Company Quick10K Filing
Quick10K
TCF Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$22.19 164 $3,640
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-24 Regulation FD, Exhibits
8-K 2019-04-22 Earnings, Regulation FD, Exhibits
8-K 2019-02-15 Officers, Exhibits
8-K 2019-02-01 Officers
8-K 2019-01-28 Earnings, Regulation FD, Exhibits
8-K 2019-01-27 Enter Agreement, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-01-27 Other Events, Exhibits
8-K 2019-01-27 Other Events, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-10-22 Earnings, Regulation FD, Exhibits
8-K 2018-08-07 Regulation FD, Exhibits
8-K 2018-07-27 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-07-20 Other Events, Exhibits
8-K 2018-04-24 Regulation FD, Exhibits
8-K 2018-04-23 Officers, Shareholder Vote, Exhibits
8-K 2018-03-05 Officers
8-K 2018-03-01 Officers, Amend Bylaw, Other Events, Exhibits
8-K 2018-02-07 Regulation FD, Exhibits
8-K 2018-01-30 Earnings, Regulation FD, Other Events, Exhibits
ATRA Atara Biotherapeutics 1,650
BLDR Builders Firstsource 1,620
STNL Sentinel Energy Services 433
ISTR Investar Holding 232
VJET Voxeljet Ag 50
PRLX Parallax Health Sciences 0
STCB Starco Brands 0
ACAN Americann 0
AMPG Amplitech Group 0
AITB AIT Therapeutics 0
TCF 2018-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1. Basis of Presentation
Note 2. Summary of Significant Accounting Policies
Note 3. Cash and Due From Banks
Note 4. Investments
Note 5. Debt Securities Available for Sale and Debt Securities Held To Maturity
Note 6. Loans and Leases
Note 7. Allowance for Loan and Lease Losses and Credit Quality Information
Note 8. Premises and Equipment, Net
Note 9. Goodwill and Other Intangible Assets
Note 10. Investments in Affordable Housing Limited Liability Entities
Note 11. Deposits
Note 12. Short-Term Borrowings
Note 13. Long-Term Borrowings
Note 14. Income Taxes
Note 15. Equity
Note 16. Regulatory Capital Requirements
Note 17. Stock Compensation
Note 18. Employee Benefit Plans
Note 19. Financial Instruments with Off-Balance Sheet Risk
Note 20. Derivative Instruments
Note 21. Fair Value Disclosures
Note 22. Earnings per Common Share
Note 23. Other Non-Interest Expense
Note 24. Business Segments
Note 25. Parent Company Financial Information
Note 26. Litigation Contingencies
Note 27. Accumulated Other Comprehensive Income (Loss)
Note 28. Pending Merger with Chemical Financial Corporation
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
EX-10.(A)-6 ex-10ax612311810k.htm
EX-10.(A)-7 ex-10ax712311810k.htm
EX-21 ex-2112311810k.htm
EX-23 ex-2312311810k.htm
EX-31.1 ex-31112311810k.htm
EX-31.2 ex-31212311810k.htm
EX-32.1 ex-32112311810k.htm
EX-32.2 ex-32212311810k.htm

TCF Financial Earnings 2018-12-31

TCF 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 tcffinancial12311810-k.htm 10-K Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018 
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
 Commission File No. 001-10253
 
TCF Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware
41-1591444
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 Lake Street East
Wayzata, Minnesota 55391-1693
(Address and Zip Code of principal executive offices)
(952) 745-2760
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
(Name of each exchange on which registered)
Common Stock (par value $.01 per share)
New York Stock Exchange
Depositary shares, each representing a 1/1000th interest in a share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes þ    No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ¨    No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes þ    No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
 
Non-accelerated filer ¨ 
Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter as reported by the New York Stock Exchange, was $3,817,422,395.
As of February 19, 2019, there were 163,980,779 shares outstanding of the registrant's common stock, par value $.01 per share, its only outstanding class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Specific portions of the Registrant's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to be held on April 24, 2019 are incorporated by reference into Part III hereof.



