 
$
268,637

 
$
212,124

Preferred stock dividends
11,588

 
19,904

 
19,388

Impact of preferred stock redemption(1)
3,481

 
5,779

 
—

Net income available to common stockholders
289,289

 
242,954

 
192,736

Less: Earnings allocated to participating securities
42

 
42

 
49

Earnings allocated to common stock
$
289,247

 
$
242,912

 
$
192,687

Weighted-average common shares outstanding used in basic earnings per common share calculation
165,585,493

 
168,679,501

 
167,219,964

Basic earnings per common share
$
1.75

 
$
1.44

 
$
1.15

 
 
 
 
 
 
Diluted Earnings Per Common Share:
 

 
 

 
 
Earnings allocated to common stock
$
289,247

 
$
242,912

 
$
192,687

Weighted-average common shares outstanding used in basic earnings per common share calculation
165,585,493

 
168,679,501

 
167,219,964

Net dilutive effect of:
 

 
 

 
 

Non-participating restricted stock
600,884

 
353,610

 
505,162

Stock options
2,332

 
28,625

 
82,325

Warrants
372,996

 
27,508

 
—

Weighted-average common shares outstanding used in diluted earnings per common share calculation
166,561,705

 
169,089,244

 
167,807,451

Diluted earnings per common share
$
1.74

 
$
1.44

 
$
1.15

(1)
Amounts represent the deferred stock issuance costs originally recorded in preferred stock that were reclassified to retained earnings.

For 2018 and 2017, there were 878,366 and 750,623, respectively, outstanding shares related to non-participating restricted stock that were not included in the computation of diluted earnings per common share because they were anti-dilutive. For 2016, there were 4,707,629 outstanding shares related to warrants and non-participating restricted stock that were not included in the computation of diluted earnings per common share because they were anti-dilutive. 



117

Note 23. Other Non-interest Expense

Other non-interest expense was as follows:
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Consumer Financial Protection Bureau and OCC settlement charge(1)
$
32,000

 
$
—

 
$
—

Advertising and marketing
28,120

 
26,927

 
22,264

Professional fees
21,529

 
33,070

 
19,335

Outside processing
20,574

 
20,473

 
15,313

Card processing and issuance costs
17,461

 
18,325

 
15,856

FDIC insurance
15,056

 
16,049

 
15,912

Loan and lease processing
13,649

 
22,149

 
26,193

Severance
6,324

 
22,299

 
5,280

Goodwill impairment
—

 
73,041

 
—

Other
105,933

 
114,523

 
110,244

Total other non-interest expense
$
260,646

 
$
346,856

 
$
230,397

(1)
See Note 26. Litigation Contingencies for further information.

Note 24. Business Segments
 
The Company's reportable segments are Consumer Banking, Wholesale Banking and Enterprise Services. Consumer Banking is comprised of all of the Company's consumer-facing businesses and includes retail banking, consumer real estate and other, and auto finance. Wholesale Banking is comprised of commercial banking, leasing and equipment finance, and inventory finance. Enterprise Services is comprised of (i) corporate treasury, which includes TCF's investment and borrowing portfolios and management of capital, debt and market risks; (ii) corporate functions, such as information technology, risk and credit management, bank operations, finance, investor relations, corporate development, internal audit, legal and human capital management that provide services to the operating segments; (iii) the Holding Company and (iv) eliminations.
 
TCF evaluates performance and allocates resources based on each reportable segment's net income or loss. The reportable business segments follow GAAP as described in Note 1. Basis of Presentation, 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. TCF generally accounts for inter-segment sales and transfers at cost.



118

Certain information for each of TCF's reportable segments, including reconciliations of TCF's consolidated totals, was as follows:
(In thousands)
Consumer Banking
 
Wholesale Banking
 
Enterprise Services
 
Consolidated
At or For the Year Ended December 31, 2018:
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Loans and leases
$
430,762

 
$
638,188

 
$
(3,813
)
 
$
1,065,137

Debt securities available for sale
—

 
—

 
54,574

 
54,574

Debt securities held to maturity
—

 
91

 
3,879

 
3,970

Loans held for sale and other
10,413

 
306

 
7,864

 
18,583

Funds transfer pricing - credits
404,770

 
35,370

 
(440,140
)
 
—

Total interest income
845,945

 
673,955

 
(377,636
)
 
1,142,264

Interest expense:
 
 
 
 
 
 
 
Deposits
79,680

 
9,611

 
17,822

 
107,113

Borrowings
43,398

 
79,660

 
(79,914
)
 
43,144

Funds transfer pricing - charges
166,787

 
205,001

 
(371,788
)
 
—

Total interest expense
289,865

 
294,272

 
(433,880
)
 
150,257

Net interest income (expense)
556,080

 
379,683

 
56,244

 
992,007

Provision for credit losses
24,922

 
21,846

 
—

 
46,768

Net interest income (expense) after provision for credit losses
531,158

 
357,837

 
56,244

 
945,239

Non-interest income:
 
 
 
 
 
 
 
Leasing and equipment finance
—

 
185,107

 
—

 
185,107

Fees and service charges
119,541

 
12,660

 
—

 
132,201

Card revenue
58,811

 
53

 
—

 
58,864

ATM revenue
19,687

 
3

 
—

 
19,690

Gains on sales of loans, net
33,488

 
10

 
—

 
33,498

Servicing fee income
26,042

 
1,292

 
—

 
27,334

Gains (losses) on debt securities, net
—

 
221

 
127

 
348

Other
11,611

 
1,201

 
1,031

 
13,843

Total non-interest income
269,180

 
200,547

 
1,158

 
470,885

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
215,548

 
94,709

 
186,806

 
497,063

Occupancy and equipment
105,000

 
20,141

 
40,671

 
165,812

Operating lease depreciation
—

 
73,829

 
—

 
73,829

Foreclosed real estate and repossessed assets, net
14,600

 
2,443

 
7

 
17,050

Other
331,600

 
120,824

 
(191,778
)
 
