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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
March 31, 2018
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 Commission File No. 001-10253
 
TCF Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware
41-1591444
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
200 Lake Street East
Wayzata, Minnesota 55391-1693
(Address and Zip Code of principal executive offices)
(952) 745-2760
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ                                                   No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ                                                   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if smaller reporting company)
Smaller reporting company
¨
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨                                                 No þ
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Outstanding at
Class
April 27, 2018
Common Stock, $.01 par value
168,253,445 shares


Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
 
INDEX
 
Pages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Table of Contents



Part I - Financial Information
Item 1. Financial Statements
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
At March 31, 2018
 
At December 31, 2017
 
(Unaudited)
 
 
Assets:
 

 
 

Cash and due from banks
$
588,893

 
$
621,782

Investments
91,661

 
82,644

Debt securities held to maturity
158,099

 
161,576

Debt securities available for sale
1,954,246

 
1,709,018

Loans and leases held for sale
50,706

 
134,862

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
1,878,441

 
1,959,387

Junior lien
2,843,221

 
2,860,309

Total consumer real estate
4,721,662

 
4,819,696

Commercial
3,678,181

 
3,561,193

Leasing and equipment finance
4,666,239

 
4,761,661

Inventory finance
3,457,855

 
2,739,754

Auto finance
2,839,363

 
3,199,639

Other
19,854

 
22,517

Total loans and leases
19,383,154

 
19,104,460

Allowance for loan and lease losses
(167,703
)
 
(171,041
)
Net loans and leases
19,215,451

 
18,933,419

Premises and equipment, net
427,497

 
421,549

Goodwill, net
154,757

 
154,757

Other assets
743,742

 
782,552

Total assets
$
23,385,052

 
$
23,002,159

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
6,541,409

 
$
6,300,127

Savings
5,551,155

 
5,287,606

Money market
1,609,472

 
1,764,998

Certificates of deposit
4,995,636

 
4,982,271

Total deposits
18,697,672

 
18,335,002

Short-term borrowings
775

 

Long-term borrowings
1,457,976

 
1,249,449

Total borrowings
1,458,751

 
1,249,449

Accrued expenses and other liabilities
677,679

 
737,124

Total liabilities
20,834,102

 
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, respectively
169,302

 
265,821

Common stock, par value $0.01 per share, 280,000,000 shares authorized;
 
 
 
172,472,035 and 172,158,449 shares issued, respectively
1,725

 
1,722

Additional paid-in capital
878,096

 
877,217

Retained earnings, subject to certain restrictions
1,618,041

 
1,577,311

Accumulated other comprehensive income (loss)
(46,851
)
 
(18,517
)
Treasury stock at cost, 3,056,201 and 489,030 shares, respectively and other
(97,800
)
 
(40,797
)
Total TCF Financial Corporation stockholders' equity
2,522,513

 
2,662,757

Non-controlling interest in subsidiaries
28,437

 
17,827

Total equity
2,550,950

 
2,680,584

Total liabilities and equity
$
23,385,052

 
$
23,002,159

 
See accompanying notes to consolidated financial statements.


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Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
 
Quarter Ended March 31,
 
(In thousands, except per share data)
2018
 
2017
 
Interest income:
 

 
 

 
Loans and leases
$
260,375

 
$
219,548

 
Debt securities available for sale
10,123

 
7,980

 
Debt securities held to maturity
1,019

 
1,280

 
Loans held for sale and other
3,745

 
13,499

 
Total interest income
275,262

 
242,307

 
Interest expense:
 

 
 

 
Deposits
22,510

 
13,715

 
Borrowings
9,553

 
6,478

 
Total interest expense
32,063

 
20,193

 
Net interest income
243,199

 
222,114

 
Provision for credit losses
11,368

 
12,193

 
Net interest income after provision for credit losses
231,831

 
209,921

 
Non-interest income:
 

 
 

 
Fees and service charges
30,751

 
31,282

 
Card revenue
13,759

 
13,150

 
ATM revenue
4,650

 
4,675

 
Subtotal
49,160

 
49,107

 
Gains on sales of auto loans, net

 
2,864

 
Gains on sales of consumer real estate loans, net
9,123

 
8,891

 
Servicing fee income
8,295

 
11,651

 
Subtotal
17,418

 
23,406

 
Leasing and equipment finance
41,847

 
28,298

 
Other
3,716

 
2,703

 
Fees and other revenue
112,141

 
103,514

 
Gains (losses) on debt securities, net
63

 