TABLE OF CONTENTS
 
Description
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I

Item 1. Business

General

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

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

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

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

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

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


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Consumer Banking

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

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

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

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

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

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

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

Wholesale Banking

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

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



2


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

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

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

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

Enterprise Services

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

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

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


3


Other Information

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

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

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

Regulation

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

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


4


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

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

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

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

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

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


5


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

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

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

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

Taxation 

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

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

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



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

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

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

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

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

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

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



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

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

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

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



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

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

Risks related to TCF's proposed merger with Chemical

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

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

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

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



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

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

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

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

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

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

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

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

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

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



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

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

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

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

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



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

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

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

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

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

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

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



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

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

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

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

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

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



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

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

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

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

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

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

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

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

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



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

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

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

When loans are sold or securitized, it is customary to make representations, warranties and covenants to the purchaser or investors about the loans, including the manner in which they were originated and will be serviced. These agreements generally require the repurchase of loans or indemnification in the event TCF breaches these representations, warranties or covenants and such breaches are not cured. In addition, some agreements contain a requirement to repurchase loans as a result of early payoffs by the borrower, early payment default of the borrower or the failure to obtain valid title. TCF has not been obligated to make significant repurchases of sold loans in the past. A material increase in the amount of loans repurchased could have a material adverse effect on TCF's financial condition and results of operations.

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

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

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



15


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

Significant legal actions could subject TCF to substantial uninsured liabilities.

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

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

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

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

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


16


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

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

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

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

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

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

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

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


17


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

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

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

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

TCF's internal controls may be ineffective.

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

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

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

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

Item 1B. Unresolved Staff Comments

None.



18


Item 2. Properties

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

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

Item 4. Mine Safety Disclosures
 
Not applicable.



19


Part II

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

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

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




20


Total Return Performance

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

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

 
$
99.03

 
$
89.27

 
$
126.70

 
$
135.01

 
$
131.65

KBW NASDAQ Regional Banking Index
100.00

 
102.42

 
108.48

 
150.80

 
153.45

 
126.59

S&P 500 Index
100.00

 
113.69

 
115.26

 
129.05

 
157.22

 
150.33

Source: S&P Global Market Intelligence



21


Repurchases of TCF Stock

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

 
 

 
 

 
 

Share repurchase program(1)

 
$

 

 
$
141,025,633

Employee transactions(2)
12,698

 
23.78

 
N.A.

 
N.A.

November 1 to November 30, 2018
 

 
 

 
 

 
 

Share repurchase program(1)
1,860,210

 
$
22.01

 
1,860,210

 
$
100,079,548

Employee transactions(2)

 

 
N.A.

 
N.A.

December 1 to December 31, 2018
 

 
 

 
 

 
 

Share repurchase program(1)
1,040,000

 
$
21.18

 
1,040,000

 
$
78,052,490

Employee transactions(2)

 

 
N.A.

 
N.A.

Total
 

 
 

 
 

 
 

Share repurchase program(1)
2,900,210

 
$
21.71

 
2,900,210

 
$
78,052,490

Employee transactions(2)
12,698

 
23.78

 
N.A.

 
N.A.

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



22


Item 6. Selected Financial Data

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

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

 
$
925,238

 
$
848,106

 
$
820,388

 
$
815,629

Non-interest income
470,885

 
448,299

 
465,900

 
441,998

 
433,267

Total revenue
1,462,892

 
1,373,537

 
1,314,006

 
1,262,386

 
1,248,896

Provision for credit losses
46,768

 
68,443

 
65,874

 
52,944

 
95,737

Non-interest expense
1,014,400

 
1,059,934

 
909,887

 
894,747

 
871,777

Income before income tax expense (benefit)
401,724

 
245,160

 
338,245

 
314,695

 
281,382

Income tax expense (benefit)
86,096

 
(33,624
)
 
116,528

 
108,872

 
99,766

Income attributable to non-controlling interest
11,270

 
10,147

 
9,593

 
8,700

 
7,429

Net income attributable to TCF Financial Corporation
304,358

 
268,637

 
212,124

 
197,123

 
174,187

Preferred stock dividends
11,588

 
19,904

 
19,388

 
19,388

 
19,388

Impact of preferred stock redemption
3,481

 
5,779

 

 

 