260,646

Total non-interest expense
666,748

 
311,946

 
35,706

 
1,014,400

Income (loss) before income tax expense (benefit)
133,590

 
246,438

 
21,696

 
401,724

Income tax expense (benefit)
30,706

 
53,614

 
1,776

 
86,096

Income (loss) after income tax expense (benefit)
102,884

 
192,824

 
19,920

 
315,628

Income attributable to non-controlling interest
—

 
11,270

 
—

 
11,270

Preferred stock dividends
—

 
—

 
11,588

 
11,588

Impact of preferred stock redemption
—

 
—

 
3,481

 
3,481

Net income (loss) available to common stockholders
$
102,884

 
$
181,554

 
$
4,851

 
$
289,289

Revenues from external customers:
 
 
 
 
 
 
 
Interest income
$
441,175

 
$
634,772

 
$
66,317

 
$
1,142,264

Non-interest income
269,180

 
200,547

 
1,158

 
470,885

Total
$
710,355

 
$
835,319

 
$
67,475

 
$
1,613,149

 
 
 
 
 
 
 
 
Total assets
$
8,193,021

 
$
12,229,071

 
$
3,277,520

 
$
23,699,612



119

(In thousands)
Consumer Banking
 
Wholesale Banking
 
Enterprise Services
 
Consolidated
At or For the Year Ended December 31, 2017:
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Loans and leases
$
433,627

 
$
527,141

 
$
(6,522
)
 
$
954,246

Debt securities available for sale
—

 
—

 
33,278

 
33,278

Debt securities held to maturity
—

 
101

 
4,335

 
4,436

Loans held for sale and other
22,698

 
81

 
4,318

 
27,097

Funds transfer pricing - credits
367,149

 
25,499

 
(392,648
)
 
—

Total interest income
823,474

 
552,822

 
(357,239
)
 
1,019,057

Interest expense:
 
 
 
 
 
 
 
Deposits
55,237

 
2,745

 
8,030

 
66,012

Borrowings
49,879

 
47,460

 
(69,532
)
 
27,807

Funds transfer pricing - charges
143,748

 
143,336

 
(287,084
)
 
—

Total interest expense
248,864

 
193,541

 
(348,586
)
 
93,819

Net interest income (expense)
574,610

 
359,281

 
(8,653
)
 
925,238

Provision for credit losses
48,227

 
20,216

 
—

 
68,443

Net interest income (expense) after provision for credit losses
526,383

 
339,065

 
(8,653
)
 
856,795

Non-interest income:
 
 
 
 
 
 
 
Leasing and equipment finance
—

 
145,039

 
—

 
145,039

Fees and service charges
121,728

 
10,159

 
—

 
131,887

Card revenue
55,728

 
4

 
—

 
55,732

ATM revenue
19,621

 
3

 
—

 
19,624

Gains on sales of loans, net
42,787

 
—

 
—

 
42,787

Servicing fee income
39,996

 
1,351

 
—

 
41,347

Gains (losses) on debt securities, net
—

 
237

 
—

 
237

Other
10,135

 
1,192

 
319

 
11,646

Total non-interest income
289,995

 
157,985

 
319

 
448,299

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
224,420

 
86,397

 
171,695

 
482,512

Occupancy and equipment
109,848

 
20,402

 
26,659

 
156,909

Operating lease depreciation
—

 
55,901

 
—

 
55,901

Foreclosed real estate and repossessed assets, net
14,097

 
3,279

 
380

 
17,756

Other
395,364

 
111,452

 
(159,960
)
 
346,856

Total non-interest expense
743,729

 
277,431

 
38,774

 
1,059,934

Income (loss) before income tax expense (benefit)
72,649

 
219,619

 
(47,108
)
 
245,160

Income tax expense (benefit)
49,513

 
(68,883
)
 
(14,254
)
 
(33,624
)
Income (loss) after income tax expense (benefit)
23,136

 
288,502

 
(32,854
)
 
278,784

Income attributable to non-controlling interest
—

 
10,147

 
—

 
10,147

Preferred stock dividends
—

 
—

 
19,904

 
19,904

Impact of preferred stock redemption
—

 
—

 
5,779

 
5,779

Net income (loss) available to common stockholders
$
23,136

 
$
278,355

 
$
(58,537
)
 
$
242,954

Revenues from external customers:
 
 
 
 
 
 
 
Interest income
$
456,325

 
$
520,801

 
$
41,931

 
$
1,019,057

Non-interest income
289,995

 
157,985

 
319

 
448,299

Total
$
746,320

 
$
678,786

 
$
42,250

 
$
1,467,356

 
 
 
 
 
 
 
 
Total assets
$
8,894,798

 
$
11,571,587

 
$
2,535,774

 
$
23,002,159




120

(In thousands)
Consumer Banking
 
Wholesale Banking
 
Enterprise Services
 
Consolidated
At or For the Year Ended December 31, 2016:
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Loans and leases
$
397,886

 
$
457,908

 
$
(5,248
)
 
$
850,546

Debt securities available for sale
—

 
—

 
26,573

 
26,573

Debt securities held to maturity
—

 
172

 
4,477

 
4,649

Loans held for sale and other
46,073

 
50

 
2,839

 
48,962

Funds transfer pricing - credits
352,096

 
21,452

 
(373,548
)
 
—

Total interest income
796,055

 
479,582

 
(344,907
)
 
930,730

Interest expense:
 
 
 
 
 
 
 
Deposits
56,105

 
1,014

 
4,669

 
61,788

Borrowings
42,595

 
25,104

 
(46,863
)
 
20,836

Funds transfer pricing - charges
137,504

 
109,811

 
(247,315
)
 
—

Total interest expense
236,204

 
135,929

 
(289,509
)
 
82,624

Net interest income (expense)
559,851

 
343,653

 
(55,398
)
 
848,106

Provision for credit losses
50,819

 
15,055

 
—

 
65,874

Net interest income (expense) after provision for credit losses
509,032

 
328,598

 
(55,398
)
 
782,232

Non-interest income:
 