 
Total non-interest income
112,204

 
103,514

 
Non-interest expense:
 

 
 

 
Compensation and employee benefits
123,840

 
124,298

 
Occupancy and equipment
40,514

 
39,600

 
Other
58,819

 
64,216

 
Subtotal
223,173

 
228,114

 
Operating lease depreciation
17,274

 
11,242

 
Foreclosed real estate and repossessed assets, net
4,916

 
4,549

 
Other credit costs, net
617

 
101

 
Total non-interest expense
245,980

 
244,006

 
Income before income tax expense
98,055

 
69,429

 
Income tax expense
21,631

 
20,843

 
Income after income tax expense
76,424

 
48,586

 
Income attributable to non-controlling interest
2,663

 
2,308

 
Net income attributable to TCF Financial Corporation
73,761

 
46,278

 
Preferred stock dividends
4,106

 
4,847

 
Impact of preferred stock redemption
3,481

 

 
Net income available to common stockholders
$
66,174

 
$
41,431

 
Earnings per common share:
 

 
 

 
Basic
$
0.39

 
$
0.25

 
Diluted
$
0.39

 
$
0.25

 
 
See accompanying notes to consolidated financial statements.

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Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
 
Quarter Ended March 31,
(In thousands)
2018
 
2017
Net income attributable to TCF Financial Corporation
$
73,761

 
$
46,278

Other comprehensive income (loss), net of tax:
 

 
 

Net unrealized gains (losses) on debt securities available for sale and interest-only strips
(27,819
)
 
2,769

Net unrealized gains (losses) on net investment hedges
1,604

 
(313
)
Foreign currency translation adjustments
(2,110
)
 
581

Recognized postretirement prior service cost
(9
)
 
(7
)
Total other comprehensive income (loss), net of tax
(28,334
)
 
3,030

Comprehensive income
$
45,427

 
$
49,308

 
See accompanying notes to consolidated financial statements.

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TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
(Unaudited)
 
TCF Financial Corporation
 
 
 
Number of
Shares Issued
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
and Other
Total
Non-
controlling
Interest
Total
Equity
(Dollars in thousands)
Preferred
Common
Balance, December 31, 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

Net income





46,278



46,278

2,308

48,586

Other comprehensive income (loss), net of tax






3,030


3,030


3,030

Net investment by (distribution to) non-controlling interest









7,081

7,081

Dividends on preferred stock





(4,847
)


(4,847
)

(4,847
)
Dividends on common stock





(12,595
)


(12,595
)

(12,595
)
Common shares purchased by TCF employee benefit plans

366,591


4

6,442




6,446


6,446

Stock compensation plans, net of tax

(417,269
)

(4
)
(1,679
)



(1,683
)

(1,683
)
Change in shares held in trust for deferred compensation plans, at cost




(15,834
)


15,834




Balance, March 31, 2017
4,006,900

170,983,828

$
263,240

$
1,710

$
853,024

$
1,410,418

$
(30,695
)
$
(33,585
)
$
2,464,112

$
26,551

$
2,490,663

 
 
 
 
 
 
 
 
 
 
 
 
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





73,761



73,761

2,663

76,424

Other comprehensive income (loss), net of tax






(28,334
)

(28,334
)

(28,334
)
Net investment by (distribution to) non-controlling interest









7,947

7,947

Redemption of Series B Preferred Stock

(4,000,000
)

(96,519
)


(3,481
)


(100,000
)

(100,000
)
Repurchases of 2,567,171 shares of common stock







(57,673
)
(57,673
)

(57,673
)
Dividends on preferred stock





(4,106
)


(4,106
)

(4,106
)
Dividends on common stock





(25,328
)


(25,328
)

(25,328
)
Common stock warrants exercised
 
1,196










Common shares purchased by TCF employee benefit plans

34,627



715




715


715

Stock compensation plans, net of tax

277,763


3

834




837


837

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




(670
)


670




Balance, March 31, 2018
7,000

172,472,035

$
169,302

$
1,725

$
878,096

$
1,618,041

$
(46,851
)
$
(97,800
)
$
2,522,513

$
28,437

$
2,550,950

See accompanying notes to consolidated financial statements.