Net income available to common stockholders
$
289,289

 
$
242,954

 
$
192,736

 
$
177,735

 
$
154,799

Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
1.75

 
$
1.44

 
$
1.15

 
$
1.07

 
$
0.95

Diluted
1.74

 
1.44

 
1.15

 
1.07

 
0.94

Dividends declared
0.60

 
0.30

 
0.30

 
0.225

 
0.20

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

 
$
19,104,460

 
$
17,843,827

 
$
17,435,999

 
$
16,401,646

Total assets
23,699,612

 
23,002,159

 
21,441,326

 
20,689,609

 
19,393,656

Deposits
18,903,686

 
18,335,002

 
17,242,522

 
16,719,989

 
15,449,882

Borrowings
1,449,472

 
1,249,449

 
1,077,572

 
1,039,938

 
1,235,535

Total equity
2,556,260

 
2,680,584

 
2,444,645

 
2,306,917

 
2,135,364

Book value per common share
14.45

 
13.96

 
12.66

 
11.94

 
11.10

Tangible book value per common share(1)
13.38

 
12.92

 
11.33

 
10.59

 
9.72

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

 
10.80

 
9.13

 
9.19

 
8.71

Adjusted return on average common equity(1)
13.51

 
10.80

 
9.13

 
9.19

 
8.71

Return on average tangible common equity(1)
13.56

 
15.73

 
10.29

 
10.48

 
10.08

Adjusted return on average tangible common equity(1)
14.74

 
15.73

 
10.29

 
10.48

 
10.08

Net interest margin(2)
4.63

 
4.54

 
4.34

 
4.42

 
4.61

Common equity to assets
9.99

 
10.42

 
10.09

 
9.80

 
9.58

Dividend payout ratio
34.48

 
20.83

 
26.09

 
21.03

 
21.28

Efficiency ratio
69.34

 
77.17

 
69.25

 
70.88

 
69.80

Adjusted efficiency ratio(1)
67.15

 
77.17

 
69.25

 
70.88

 
69.80

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

 
0.72

 
1.28

 
1.43

 
1.71

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

 
0.90

 
0.90

 
0.90

 
1.00

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

 
0.24

 
0.26

 
0.30

 
0.49

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


23


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

Table of Contents

 


24


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

Overview

TCF Financial Corporation (together with its direct and indirect subsidiaries, "we," "us," "our," "TCF" or the "Company"), a Delaware corporation, is a national bank holding company based in Wayzata, Minnesota. References herein to "TCF Financial" or the "Holding Company" refer to TCF Financial Corporation on an unconsolidated basis. Its principal subsidiary, TCF National Bank ("TCF Bank"), is headquartered in Sioux Falls, South Dakota. At December 31, 2018, TCF Bank operated 314 bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota (TCF's "primary banking markets"). Through its direct subsidiaries, TCF Bank provides a full range of consumer-facing and commercial services, including consumer banking services in 47 states, commercial banking services in 42 states, commercial leasing and equipment financing in all 50 states and, to a limited extent, in foreign countries and commercial inventory financing in all 50 states and Canada and, to a limited extent, in other foreign countries.

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

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

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

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



25


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

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

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

Results of Operations

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

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



26


Consolidated Income Statement Analysis

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

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


27


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

 
$
11,964

 
3.74
%
 
$
282,507

 
$
10,491

 
3.71
%
 
$
36,965

 
$
1,473

 
3

Debt securities held to maturity
154,619

 
3,970

 
2.57

 
170,006

 
4,436

 
2.61

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


 
 
 


Taxable
1,390,016

 
37,436

 
2.69

 
823,526

 
18,382

 
2.23

 
566,490

 
19,054

 
46

Tax-exempt(2)
815,540

 
21,694

 
2.66

 
712,530

 
22,916

 
3.22

 
103,010

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

 
6,619

 
6.41

 
208,678

 
16,606

 
7.96

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


Consumer real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed-rate
1,790,069

 
97,850

 
5.47

 
1,934,395

 
109,185

 
5.64

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

 
196,291

 
6.48

 
2,961,449

 
171,671

 
5.80

 
65,581

 
24,620

 
68

Total consumer real estate
4,817,099

 
294,141

 
6.11

 
4,895,844

 
280,856

 
5.74

 
(78,745
)
 
13,285

 
37

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed-rate
875,551

 
39,789

 
4.54

 
977,698

 
47,587

 
4.87

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

 
153,068

 
5.40

 
2,455,578

 
111,886

 
4.56

 
376,893

 
41,182

 
84

Total commercial
3,708,022

 
192,857

 
5.20

 
3,433,276

 
159,473

 
4.64

 
274,746

 
33,384

 
56

Leasing and equipment finance
4,642,811

 
230,418

 
4.96

 
4,399,138

 
202,508

 
4.60

 
243,673

 
27,910

 
36

Inventory finance
3,079,059

 
214,262

 
6.96

 
2,646,500

 
164,386

 
6.21

 
432,559

 
49,876

 
75

Auto finance
2,565,668

 
136,692

 
5.33

 
3,105,326

 
152,974

 
4.93

 
(539,658
)
 