 
 
 
 
 
 
Leasing and equipment finance
—

 
119,166

 
—

 
119,166

Fees and service charges
130,542

 
7,122

 
—

 
137,664

Card revenue
54,879

 
3

 
—

 
54,882

ATM revenue
20,441

 
4

 
—

 
20,445

Gains on sales of loans, net
85,205

 
54

 
—

 
85,259

Servicing fee income
38,560

 
1,622

 
—

 
40,182

Gains (losses) on debt securities, net
—

 
(581
)
 
—

 
(581
)
Other
7,364

 
1,491

 
28

 
8,883

Total non-interest income
336,991

 
128,881

 
28

 
465,900

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
243,445

 
84,692

 
147,827

 
475,964

Occupancy and equipment
96,512

 
10,954

 
42,514

 
149,980

Operating lease depreciation
—

 
40,359

 
—

 
40,359

Foreclosed real estate and repossessed assets, net
10,552

 
2,035

 
600

 
13,187

Other
301,951

 
109,075

 
(180,629
)
 
230,397

Total non-interest expense
652,460

 
247,115

 
10,312

 
909,887

Income (loss) before income tax expense (benefit)
193,563

 
210,364

 
(65,682
)
 
338,245

Income tax expense (benefit)
69,523

 
70,805

 
(23,800
)
 
116,528

Income (loss) after income tax expense (benefit)
124,040

 
139,559

 
(41,882
)
 
221,717

Income attributable to non-controlling interest
—

 
9,593

 
—

 
9,593

Preferred stock dividends
—

 
—

 
19,388

 
19,388

Net income (loss) available to common stockholders
$
124,040

 
$
129,966

 
$
(61,270
)
 
$
192,736

Revenues from external customers:
 
 
 
 
 
 
 
Interest income
$
443,959

 
$
452,882

 
$
33,889

 
$
930,730

Non-interest income
336,991

 
128,881

 
28

 
465,900

Total
$
780,950

 
$
581,763

 
$
33,917

 
$
1,396,630

 
 
 
 
 
 
 
 
Total assets
$
8,885,412

 
$
10,391,305

 
$
2,164,609

 
$
21,441,326

 


121

Note 25.  Parent Company Financial Information

TCF Financial's condensed statements of financial condition, income and cash flows were as follows:

Condensed Statements of Financial Condition
 
At December 31,
(In thousands)
2018
 
2017
Assets:
 
 
 
Cash and due from banks
$
91,132

 
$
80,471

Investment in TCF Bank
2,426,329

 
2,563,552

Accounts receivable from TCF Bank
23,780

 
22,015

Other assets
4,253

 
5,739

Total assets
$
2,545,494

 
$
2,671,777

Liabilities and Equity:
 
 
 
Accrued expenses and other liabilities
$
7,693

 
$
9,020

Total liabilities
7,693

 
9,020

Equity
2,537,801

 
2,662,757

Total liabilities and equity
$
2,545,494

 
$
2,671,777


Condensed Statements of Income
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Interest income
$
200

 
$
183

 
$
155

Non-interest income:
 
 
 
 
 
Dividends from TCF Bank
431,000

 
65,000

 
63,000

Management fees
20,532

 
15,660

 
17,657

Other
426

 
13

 
5

Total non-interest income
451,958

 
80,673

 
80,662

Non-interest expense:
 
 
 
 
 
Compensation and employee benefits
21,825

 
17,801

 
17,578

Occupancy and equipment
301

 
275

 
370

Other
4,139

 
1,785

 
3,545

Total non-interest expense
26,265

 
19,861

 
21,493

Income before income tax benefit and equity in undistributed earnings (loss) of TCF Bank
425,893

 
60,995

 
59,324

Income tax benefit
952

 
1,575

 
1,010

Income before equity in undistributed earnings (loss) of TCF Bank
426,845

 
62,570

 
60,334

Equity in undistributed earnings (loss) of TCF Bank
(122,487
)
 
206,067

 
151,790

Net income
304,358

 
268,637

 
212,124

Preferred stock dividends
11,588

 
19,904

 
19,388

Impact of preferred stock redemption
3,481

 
5,779

 
—

Net income available to common stockholders
$
289,289

 
$
242,954

 
$
192,736




122

Condensed Statements of Cash Flows
 
Year Ended December 31,
(In thousands)
2018
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
 
Net income
$
304,358

 
$
268,637

 
$
212,124

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
 
Equity in undistributed (earnings) loss of TCF Bank
122,487

 
(206,067
)
 
(151,790
)
 Depreciation and amortization
4,986

 
9,110

 
4,734

 Provision (benefit) for deferred income taxes
(583
)
 
4,690

 
(592
)
Gains on sales of assets, net
(402
)
 
—

 
—

Net change in other assets and accrued expenses and other liabilities
379

 
(2,494
)
 
1,032

Other, net
3,001

 
(3,408
)
 
(443
)
Net cash provided by (used in) operating activities
434,226

 
70,468

 
65,065

Cash flows from investing activities:
 
 
 
 
 
Purchases of premises and equipment
(3
)
 
(23
)
 
(69
)
Proceeds from sales of assets
727

 
—

 
22

Net cash provided by (used in) investing activities
724

 
(23
)
 
(47
)
Cash flows from financing activities:
 
 
 
 
 
Redemption of Series B preferred stock
(100,000
)
 
—

 
—

Net proceeds from public offering of Series C preferred stock
—

 
169,302

 
—

Redemption of Series A preferred stock
—

 
(172,500
)
 
—

Repurchases of common stock
(212,929
)
 
(9,163
)
 
—

Common shares sold to TCF employee benefit plans
715

 
23,254

 
5,838

Dividends paid on preferred stock
(11,588
)
 
(19,904
)
 
(19,388
)
Dividends paid on common stock
(99,490
)
 
(50,617
)
 
(50,182
)
Stock compensation tax (expense) benefit
—

 
—

 
(377
)
Exercise of stock options
(997
)
 
(57
)
 