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

 
 

Net income
$
76,424

 
$
48,586

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

 
 

Provision for credit losses
11,368

 
12,193

Depreciation and amortization
56,606

 
45,465

Provision for deferred income taxes
879

 
(12,032
)
Proceeds from sales of loans and leases held for sale
69,342

 
61,287

Originations of loans and leases held for sale, net of repayments
(73,872
)
 
(232,556
)
Gains on sales of assets, net
(10,556
)
 
(14,741
)
Net change in other assets and accrued expenses and other liabilities
(1,965
)
 
(39,398
)
Other, net
(11,313
)
 
(10,967
)
Net cash provided by (used in) operating activities
116,913

 
(142,163
)
Cash flows from investing activities:
 

 
 

Proceeds from maturities of and principal collected on debt securities
32,533

 
33,361

Purchases of debt securities
(320,722
)
 
(86,841
)
Redemption of Federal Home Loan Bank stock
56,000

 
78,000

Purchases of Federal Home Loan Bank stock
(65,000
)
 
(85,000
)
Proceeds from sales of loans and leases
240,934

 
611,515

Loan and lease originations and purchases, net of principal collected on loans and leases
(234,229
)
 
(734,954
)
Proceeds from sales of lease equipment
3,670

 
2,242

Purchases of lease equipment
(254,553
)
 
(223,786
)
Proceeds from sales of real estate owned
8,203

 
15,711

Purchases of premises and equipment
(18,085
)
 
(9,597
)
Other, net
7,451

 
7,965

Net cash provided by (used in) investing activities
(543,798
)
 
(391,384
)
Cash flows from financing activities:
 

 
 

Net change in deposits
357,224

 
227,133

Net change in short-term borrowings
841

 
990

Proceeds from long-term borrowings
2,355,602

 
3,610,415

Payments on long-term borrowings
(2,143,531
)
 
(3,442,038
)
Redemption of Series B preferred stock
(100,000
)
 

Repurchases of common stock
(54,371
)
 

Common shares sold to TCF employee benefit plans
715

 
6,446

Dividends paid on preferred stock
(4,106
)
 
(4,847
)
Dividends paid on common stock
(25,328
)
 
(12,595
)
Exercise of stock options
(997
)
 
(57
)
Net investment by (distribution to) non-controlling interest
7,947

 
7,081

Net cash provided by (used in) financing activities
393,996

 
392,528

Net change in cash and due from banks
(32,889
)
 
(141,019
)
Cash and due from banks at beginning of period
621,782

 
609,603

Cash and due from banks at end of period
$
588,893

 
$
468,584

Supplemental disclosures of cash flow information:
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
29,857

 
$
18,726

Income taxes, net
(28,064
)
 
18,835

Transfer of loans and leases to other assets
26,044

 
22,182

Transfer of loans and leases from held for investment to held for sale, net
150,357

 
778,432

See accompanying notes to consolidated financial statements.

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

Note 1. Basis of Presentation
 
TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Company"), a Delaware corporation, is a national bank holding company based in Wayzata, Minnesota. References herein to "TCF Financial" or the "Holding Company" refer to TCF Financial Corporation on an unconsolidated basis. 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 providing consumer banking services, commercial banking services, commercial leasing and equipment financing and commercial inventory financing.
 
The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in conformity with GAAP. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the Company's most recent Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations at December 31, 2017, and for the year then ended. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to current period presentation.

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

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Note 2. Summary of Significant Accounting Policies

Accounting policies in effect at December 31, 2017 remain significantly unchanged and have been followed similarly as in previous periods.

New Accounting Pronouncements Adopted

Effective January 1, 2018, the Company adopted Accounting Standards Update ("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.

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 a material impact on our consolidated financial statements.

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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).

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.