(16,282
)
 
40

Other
13,603

 
579

 
4.26

 
11,149

 
571

 
5.11

 
2,454

 
8

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

 
1,068,949

 
5.68

 
18,491,233

 
960,768

 
5.20

 
335,029

 
108,181

 
48

Total interest-earning assets
21,609,149

 
1,150,632

 
5.32

 
20,688,480

 
1,033,599

 
5.00

 
920,669

 
117,033

 
32

Other assets(4)
1,452,999

 
 
 
 
 
1,363,487

 
 
 
 
 
89,512

 


 


Total assets
$
23,062,148

 
 
 
 
 
$
22,051,967

 
 
 
 
 
$
1,010,181

 


 


Liabilities and Equity:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Non-interest bearing deposits
$
3,843,494

 
 
 
 
 
$
3,492,233

 
 
 
 
 
$
351,261

 


 


Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Checking
2,438,040

 
714

 
0.03

 
2,541,407

 
379

 
0.01

 
(103,367
)
 
335

 
2

Savings
5,621,723

 
20,009

 
0.36

 
4,888,280

 
4,255

 
0.09

 
733,443

 
15,754

 
27

Money market
1,553,255

 
11,582

 
0.75

 
2,140,553

 
10,139

 
0.47

 
(587,298
)
 
1,443

 
28

Certificates of deposit
4,897,937

 
74,808

 
1.53

 
4,495,062

 
51,239

 
1.14

 
402,875

 
23,569

 
39

Total interest-bearing deposits
14,510,955

 
107,113

 
0.74

 
14,065,302

 
66,012

 
0.47

 
445,653

 
41,101

 
27

Total deposits
18,354,449

 
107,113

 
0.58

 
17,557,535

 
66,012

 
0.38

 
796,914

 
41,101

 
20

Borrowings:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 


Short-term borrowings
3,288

 
77

 
2.35

 
5,267

 
58

 
1.10

 
(1,979
)
 
19

 
125

Long-term borrowings
1,412,186

 
43,067

 
3.05

 
1,239,433

 
27,749

 
2.24

 
172,753

 
15,318

 
81

Total borrowings
1,415,474

 
43,144

 
3.05

 
1,244,700

 
27,807

 
2.23

 
170,774

 
15,337

 
82

Total interest-bearing liabilities
15,926,429

 
150,257

 
0.94

 
15,310,002

 
93,819

 
0.61

 
616,427

 
56,438

 
33

Total deposits and borrowings
19,769,923

 
150,257

 
0.76

 
18,802,235

 
93,819

 
0.50

 
967,688

 
56,438

 
26

Accrued expenses and other liabilities
761,723

 
 
 
 
 
713,794

 
 
 
 
 
47,929

 
 
 
 
Total liabilities
20,531,646

 
 
 
 
 
19,516,029

 
 
 
 
 
1,015,617

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

 
 
 
 
 
2,513,424

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

 
 
 
 
 
22,514

 
 
 
 
 
1,809

 
 
 
 
Total equity
2,530,502

 
 
 
 
 
2,535,938

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

 
 
 
 
 
$
22,051,967

 
 
 
 
 
$
1,010,181

 
 
 
 
Net interest income and margin
 
 
$
1,000,375

 
4.63

 
 
 
$
939,780

 
4.54

 


 
$
60,595

 
9

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


28


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

 
$
10,491

 
3.71
%
 
$
319,582

 
$
9,314

 
2.91
%
 
$
(37,075
)
 
$
1,177

 
80

Debt securities held to maturity
170,006

 
4,436

 
2.61

 
190,863

 
4,649

 
2.44

 
(20,857
)
 
(213
)
 
17

Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 


 


 


Taxable
823,526

 
18,382

 
2.23

 
719,743

 
16,238

 
2.26

 
103,783

 
2,144

 
(3
)
Tax-exempt(2)
712,530

 
22,916

 
3.22

 
495,708

 
15,900

 
3.21

 
216,822

 
7,016

 
1

Loans and leases held for sale
208,678

 
16,606

 
7.96

 
479,401

 
39,648

 
8.27

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

 
109,185

 
5.64

 
2,285,647

 
130,753

 
5.72

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

 
171,671

 
5.80

 
2,948,482

 
156,919

 
5.32

 
12,967

 
14,752

 
48

Total consumer real estate
4,895,844

 
280,856

 
5.74

 
5,234,129

 
287,672

 
5.50

 
(338,285
)
 