(701
)
Net cash provided by (used in) financing activities
(424,289
)
 
(59,685
)
 
(64,810
)
Net change in cash and due from banks
10,661

 
10,760

 
208

Cash and due from banks at beginning of period
80,471

 
69,711

 
69,503

Cash and due from banks at end of period
$
91,132

 
$
80,471

 
$
69,711


TCF Financial's operations are conducted through its banking subsidiary, TCF Bank. As a result, TCF Financial's cash flows and ability to make dividend payments to its preferred and common stockholders depend on the earnings of TCF Bank. The ability of TCF Bank to pay dividends or make other payments to TCF Financial is limited by its obligation to maintain sufficient capital and by other regulatory restrictions on dividends. At December 31, 2018, TCF Bank could pay $235.4 million in additional dividends to TCF Financial without prior regulatory approval. See Note 16.  Regulatory Capital Requirements of Notes to Consolidated Financial Statements for further information.



123

Note 26.  Litigation Contingencies

From time to time TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations, including foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to regulatory examinations and enforcement actions brought by federal regulators, including the Securities and Exchange Commission, the Federal Reserve, the OCC and the Consumer Financial Protection Bureau (the "CFPB") which may impose sanctions on TCF for failures related to regulatory compliance. From time to time borrowers and other customers, and employees and former employees have also brought actions against TCF, in some cases claiming substantial damages. TCF and other financial services companies are subject to the risk of class action litigation. Litigation is often unpredictable and the actual results of litigation cannot be determined and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established. Based on our current understanding of TCF's pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of TCF.

On January 19, 2017, the CFPB filed a civil lawsuit against TCF Bank in the United States District Court for the District of Minnesota (the "Court"), captioned Consumer Financial Protection Bureau v. TCF National Bank, alleging violations of the Consumer Financial Protection Act (the "CFPA") and Regulation E, §1005.17 in connection with TCF Bank's practices administering checking account overdraft program "opt-in" requirements from 2010 to early 2014. On September 8, 2017, the Court issued a ruling on the motion made by TCF Bank to dismiss the complaint of the CFPB. In its ruling, the Court granted TCF Bank's motion to dismiss the CFPB's Regulation E claims and also dismissed the CFPB's unfair, deceptive and abusive conduct claims under the CFPA for periods prior to July 21, 2011. On July 20, 2018, TCF Bank entered into a Stipulated Final Judgment and Order (the "CFPB Settlement") with the CFPB to resolve the matter and has entered into a Consent Order and a Consent Order For a Civil Money Penalty and related stipulations (collectively, the "OCC Consent Orders") with the OCC to resolve related regulatory issues with the OCC (collectively, the CFPB Settlement and the OCC Consent Orders are referred to herein as the "Consent Agreements"). The Consent Agreements provide, among other things, for TCF Bank to submit a restitution plan to the CFPB and OCC pursuant to which TCF Bank will pay restitution in the total amount of $25.0 million to certain current and former customers and require a notice to certain customers opted-in to overdraft service reminding them of their current opt-in choice. TCF is working toward completion of the restitution plan and expects to satisfy all the requirements in a timely fashion and in accordance with the terms of the CFPB Settlement and the restitution plan. Pursuant to the Consent Agreements, TCF Bank paid $5.0 million in civil money penalties, $3.0 million of which was paid to the OCC and $2.0 million of which was paid to the CFPB. In addition, TCF Bank expects to incur approximately $2.0 million in administrative costs related to the administration of the restitution plan required under the Consent Agreements.



124

Note 27.  Accumulated Other Comprehensive Income (Loss)
 
The components of other comprehensive income (loss), reclassifications from accumulated other comprehensive income (loss) to various financial statement line items and the related tax effects were as follows:
(In thousands)
Before Tax
 
Tax Effect
 
Net of Tax
Year Ended December 31, 2018:
 

 
 

 
 

Net unrealized gains (losses) on debt securities available for sale and interest-only strips:
 
 
 
 
 
Net unrealized gains (losses) arising during the period
$
(16,373
)
 
$
4,002

 
$
(12,371
)
Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
 
 
 
 
 
Total interest income
1,066

 
(335
)
 
731

Gains (losses) on debt securities, net
(127
)
 
31

 
(96
)
Other non-interest expense
90

 
(23
)
 
67

Amounts reclassified from accumulated other comprehensive income (loss)
1,029

 
(327
)
 
702

Net unrealized gains (losses) on debt securities available for sale and interest-only strips
(15,344
)
 
3,675

 
(11,669
)
Net unrealized gains (losses) on net investment hedges
13,762

 
(3,312
)
 
10,450

Foreign currency translation adjustment(1)
(13,368
)
 
—

 
(13,368
)
Recognized postretirement prior service cost:
 

 
 

 
 

Reclassification of amortization of prior service cost to Other non-interest expense
(46
)
 
12

 
(34
)
Total other comprehensive income (loss)
$
(14,996
)
 
$
375

 
$
(14,621
)
Year Ended December 31, 2017:
 

 
 

 
 

Net unrealized gains (losses) on debt securities available for sale and interest-only strips:
 
 
 
 
 
Net unrealized gains (losses) arising during the period
$
24,244

 
$
(8,857
)
 
$
15,387

Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
 
 
 
 
 
Total interest income
963

 
572

 
1,535

Other non-interest expense
(755
)
 
287

 
(468
)
Amounts reclassified from accumulated other comprehensive income (loss)
208

 
859

 
1,067

Net unrealized gains (losses) on debt securities available for sale and interest-only strips
24,452

 
(7,998
)
 
16,454

Net unrealized gains (losses) on net investment hedges
(4,430
)
 
1,684

 
(2,746
)
Foreign currency translation adjustment(1)
4,921

 
—

 
4,921

Recognized postretirement prior service cost:
 

 
 

 
 

Reclassification of amortization of prior service cost to Other non-interest expense
(46
)
 
17

 
(29
)
Total other comprehensive income (loss)
$
24,897

 
$
(6,297
)
 