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Note 3Cash and Due from Banks
 
At March 31, 2018 and December 31, 2017, TCF Bank was required by Federal Reserve regulations to maintain reserves of $112.7 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 contractual agreements primarily related to the servicing of auto finance loans. Cash payments received on loans serviced for third parties are generally held in separate accounts until remitted. TCF may also retain cash balances for collateral on certain borrowings, forward foreign exchange contracts, interest rate contracts and other contracts. TCF maintained restricted cash totaling $35.4 million and $36.5 million at March 31, 2018 and December 31, 2017, respectively.

TCF had cash held in interest-bearing accounts of $326.4 million and $324.2 million at March 31, 2018 and December 31, 2017, respectively.

Note 4.  Debt Securities Available for Sale and Debt Securities Held to Maturity
 
Debt securities were as follows:
 
At March 31, 2018
 
At December 31, 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
$
1,171,513

 
$
553

 
$
30,414

 
$
1,141,652

 
$
908,189

 
$
308

 
$
13,812

 
$
894,685

Other
5

 

 

 
5

 
6

 

 

 
6

Obligations of states and political subdivisions
830,296

 
342

 
18,049

 
812,589

 
810,159

 
7,967

 
3,799

 
814,327

Total debt securities available for sale
$
2,001,814

 
$
895

 
$
48,463

 
$
1,954,246

 
$
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
$
155,299

 
$
1,408

 
$
1,011

 
$
155,696

 
$
158,776

 
$
4,462

 
$
412

 
$
162,826

Other securities
2,800

 

 

 
2,800

 
2,800

 

 

 
2,800

Total debt securities held to maturity
$
158,099

 
$
1,408

 
$
1,011

 
$
158,496

 
$
161,576

 
$
4,462

 
$
412

 
$
165,626

 
At March 31, 2018 and December 31, 2017, mortgage-backed securities with a carrying value of $1.1 million and $0.9 million, respectively, were pledged as collateral to secure certain deposits and borrowings. We have assessed each security with unrealized losses included in the table above for credit impairment. As part of that assessment we evaluated and concluded that we do not intend to sell any of the securities and that it is more likely than not that we will not be required to sell prior to recovery of the amortized cost. Unrealized losses on debt securities available for sale and debt securities held to maturity were due to changes in interest rates.
 
There were no sales or impairment charges for debt securities available for sale and debt securities held to maturity during the first quarter of 2018 or 2017. Net gains (losses) on debt securities were $63 thousand for the first quarter of 2018 related to a recovery on previously impaired debt securities held to maturity.


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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 March 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
$
565,752

 
$
12,193

 
$
406,236

 
$
18,221

 
$
971,988

 
$
30,414

Obligations of states and political subdivisions
528,645

 
9,266

 
200,911

 
8,783

 
729,556

 
18,049

Total debt securities available for sale
$
1,094,397

 
$
21,459

 
$
607,147

 
$
27,004

 
$
1,701,544

 
$
48,463

 
 
 
 
 
 
 
 
 
 
 
 
Debt securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
24,530

 
$
489

 
$
11,576

 
$
522

 
$
36,106

 
$
1,011

Total debt securities held to maturity
$
24,530

 
$
489

 
$
11,576

 
$
522

 
$
36,106

 
$
1,011

 
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



10


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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 remaining contractual principal maturities do not consider possible prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay.
 
At March 31, 2018
 
At December 31, 2017
(In thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Debt securities available for sale:
 

 
 

 
 

 
 

Due in one year or less
$
5

 
$
5

 
$
6

 
$
6

Due in 1-5 years
29,294

 
29,201

 
15,178

 
15,312

Due in 5-10 years
558,110

 
547,706

 
514,336

 
517,867

Due after 10 years
1,414,405

 
1,377,334

 
1,188,834

 
1,175,833

Total debt securities available for sale
$
2,001,814

 
$
1,954,246

 
$
1,718,354

 
$
1,709,018

 
 
 
 
 
 
 
 
Debt securities held to maturity:
 

 
 

 
 

 
 

Due in one year or less
$
1,000

 
$
1,000

 
$
1,000

 
$
1,000

Due in 1-5 years
1,400

 
1,400

 
1,400

 
1,400

Due in 5-10 years
418

 
421

 
400

 
400

Due after 10 years
155,281

 
155,675

 
158,776

 
162,826

Total debt securities held to maturity
$
158,099

 
$
158,496

 
$
161,576

 
$
165,626


Interest income attributable to debt securities available for sale was as follows:
 