(6,816
)
 
24

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate
977,698

 
47,587

 
4.87

 
972,107

 
47,445

 
4.88

 
5,591

 
142

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

 
111,886

 
4.56

 
2,154,774

 
85,996

 
3.99

 
300,804

 
25,890

 
57

Total commercial
3,433,276

 
159,473

 
4.64

 
3,126,881

 
133,441

 
4.27

 
306,395

 
26,032

 
37

Leasing and equipment finance
4,399,138

 
202,508

 
4.60

 
4,106,718

 
183,029

 
4.46

 
292,420

 
19,479

 
14

Inventory finance
2,646,500

 
164,386

 
6.21

 
2,414,684

 
140,453

 
5.82

 
231,816

 
23,933

 
39

Auto finance
3,105,326

 
152,974

 
4.93

 
2,693,041

 
110,651

 
4.11

 
412,285

 
42,323

 
82

Other
11,149

 
571

 
5.11

 
9,538

 
548

 
5.74

 
1,611

 
23

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

 
960,768

 
5.20

 
17,584,991

 
855,794

 
4.87

 
906,242

 
104,974

 
33

Total interest-earning assets
20,688,480

 
1,033,599

 
5.00

 
19,790,288

 
941,543

 
4.76

 
898,192

 
92,056

 
24

Other assets(4)
1,363,487

 
 
 
 
 
1,285,127

 
 
 
 
 
78,360

 
 
 
 
Total assets
$
22,051,967

 
 
 
 
 
$
21,075,415

 
 
 
 
 
$
976,552

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

 
 
 
 
 
$
3,248,510

 
 
 
 
 
$
243,723

 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking
2,541,407

 
379

 
0.01

 
2,452,206

 
346

 
0.01

 
89,201

 
33

 

Savings
4,888,280

 
4,255

 
0.09

 
4,677,517

 
1,510

 
0.03

 
210,763

 
2,745

 
6

Money market
2,140,553

 
10,139

 
0.47

 
2,488,977

 
15,114

 
0.61

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

 
51,239

 
1.14

 
4,229,247

 
44,818

 
1.06

 
265,815

 
6,421

 
8

Total interest-bearing deposits
14,065,302

 
66,012

 
0.47

 
13,847,947

 
61,788

 
0.45

 
217,355

 
4,224

 
2

Total deposits
17,557,535

 
66,012

 
0.38

 
17,096,457

 
61,788

 
0.36

 
461,078

 
4,224

 
2

Borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
5,267

 
58

 
1.10

 
7,051

 
51

 
0.73

 
(1,784
)
 
7

 
37

Long-term borrowings
1,239,433

 
27,749

 
2.24

 
890,846

 
20,785

 
2.33

 
348,587

 
6,964

 
(9
)
Total borrowings
1,244,700

 
27,807

 
2.23

 
897,897

 
20,836

 
2.32

 
346,803

 
6,971

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

 
93,819

 
0.61

 
14,745,844

 
82,624

 
0.56

 
564,158

 
11,195

 
5

Total deposits and borrowings
18,802,235

 
93,819

 
0.50

 
17,994,354

 
82,624

 
0.46

 
807,881

 
11,195

 
4

Accrued expenses and other liabilities
713,794

 
 
 
 
 
686,360

 
 
 
 
 
27,434

 
 
 
 
Total liabilities
19,516,029

 
 
 
 
 
18,680,714

 
 
 
 
 
835,315

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

 
 
 
 
 
2,373,176

 
 
 
 
 
140,248

 
 
 
 
Non-controlling interest in subsidiaries
22,514

 
 
 
 
 
21,525

 
 
 
 
 
989

 
 
 
 
Total equity
2,535,938

 
 
 
 
 
2,394,701

 
 
 
 
 
141,237

 
 
 
 
Total liabilities and equity
$
22,051,967

 
 
 
 
 
$
21,075,415

 
 
 
 
 
$
976,552

 
 
 
 
Net interest income and margin
 
 
$
939,780

 
4.54

 
 
 
$
858,919

 
4.34

 
 
 
$
80,861

 
20

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


29


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

 
$
89

 
$
1,473

 
$
(1,166
)
 
$
2,343

 
$
1,177

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

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

 
4,164

 
19,054

 
2,318

 
(174
)
 
2,144

Tax-exempt
3,052

 
(4,274
)
 
(1,222
)
 
6,974

 
42

 
7,016

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

 
20,747

 
24,620

 
715

 
14,037