$
18,600

Year Ended December 31, 2016:
 
 
 
 
 
Net unrealized gains (losses) on debt securities available for sale and interest-only strips:
 
 
 
 
 
Net unrealized gains (losses) arising during the period
$
(32,408
)
 
$
12,323

 
$
(20,085
)
Reclassification of net (gains) losses from accumulated other comprehensive income (loss) to:
 
 
 
 
 
Total interest income
1,764

 
(665
)
 
1,099

Other non-interest expense
149

 
(57
)
 
92

Amounts reclassified from accumulated other comprehensive income (loss)
1,913

 
(722
)
 
1,191

Net unrealized gains (losses) on debt securities available for sale and interest-only strips
(30,495
)
 
11,601

 
(18,894
)
Net unrealized gains (losses) on net investment hedges
(1,213
)
 
457

 
(756
)
Foreign currency translation adjustment(1)
1,300

 
—

 
1,300

Recognized postretirement prior service cost:
 

 
 

 
 

Reclassification of amortization of prior service cost to Other non-interest expense
(46
)
 
17

 
(29
)
Total other comprehensive income (loss)
$
(30,454
)
 
$
12,075

 
$
(18,379
)
(1)
Foreign investments are deemed to be permanent in nature and, therefore, TCF does not provide for taxes on foreign currency translation adjustments.
 


125

Reclassifications of net (gains) losses from accumulated other comprehensive income (loss) for debt securities available for sale and interest-only strips were recorded in the Consolidated Statements of Income in interest income for those debt securities that were previously transferred to held to maturity, in gains (losses) on debt securities, net for sales of debt securities available for sale and in other non-interest expense for interest-only strips. During 2014, TCF transferred $191.7 million of available for sale mortgage-backed debt securities to held to maturity. At December 31, 2018 and 2017, the unrealized holding loss on the transferred debt securities retained in accumulated other comprehensive income (loss) totaled $11.0 million and $12.1 million, respectively. These amounts are amortized over the remaining lives of the transferred debt securities. The tax effects of the reclassifications included in the table above were recorded in income tax expense (benefit) in the Consolidated Statements of Income.
 
The components of accumulated other comprehensive income (loss) were as follows:
(In thousands)
Net Unrealized Gains (Losses) on Debt Securities Available for Sale and Interest-only Strips
 
Net Unrealized Gains (Losses) on Net
Investment
Hedges
 
Foreign
Currency
Translation Adjustment
 
Recognized
Postretirement Prior
Service Cost
 
Total
At or For the Year Ended December 31, 2018:
 

 
 

 
 

 
 

 
 

Balance, beginning of period
$
(16,353
)
 
$
4,536

 
$
(6,843
)
 
$
143

 
$
(18,517
)
Other comprehensive income (loss)
(12,371
)
 
10,450

 
(13,368
)
 
—

 
(15,289
)
Amounts reclassified from accumulated other comprehensive income (loss)
702

 
—

 
—

 
(34
)
 
668

Net other comprehensive income (loss)
(11,669
)
 
10,450

 
(13,368
)
 
(34
)
 
(14,621
)
Balance, end of period
$
(28,022
)
 
$
14,986

 
$
(20,211
)
 
$
109

 
$
(33,138
)
At or For the Year Ended December 31, 2017:
 

 
 

 
 

 
 

 
 

Balance, beginning of period
$
(28,601
)
 
$
6,493

 
$
(11,764
)
 
$
147

 
$
(33,725
)
Other comprehensive income (loss)
15,387

 
(2,746
)
 
4,921

 
—

 
17,562

Amounts reclassified from accumulated other comprehensive income (loss)
1,067

 
—

 
—

 
(29
)
 
1,038

Net other comprehensive income (loss)
16,454

 
(2,746
)
 
4,921

 
(29
)
 
18,600

Adoption impact of ASU 2018-02
(4,206
)
 
789

 
—

 
25

 
(3,392
)
Balance, end of period
$
(16,353
)
 
$
4,536

 
$
(6,843
)
 
$
143

 
$
(18,517
)
At or For the Year Ended December 31, 2016:
 

 
 

 
 

 
 

 
 

Balance, beginning of period
$
(9,707
)
 
$
7,249

 
$
(13,064
)
 
$
176

 
$
(15,346
)
Other comprehensive income (loss)
(20,085
)
 
(756
)
 
1,300

 
—

 
(19,541
)
Amounts reclassified from accumulated other comprehensive income (loss)
1,191

 
—

 
—

 
(29
)
 
1,162

Net other comprehensive income (loss)
(18,894
)
 
(756
)
 
1,300

 
(29
)
 
(18,379
)
Balance, end of period
$
(28,601
)
 
$
6,493

 
$
(11,764
)
 
$
147

 
$
(33,725
)

Note 28. Pending Merger with Chemical Financial Corporation

On January 28, 2019, TCF entered into an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Financial Corporation ("Chemical"), a bank holding company with $21.5 billion in assets, headquartered in Detroit, Michigan. The merger is expected to close in late 2019, subject to satisfaction of customary closing conditions, including regulatory approvals and approval by the shareholders of TCF and Chemical. Under the terms of the Merger Agreement, which has been unanimously approved by the boards of directors of both companies, each outstanding share of TCF common stock will be converted into the right to receive, without interest, 0.5081 shares of Chemical common stock. Also, at the effective time of the merger, each outstanding share of the 5.70% Series C non-cumulative perpetual preferred stock of TCF will be converted into the right to receive, without interest, one share of a newly created series of preferred stock of Chemical with equivalent rights and preferences (the "New Chemical Preferred Stock"). The shares of Chemical common stock and the New Chemical Preferred Stock to be issued in the merger will be listed on the Nasdaq. Following the completion of the merger, TCF and Chemical shareholders will own approximately 54% and 46% of the combined company, respectively, on a fully diluted basis.



126

Other Financial Data

The selected quarterly financial data presented below should be read in conjunction with the Consolidated Financial Statements and related notes.