Quarter Ended March 31,
(In thousands)
2018
 
2017
Taxable interest income
$
5,813

 
$
4,654

Tax-exempt interest income
4,310

 
3,326

Total interest income
$
10,123

 
$
7,980


Note 5Loans and Leases

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

 
 

First mortgage lien
$
1,878,441

 
$
1,959,387

Junior lien
2,843,221

 
2,860,309

Total consumer real estate
4,721,662

 
4,819,696

Commercial:
 

 
 

Commercial real estate:
 

 
 

Permanent
2,445,780

 
2,385,752

Construction and development
363,672

 
365,533

Total commercial real estate
2,809,452

 
2,751,285

Commercial business
868,729

 
809,908

Total commercial
3,678,181

 
3,561,193

Leasing and equipment finance
4,666,239

 
4,761,661

Inventory finance
3,457,855

 
2,739,754

Auto finance
2,839,363

 
3,199,639

Other
19,854

 
22,517

Total loans and leases(1)
$
19,383,154

 
$
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 $22.0 million and $33.3 million at March 31, 2018 and December 31, 2017, respectively.
 

11


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Loan Sales During the first quarter of 2018 and 2017, TCF sold $266.3 million and $379.4 million, respectively, of consumer real estate loans, received cash of $272.9 million and $399.2 million, respectively, and recognized net gains of $9.1 million and $8.9 million, respectively. Related to these sales, TCF retained interest-only strips of $3.3 million and $1.3 million during the first quarter of 2018 and 2017, respectively. Included in consumer real estate loans sold in the first quarter of 2017 were $49.4 million of non-accrual loans, which were sold servicing released. TCF generally retains servicing on loans sold.

During the first quarter of 2018, TCF did not sell any auto finance loans. During the first quarter of 2017, TCF sold $250.6 million of auto finance loans, received cash of $254.8 million and recognized net gains of $2.9 million.

No servicing assets or liabilities related to consumer real estate or auto finance loans were recorded within TCF's Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace.

Total interest-only strips and the contractual liabilities related to loan sales were as follows:
(In thousands)
At March 31, 2018
 
At December 31, 2017
Interest-only strips attributable to:
 
 
 
Consumer real estate loan sales
$
18,099

 
$
16,440

Auto finance loan sales
3,752

 
4,946

Total interest-only strips
$
21,851

 
$
21,386

Contractual liabilities attributable to:
 
 
 
Consumer real estate loan sales
$
990

 
$
1,234


TCF recorded $268 thousand of impairment charges on the consumer real estate interest-only strips in the first quarter of 2018, compared with $579 thousand for the same period in 2017. TCF recorded $335 thousand of impairment charges on the auto finance interest-only strips for the first quarter of 2018, compared with $24 thousand for the same period in 2017.
 



12


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Note 6Allowance for Loan and Lease Losses and Credit Quality Information
 
The rollforwards of the allowance for loan and lease losses were as follows:
(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
At or For the Quarter Ended March 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
47,168

 
$
37,195

 
$
22,528

 
$
13,233

 
$
50,225

 
$
692

 
$
171,041

Charge-offs
(2,154
)
 

 
(1,956
)
 
(549
)
 
(13,441
)
 
(1,765
)
 
(19,865
)
Recoveries
1,037

 
14

 
616

 
140

 
2,785

 
1,122

 
5,714

Net (charge-offs) recoveries
(1,117
)
 
14

 
(1,340
)
 
(409
)
 
(10,656
)
 
(643
)
 
(14,151
)
Provision for credit losses
2,104

 
(11
)
 
1,996

 
512

 
6,253

 
514

 
11,368

Other
(470
)
 

 
(2
)
 
(83
)
 

 

 
(555
)
Balance, end of period
$
47,685

 
$
37,198

 
$
23,182

 
$
13,253

 
$
45,822

 
$
563

 
$
167,703

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Quarter Ended March 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
59,448

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

Charge-offs
(3,452
)
 
(2,732
)
 
(2,046
)
 
