Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document
Table of Contents



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
September 30, 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 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 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
 
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
November 1, 2018
Common Stock, $.01 par value
166,804,795 shares


Table of Contents



TABLE OF CONTENTS
 
Description
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Table of Contents



Part I - Financial Information                                                

Item 1. Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
At September 30, 2018
 
At December 31, 2017
 
(Unaudited)
 
 
Assets:
 

 
 

Cash and due from banks
$
569,968

 
$
621,782

Investments
80,672

 
82,644

Debt securities held to maturity
152,881

 
161,576

Debt securities available for sale
2,379,546

 
1,709,018

Loans and leases held for sale
114,198

 
134,862

Loans and leases:
 

 
 

Consumer real estate:
 

 
 

First mortgage lien
1,960,756

 
1,959,387

Junior lien
2,940,701

 
2,860,309

Total consumer real estate
4,901,457

 
4,819,696

Commercial
3,741,164

 
3,561,193

Leasing and equipment finance
4,601,887

 
4,761,661

Inventory finance
2,880,404

 
2,739,754

Auto finance
2,275,134

 
3,199,639

Other
21,107

 
22,517

Total loans and leases
18,421,153

 
19,104,460

Allowance for loan and lease losses
(160,621
)
 
(171,041
)
Net loans and leases
18,260,532

 
18,933,419

Premises and equipment, net
429,648

 
421,549

Goodwill, net
154,757

 
154,757

Other assets
762,583

 
782,552

Total assets
$
22,904,785

 
$
23,002,159

Liabilities and Equity:
 

 
 

Deposits:
 

 
 

Checking
$
6,382,667

 
$
6,300,127

Savings
5,737,144

 
5,287,606

Money market
1,504,952

 
1,764,998

Certificates of deposit
4,871,748

 
4,982,271

Total deposits
18,496,511

 
18,335,002

Short-term borrowings
2,324

 

Long-term borrowings
1,171,541

 
1,249,449

Total borrowings
1,173,865

 
1,249,449

Accrued expenses and other liabilities
706,397

 
737,124

Total liabilities
20,376,773

 
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;
 
 
 
173,589,933 and 172,158,449 shares issued
1,736

 
1,722

Additional paid-in capital
882,321

 
877,217

Retained earnings, subject to certain restrictions
1,708,410

 
1,577,311

Accumulated other comprehensive income (loss)
(65,259
)
 
(18,517
)
Treasury stock at cost, 6,777,409 and 489,030 shares and other
(189,652
)
 
(40,797
)
Total TCF Financial Corporation stockholders' equity
2,506,858

 
2,662,757

Non-controlling interest in subsidiaries
21,154

 
17,827

Total equity
2,528,012

 
2,680,584

Total liabilities and equity
$
22,904,785

 
$
23,002,159

 
See accompanying notes to consolidated financial statements.



1

Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands, except per share data)
2018
 
2017
 
2018
 
2017
Interest income:
 

 
 

 
 
 
 
Loans and leases
$
264,678

 
$
243,973

 
$
794,333

 
$
697,613

Debt securities available for sale
14,838

 
8,486

 
37,477

 
24,518

Debt securities held to maturity
988

 
1,073

 
3,005

 
3,388

Loans held for sale and other
6,678

 
4,073

 
13,952

 
22,910

Total interest income
287,182

 
257,605

 
848,767

 
748,429

Interest expense:
 

 
 

 
 
 
 
Deposits
27,335

 
17,015

 
73,798

 
45,166

Borrowings
10,726

 
6,487

 
31,850

 
19,885

Total interest expense
38,061

 
23,502

 
105,648

 
65,051

Net interest income
249,121

 
234,103

 
743,119

 
683,378

Provision for credit losses
2,270

 
14,545

 
27,874

 
46,184

Net interest income after provision for credit losses
246,851

 
219,558

 
715,245

 
637,194

Non-interest income:
 

 
 

 
 
 
 