Selected Quarterly Financial Data (Unaudited)
 
Quarter Ended
(In thousands, except per share data)
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Net interest income
$
248,888

$
249,121

$
250,799

$
243,199

$
241,860

$
234,103

$
227,161

$
222,114

Provision for credit losses
18,894

2,270

14,236

11,368

22,259

14,545

19,446

12,193

Net interest income after provision for credit losses
229,994

246,851

236,563

231,831

219,601

219,558

207,715

209,921

Non-interest income
128,133

116,445

114,103

112,204

120,892

109,230

114,663

103,514

Non-interest expense
249,958

246,423

272,039

245,980

347,806

235,035

233,087

244,006

Income (loss) before income tax expense (benefit)
108,169

116,873

78,627

98,055

(7,313
)
93,753

89,291

69,429

Income tax expense (benefit)
20,013

28,034

16,418

21,631

(110,965
)
30,704

25,794

20,843

Income after income tax expense (benefit)
88,156

88,839

62,209

76,424

103,652

63,049

63,497

48,586

Income attributable to non-controlling interest
2,504

2,643

3,460

2,663

2,253

2,521

3,065

2,308

Net income attributable to TCF Financial Corporation
85,652

86,196

58,749

73,761

101,399

60,528

60,432

46,278

Preferred stock dividends
2,494

2,494

2,494

4,106

3,746

6,464

4,847

4,847

Impact of preferred stock redemption or notice to redeem preferred stock
—

—

—

3,481

—

5,779

—

—

Net income available to common stockholders
$
83,158

$
83,702

$
56,255

$
66,174

$
97,653

$
48,285

$
55,585

$
41,431

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
$
0.51

$
0.51

$
0.34

$
0.39

$
0.58

$
0.29

$
0.33

$
0.25

Diluted
0.51

0.51

0.34

0.39

0.57

0.29

0.33

0.25




127

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures
 
Disclosure Controls and Procedures  The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer), of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, management concluded that the Company's disclosure controls and procedures were effective as of December 31, 2018.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by TCF in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and Chief Accounting Officer (Principal Accounting Officer), as appropriate, to allow for timely decisions regarding required disclosure. TCF's disclosure controls also include internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and that transactions are properly recorded and reported.
 
Changes in Internal Control Over Financial Reporting  There were no changes to TCF's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2018, that materially affected, or are reasonably likely to materially affect, TCF's internal control over financial reporting.



128

Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for TCF Financial Corporation (the "Company"). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are only being made in accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

Management, with the participation of the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), completed an assessment of TCF's internal control over financial reporting as of December 31, 2018. This assessment was based on criteria for evaluating internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in May 2013. Based on this assessment, management concluded that TCF's internal control over financial reporting was effective as of December 31, 2018.

KPMG LLP, the Company's independent registered public accounting firm that audited the consolidated financial statements included in this annual report, has issued an unqualified attestation report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2018.

Any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system inherently has limitations and the benefits of controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Therefore, no assessment of a cost-effective system of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.





























129

Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
TCF Financial Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited TCF Financial Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 26, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Minneapolis, Minnesota
February 26, 2019


130

Item 9B. Other Information
 
None.
 
Part III

Item 10. Directors, Executive Officers and Corporate Governance

Information regarding directors and executive officers of TCF is set forth in the following sections of TCF's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to be held on April 24, 2019 ("2019 Proxy") and is incorporated herein by reference: Election of Directors; Background of Executive Officers Who Are Not Directors; and Section 16(a) Beneficial Ownership Reporting Compliance.

Information regarding procedures for nominations of directors is set forth in the following sections of TCF's 2019 Proxy and is incorporated herein by reference: Corporate Governance - Director Nominations; and Additional Information.

Audit Committee and Financial Expert

Information regarding TCF's Audit Committee, its members and financial experts is set forth in the following sections of TCF's 2019 Proxy and is incorporated herein by reference: Election of Directors - Background of the Nominees; Corporate Governance - Board Committees, Committee Memberships, and Meetings in 2018; and Corporate Governance - Audit Committee.

TCF's Board of Directors is required to determine whether it has at least one Audit Committee Financial Expert and that the expert is independent. An Audit Committee Financial Expert is a committee member who has an understanding of generally accepted accounting principles and financial statements and has the ability to assess the general application of these principles in connection with the accounting for estimates, accruals and reserves. Additionally, this individual should have experience preparing, auditing, analyzing or evaluating financial statements that present the breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by TCF's financial statements or experience actively supervising one or more persons engaged in such activities. The member should also have an understanding of internal control over financial reporting as well as an understanding of audit committee functions.

The Board has determined that all members of the Audit Committee, including Karen L. Grandstrand, George G. Johnson, Richard H. King, Vance K. Opperman, Roger J. Sit and Julie H. Sullivan, are independent and that Directors Johnson, Opperman, Sit and Sullivan each meet the requirements of audit committee financial experts. Additional information regarding Ms. Grandstrand, Mr. Johnson, Mr. King, Mr. Opperman, Mr. Sit and Dr. Sullivan and the other directors is set forth in the section Election of Directors - Background of the Nominees in TCF's 2019 Proxy and is incorporated herein by reference.

Code of Ethics for Senior Financial Management

TCF has adopted a code of ethics applicable to the Principal Executive Officer ("PEO"), Principal Financial Officer ("PFO") and Principal Accounting Officer ("PAO") (the "Senior Financial Management Code of Ethics") as well as a code of ethics generally applicable to all employees (including the PEO, PFO and PAO) and directors of TCF (the "Code of Ethics"). The Code of Ethics and the Senior Financial Management Code of Ethics are both available for review at TCF's website at www.tcfbank.com by clicking on "About TCF" and then "Learn More" under the heading "Corporate Governance" and then either "Code of Ethics Policy" or "Code of Ethics for Senior Financial Management". Any changes to either code will be posted on the website and any waivers granted to or violations by the PEO, PFO, PAO or any director of TCF will also be posted on TCF's website. To date, there have been no waivers granted to or violations by the PEO, PFO, PAO or any director of TCF.