(219
)
 
(8,813
)
 
(1,640
)
 
(18,902
)
Recoveries
10,692

 
65

 
614

 
119

 
1,233

 
1,090

 
13,813

Net (charge-offs) recoveries
7,240

 
(2,667
)
 
(1,432
)
 
(100
)
 
(7,580
)
 
(550
)
 
(5,089
)
Provision for credit losses
(8,137
)
 
3,669

 
1,386

 
1,965

 
12,857

 
453

 
12,193

Other
(4,700
)
 

 
(47
)
 
19

 
(2,479
)
 

 
(7,207
)
Balance, end of period
$
53,851

 
$
33,697

 
$
21,257

 
$
15,816

 
$
35,108

 
$
437

 
$
160,166


The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology were as follows:
 
At March 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
$
29,591

 
$
35,635

 
$
18,975

 
$
13,065

 
$
45,613

 
$
562

 
$
143,441

Individually evaluated for impairment
18,094

 
1,563

 
4,207

 
188

 
209

 
1

 
24,262

Total
$
47,685

 
$
37,198

 
$
23,182

 
$
13,253

 
$
45,822

 
$
563

 
$
167,703

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,579,706

 
$
3,642,783

 
$
4,629,020

 
$
3,454,234

 
$
2,828,616

 
$
19,850

 
$
19,154,209

Individually evaluated for impairment
141,956

 
35,398

 
28,136

 
3,621

 
10,747

 
4

 
219,862

Loans acquired with deteriorated credit quality

 

 
9,083

 

 

 

 
9,083

Total
$
4,721,662

 
$
3,678,181

 
$
4,666,239

 
$
3,457,855

 
$
2,839,363

 
$
19,854

 
$
19,383,154

 
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


13


Table of Contents



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 March 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
$
1,813,418

 
$
3,670

 
$
578

 
$
1,817,666

 
$
60,775

 
$
1,878,441

Junior lien
2,818,158

 
1,601

 

 
2,819,759

 
23,462

 
2,843,221

Total consumer real estate
4,631,576

 
5,271

 
578

 
4,637,425

 
84,237

 
4,721,662

Commercial:
 

 
 

 
 

 
 
 
 

 
 
Commercial real estate
2,802,819

 

 

 
2,802,819

 
6,633

 
2,809,452

Commercial business
863,961

 

 

 
863,961

 
4,768

 
868,729

Total commercial
3,666,780

 

 

 
3,666,780

 
11,401

 
3,678,181

Leasing and equipment finance
4,632,004

 
4,600

 
584

 
4,637,188

 
19,968

 
4,657,156

Inventory finance
3,454,189

 
44

 
1

 
3,454,234

 
3,621

 
3,457,855

Auto finance
2,825,425

 
4,323

 
2,416

 
2,832,164

 
7,199

 
2,839,363

Other
19,804

 
17

 
31

 
19,852

 
2

 
19,854

Subtotal
19,229,778

 
14,255

 
3,610

 
19,247,643

 
126,428

 
19,374,071

Portfolios acquired with deteriorated credit quality
7,907

 

 
1,176

 
9,083

 

 
9,083

Total
$
19,237,685

 
$
14,255

 
$
4,786

 
$
19,256,726

 
$
126,428

 
$
19,383,154


 
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:
 
Quarter Ended March 31,
(In thousands)
2018
 
2017
Contractual interest due on non-accrual loans and leases
$
2,927

 
$
4,498

Interest income recognized on non-accrual loans and leases
458

 
1,056

Unrecognized interest income
$
2,469

 
$
3,442



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Table of Contents



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: 
(In thousands)
At March 31, 2018
 
At December 31, 2017
Consumer real estate loans to customers in bankruptcy:
 

 
 

0-59 days delinquent and accruing
$
6,589

 
$
7,324

Non-accrual
11,845

 
10,552

Total consumer real estate loans to customers in bankruptcy
$
18,434

 
$
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 troubled debt restructuring ("TDR") loan. All loans classified as TDR loans are considered to be impaired. For purposes of this disclosure, purchased credit impaired ("PCI") loans have been excluded.

TDR loans were as follows:
 
At March 31, 2018
 
At December 31, 2017