Fees and service charges
32,574

 
34,605

 
95,995

 
98,620

Card revenue
15,065

 
14,177

 
43,786

 
41,481

ATM revenue
5,053

 
5,234

 
14,636

 
14,970

Subtotal
52,692

 
54,016

 
154,417

 
155,071

Gains on sales of auto loans, net

 

 

 
3,244

Gains on sales of consumer real estate loans, net
8,764

 
8,049

 
25,079

 
25,920

Servicing fee income
6,032

 
9,966

 
21,811

 
32,347

Subtotal
14,796

 
18,015

 
46,890

 
61,511

Leasing and equipment finance
45,045

 
34,080

 
129,796

 
102,208

Other
3,818

 
2,930

 
11,468

 
8,428

Fees and other revenue
116,351

 
109,041

 
342,571

 
327,218

Gains (losses) on debt securities, net
94

 
189

 
181

 
189

Total non-interest income
116,445

 
109,230

 
342,752

 
327,407

Non-interest expense:
 

 
 

 
 
 
 
Compensation and employee benefits
123,127

 
114,954

 
367,542

 
354,882

Occupancy and equipment
42,337

 
38,766

 
123,562

 
117,331

Other
57,989

 
61,581

 
205,892

 
187,160

Subtotal
223,453

 
215,301

 
696,996

 
659,373

Operating lease depreciation
19,525

 
15,696

 
54,744

 
39,404

Foreclosed real estate and repossessed assets, net
3,881

 
3,829

 
12,654

 
13,017

Other credit costs, net
(436
)
 
209

 
48

 
334

Total non-interest expense
246,423

 
235,035

 
764,442

 
712,128

Income before income tax expense
116,873

 
93,753

 
293,555

 
252,473

Income tax expense
28,034

 
30,704

 
66,083

 
77,341

Income after income tax expense
88,839

 
63,049

 
227,472

 
175,132

Income attributable to non-controlling interest
2,643

 
2,521

 
8,766

 
7,894

Net income attributable to TCF Financial Corporation
86,196

 
60,528

 
218,706

 
167,238

Preferred stock dividends
2,494

 
6,464

 
9,094

 
16,158

Impact of preferred stock redemption or notice to redeem preferred stock

 
5,779

 
3,481

 
5,779

Net income available to common stockholders
$
83,702

 
$
48,285

 
$
206,131

 
$
145,301

Earnings per common share:
 

 
 

 
 
 
 
Basic
$
0.51

 
$
0.29

 
$
1.24

 
$
0.86

Diluted
0.51

 
0.29

 
1.23

 
0.86

 
See accompanying notes to consolidated financial statements.


2

Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Net income attributable to TCF Financial Corporation
$
86,196

 
$
60,528

 
$
218,706

 
$
167,238

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Net unrealized gains (losses) on debt securities available for sale and interest-only strips
(13,434
)
 
2,445

 
(46,059
)
 
17,555

Net unrealized gains (losses) on net investment hedges
(1,904
)
 
(1,682
)
 
3,479

 
(3,144
)
Foreign currency translation adjustment
2,899

 
2,939

 
(4,136
)
 
5,527

Recognized postretirement prior service cost
(9
)
 
(8
)
 
(26
)
 
(22
)
Total other comprehensive income (loss), net of tax
(12,448
)
 
3,694

 
(46,742
)
 
19,916

Comprehensive income
$
73,748

 
$
64,222

 
$
171,964

 
$
187,154

 
See accompanying notes to consolidated financial statements.


3

Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity (Unaudited)

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





167,238



167,238

7,894

175,132

Other comprehensive income (loss), net of tax






19,916


19,916


19,916

Net investment by (distribution to) non-controlling interest









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


169,448






169,448


169,448

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

(166,721
)


(5,779
)


(172,500
)

(172,500
)
Dividends on preferred stock





(16,158
)


(16,158
)

(16,158
)
Dividends on common stock





(37,917
)


(37,917
)

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

1,079,753


11

17,691




17,702


17,702

Stock compensation plans, net of tax

(237,767
)

(2
)
1,398




1,396


1,396

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




(18,552
)