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Item 11. Executive Compensation

Information regarding compensation of directors and executive officers of TCF is set forth in the following sections of TCF's 2019 Proxy and is incorporated herein by reference: Corporate Governance - Compensation, Nominating, and Corporate Governance Committee - Compensation Committee Interlocks and Insider Participation; Director Compensation; Compensation Discussion and Analysis; Compensation Committee Report; and Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding ownership of TCF's common stock by TCF's directors, executive officers and certain other stockholders and shares authorized under equity compensation plans is set forth in the following sections of TCF's 2019 Proxy and is incorporated herein by reference: Equity Compensation Plans Approved by Stockholders; and Ownership of TCF Stock.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information regarding director independence and certain relationships and transactions between TCF and certain related persons is set forth in the section entitled Corporate Governance - Director Independence and Related Person Transactions of TCF's 2019 Proxy and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information regarding principal accounting fees and services and the Audit Committee's pre-approval policies and procedures relating to audit and non-audit services provided by the Company's independent registered public accounting firm is set forth in the section entitled Independent Registered Public Accountants in TCF's 2019 Proxy and is incorporated herein by reference.

Part IV

Item 15. Exhibits, Financial Statement Schedules
1. Financial Statements
 
The following consolidated financial statements of TCF Financial Corporation are filed as part of this report:
 
 
 
Description
Page
 
 
2. Financial Statement Schedules
 
All financial statement schedules have been included in the Consolidated Financial Statements or the Notes thereto, or are either inapplicable or not required.
 


132

3. Exhibits
Exhibit Number
 
Description
2.1
 
Agreement and Plan of Merger by and between TCF Financial Corporation and Chemical Financial Corporation, dated as of January 27, 2019 [incorporated by reference to Exhibit 2.1 of TCF Financial Corporation's Current Report on Form 8–K filed January 28, 2019 (No.19546413)]
3(a)
 
Amended and Restated Certificate of Incorporation of TCF Financial Corporation [incorporated by reference to Exhibit 3.1 of TCF Financial Corporation’s Quarterly Report on Form 10-Q filed May 3, 2018 (No. 18803407)]
3(b)
 
Amended and Restated Bylaws of TCF Financial Corporation [incorporated by reference to Exhibit 3.1 to TCF Financial Corporation's Current Report on Form 8–K filed January 28, 2019 (No.19546413)]
4(a)
 
Specimen Common Stock Certificate of TCF Financial Corporation [incorporated by reference to Exhibit 4.3 to TCF Financial Corporation’s Registration Statement on Form S-3ASR filed May 29, 2012 (No. 12874917)]
4(b)
 
Form of Stock Certificate representing the Series C Non-Cumulative Perpetual Preferred Stock [incorporated by reference to Exhibit 4.1 to TCF Financial Corporation’s Current Report on Form 8-K filed September 14, 2017 (No. 171084863)]
4(c)
 
4(d)
 
Form of Depositary Receipt [included as part of Exhibit 4.2 to TCF Financial Corporation’s Current Report on Form 8-K filed September 14, 2017 (No. 171084863)]
4(e)
 
Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request.
10(a)*
 
Amended and Restated TCF Financial 2015 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation's Current Report on Form 8-K filed April 27, 2018 (No. 18784131)]
10(a)-1*
 
Form of Restricted Stock Award Agreement under the TCF Financial 2015 Omnibus Incentive Plan [incorporated by reference to Exhibit 10(a)-1 to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (No. 17624401)]
10(a)-2*
 
Form of Performance-Based Restricted Stock Award Agreement under the TCF Financial 2015 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.3 to TCF Financial Corporation’s Current Report on Form 8-K filed April 28, 2015 (No. 15798862)]
10(a)-3*
 
Form of Restricted Stock Unit Agreement under the TCF Financial 2015 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.4 to TCF Financial Corporation’s Current Report on Form 8-K filed April 28, 2015 (No. 15798862)]
10(a)-4*
 
Form of Performance-Based Restricted Stock Unit Agreement under the TCF Financial 2015 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.5 to TCF Financial Corporation’s Current Report on Form 8-K filed April 28, 2015 (No. 15798862)]
10(a)-5*
 
2015 Performance-Based Restricted Stock Unit Agreement under the TCF Financial 2015 Omnibus Incentive Plan entered into by certain executives [incorporated by reference to Exhibit 10.6 to TCF Financial Corporation’s Current Report on Form 8-K filed April 28, 2015 (No. 15798862)]
10(a)-6*#
 
10(a)-7*#
 
10(b)*
 
TCF Financial Incentive Stock Program, as amended and restated April 24, 2013 [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation’s Current Report on Form 8-K filed April 30, 2013 (No. 13797581)]
10(b)-1*
 
Form of Nonqualified Stock Option Award Agreement as executed by certain executives [incorporated by reference to Exhibit 10(b)-10 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2008 (No. 08551203)]
10(b)-2*
 
Form of Deferred Restricted Stock Award Agreement as executed by certain executives [incorporated by reference to Exhibit 10(b)-16 to TCF Financial Corporation’s Current Report on Form 8-K filed February 18, 2011 (No. 11625311)]
10(b)-3*
 
Form of Performance-Based Restricted Stock Award Agreement as executed by certain executives [incorporated by reference to Exhibit 10.3 to TCF Financial Corporation’s Current Report on Form 8-K filed January 20, 2012 (No. 12537269)]
10(c)*
 
TCF Performance-Based Compensation Policy for Covered Executive Officers, as approved effective January 1, 2013 [incorporated by reference to Exhibit 10.2 to TCF Financial Corporation’s Current Report on Form 8-K filed April 30, 2013 (No. 13797581)]
10(d)*
 
Employment Agreement between Craig R. Dahl and TCF Financial Corporation, effective as of April 25, 2018 [incorporated by reference to Exhibit 10.3 to TCF Financial Corporation’s Current Report on Form 8-K filed April 27, 2018 (No. 18784131)]
10(e)*
 