18,552




Balance, September 30, 2017
4,007,000

171,876,492

$
265,967

$
1,719

$
864,632

$
1,488,966

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

$
19,906

$
2,596,514

 
 
 
 
 
 
 
 
 
 
 
 
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





218,706



218,706

8,766

227,472

Other comprehensive income (loss), net of tax






(46,742
)

(46,742
)

(46,742
)
Net investment by (distribution to) non-controlling interest









(5,439
)
(5,439
)
Redemption of Series B Preferred Stock
(4,000,000
)

(96,519
)


(3,481
)


(100,000
)

(100,000
)
Repurchases of 6,288,379 shares of common stock







(149,912
)
(149,912
)

(149,912
)
Dividends on preferred stock





(9,094
)


(9,094
)

(9,094
)
Dividends on common stock





(74,916
)


(74,916
)

(74,916
)
Common stock warrants exercised
 
1,050,084


11

(11
)






Common shares purchased by TCF employee benefit plans

34,627



715




715


715

Stock compensation plans, net of tax

346,773


3

5,457




5,460


5,460

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




(1,057
)


1,057




Balance, September 30, 2018
7,000

173,589,933

$
169,302

$
1,736

$
882,321

$
1,708,410

$
(65,259
)
$
(189,652
)
$
2,506,858

$
21,154

$
2,528,012

See accompanying notes to consolidated financial statements.


4

Table of Contents



TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
Cash flows from operating activities:
 

 
 

Net income
$
227,472

 
$
175,132

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

 
 

Provision for credit losses
27,874

 
46,184

Depreciation and amortization
167,058

 
149,313

Provision for deferred income taxes
33,409

 
17,685

Proceeds from sales of loans and leases held for sale
264,970

 
188,756

Originations of loans and leases held for sale, net of repayments
(271,793
)
 
(359,109
)
Gains on sales of assets, net
(28,977
)
 
(37,023
)
Net change in other assets and accrued expenses and other liabilities
13,572

 
(95,267
)
Other, net
(29,668
)
 
(33,057
)
Net cash provided by (used in) operating activities
403,917

 
52,614

Cash flows from investing activities:
 

 
 

Proceeds from maturities of and principal collected on debt securities
131,442

 
105,561

Purchases of debt securities
(921,832
)
 
(238,586
)
Redemption of Federal Home Loan Bank stock
201,001

 
190,001

Purchases of Federal Home Loan Bank stock
(199,000
)
 
(203,000
)
Proceeds from sales of loans and leases
675,164

 
1,156,854

Principal collected on loans and leases, net of loan and lease originations and purchases
735,840

 
(1,541,913
)
Acquisition of Equipment Financing & Leasing Corporation, net of cash acquired

 
(8,120
)
Purchases of lease equipment
(857,934
)
 
(743,819
)
Proceeds from sales of assets
58,879

 
46,532

Purchases of premises and equipment
(45,460
)
 
(36,376
)
Other, net
15,151

 
22,099

Net cash provided by (used in) investing activities
(206,749
)
 
(1,250,767
)
Cash flows from financing activities:
 

 
 

Net change in deposits
163,442

 
869,029

Net change in short-term borrowings
2,451

 
(4,746
)
Proceeds from long-term borrowings
7,043,458

 
7,931,686

Payments on long-term borrowings
(7,118,690
)
 
(7,625,170
)
Net proceeds from public offering of Series C preferred stock

 
169,448

Redemption of Series B preferred stock
(100,000
)
 

Repurchases of common stock
(149,912
)
 

Common shares sold to TCF employee benefit plans
715

 
17,702

Dividends paid on preferred stock
(9,094
)
 
(14,541
)
Dividends paid on common stock
(74,916
)
 
(37,917
)
Exercise of stock options
(997
)
 
(57
)
Net investment by (distribution to) non-controlling interest
(5,439
)
 
(5,150
)
Net cash provided by (used in) financing activities
(248,982
)
 
1,300,284

Net change in cash and due from banks
(51,814
)
 
102,131

Cash and due from banks at beginning of period
621,782

 
609,603

Cash and due from banks at end of period
$
569,968

 
$
711,734

Supplemental disclosures of cash flow information:
 

 
 

Cash paid (received) for:
 

 
 

Interest on deposits and borrowings
$
99,336

 
$
60,561

Income taxes, net
(21,035
)
 
53,621

Transfer of loans and leases to other assets
77,704

 
74,958

Transfer of loans and leases from held for investment to held for sale, net
644,488

 
965,532

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

 
172,500

See accompanying notes to consolidated financial statements.


5

Table of Contents



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

Note 1. Basis of Presentation
 
TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Company"), a Delaware corporation, is a national bank holding company based in Wayzata, Minnesota. References herein to "TCF Financial" or the "Holding Company" refer to TCF Financial Corporation on an unconsolidated basis. 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, 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. 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. 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 and for the year ended December 31, 2017.

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 current period presentation.

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.



6

Table of Contents



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.

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.



7

Table of Contents



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.


8

Table of Contents



Note 3Cash and Due from Banks
 
At September 30, 2018 and December 31, 2017, TCF Bank was required by Federal Reserve regulations to maintain reserves of $110.1 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 $47.9 million and $36.5 million at September 30, 2018 and December 31, 2017, respectively.

TCF had cash held in interest-bearing accounts of $263.1 million and $324.2 million at September 30, 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 September 30, 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
$
1,630,465

 
$
15

 
$
49,796

 
$
1,580,684

 
$
908,189

 
$
308

 
$
13,812

 
$
894,685

Other
4

 

 

 
4

 
6

 

 

 
6

Obligations of states and political subdivisions
821,727

 
28

 
22,897

 
798,858

 
810,159

 
7,967

 
3,799

 
814,327

Total debt securities available for sale
$
2,452,196

 
$
43

 
$
72,693

 
$
2,379,546

 
$
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
$
150,081

 
$
104

 
$
2,321

 
$
147,864

 
$
158,776

 
$
4,462

 
$
412

 
$
162,826

Other securities
2,800

 

 

 
2,800

 
2,800

 

 

 
2,800

Total debt securities held to maturity
$
152,881

 
$
104

 
$
2,321

 
$
150,664

 
$
161,576

 
$
4,462

 
$
412

 
$
165,626


At September 30, 2018 and December 31, 2017, mortgage-backed 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 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 third quarter and first nine months of 2018 and 2017. Net gains (losses) on debt securities were $94 thousand and $181 thousand for the third quarter and first nine months of 2018, respectively, compared with $189 thousand for both the same periods in 2017. The net gains were related to recoveries on previously impaired debt securities held to maturity.



9

Table of Contents



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 September 30, 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
$
967,838

 
$
16,402

 
$
608,028

 
$
33,394

 
$
1,575,866

 
$
49,796

Obligations of states and political subdivisions
529,164

 
9,857

 
262,980

 
13,040

 
792,144

 
22,897

Total debt securities available for sale
$
1,497,002

 
$
26,259

 
$
871,008

 
$
46,434

 
$
2,368,010

 
$
72,693

 
 
 
 
 
 
 
 
 
 
 
 
Debt securities held to maturity:
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government sponsored enterprises and federal agencies
$
120,860

 
$
1,151

 
$
21,910

 
$
1,170

 
$
142,770

 
$
2,321

Total debt securities held to maturity
$
120,860

 
$
1,151

 
$
21,910

 
$
1,170

 
$
142,770

 
$
2,321

 
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


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 September 30, 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
$

 
$

 
$
6

 
$
6

Due in 1-5 years
68,368

 
67,737

 
15,178

 
15,312

Due in 5-10 years
692,272

 
673,804

 
514,336

 
517,867

Due after 10 years
1,691,556

 
1,638,005

 
1,188,834

 
1,175,833

Total debt securities available for sale
$
2,452,196

 
$
2,379,546

 
$
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
431

 
435

 
400

 
400

Due after 10 years
150,050

 
147,829

 
158,776

 
162,826

Total debt securities held to maturity
$
152,881

 
$
150,664

 
$
161,576

 
$
165,626



10

Table of Contents



Interest income attributable to debt securities available for sale was as follows:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Taxable interest income
$
10,511