TCF Financial Corporation Supplemental Employee Retirement Plan - ESPP Plan as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(j) to TCF Financial Corporation’s Current Report on Form 8-K filed January 27, 2005 (No. 05552640)]
10(e)-1*
 
TCF 401K Supplemental Plan, as amended effective October 18, 2016 [incorporated by reference to Exhibit 10(e)-1 to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (No. 17624401)]
10(f)*
 
Trust Agreement for TCF 401K Plan Supplemental Plan effective November 1, 2017, by and between TCF Financial Corporation and Reliance Trust Company [incorporated by reference to Exhibit 10(f) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (No. 18635448)]
10(i)*
 
TCF Financial Corporation Senior Officer Deferred Compensation Plan as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(l) to TCF Financial Corporation’s Current Report on Form 8-K filed January 27, 2005 (No. 05552640)]
10(j)*
 
Trust Agreement for TCF Financial Senior Officer Deferred Compensation Plan as executed with First National Bank in Sioux Falls as trustee effective as of October 1, 2000 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (No. 1584625)]; as amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (No. 1706058)]; and as amended by Second Amendment of Trust Agreement for TCF Financial Senior Officers Deferred Compensation Plan effective as of June 30, 2003 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (No. 03830138)]


133

10(k)*
 
Amended and Restated Directors Stock Grant Program [incorporated by reference to Exhibit 10.2 to TCF Financial Corporation’s Current Report on Form 8-K filed April 27, 2018 (No. 18784131)]
10(k)-1*
 
Form of Director’s Restricted Stock Agreement dated January 24, 2012 [incorporated by reference to Exhibit 10(j)-1 to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (No. 12986667)]
10(k)-2*
 
Form of Deferred Director’s Restricted Stock Agreement dated January 24, 2012 [incorporated by reference to Exhibit 10(j)-2 to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (No. 12986667)]
10(l)*
 
TCF Financial Corporation TCF Directors Deferred Compensation Plan as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(r) to TCF Financial Corporation’s Current Report on Form 8-K filed January 27, 2005 (No. 05552640)]
10(l)-1*
 
TCF Financial Corporation TCF Directors 2005 Deferred Compensation Plan, adopted effective as of January 6, 2005, as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(r)-1 to TCF Financial Corporation’s Current Report on Form 8-K filed January 27, 2005 (No. 05552640)]; and as amended by Amendment of Directors 2005 Deferred Compensation Plan effective July 19, 2010 [incorporated by reference to Exhibit 10(r)-1 to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (No. 101147679)]
10(m)*
 
Trust Agreement for TCF Directors Deferred Compensation Plan [incorporated by reference to Exhibit 10(d) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (No. 1584625)]; as amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (No. 1706058)]; as amended by amendment adopted October 10, 2001 [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001 (No. 02568362)]; and as amended by amendments adopted May 3, 2002 [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (No. 02730799)]; and as amended by Third Amendment of TCF Directors Deferred Compensation Trust effective as of June 30, 2003 [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (No. 03830138)]
10(n)*
 
Summary of Non-Employee Director Compensation [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation's Current Report on Form 8–K filed February 20, 2019 (No. 19616276)]
10(o)*
 
TCF Employees Deferred Stock Compensation Plan, effective January 1, 2011 [incorporated by reference to Exhibit 10(u) to TCF Financial Corporation’s Current Report on Form 8-K filed February 18, 2011 (No. 11625311)]
10(p)*
 
Form of Rabbi Trust Agreement for the TCF Employees Deferred Stock Compensation Plan [incorporated by reference to Exhibit 10(v) to TCF Financial Corporation’s Current Report on Form 8-K filed February 18, 2011 (No. 11625311)]
10(q)
 
TCF 401K Plan, as amended and restated effective January 24, 2018 [incorporated by reference to Exhibit 99.1 to TCF Financial Corporation's Current Report on Form S-8 filed July 30, 2018 (No. 18978481)]
10(r)*
 
Form of Change in Control Severance Agreement, as executed by certain executives [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation's Current Report on Form 8-K filed March 2, 2018 (No. 18662196)]
21#
 
23#
 
31.1#
 
31.2#
 
32.1#
 
32.2#
 
101#
 
Financial statements from the Annual Report on Form 10-K of the Company for the period ended December 31, 2018, formatted in XBRL: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements
*Management Contract
# Filed herein


134

SIGNATURES
 
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
TCF FINANCIAL CORPORATION
 
 
 
 
 
 
 
 
/s/ Craig R. Dahl
 
 
Craig R. Dahl,
 
 
Chairman, President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 

Dated: February 26, 2019



135

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Craig R. Dahl
 
February 26, 2019
Craig R. Dahl
Chairman, President and Chief Executive Officer (Principal Executive Officer)
 
/s/ Brian W. Maass
 
February 26, 2019
Brian W. Maass
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
/s/ Susan D. Bode
 
February 26, 2019
Susan D. Bode
Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)
 
/s/ Peter Bell
 
February 26, 2019
Peter Bell
Director
 
/s/ William F. Bieber
 
February 26, 2019
William F. Bieber
Director
 
/s/ Theodore J. Bigos
 
February 26, 2019
Theodore J. Bigos
Director
 
/s/ Karen L. Grandstrand
 
February 26, 2019
Karen L. Grandstrand
Director
 
/s/ George G. Johnson
 
February 26, 2019
George G. Johnson
Director
 
/s/ Richard H. King
 
February 26, 2019
Richard H. King
Director
 
/s/ Vance K. Opperman
 
February 26, 2019
Vance K. Opperman
Lead Director
 
/s/ Roger J. Sit
 
February 26, 2019
Roger J. Sit
Director
 
/s/ Julie H. Sullivan
 
February 26, 2019
Julie H. Sullivan
Director
 
/s/ Barry N. Winslow
 
February 26, 2019
Barry N. Winslow
Director
 
/s/ Theresa M. H. Wise
 
February 26, 2019
Theresa M. H. Wise
Director
 


136