 
$
4,619

 
$
24,487

 
$
13,707

Tax-exempt interest income
4,327

 
3,867

 
12,990

 
10,811

Total interest income
$
14,838

 
$
8,486

 
$
37,477

 
$
24,518


Note 5Loans and Leases

Loans and leases were as follows:
(In thousands)
At September 30, 2018
 
At December 31, 2017
Consumer real estate:
 

 
 

First mortgage lien
$
1,960,756

 
$
1,959,387

Junior lien
2,940,701

 
2,860,309

Total consumer real estate
4,901,457

 
4,819,696

Commercial:
 

 
 

Commercial real estate:
 

 
 

Permanent
2,362,045

 
2,385,752

Construction and development
411,610

 
365,533

Total commercial real estate
2,773,655

 
2,751,285

Commercial business
967,509

 
809,908

Total commercial
3,741,164

 
3,561,193

Leasing and equipment finance
4,601,887

 
4,761,661

Inventory finance
2,880,404

 
2,739,754

Auto finance
2,275,134

 
3,199,639

Other
21,107

 
22,517

Total loans and leases(1)
$
18,421,153

 
$
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 $9.0 million and $33.3 million at September 30, 2018 and December 31, 2017, respectively.
 
Loan Sales During the third quarter and first nine months of 2018, TCF sold $328.0 million and $775.9 million, respectively, of consumer real estate loans, received cash of $346.5 million and $807.5 million, respectively, and recognized net gains of $8.8 million and $25.1 million, respectively. During the third quarter and first nine months of 2017, TCF sold $291.0 million and $943.8 million, respectively, of consumer real estate loans, received cash of $305.3 million and $987.8 million, respectively, and recognized net gains of $8.0 million and $25.9 million, respectively. Related to these sales, TCF retained no interest-only strips during the third quarter of 2018 and retained interest-only strips of $3.8 million during the first nine months of 2018. TCF retained interest-only strips of $0.5 million and $2.5 million during the third quarter and first nine months of 2017, respectively. Included in consumer real estate loans sold in the third quarter and first nine months of 2018 were $34.7 million of non-accrual loans, which were sold servicing released, and $21.8 million and $71.2 million for the same periods in 2017. TCF generally retains servicing on loans sold.

During the third quarter and first nine months of 2018 and the third quarter of 2017, TCF did not sell any auto finance loans. TCF sold $298.6 million of auto finance loans during the first nine months of 2017, received cash of $303.3 million and recognized net gains of $3.2 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 at September 30, 2018 or December 31, 2017, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities based on the amount demanded by the marketplace.



11

Table of Contents



Total interest-only strips and the contractual liabilities related to loan sales were as follows:
(In thousands)
At September 30, 2018
 
At December 31, 2017
Interest-only strips attributable to:
 
 
 
Consumer real estate loan sales
$
15,619

 
$
16,440

Auto finance loan sales
2,093

 
4,946

Total interest-only strips
$
17,712

 
$
21,386

Contractual liabilities attributable to:
 
 
 
Consumer real estate loan sales
$
1,540

 
$
1,234


TCF recorded no impairment charges on the consumer real estate interest-only strips in the third quarter of 2018 and
2017 and $268 thousand and $875 thousand in the first nine months of 2018 and 2017, respectively. TCF recorded $45 thousand and $235 thousand of impairment charges on the auto finance interest-only strips in the third quarter of 2018 and 2017, respectively, and $393 thousand and $400 thousand in the first nine months of 2018 and 2017, respectively.
 
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 September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
43,954

 
$
40,291

 
$
22,247

 
$
11,840

 
$
46,608

 
$
679

 
$
165,619

Charge-offs
(1,519
)
 
(18
)
 
(2,608
)
 
(880
)
 
(12,460
)
 
(1,963
)
 
(19,448
)
Recoveries
7,949

 
26

 
678

 
243

 
2,975

 
787

 
12,658

Net (charge-offs) recoveries
6,430

 
8

 
(1,930
)
 
(637
)
 
(9,485
)
 
(1,176
)
 
(6,790
)
Provision for credit losses
(4,827
)
 
171

 
2,822

 
124

 
2,729

 
1,251

 
2,270

Other
(299
)
 

 
(213
)
 
34

 

 

 
(478
)
Balance, end of period
$
45,258

 
$
40,470

 
$
22,926

 
$
11,361

 
$
39,852

 
$
754

 
$
160,621

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Quarter Ended September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
52,408

 
$
34,669

 
$
21,922

 
$
12,129

 
$
43,893

 
$
599

 
$
165,620

Charge-offs
(2,940
)
 

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

 
196

 
358

 
281

 
1,780

 
840

 
9,847

Net (charge-offs) recoveries
3,452

 
196

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

 
1,967

 
240

 
15,437

 
1,091

 
14,545

Other
(2,353
)
 

 
(72
)
 
78

 
(1,422
)
 

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

 
$
36,344

 
$
22,771

 
$
11,978

 
$
48,660

 
$
653

 
$
168,244




12

Table of Contents



(In thousands)
Consumer
Real Estate
 
Commercial
 
Leasing and
Equipment
Finance
 
Inventory
Finance
 
Auto
Finance
 
Other
 
Total
At or For the Nine Months Ended September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
47,168

 
$
37,195

 
$
22,528

 
$
13,233

 
$
50,225

 
$
692

 
$
171,041

Charge-offs
(5,729
)
 
(22
)
 
(7,257
)
 
(2,102
)
 
(36,996
)
 
(5,395
)
 
(57,501
)
Recoveries
10,264

 
71

 
1,881

 
539

 
8,339

 
2,696

 
23,790

Net (charge-offs) recoveries
4,535

 
49

 
(5,376
)
 
(1,563
)
 
(28,657
)
 
(2,699
)
 
(33,711
)
Provision for credit losses
(2,173
)
 
3,226

 
6,000

 
(224
)
 
18,284

 
2,761

 
27,874

Other
(4,272
)
 

 
(226
)
 
(85
)
 

 

 
(4,583
)
Balance, end of period
$
45,258

 
$
40,470

 
$
22,926

 
$
11,361

 
$
39,852

 
$
754

 
$
160,621

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Nine Months Ended September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
59,448

 
$
32,695

 
$
21,350

 
$
13,932

 
$
32,310

 
$
534

 
$
160,269

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

 
455

 
1,718

 
675

 
4,680

 
2,761

 
29,072

Net (charge-offs) recoveries
9,578

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

 
5,520

 
(903
)
 
44,141

 
2,354

 
46,184

Other
(7,635
)
 

 
(123
)
 
130

 
(4,426
)
 

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

 
$
36,344

 
$
22,771

 
$
11,978

 
$
48,660

 
$
653

 
$
168,244


The allowance for loan and lease losses and loans and leases outstanding by type of allowance methodology were as follows:
 
At September 30, 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
$
22,274

 
$
38,843

 
$
19,021

 
$
10,850

 
$
39,729

 
$
754

 
$
131,471

Individually evaluated for impairment
22,984

 
1,627

 
3,905

 
511

 
123

 

 
29,150

Total
$
45,258

 
$
40,470

 
$
22,926

 
$
11,361

 
$
39,852

 
$
754

 
$
160,621

Loans and leases outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
4,785,131

 
$
3,710,229

 
$
4,574,620

 
$
2,878,764

 
$
2,262,966

 
$
21,105

 
$
18,232,815

Individually evaluated for impairment
116,326

 
30,935

 
22,464

 
1,640

 
12,168

 
2

 
183,535

Loans acquired with deteriorated credit quality

 

 
4,803

 

 

 

 
4,803

Total
$
4,901,457

 
$
3,741,164

 
$
4,601,887

 
$
2,880,404

 
$
2,275,134

 
$
21,107

 
$
18,421,153

 
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: